##### 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 SEPTEMBER 30, 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                                                                      |  | 13-3398766                              
|(State or other jurisdiction of
    incorporation or organization)            |  | (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


o þ












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INDEX


|                                   |  |                                                                                                                             |  |          |    | 
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                   |  |                                                                                                                             |  | Page No. |   
|                                   |  |                                                                                                                             |  |          |   
|Part I.  FINANCIAL
    INFORMATION |  |                                                                                                                             |  |         
|Item 1.                            |  | Financial Statements                                                                                                        |  |          |    | 
|                                   |  | Consolidated Balance Sheets
    September 30, 2005 and December 31, 2004                                                    |  |          | 3  | 
|                                   |  | Consolidated Statements of Earnings Three
    Months Ended September 30, 2005 and 2004                                      |  |          | 4  | 
|                                   |  | Consolidated Statements of Earnings Nine
    Months Ended September 30, 2005 and 2004                                       |  |          | 5  | 
|                                   |  | Consolidated Statement of Changes In
    Partners Equity and Comprehensive Income Nine Months Ended
    September 30, 2005 |  |          | 6  | 
|                                   |  | Consolidated Statements of Cash Flows Nine
    Months Ended September 30, 2005 and 2004                                     |  |          | 7  | 
|                                   |  | Notes to Consolidated Financial
    Statements                                                                              |  |          | 9  | 
|Item 2.                            |  | Managements Discussion and
    Analysis of Financial Condition and Results of Operations                                   |  |          | 43 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                              |  |          | 62 | 
|Item 4.                            |  | Controls and Procedures                                                                                                     |  |          | 63 | 
|Part II.  OTHER
    INFORMATION    |  |                                                                                                                             |  |         
|Item 1.                            |  | Legal Proceedings                                                                                                           |  |          | 64 | 
|Item 6.                            |  | Exhibits                                                                                                                    |  |          | 64 | 
|EX-31.1: CERTIFICATION            
|EX-31.2: CERTIFICATION            
|EX-32.1: CERTIFICATION            
|EX-32.2: CERTIFICATION            



2



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005





Part I.     Financial
Information







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




CONSOLIDATED BALANCE SHEETS


|                                                     |                                                                                                                                                                                           |                                          |           |            |              |  |           |           |           | 
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | --------- | ---------- | ------------ |  | --------- | --------- | --------- | 
|                                                     |                                                                                                                                                                                           | September 30,                            |           |            | December 31, | 
|                                                     |                                                                                                                                                                                           | 2005                                     |           |            | 2004         | 
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | (In $000s)                               |          
|                                                     |                                                                                                                                                                                           | (Unaudited)                              |          
|                                                     |                                                                                                                                                                                           |                                          |           | (Restated) |             
|ASSETS                                              
|Current assets:                                      |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|                                                     | Cash and cash equivalents                                                                                                                                                                 |                                          | $         | 443,322    |              |  | $         | 806,309   |          
|                                                     | Investments                                                                                                                                                                               |                                          |           | 694,636    |              |  |           | 99,088    |          
|                                                     | Inventories, net                                                                                                                                                                          |                                          |           | 256,900    |              |  |           |          |          
|                                                     | Trade, notes and other receivables, net                                                                                                                                                   |                                          |           | 302,139    |              |  |           | 105,490   |          
|                                                     | Other current assets                                                                                                                                                                      |                                          |           | 287,090    |              |  |           | 209,414   |          
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | Total current assets                     |           |            | 1,984,087    |  |           |           | 1,220,301 | 
|Property, plant and equipment, net:                  |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|                                                     | Home fashion                                                                                                                                                                              |                                          |           | 205,127    |              |  |           |          |          
|                                                     | Gaming                                                                                                                                                                                    |                                          |           | 441,570    |              |  |           | 445,400   |          
|                                                     | Oil and gas                                                                                                                                                                               |                                          |           | 632,673    |              |  |           | 527,384   |          
|                                                     | Real estate                                                                                                                                                                               |                                          |           | 282,076    |              |  |           | 291,068   |          
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | Total property, plant and equipment, net |           |            | 1,561,446    |  |           |           | 1,263,852 | 
|Investments                                          |                                                                                                                                                                                           |                                          | 15,738    |            |              |  | 251,439   |          
|Intangible assets                                    |                                                                                                                                                                                           |                                          | 24,400    |            |              |  |          |          
|Other assets                                         |                                                                                                                                                                                           |                                          | 109,302   |            |              |  | 125,561   |          
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | Total assets                             |           | $          | 3,694,973    |  |           | $         | 2,861,153 | 
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|LIABILITIES AND PARTNERS EQUITY                    
|Current liabilities:                                 |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|                                                     | Accounts payable and accrued expenses                                                                                                                                                     |                                          | $         | 393,469    |              |  | $         | 151,657   |          
|                                                     | Current portion of long-term debt                                                                                                                                                         |                                          |           | 21,797     |              |  |           | 76,679    |          
|                                                     | Securities sold not yet purchased                                                                                                                                                         |                                          |           | 90,874     |              |  |           | 90,674    |          
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | Total current liabilities                |           |            | 506,140      |  |           |           | 319,010   | 
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|Long-term debt                                       |                                                                                                                                                                                           |                                          | 1,226,785 |            |              |  | 683,128   |          
|Other non-current liabilities and minority interests |                                                                                                                                                                                           |                                          | 416,725   |            |              |  | 110,529   |          
|Preferred limited partnership units:                 |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|                                                     | $10 liquidation preference, 5% cumulative pay-in-kind;
    10,900,000 authorized; 10,800,577 and 10,286,264 issued and
    outstanding as of September 30, 2005 and December 31,
    2004 |                                          |           | 110,717    |              |  |           | 106,731   |          
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | Total long-term liabilities              |           |            | 1,754,227    |  |           |           | 900,388   | 
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|Commitments and contingencies (Note 21)              |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|Limited partners:                                    |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|                                                     | Depositary units; 67,850,000 authorized; 62,994,030 and
    47,235,484 issued and outstanding as of September 30, 2005
    and December 31, 2004 respectively                             |                                          |           | 1,658,499  |              |  |           | 1,301,625 |          
|General partner                                      |                                                                                                                                                                                           |                                          | (211,972  | )          |              |  | 352,051   |          
|Treasury units at cost:                              |                                                                                                                                                                                           |                                          |           |            |              |  |           |          
|                                                     | 1,137,200 depositary units                                                                                                                                                                |                                          |           | (11,921    | )            |  |           | (11,921   | )        
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|Partners equity                                     |                                                                                                                                                                                           |                                          | 1,434,606 |            |              |  | 1,641,755 |          
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 
|                                                     |                                                                                                                                                                                           | Total liabilities and partners equity   |           | $          | 3,694,973    |  |           | $         | 2,861,153 | 
|                                                     |                                                                                                                                                                                           |                                          |           |            |              | 



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF EARNINGS


|                                                                           |                                                     |                                  |            |            |      |   |            |         |  
|-------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------- | ---------- | ---------- | ---- | - | ---------- | ------- | -
|                                                                           |                                                     | Three Months Ended               |           
|                                                                           |                                                     | September 30,                    |           
|                                                                           |                                                     |                                  |           
|                                                                           |                                                     | 2005                             |            |            | 2004 |  
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           |                                                     | (In $000s, except per unit data) |           
|                                                                           |                                                     | (Unaudited)                      |           
|                                                                           |                                                     |                                  |            | (Restated) |     
|Revenues:                                                                  |                                                     |                                  |            |            |      |   |            |        
|                                                                           | Home fashion                                        |                                  | $          | 183,627    |      |   | $          |        |  
|                                                                           | Gaming                                              |                                  |            | 126,239    |      |   |            | 119,265 |  
|                                                                           | Oil and gas                                         |                                  |            | (2,362     | )    |   |            | 26,027  |  
|                                                                           | Real estate                                         |                                  |            | 24,258     |      |   |            | 14,207  |  
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           |                                                     |                                  | 331,762    |            |      |   | 159,499    |        
|                                                                           |                                                     |                                  |            |            |      |  
|Expenses:                                                                  |                                                     |                                  |            |            |      |   |            |        
|                                                                           | Home fashion                                        |                                  |            | 188,717    |      |   |            |        |  
|                                                                           | Gaming                                              |                                  |            | 114,420    |      |   |            | 108,135 |  
|                                                                           | Oil and gas                                         |                                  |            | 37,253     |      |   |            | 24,615  |  
|                                                                           | Real estate                                         |                                  |            | 18,360     |      |   |            | 10,865  |  
|                                                                           | Holding company                                     |                                  |            | 2,431      |      |   |            | 1,550   |  
|                                                                           | Acquisition costs                                   |                                  |            | 737        |      |   |            |        |  
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           |                                                     |                                  | 361,918    |            |      |   | 145,165    |        
|                                                                           |                                                     |                                  |            |            |      |  
|Operating income (loss)                                                    |                                                     |                                  | (30,156    | )          |      |   | 14,334     |        
|Other income (expense), net:                                               |                                                     |                                  |            |            |      |   |            |        
|                                                                           | Interest expense                                    |                                  |            | (27,420    | )    |   |            | (18,659 | )
|                                                                           | Interest income                                     |                                  |            | 10,871     |      |   |            | 18,464  |  
|                                                                           | Impairment loss from GB Holdings, Inc. bankruptcy   |                                  |            | (52,366    | )    |   |            |        |  
|                                                                           | Other income (expense), net                         |                                  |            | (20,224    | )    |   |            | 842     |  
|                                                                           |                                                     |                                  |            |            |      |  
|Income (loss) from continuing operations before income taxes               |                                                     |                                  | (119,295   | )          |      |   | 14,981     |        
|                                                                           | Income tax expense                                  |                                  |            | (6,558     | )    |   |            | (4,057  | )
|                                                                           |                                                     |                                  |            |            |      |  
|Income (loss) from continuing operations                                   |                                                     |                                  | (125,853   | )          |      |   | 10,924     |        
|                                                                           |                                                     |                                  |            |            |      |  
|Discontinued operations:                                                   |                                                     |                                  |            |            |      |   |            |        
|                                                                           | Income (loss) from discontinued operations          |                                  |            | (246       | )    |   |            | 975     |  
|                                                                           | Gain (loss) on sales and disposition of real estate |                                  |            | (6         | )    |   |            | 9,347   |  
|                                                                           |                                                     |                                  |            |            |      |  
|Income (loss) from discontinued operations                                 |                                                     |                                  | (252       | )          |      |   | 10,322     |        
|                                                                           |                                                     |                                  |            |            |      |  
|Net earnings (loss)                                                        |                                                     | $                                | (126,105   | )          |      | $ | 21,246     |        
|                                                                           |                                                     |                                  |            |            |      |  
|Net earnings (loss) attributable to (note 16)                              |                                                     |                                  |            |            |      |   |            |        
|                                                                           | Limited partners                                    |                                  | $          | (121,916   | )    |   | $          | 26,644  |  
|                                                                           | General partner                                     |                                  |            | (4,189     | )    |   |            | (5,398  | )
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           |                                                     | $                                | (126,105   | )          |      | $ | 21,246     |        
|                                                                           |                                                     |                                  |            |            |      |  
|Net earnings (loss) per LP unit:                                           |                                                     |                                  |            |            |      |   |            |        
|                                                                           | Basic earnings (loss):                              |                                  |            |            |      |   |            |         |  
|                                                                           | Income (loss) from continuing operations            |                                  | $          | (1.97      | )    |   | $          | 0.36    |  
|                                                                           | Income from discontinued operations                 |                                  |            |           |      |   |            | 0.22    |  
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           | Basic earnings (loss) per LP unit                   |                                  | $          | (1.97      | )    |   | $          | 0.58    |  
|                                                                           |                                                     |                                  |            |            |      |  
|Weighted average LP units outstanding:                                     |                                                     |                                  | 61,856,830 |            |      |   | 46,098,284 |        
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           | Diluted earnings (loss):                            |                                  |            |            |      |   |            |         |  
|                                                                           | Income (loss) from continuing operations            |                                  | $          | (1.97      | )    |   | $          | 0.35    |  
|                                                                           | Income from discontinued operations                 |                                  |            |           |      |   |            | 0.20    |  
|                                                                           |                                                     |                                  |            |            |      |  
|                                                                           | Diluted earnings (loss) per LP unit                 |                                  | $          | (1.97      | )    |   | $          | 0.55    |  
|                                                                           |                                                     |                                  |            |            |      |  
|Weighted average LP units and equivalent partnership units
    outstanding |                                                     |                                  | 61,856,830 |            |      |   | 51,138,907 |        
|                                                                           |                                                     |                                  |            |            |      |  



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF EARNINGS


|                                                                           |                                                   |                                          |            |            |         |   |            |         |         | 
|-------------------------------------------------------------------------- | ------------------------------------------------- | ---------------------------------------- | ---------- | ---------- | ------- | - | ---------- | ------- | ------- | 
|                                                                           |                                                   | Nine Months Ended                        |           
|                                                                           |                                                   | September 30,                            |           
|                                                                           |                                                   |                                          |           
|                                                                           |                                                   | 2005                                     |            |            | 2004    |  
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   | (In $000s, except per unit data)         |           
|                                                                           |                                                   | (Unaudited)                              |           
|                                                                           |                                                   |                                          |            | (Restated) |        
|Revenues:                                                                  |                                                   |                                          |            |            |         |   |            |        
|                                                                           | Home fashion                                      |                                          | $          | 183,627    |         |   | $          |        |        
|                                                                           | Gaming                                            |                                          |            | 371,474    |         |   |            | 352,979 |        
|                                                                           | Oil and gas                                       |                                          |            | 86,709     |         |   |            | 89,034  |        
|                                                                           | Real estate                                       |                                          |            | 66,947     |         |   |            | 45,815  |        
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   |                                          | 708,757    |            |         |   | 487,828    |        
|                                                                           |                                                   |                                          |            |            |         |  
|Expenses:                                                                  |                                                   |                                          |            |            |         |   |            |        
|                                                                           | Home fashion                                      |                                          |            | 188,717    |         |   |            |        |        
|                                                                           | Gaming                                            |                                          |            | 324,214    |         |   |            | 313,129 |        
|                                                                           | Oil and gas                                       |                                          |            | 115,924    |         |   |            | 76,636  |        
|                                                                           | Real estate                                       |                                          |            | 54,201     |         |   |            | 30,618  |        
|                                                                           | Holding company                                   |                                          |            | 8,054      |         |   |            | 4,313   |        
|                                                                           | Acquisition costs                                 |                                          |            | 4,099      |         |   |            | 414     |        
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   |                                          | 695,209    |            |         |   | 425,110    |        
|                                                                           |                                                   |                                          |            |            |         |  
|Operating income                                                           |                                                   |                                          | 13,548     |            |         |   | 62,718     |        
|Other income (expense), net:                                               |                                                   |                                          |            |            |         |   |            |        
|                                                                           | Interest expense                                  |                                          |            | (78,874    | )       |   |            | (44,653 | )      
|                                                                           | Interest income                                   |                                          |            | 37,457     |         |   |            | 34,998  |        
|                                                                           | Impairment loss from GB Holdings, Inc. bankruptcy |                                          |            | (52,366    | )       |   |            |        |        
|                                                                           | Other income (expense), net                       |                                          |            | (12,218    | )       |   |            | 50,202  |        
|                                                                           |                                                   |                                          |            |            |         |  
|Income (loss) from continuing operations before income taxes               |                                                   |                                          | (92,453    | )          |         |   | 103,265    |        
|                                                                           | Income tax expense                                |                                          |            | (18,993    | )       |   |            | (14,232 | )      
|                                                                           |                                                   |                                          |            |            |         |  
|Income (loss) from continuing operations                                   |                                                   |                                          | (111,446   | )          |         |   | 89,033     |        
|Discontinued operations:                                                   |                                                   |                                          |            |            |         |   |            |        
|                                                                           | Income from discontinued operations               |                                          |            | 898        |         |   |            | 5,345   |        
|                                                                           | Gain on sales and disposition of real estate      |                                          |            | 21,361     |         |   |            | 64,533  |        
|                                                                           |                                                   |                                          |            |            |         |  
|Income from discontinued operations                                        |                                                   |                                          | 22,259     |            |         |   | 69,878     |        
|                                                                           |                                                   |                                          |            |            |         |  
|Net earnings (loss)                                                        |                                                   | $                                        | (89,187    | )          |         | $ | 158,911    |        
|                                                                           |                                                   |                                          |            |            |         |  
|Net earnings (loss) attributable to (note 16):                             |                                                   |                                          |            |            |         |   |            |        
|                                                                           |                                                   | Limited partners                         |            | $          | (86,878 | ) |            | $       | 157,274 | 
|                                                                           |                                                   | General partner                          |            |            | (2,309  | ) |            |         | 1,637   | 
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   | $                                        | (89,187    | )          |         | $ | 158,911    |        
|                                                                           |                                                   |                                          |            |            |         |  
|Net earnings (loss) per LP unit:                                           |                                                   |                                          |            |            |         |   |            |        
|                                                                           |                                                   | Basic earnings (loss):                   |            |            |         |   |            |         |         | 
|                                                                           |                                                   | Income (loss) from continuing operations |            | $          | (2.12   | ) |            | $       | 1.93    | 
|                                                                           |                                                   | Income from discontinued operations      |            |            | 0.42    |   |            |         | 1.49    | 
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   | Basic earnings (loss) per LP unit        |            | $          | (1.70   | ) |            | $       | 3.42    | 
|                                                                           |                                                   |                                          |            |            |         |  
|Weighted average LP units outstanding:                                     |                                                   |                                          | 51,351,133 |            |         |   | 46,098,284 |        
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   | Diluted earnings (loss):                 |            |            |         |   |            |         |         | 
|                                                                           |                                                   | Income (loss) from continuing operations |            | $          | (2.12   | ) |            | $       | 1.78    | 
|                                                                           |                                                   | Income from discontinued operations      |            |            | 0.42    |   |            |         | 1.32    | 
|                                                                           |                                                   |                                          |            |            |         |  
|                                                                           |                                                   | Diluted earnings (loss) per LP unit      |            | $          | (1.70   | ) |            | $       | 3.10    | 
|                                                                           |                                                   |                                          |            |            |         |  
|Weighted average LP units and equivalent partnership units
    outstanding |                                                   |                                          | 51,351,133 |            |         |   | 51,858,748 |        
|                                                                           |                                                   |                                          |            |            |         |  



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENT OF CHANGES


IN PARTNERS EQUITY AND COMPREHENSIVE INCOME


NINE MONTHS ENDED SEPTEMBER 30, 2005


|                                                       |                                                        |                              |          |        |                   |   |           |                  |   |   |           |   |  |        |       |   |  |   |           |         |  
|------------------------------------------------------ | ------------------------------------------------------ | ---------------------------- | -------- | ------ | ----------------- | - | --------- | ---------------- | - | - | --------- | - |  | ------ | ----- | - |  | - | --------- | ------- | -
|                                                       |                                                        | General                      |          |        | Limited Partners |   |           |                  |   |  
|                                                       |                                                        | Partners                    |          |        | Equity            |   |           | Held in Treasury |   |   | Total     |  
|                                                       |                                                        | Equity                       |          |        | Depositary        |   |           |                  |   |   | Partners |  
|                                                       |                                                        | (Deficit)                    |          |        | Units(ii)         |   |           | Amounts          |   |   | Units     |   |  | Equity |      
|                                                       |                                                        |                              |          |        |                   |   |           |                  |   |   |           |   |  |        |      
|                                                       |                                                        | (In $000s, except unit data) |         
|                                                       |                                                        | (Unaudited)                  |         
|Balance, December 31, 2004 (Restated)                  |                                                        | $                            | 352,051  |        |                   | $ | 1,301,625 |                  |   | $ | (11,921   | ) |  |        | 1,137 |   |  | $ | 1,641,755 |        
|Comprehensive income:                                  |                                                        |                              |          |        |                   |   |           |                  |   |   |           |   |  |        |       |   |  |   |           |        
|                                                       | Net loss                                               |                              |          | (2,309 | )                 |   |           | (86,878          | ) |   |           |  |  |        |       |  |  |   |           | (89,187 | )
|                                                       | Net unrealized losses on securities available for sale |                              |          | (92    | )                 |   |           | (4,529           | ) |   |           |   |  |        |       |   |  |   |           | (4,621  | )
|                                                       |                                                        |                              |          |        |                   |   |           |                  |   |   |           |   |  |        |      
|Comprehensive loss                                     |                                                        |                              | (2,401   | )      |                   |   | (91,407   | )                |   |   |           |   |  |        |       |   |  |   | (93,808   | )      
|General Partner contribution                           |                                                        |                              | 9,279    |        |                   |   |          |                  |   |   |          |   |  |        |      |   |  |   | 9,279     |        
|AREP Oil & Gas acquisitions(i)                         |                                                        |                              | (616,553 | )      |                   |   | 444,998   |                  |   |   |          |   |  |        |      |   |  |   | (171,555  | )      
|GBH/Atlantic Coast Entertainment Holdings acquisitions |                                                        |                              | 48,427   |        |                   |   | 12,000    |                  |   |   |          |   |  |        |      |   |  |   | 60,427    |        
|Loss on change in reporting entity                     |                                                        |                              | (56      | )      |                   |   | (2,772    | )                |   |   |          |   |  |        |      |   |  |   | (2,828    | )      
|CEO LP Unit Options                                    |                                                        |                              | 5        |        |                   |   | 241       |                  |   |   |           |   |  |        |       |   |  |   | 246       |        
|Return of capital to GB Holdings, Inc.                 |                                                        |                              | (2,598   | )      |                   |   |          |                  |   |   |          |   |  |        |      |   |  |   | (2,598    | )      
|Partnership distributions                              |                                                        |                              | (126     | )      |                   |   | (6,186    | )                |   |   |          |   |  |        |      |   |  |   | (6,312    | )      
|                                                       |                                                        |                              |          |        |                   |   |           |                  |   |   |           |   |  |        |      
|Balance, September 30, 2005                            |                                                        | $                            | (211,972 | )      |                   | $ | 1,658,499 |                  |   | $ | (11,921   | ) |  |        | 1,137 |   |  | $ | 1,434,606 |        
|                                                       |                                                        |                              |          |        |                   |   |           |                  |   |   |           |   |  |        |      






|     |                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | Deferred tax assets and liabilities of $2.6 million, and
    $6.7 million, respectively, have been eliminated through
    adjustments to general partners equity.                                               
|    
|(ii) | Includes 15.8 million depositary units, valued at
    $29.00 per unit, or an aggregate of $457.0 million,
    issued on June 30, 2005 in connection with acquisitions of
    NEG, Panaco and GBH/ Atlantic Coast.





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |         |            |          |         |        |          |  
|------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ------- | ---------- | -------- | ------- | ------ | -------- | -
|                                      |                                                                                                | Nine Months Ended                                          |                                                                                    
|                                      |                                                                                                | September 30,                                              |                                                                                    
|                                      |                                                                                                |                                                            |                                                                                    
|                                      |                                                                                                | 2005                                                       |                                                                                     |                                              | 2004    |        
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      |                                                                                                | (In $000s)                                                 |                                                                                    
|                                      |                                                                                                | (Unaudited)                                                |                                                                                    
|                                      |                                                                                                |                                                            |                                                                                     | (Restated)                                   |        
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                                |                                                            |                                                                                     |                                              |         |         |            |         
|                                      | Income (loss) from continuing operations                                                       |                                                            | $                                                                                   | (111,446                                     | )       |         | $          | 89,033   |        
|                                      | Adjustments to reconcile net earnings (loss) to net cash
    provided by operating activities: |                                                            |                                                                                     |                                              |         |         |            |          |        
|                                      |                                                                                                | Depreciation, depletion and amortization                   |                                                                                     |                                              | 109,805 |         |            |          | 78,219  |       
|                                      |                                                                                                | Preferred LP unit interest expense                         |                                                                                     |                                              | 3,986   |         |            |          | 3,796   |       
|                                      |                                                                                                | Gain on sales and disposition of real estate               |                                                                                     |                                              | (176    | )       |            |          | (5,830  | )     
|                                      |                                                                                                | (Gain) loss on sales of marketable securities              |                                                                                     |                                              | 12,846  |         |            |          | (37,167 | )     
|                                      |                                                                                                | Impairment loss from GBH bankruptcy                        |                                                                                     |                                              | 52,366  |         |            |          |        |       
|                                      |                                                                                                | Change in fair market value of derivative contract         |                                                                                     |                                              | 111,631 |         |            |          | 23,165  |       
|                                      |                                                                                                | Deferred gain amortization                                 |                                                                                     |                                              | (1,019  | )       |            |          | (1,529  | )     
|                                      |                                                                                                | Deferred income tax expense                                |                                                                                     |                                              | 11,215  |         |            |          | 10,182  |       
|                                      |                                                                                                | Unrealized losses on securities sold short                 |                                                                                     |                                              | 10,523  |         |            |          |        |       
|                                      |                                                                                                | Other adjustments                                          |                                                                                     |                                              | (2,396  | )       |            |          | (2,068  | )     
|                                      |                                                                                                | Changes in operating assets and liabilities:               |                                                                                     |                                              |         |         |            |          |         |       
|                                      |                                                                                                |                                                            | Decrease in land and construction-in progress                                       |                                              |         | (3,134  | )          |          |         | (437   | )       
|                                      |                                                                                                |                                                            | Increase (decrease) in accounts payable, accrued expenses and
    other liabilities |                                              |         | (14,687 | )          |          |         | 14,214 |         
|                                      |                                                                                                |                                                            | Increase in due from brokers                                                        |                                              |         | 96,981  |            |          |         |       |         
|                                      |                                                                                                |                                                            | Increase in restricted cash                                                         |                                              |         | (84,984 | )          |          |         |       |         
|                                      |                                                                                                |                                                            | Increase in receivables and other assets                                            |                                              |         | (89,896 | )          |          |         | (806   | )       
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      |                                                                                                |                                                            |                                                                                     | Net cash provided by continuing operations   |         |         | 101,615    |          |         |        | 170,772  |  
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      | Income from discontinued operations                                                            |                                                            |                                                                                     | 22,259                                       |         |         |            | 69,878   |        
|                                      |                                                                                                | Depreciation and amortization                              |                                                                                     |                                              | 192     |         |            |          | 1,052   |       
|                                      |                                                                                                | Net gain from property transactions                        |                                                                                     |                                              | (21,361 | )       |            |          | (64,533 | )     
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      |                                                                                                |                                                            |                                                                                     | Net cash provided by discontinued operations |         |         | 1,090      |          |         |        | 6,397    |  
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      |                                                                                                |                                                            |                                                                                     | Net cash provided by operating activities    |         |         | 102,705    |          |         |        | 177,169  |  
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                                |                                                            |                                                                                     |                                              |         |         |            |         
|                                      | Purchase of other investments                                                                  |                                                            |                                                                                     |                                             |         |         |            | (118,346 | )      
|                                      | Repayments of mezzanine loans                                                                  |                                                            |                                                                                     |                                             |         |         |            | 49,130   |        
|                                      | Net proceeds from the sales and disposition of real estate                                     |                                                            |                                                                                     | 4,639                                        |         |         |            | 16,802   |        
|                                      | Principal payments received on leases accounted for under the
    financing method             |                                                            |                                                                                     | 2,655                                        |         |         |            | 3,203    |        
|                                      | Acquisition, exploration and development costs                                                 |                                                            |                                                                                     | (182,812                                     | )       |         |            | (70,629  | )      
|                                      | Net cash cost of acquisition of WestPoint Stevens assets                                       |                                                            |                                                                                     | (122,506                                     | )       |         |            |         |        
|                                      | Investment in TransTexas Gas                                                                   |                                                            |                                                                                     | (180,000                                     | )       |         |            |         |        
|                                      | Acquisition of hotel and resort operating properties                                           |                                                            |                                                                                     |                                             |         |         |            | (142,363 | )      
|                                      | Increase in marketable securities                                                              |                                                            |                                                                                     | (612,056                                     | )       |         |            |         |        
|                                      | Acquisitions and additions to real estate                                                      |                                                            |                                                                                     |                                             |         |         |            | (76,931  | )      
|                                      | Decrease (increase) in investment in U.S. Government and
    Agency Obligations                |                                                            |                                                                                     | 93,362                                       |         |         |            | (56,580  | )      
|                                      | Proceeds from sale of marketable equity and debt securities                                    |                                                            |                                                                                     |                                             |         |         |            | 86,507   |        
|                                      | Additions to hotel, casino and resort operating property                                       |                                                            |                                                                                     | (26,052                                      | )       |         |            | (13,973  | )      
|                                      | Other                                                                                          |                                                            |                                                                                     | (176                                         | )       |         |            | 1,511    |        
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      |                                                                                                |                                                            |                                                                                     | Net cash used in investing activities        |         |         | (1,022,946 | )        |         |        | (321,669 | )
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      | Cash flows from discontinued operations:                                                       |                                                            |                                                                                     |                                              |         |         |            |         |        
|                                      |                                                                                                | Net proceeds from the sales and disposition of real estate |                                                                                     |                                              | 41,432  |         |            |          | 115,186 |       
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|                                      |                                                                                                |                                                            |                                                                                     | Net cash used in investing activities        |         |         | (981,514   | )        |         |        | (206,483 | )
|                                      |                                                                                                |                                                            |                                                                                     |                                              |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                                |                                                            |                                                                                     |                                              |         |         |            |         
|                                      | Partners equity:                                                                              |                                                            |                                                                                     |                                              |         |         |            |          |        
|                                      |                                                                                                | Distribution to partners                                   |                                                                                     |                                              | (6,312  | )       |            |          | (17,916 | )     
|                                      |                                                                                                | Contributions from General Partner                         |                                                                                     |                                              | 9,279   |         |            |          |        |       
|                                      |                                                                                                | Members contribution                                       |                                                                                     |                                              |        |         |            |          | 15,894  |       

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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Continued)


|                                                     |       |                                                                  |                                           |            |         |         |           |   |         |         | 
|---------------------------------------------------- | ----- | ---------------------------------------------------------------- | ----------------------------------------- | ---------- | ------- | ------- | --------- | - | ------- | ------- | 
|                                                     |       | Nine Months Ended                                                |                                          
|                                                     |       | September 30,                                                    |                                          
|                                                     |       |                                                                  |                                          
|                                                     |       | 2005                                                             |                                           |            | 2004    |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | (In $000s)                                                       |                                          
|                                                     |       | (Unaudited)                                                      |                                          
|                                                     |       |                                                                  |                                           | (Restated) |        
|                                                     | Debt: |                                                                  |                                           |            |         |         |           |   |        
|                                                     |       | Proceeds from (repayments of) credit facilities                  |                                           |            | 60,100  |         |           |   | (8,780  | )      
|                                                     |       | Proceeds from senior notes                                       |                                           |            | 480,000 |         |           |   | 565,409 |        
|                                                     |       | Increase in mortgages payable                                    |                                           |            | 4,425   |         |           |   | 10,000  |        
|                                                     |       | Periodic principal payments                                      |                                           |            | (4,583  | )       |           |   | (4,120  | )      
|                                                     |       | Decrease in due to affiliates                                    |                                           |            | (18,180 | )       |           |   | (25,000 | )      
|                                                     |       | Debt issuance costs                                              |                                           |            | (8,907  | )       |           |   | (440    | )      
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       |                                                                  | Net cash provided by financing activities |            |         | 515,822 |           |   |         | 535,047 | 
|                                                     |       |                                                                  |                                           |            |         |        
|Net (decrease) increase in cash and cash equivalents |       |                                                                  | (362,987                                  | )          |         |         | 505,733   |  
|Cash and cash equivalents, beginning of period       |       |                                                                  | 806,309                                   |            |         |         | 566,320   |  
|                                                     |       |                                                                  |                                           |            |         |        
|Cash and cash equivalents at end of period           |       | $                                                                | 443,322                                   |            |         | $       | 1,072,053 |  
|                                                     |       |                                                                  |                                           |            |         |        
|SUPPLEMENTAL INFORMATION:                            |       |                                                                  |                                           |            |         |         |           |  
|                                                     |       | Cash payments for interest, net of amounts capitalized           |                                           | $          | 61,728  |         |           | $ | 29,798  |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | Cash payments for income taxes                                   |                                           | $          | 3,017   |         |           | $ |        |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | Net unrealized losses on securities available for sale           |                                           | $          | (4,621  | )       |           | $ | (477    | )      
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | Purchase of other investments                                    |                                           | $          |        |         |           | $ | 127,091 |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | Debt conversion                                                  |                                           | $          | 29,500  |         |           | $ |        |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | LP unit issuance                                                 |                                           | $          | 456,998 |         |           | $ |        |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | Net change in tax assets and liabilities related to acquisitions |                                           | $          | 4,105   |         |           | $ | 12,721  |        
|                                                     |       |                                                                  |                                           |            |         |        
|                                                     |       | Members capital contribution                                    |                                           | $          |        |         |           | $ | 6,906   |        
|                                                     |       |                                                                  |                                           |            |         |        



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)




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











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









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



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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










| |                         
| | ------------------------
| | GB Holdings Inc. (GBH)





| |             
| | ------------
| | Unit Options





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





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



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




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





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

a. Acquisitions






| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | TransTexas Gas Corporation (TransTexas);                            
|
| |  | NEG Holding LLC (NEG Holdings);                                     
|
| |  | Panaco, Inc. (Panaco);                                              
|
| |  | GB Holdings, Inc. (GBH); and                                        
|
| |  | Atlantic Coast Entertainment Holdings, Inc. (Atlantic
    Holdings).



TransTexas:


NEG Holdings:


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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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


Panaco:


GBH and Atlantic Holdings:








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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Summary Financial Data for the Entities Acquired in the
    Second Quarter of 2005



|                          |       |                                 |         |           |        |   |         |          |   |       |           |         |        |        |         |            |        |   |       |        |  |   |        |       | 
|------------------------- | ----- | ------------------------------- | ------- | --------- | ------ | - | ------- | -------- | - | ----- | --------- | ------- | ------ | ------ | ------- | ---------- | ------ | - | ----- | ------ |  | - | ------ | ----- | 
|                          |       | Nine Months Ended September 30, |        
|                          |       |                                 |        
|                          |       | 2005                            |         |           | 2004   |  
|                          |       |                                 |         |           |        |  
|                          |       |                                 |         | Operating |        |   |         |          |   |       | Operating |         |        |       
|                          |       | Total                           |         |           | Income |   |         |          |   | Total |           |         | Income |        |         | Net Income |       
|                          |       | Revenues                        |         |           | (Loss) |   |         | Net Loss |   |       | Revenues  |         |        | (Loss) |         |            | (Loss) |  
|                          |       |                                 |         |           |        |   |         |          |   |       |           |         |        |        |         |            |        |  
|                          |       | (In $000s)                      |        
|TransTexas                |       | $                               | 21,418  |           |        | $ | (19,092 | )        |   | $     | (17,874   | )       |        | $      | 44,652  |            |        | $ | 1,615 |        |  | $ | 3,561  |      
|Panaco(1)                 |       |                                 | 30,849  |           |        |   | (162    | )        |   |       | (1,052    | )       |        |        |        |            |        |   |      |        |  |   |       |      
|NEG Holdings(2)           |       |                                 | 34,495  |           |        |   | (10,485 | )        |   |       | (15,072   | )       |        |        | 44,419  |            |        |   | 9,939 |        |  |   | 8,355  |      
|GBH/ Atlantic Holdings(3) |       |                                 | 125,346 |           |        |   | (4,811  | )        |   |       | (14,206   | )       |        |        | 129,720 |            |        |   | 3,548 |        |  |   | (8,757 | )    
|                          |       |                                 |         |           |        |   |         |          |   |       |           |         |        |        |         |            |        |  
|                          | Total |                                 | $       | 212,108   |        |   | $       | (34,550  | ) |       | $         | (48,204 | )      |        | $       | 218,791    |        |   | $     | 15,102 |  |   | $      | 3,159 | 
|                          |       |                                 |         |           |        |   |         |          |   |       |           |         |        |        |         |            |        |  






|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Panaco is not presented for the nine months ended
    September 30, 2004 as it was not under common control
    during that period.





|    |                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We recorded net income of $9,893,000 and $25,055,000, on the
    accretion method, with respect to NEG, in the first three months
    of 2005 and the first nine months of 2004, respectively.
|   
|(3) | We recorded net losses of $986,000 and $1,177,000, on the equity
    method for GBH/ Atlantic Holdings, in the first three months of
    2005 and the first nine months of 2004, respectively.





| |      
| | -----
| | Other



b. Administrative Services




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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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










c. Securities Ownership






|        |                                                
|------- | -----------------------------------------------
|Note 3. | Oil and Gas Accounting Policies and Disclosures

Oil and Natural Gas Properties










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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






Revenue and Expense Recognition




Oil and Gas Derivatives




Income Taxes




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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




Accounting for Asset Retirement Obligations




Other Disclosure Data






| |                  
| | -----------------
| | Capitalized Costs



|                                                           |       |   |          |         | 
|---------------------------------------------------------- | ----- | - | -------- | ------- | 
|Proved properties                                          |       | $ | 923,094  |        
|Other property and equipment                               |       |   | 5,595    |        
|                                                           |       |   |         
|                                                           | Total |   |          | 928,689 | 
|Less: Accumulated depreciation, depletion and amortization |       |   | (401,305 | )      
|                                                           |       |   |         
|                                                           |       | $ | 527,384  |        
|                                                           |       |   |         



|                        |       |   |         |         | 
|----------------------- | ----- | - | ------- | ------- | 
|Acquisitions            |       | $ | 128,673 |        
|Exploration costs       |       |   | 52,765  |        
|Development costs       |       |   | 62,209  |        
|                        |       |   |        
|                        | Total |   | $       | 243,647 | 
|                        |       |   |        
|Depletion rate per Mcfe |       | $ | 2.28    |        
|                        |       |   |        





| |                                             
| | --------------------------------------------
| | Supplemental Reserve Information (Unaudited)



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






|                                                       |                                 |            |  |            |           |  |  |             |  
|------------------------------------------------------ | ------------------------------- | ---------- |  | ---------- | --------- |  |  | ----------- | -
|                                                       |                                 | Oil and    |  |            |          
|                                                       |                                 | Condensate |  |            |          
|                                                       |                                 | (Barrels)  |  |            | Gas (Mcf) | 
|                                                       |                                 |            |  |            |           | 
|Proved reserve:                                        |                                 |            |  |            |           |  |  |            
|                                                       | January 1, 2004                 |            |  | 8,165,562  |           |  |  | 206,259,821 |  
|Increase (decrease) during the period attributable to: |                                 |            |  |            |           |  |  |            
|                                                       | Revisions of previous estimates |            |  | 204,272    |           |  |  | 9,810,665   |  
|                                                       | Acquisition                     |            |  | 5,203,599  |           |  |  | 25,981,749  |  
|                                                       | Extensions and discoveries      |            |  | 524,089    |           |  |  | 50,226,279  |  
|                                                       | Sales of reserves               |            |  | (15,643    | )         |  |  | (344,271    | )
|                                                       | Production                      |            |  | (1,484,005 | )         |  |  | (18,895,077 | )
|                                                       |                                 |            |  |            |           | 
|                                                       | End of period                   |            |  | 12,597,874 |           |  |  | 273,039,166 |  
|                                                       |                                 |            |  |            |           | 
|Proved developed reserves:                             |                                 |            |  |            |           |  |  |            
|                                                       | Beginning of period             |            |  | 6,852,118  |           |  |  | 125,765,372 |  
|                                                       | End of period(1)                |            |  | 8,955,300  |           |  |  | 151,451,558 |  






|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes proved developed non-producing reserves, as of
    December 31, 2004, of 1,880,771 barrels of oil and
    37,206,946 Mcf of gas



| |                                 
| | --------------------------------
| | Standardized Measure Information



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                                          |  |            |           |  
|--------------------------------------------------------- |  | ---------- | --------- | -
|                                                          |  | (In $000s) |          
|                                                          |  |            |          
|Future cash inflows                                       |  | $          | 2,203,900 |  
|Future production and development costs                   |  |            | (836,092  | )
|                                                          |  |            |          
|Future net cash flows                                     |  |            | 1,367,808 |  
|Future income taxes                                       |  |            | (32,979   | )
|Annual discount (10%) for estimating timing of cash flows |  |            | (563,549  | )
|                                                          |  |            |          
|Standardized measure of discounted future net cash flows  |  | $          | 771,280   |  
|                                                          |  |            |          



|                                                                                                   |  |            |          |  
|-------------------------------------------------------------------------------------------------- |  | ---------- | -------- | -
|                                                                                                   |  | (In $000s) |         
|                                                                                                   |  |            |         
|Beginning of period                                                                                |  | $          | 620,497  |  
|Sales of reserves in place                                                                         |  |            | (1,375   | )
|Sales and transfers of crude oil and natural gas produced net of
    production costs              |  |            | (130,640 | )
|Net change in prices and production costs                                                          |  |            | 16,686   |  
|Development costs incurred during the period and changes in
    estimated future development costs |  |            | (96,236  | )
|Acquisition of reserves                                                                            |  |            | 75,239   |  
|Extensions and discoveries                                                                         |  |            | 193,022  |  
|Income taxes                                                                                       |  |            |         |  
|Revisions of previous quantity estimates                                                           |  |            | 31,730   |  
|Accretion of discount                                                                              |  |            | 62,050   |  
|Changes in production rates and other                                                              |  |            | 307      |  
|                                                                                                   |  |            |         
|End of period                                                                                      |  | $          | 771,280  |  
|                                                                                                   |  |            |         





| |            
| | -----------
| | Receivables



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






| |                               
| | ------------------------------
| | Recently Issued Pronouncements





|        |                                        
|------- | ---------------------------------------
|Note 4. | Acquisition of WestPoint Stevens Assets









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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                   |  |            |         | 
|---------------------------------- |  | ---------- | ------- | 
|                                   |  | (In $000s) |        
|                                   |  |            |        
|Book value of first lien debt      |  | $          | 205,850 | 
|Cash purchase of additional equity |  |            | 187,000 | 
|Exercise of rights                 |  |            | 32,881  | 
|Transaction costs                  |  |            | 2,670   | 
|                                   |  |            |        
|                                   |  | $          | 428,401 | 
|                                   |  |            |        



|                                 |                     |            |         |         |            |   |          |           |   |   |          |         | 
|-------------------------------- | ------------------- | ---------- | ------- | ------- | ---------- | - | -------- | --------- | - | - | -------- | ------- | 
|                                 |                     |            |         | AREP    |            |   | AREP     |          
|                                 |                     | August 8,  |         |         | Excess     |   |          | Basis     |  
|                                 |                     | 2005       |         |         | Fair Value |   |          | August 8, |  
|                                 |                     | Fair Value |         |         | Over Cost  |   |          | 2005      |  
|                                 |                     |            |         |         |            |   |          |           |  
|Current assets                   |                     | $          | 570,111 |         |            | $ |         |           |   | $ | 570,111  |        
|Property and equipment           |                     |            | 312,249 |         |            |   | (98,660  | )         |   |   | 213,589  |        
|Intangible assets                |                     |            | 35,700  |         |            |   | (11,300  | )         |   |   | 24,400   |        
|                                 |                     |            |         |         |            |   |          |           |  
|                                 | Assets acquired     |            |         | 918,060 |            |   |          | (109,960  | ) |   |          | 808,100 | 
|                                 |                     |            |         |         |            |   |          |           |  
|Current liabilities              |                     |            | 111,363 |         |            |   |         |           |   |   | 111,363  |        
|Other liabilities                |                     |            | 11,044  |         |            |   |         |           |   |   | 11,044   |        
|                                 |                     |            |         |         |            |   |          |           |  
|                                 | Liabilities assumed |            |         | 122,407 |            |   |          |          |   |   |          | 122,407 | 
|                                 |                     |            |         |         |            |   |          |           |  
|Net assets acquired              |                     | $          | 795,653 |         |            | $ | (109,960 | )         |   |   | 685,693  |        
|                                 |                     |            |         |         |            |   |          |           |  
|Minority interest at acquisition |                     |            |         |         |            |   |          |           |   |   | (257,292 | )      
|                                 |                     |            |         |         |            |   |          |           |  
|                                 |                     |            |         |         |            |   |          |           |   | $ | 428,401  |        
|                                 |                     |            |         |         |            |   |          |           |  





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                                     |                |                    |          |           |     |   |          |             |  |   |        |  |  |   |           |     | 
|---------------------------------------------------- | -------------- | ------------------ | -------- | --------- | --- | - | -------- | ----------- |  | - | ------ |  |  | - | --------- | --- | 
|                                                     |                | Nine Months Ended  |         
|                                                     |                | September 30, 2005 |         
|                                                     |                |                    |         
|                                                     |                |                    |          | Pro Forma |     |   |         
|                                                     |                | AREP               |          |           | WPI |   |          | Adjustments |  |   | Total  | 
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|Revenues                                             |                | $                  | 708,757  |           |     | $ | 728,362  |             |  | $ |       |  |  | $ | 1,437,119 |    
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|Loss from continuing operations                      |                | $                  | (111,446 | )         |     | $ | (157,935 | )           |  | $ | 94,198 |  |  | $ | (175,183  | )  
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|Net loss                                             |                | $                  | (89,187  | )         |     | $ | (157,935 | )           |  | $ | 94,198 |  |  | $ | (152,924  | )  
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|Basic earnings (loss) per LP unit
     continuing   |                | $                  | (2.12    | )         |     |   |          |             |  |   |        |  |  | $ | (3.36     | )  
|                                                     |  discontinued |                    |          | .42       |     |   |          |             |  |   |        |  |  |   |           | .42 | 
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|                                                     |                | $                  | (1.70    | )         |     |   |          |             |  |   |        |  |  | $ | (2.94     | )  
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|Diluted earnings (loss) per LP unit
     continuing |                | $                  | (2.12    | )         |     |   |          |             |  |   |        |  |  | $ | (3.36     | )  
|                                                     |  discontinued |                    |          | .42       |     |   |          |             |  |   |        |  |  |   |           | .42 | 
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 
|                                                     |                | $                  | (1.70    | )         |     |   |          |             |  |   |        |  |  | $ | (2.94     | )  
|                                                     |                |                    |          |           |     |   |          |             |  |   |        | 

|                                                     |                |                    |         |           |     |   |           |             |  |   |        |  |  |   |           |      | 
|---------------------------------------------------- | -------------- | ------------------ | ------- | --------- | --- | - | --------- | ----------- |  | - | ------ |  |  | - | --------- | ---- | 
|                                                     |                | Nine Months Ended  |        
|                                                     |                | September 30, 2004 |        
|                                                     |                |                    |        
|                                                     |                |                    |         | Pro Forma |     |   |          
|                                                     |                | AREP               |         |           | WPI |   |           | Adjustments |  |   | Total  | 
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|Revenues                                             |                | $                  | 487,828 |           |     | $ | 1,198,700 |             |  | $ |       |  |  | $ | 1,686,528 |     
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|Income (loss) from continuing operations             |                | $                  | 89,033  |           |     | $ | (124,700  | )           |  | $ | 91,645 |  |  | $ | 55,978    |     
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|Net income (loss)                                    |                | $                  | 158,911 |           |     | $ | (124,700  | )           |  | $ | 91,645 |  |  | $ | 125,856   |     
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|Basic earnings (loss) per LP unit  continuing       |                | $                  | 1.93    |           |     |   |           |             |  |   |        |  |  | $ | 1.21      |     
|                                                     |  discontinued |                    |         | 1.49      |     |   |           |             |  |   |        |  |  |   |           | 1.49 | 
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|                                                     |                | $                  | 3.42    |           |     |   |           |             |  |   |        |  |  | $ | 2.70      |     
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|Diluted earnings (loss) per LP unit
     continuing |                | $                  | 1.78    |           |     |   |           |             |  |   |        |  |  | $ | 1.14      |     
|                                                     |  discontinued |                    |         | 1.32      |     |   |           |             |  |   |        |  |  |   |           | 1.32 | 
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 
|                                                     |                | $                  | 3.10    |           |     |   |           |             |  |   |        |  |  | $ | 2.46      |     
|                                                     |                |                    |         |           |     |   |           |             |  |   |        | 





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




| |                                
| | -------------------------------
| | Significant Accounting Policies

Property, Plant and Equipment.






|                           |  |  |                                | 
|-------------------------- |  |  | ------------------------------ | 
|Buildings and improvements |  |  | 4 to 40 Years                  | 
|Machinery and equipment    |  |  | Up to 18 Years                 | 
|Leasehold improvements     |  |  | Remaining period of lease term | 

Revenue Recognition.


Customer Incentives.


Accounts Receivable.


Inventories.




|                          |  |               |         |  |           |   |         | 
|------------------------- |  | ------------- | ------- |  | --------- | - | ------- | 
|                          |  | September 30, |         |  | August 8, |  
|                          |  | 2005          |         |  | 2005      |  
|                          |  |               |         |  |           |  
|Finished goods            |  | $             | 116,822 |  |           | $ | 111,931 | 
|Work in process           |  |               | 106,083 |  |           |   | 114,448 | 
|Raw material and supplies |  |               | 33,995  |  |           |   | 35,740  | 
|                          |  |               |         |  |           |  
|                          |  | $             | 256,900 |  |           | $ | 262,119 | 
|                          |  |               |         |  |           |  



|        |             
|------- | ------------
|Note 5. | Unit Options



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






|                        |  |          
|----------------------- |  | ---------
|Risk-free interest rate |  | 3.5%     
|Volatility              |  | 30.0%    
|Dividend yield          |  | 0%       
|Expected life           |  | 7-8 years







|        |                
|------- | ---------------
|Note 6. | Operating Units



a. Home fashion






|                                  |                              |               |         |         |           |   |         |         |         | 
|--------------------------------- | ---------------------------- | ------------- | ------- | ------- | --------- | - | ------- | ------- | ------- | 
|                                  |                              | September 30, |         |         | August 8, |  
|                                  |                              | 2005          |         |         | 2005      |  
|                                  |                              |               |         |         |           |  
|                                  |                              | (In $000s)    |        
|Current assets                    |                              | $             | 566,061 |         |           | $ | 570,111 |        
|Property plant and equipment, net |                              |               | 205,127 |         |           |   | 213,589 |        
|Intangible assets                 |                              |               | 24,400  |         |           |   | 24,400  |        
|                                  |                              |               |         |         |           |  
|                                  | Total assets                 |               | $       | 795,588 |           |   | $       | 808,100 |        
|                                  |                              |               |         |         |           |  
|Current liabilities               |                              | $             | 105,711 |         |           | $ | 111,363 |        
|Other liabilities                 |                              |               | 8,364   |         |           |   | 11,044  |        
|                                  |                              | Equity        |         |         | 681,513   |   |         |         | 685,693 | 
|                                  |                              |               |         |         |           |  
|                                  | Total liabilities and equity |               | $       | 795,588 |           |   | $       | 808,100 |        
|                                  |                              |               |         |         |           |  

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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Revenues                            |  | $ | 183,627 |  
|Expenses:                           |  |   |         |  
|Cost of sales                       |  |   | 159,152 |  
|Selling, general and administrative |  |   | 29,565  |  
|                                    |  |   |        
|Operating loss                      |  | $ | (5,090  | )
|                                    |  |   |        



b. Gaming






|                                  |  |               |         |  |              |   |         | 
|--------------------------------- |  | ------------- | ------- |  | ------------ | - | ------- | 
|                                  |  | September 30, |         |  | December 31, |  
|                                  |  | 2005          |         |  | 2004         |  
|                                  |  |               |         |  |              |  
|                                  |  | (In $000s)    |        
|                                  |  | (Unaudited)   |        
|Current assets                    |  | $             | 145,483 |  |              | $ | 120,499 | 
|Property plant and equipment, net |  |               | 441,570 |  |              |   | 445,400 | 
|Other assets                      |  |               | 62,033  |  |              |   | 74,011  | 
|                                  |  |               |         |  |              |  
|Total assets                      |  | $             | 649,086 |  |              | $ | 639,910 | 
|                                  |  |               |         |  |              |  
|Current liabilities               |  | $             | 54,645  |  |              | $ | 60,425  | 
|Long term debt                    |  |               | 220,612 |  |              |   | 284,989 | 
|Other liabilities                 |  |               | 10,903  |  |              |   | 10,746  | 
|Equity                            |  |               | 362,926 |  |              |   | 283,750 | 
|                                  |  |               |         |  |              |  
|Total liabilities and equity      |  | $             | 649,086 |  |              | $ | 639,910 | 
|                                  |  |               |         |  |              |  

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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |         |  |   |         |         | 
|----------------------------------- | ------------------------ | ------------------ | ------- | ------- | ----------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                    |                          | Three Months Ended |         |         | Nine Months Ended |  
|                                    |                          | September 30,      |         |         | September 30,     |  
|                                    |                          |                    |         |         |                   |  
|                                    |                          | 2005               |         |         | 2004              |   |         | 2005    |  |   | 2004    |        
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        
|                                    |                          | (In $000s)         |        
|Revenues                            |                          |                    |         |         |                   |   |         |         |  |   |         |         |  |   |         |        
|Casino                              |                          | $                  | 84,568  |         |                   | $ | 82,617  |         |  | $ | 250,806 |         |  | $ | 244,024 |        
|Hotel                               |                          |                    | 18,681  |         |                   |   | 16,179  |         |  |   | 55,370  |         |  |   | 48,970  |        
|Food and beverage                   |                          |                    | 24,749  |         |                   |   | 22,394  |         |  |   | 69,998  |         |  |   | 66,604  |        
|Tower, retail and other income      |                          |                    | 10,283  |         |                   |   | 10,037  |         |  |   | 29,401  |         |  |   | 28,564  |        
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        
|Gross revenues                      |                          |                    | 138,281 |         |                   |   | 131,227 |         |  |   | 405,575 |         |  |   | 388,162 |        
|Less promotional allowances         |                          |                    | 12,042  |         |                   |   | 11,962  |         |  |   | 34,101  |         |  |   | 35,183  |        
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        
|Net revenues                        |                          |                    | 126,239 |         |                   |   | 119,265 |         |  |   | 371,474 |         |  |   | 352,979 |        
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        
|Expenses                            |                          |                    |         |         |                   |   |         |         |  |   |         |         |  |   |         |        
|Casino                              |                          |                    | 28,671  |         |                   |   | 28,388  |         |  |   | 83,993  |         |  |   | 84,721  |        
|Hotel                               |                          |                    | 8,517   |         |                   |   | 7,525   |         |  |   | 23,276  |         |  |   | 20,450  |        
|Food and beverage                   |                          |                    | 16,038  |         |                   |   | 14,227  |         |  |   | 44,822  |         |  |   | 41,985  |        
|Other operating expenses            |                          |                    | 4,349   |         |                   |   | 4,082   |         |  |   | 12,520  |         |  |   | 11,062  |        
|Selling, general and administrative |                          |                    | 47,044  |         |                   |   | 44,526  |         |  |   | 131,226 |         |  |   | 125,984 |        
|Depreciation and amortization       |                          |                    | 9,801   |         |                   |   | 9,387   |         |  |   | 28,377  |         |  |   | 28,927  |        
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        
|                                    | Total Costs and Expenses |                    |         | 114,420 |                   |   |         | 108,135 |  |   |         | 324,214 |  |   |         | 313,129 | 
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        
|Income from operations              |                          | $                  | 11,819  |         |                   | $ | 11,130  |         |  | $ | 47,260  |         |  | $ | 39,850  |        
|                                    |                          |                    |         |         |                   |   |         |         |  |   |         |        

c. Oil and Gas




25



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                         |  |               |         |  |              |   |         | 
|---------------------------------------- |  | ------------- | ------- |  | ------------ | - | ------- | 
|                                         |  | September 30, |         |  | December 31, |  
|                                         |  | 2005          |         |  | 2004         |  
|                                         |  |               |         |  |              |  
|                                         |  | (In $000s)    |        
|                                         |  | (Unaudited)   |        
|Current assets                           |  | $             | 154,237 |  |              | $ | 81,748  | 
|Oil and gas properties, full cost method |  |               | 632,673 |  |              |   | 527,384 | 
|Other noncurrent assets                  |  |               | 39,903  |  |              |   | 50,067  | 
|                                         |  |               |         |  |              |  
|Total assets                             |  | $             | 826,813 |  |              | $ | 659,199 | 
|                                         |  |               |         |  |              |  
|Current liabilities                      |  | $             | 135,748 |  |              | $ | 63,148  | 
|Noncurrent liabilities                   |  |               | 235,480 |  |              |   | 336,933 | 
|                                         |  |               |         |  |              |  
|Total liabilities                        |  |               | 371,228 |  |              |   | 400,081 | 
|Equity                                   |  |               | 455,585 |  |              |   | 259,118 | 
|                                         |  |               |         |  |              |  
|Total liabilities and equity             |  | $             | 826,813 |  |              | $ | 659,199 | 
|                                         |  |               |         |  |              |  



|                                         |  |                    |         |   |                   |   |        |      |  |   |          |   |  |   |         |  
|---------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------ | ---- |  | - | -------- | - |  | - | ------- | -
|                                         |  | Three Months Ended |         |   | Nine Months Ended |  
|                                         |  | September 30,      |         |   | September 30,     |  
|                                         |  |                    |         |   |                   |  
|                                         |  | 2005               |         |   | 2004              |   |        | 2005 |  |   | 2004     |  
|                                         |  |                    |         |   |                   |   |        |      |  |   |          |  
|                                         |  | (In $000s)         |        
|Revenues                                 |  | $                  | 75,675  |   |                   | $ | 34,715 |      |  | $ | 193,633  |   |  | $ | 110,101 |  
|Unrealized hedging loss                  |  |                    | (79,798 | ) |                   |   | (9,347 | )    |  |   | (111,631 | ) |  |   | (23,165 | )
|Plant/ Field operations                  |  |                    | 1,761   |   |                   |   | 659    |      |  |   | 4,707    |   |  |   | 2,098   |  
|                                         |  |                    |         |   |                   |   |        |      |  |   |          |  
|Total revenues                           |  |                    | (2,362  | ) |                   |   | 26,027 |      |  |   | 86,709   |   |  |   | 89,034  |  
|                                         |  |                    |         |   |                   |   |        |      |  |   |          |  
|Cost and expenses                        |  |                    |         |   |                   |   |        |      |  |   |          |   |  |   |         |  
|Lease operating expenses                 |  |                    | 6,098   |   |                   |   | 3,431  |      |  |   | 19,373   |   |  |   | 10,077  |  
|Transportation and gathering             |  |                    | 1,560   |   |                   |   | 783    |      |  |   | 3,764    |   |  |   | 2,427   |  
|Taxes, other than income                 |  |                    | 4,186   |   |                   |   | 2,629  |      |  |   | 11,184   |   |  |   | 7,498   |  
|Plant/ Field operations                  |  |                    | 781     |   |                   |   | 792    |      |  |   | 2,223    |   |  |   | 2,509   |  
|Depreciation, depletion and amortization |  |                    | 21,796  |   |                   |   | 14,210 |      |  |   | 68,573   |   |  |   | 45,321  |  
|General and administrative expenses      |  |                    | 2,832   |   |                   |   | 2,770  |      |  |   | 10,807   |   |  |   | 8,804   |  
|                                         |  |                    |         |   |                   |   |        |      |  |   |          |  
|Total expenses                           |  |                    | 37,253  |   |                   |   | 24,615 |      |  |   | 115,924  |   |  |   | 76,636  |  
|                                         |  |                    |         |   |                   |   |        |      |  |   |          |  
|Operating income (loss)                  |  | $                  | (39,615 | ) |                   | $ | 1,412  |      |  | $ | (29,215  | ) |  | $ | 12,398  |  
|                                         |  |                    |         |   |                   |   |        |      |  |   |          |  





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




d. Real Estate




Rental Real Estate.


Property Development and Associated Resort Activities.






|                     |                     |               |         |         |              |  |         |         | 
|-------------------- | ------------------- | ------------- | ------- | ------- | ------------ |  | ------- | ------- | 
|                     |                     | September 30, |         |         | December 31, | 
|                     |                     | 2005          |         |         | 2004         | 
|                     |                     |               |         |         |              | 
|                     |                     | (In $000s)    |        
|                     |                     | (Unaudited)   |        
|Rental properties    |                     |               |         |         |              |  |         |        
|                     | Finance leases, net |               | $       | 74,207  |              |  | $       | 85,281  | 
|                     | Operating leases    |               |         | 51,780  |              |  |         | 49,118  | 
|Property development |                     |               | 109,671 |         |              |  | 106,537 |        
|Resort properties    |                     |               | 46,418  |         |              |  | 50,132  |        
|                     |                     |               |         |         |              | 
|                     | Total real estate   |               | $       | 282,076 |              |  | $       | 291,068 | 
|                     |                     |               |         |         |              | 



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |        |        | 
|------------------- | -------------------- | ----------------------------------- |  | ------ | ----------------- |  |  | ----- | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|                    |                      | Three Months Ended                  |  |        | Nine Months Ended | 
|                    |                      | September 30,                       |  |        | September 30,     | 
|                    |                      |                                     |  |        |                   | 
|                    |                      | 2005                                |  |        | 2004              |  |  | 2005  |        |  | 2004 |       
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | (In $000s)                          | 
|Revenues:           |                      |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |       
|                    | Rental real estate:  |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |        |       
|                    |                      | Interest income on financing leases |  | $      | 1,780             |  |  | $     | 2,253  |  |      | $      | 5,547  |  |  | $      | 7,679  | 
|                    |                      | Rental income                       |  |        | 3,045             |  |  |       | 2,113  |  |      |        | 7,062  |  |  |        | 6,565  | 
|                    | Property development |                                     |  | 11,519 |                   |  |  | 3,047 |        |  |      | 34,257 |        |  |  | 20,503 |       
|                    | Resort activities    |                                     |  | 7,914  |                   |  |  | 6,794 |        |  |      | 20,081 |        |  |  | 11,068 |       
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | Total revenues                      |  |        | 24,258            |  |  |       | 14,207 |  |      |        | 66,947 |  |  |        | 45,815 | 
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|Operating expenses: |                      |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |       
|                    | Rental real estate   |                                     |  | 2,163  |                   |  |  | 2,630 |        |  |      | 5,619  |        |  |  | 6,382  |       
|                    | Property development |                                     |  | 8,833  |                   |  |  | 2,577 |        |  |      | 28,016 |        |  |  | 13,639 |       
|                    | Resort activities    |                                     |  | 7,364  |                   |  |  | 5,658 |        |  |      | 20,566 |        |  |  | 10,597 |       
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | Total expenses                      |  |        | 18,360            |  |  |       | 10,865 |  |      |        | 54,201 |  |  |        | 30,618 | 
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | Operating income                    |  | $      | 5,898             |  |  | $     | 3,342  |  |      | $      | 12,746 |  |  | $      | 15,197 | 
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       



|                                                   |  |                              |    |   |                   |   |        |      |  |   |        |  |  |   |         | 
|-------------------------------------------------- |  | ---------------------------- | -- | - | ----------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------- | 
|                                                   |  | Three Months Ended           |    |   | Nine Months Ended |  
|                                                   |  | September 30,                |    |   | September 30,     |  
|                                                   |  |                              |    |   |                   |  
|                                                   |  | 2005                         |    |   | 2004              |   |        | 2005 |  |   | 2004   | 
|                                                   |  |                              |    |   |                   |   |        |      |  |   |        | 
|                                                   |  | (In $000s, except unit data) |   
|Properties sold                                    |  |                              |   |   |                   |   | 12     |      |  |   | 11     |  |  |   | 45      | 
|Proceeds received (costs incurred)                 |  | $                            | (6 | ) |                   | $ | 13,852 |      |  | $ | 37,602 |  |  | $ | 131,988 | 
|Mortgage debt                                      |  | $                            |   |   |                   | $ |       |      |  | $ | 10,702 |  |  | $ | 93,845  | 
|                                                  
|Gain (loss) recorded in operations                 |  | $                            |   |   |                   | $ | (10    | )    |  | $ | 176    |  |  | $ | 5,811   | 
|Gain (loss) recorded in discontinued operations(i) |  | $                            | (6 | ) |                   | $ | 9,347  |      |  | $ | 15,652 |  |  | $ | 64,533  | 
|                                                   |  |                              |    |   |                   |   |        |      |  |   |        | 
|Total gain (loss) recorded                         |  | $                            | (6 | ) |                   | $ | 9,337  |      |  | $ | 15,828 |  |  | $ | 70,344  | 
|                                                   |  |                              |    |   |                   |   |        |      |  |   |        | 






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

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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|        |                                                  
|------- | -------------------------------------------------
|Note 7. | Investments and Securities Sold not yet Purchased



|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |         |  |   |         |         |  | 
|------------------------ | -------------------------------------- | ------------------ | ------ | -------- | ----------------- | - | ------ | ------- | -------- | - | ------- | ------- |  | - | ------- | ------- |  | 
|                         |                                        | September 30, 2005 |        |          | December 31, 2004 |  
|                         |                                        |                    |        |          |                   |  
|                         |                                        |                    |        | Carrying |                   |   |        |         | Carrying |  
|                         |                                        | Cost               |        |          | Value             |   |        | Cost    |          |   | Value   |        
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        
|                         |                                        | (Unaudited)        |       
|                         |                                        | Trading securities |        |          |                   |   |        |         |          |   |         |         |  |   |         |         |  | 
|Current Investments:     |                                        |                    |        |          |                   |   |        |         |          |   |         |         |  |   |         |        
|                        
|                         | U.S. government and agency obligations |                    | $      | 370,714  |                   |   | $      | 370,758 |          |   |         |        |  |   |         |        | 
|                         | Marketable equity and debt securities  |                    |        | 31,677   |                   |   |        | 40,825  |          |   |         |        |  |   |         |        | 
|                         | Corporate debt securities              |                    |        | 123,834  |                   |   |        | 123,636 |          |   |         |        |  |   |         |        | 
|                         | Mortgage-backed securities             |                    |        | 53,585   |                   |   |        | 53,594  |          |   |         |        |  |   |         |        | 
|                         | Other debt securities                  |                    |        | 21,288   |                   |   |        | 21,241  |          |   |         |        |  |   |         |        | 
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        
|                         | Total current                          |                    | $      | 601,098  |                   |   | $      | 610,054 |          |   |         |        |  |   |         |        | 
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        
|                        
|                         |                                        | Available for sale |        |          |                   |   |        |         |          |   |         |         |  |   |         |         |  | 
|                        
|Current Investments:     |                                        |                    |        |          |                   |   |        |         |          |   |         |         |  |   |         |        
|                         | U.S. government and agency obligations |                    | $      | 9,000    |                   |   | $      | 8,968   |          |   | $       | 96,840  |  |   | $       | 96,840  | 
|                         | Marketable equity and debt securities  |                    |        | 77,445   |                   |   |        | 72,858  |          |   |         | 2,248   |  |   |         | 2,248   | 
|                         | Other debt securities                  |                    |        | 2,758    |                   |   |        | 2,756   |          |   |         |        |  |   |         |        | 
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        
|                         | Total current                          |                    | $      | 89,203   |                   |   | $      | 84,582  |          |   | $       | 99,088  |  |   | $       | 99,088  | 
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        
|                        
|Non-Current Investments: |                                        |                    |        |          |                   |   |        |         |          |   |         |         |  |   |         |        
|                         | U.S. government and agency obligations |                    |        |         |                   |   |        |        |          |   | $       | 5,491   |  |   | $       | 5,491   | 
|                         | WestPoint Stevens debt                 |                    |        |         |                   |   |        |        |          |   |         | 205,850 |  |   |         | 205,850 | 
|                         | Other                                  |                    |        | 19,488   |                   |   |        | 15,738  |          |   |         | 40,098  |  |   |         | 40,098  | 
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        
|                         |                                        | $                  | 19,488 |          |                   | $ | 15,738 |         |          | $ | 251,439 |         |  | $ | 251,439 |        
|                         |                                        |                    |        |          |                   |   |        |         |          |   |         |        



Securities Sold not yet Purchased




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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|        |                                        
|------- | ---------------------------------------
|Note 8. | Trade, Notes and Other Receivables, Net



|                                               |  |               |         |   |              |   |         | 
|---------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------- | 
|                                               |  | September 30, |         |   | December 31, |  
|                                               |  | 2005          |         |   | 2004         |  
|                                               |  |               |         |   |              |  
|Trade receivables  home fashion               |  | $             | 182,660 |   |              | $ |        | 
|Allowance for doubtful accounts  home fashion |  |               | (5,850  | ) |              |   |        | 
|Other receivable reserves  home fashion       |  |               | (6,200  | ) |              |   |        | 
|Trade receivables  oil and gas                |  |               | 43,955  |   |              |   | 32,435  | 
|Receivables due from broker                    |  |               | 60,648  |   |              |   |        | 
|Other                                          |  |               | 26,926  |   |              |   | 73,055  | 
|                                               |  |               |         |   |              |  
|                                               |  | $             | 302,139 |   |              | $ | 105,490 | 
|                                               |  |               |         |   |              |  



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



|                                 |  |               |         |  |              |   |         | 
|-------------------------------- |  | ------------- | ------- |  | ------------ | - | ------- | 
|                                 |  | September 30, |         |  | December 31, |  
|                                 |  | 2005          |         |  | 2004         |  
|                                 |  |               |         |  |              |  
|Properties held for sale         |  | $             | 29,564  |  |              | $ | 58,021  | 
|Restricted cash  non-securities |  |               | 25,356  |  |              |   | 19,900  | 
|Restricted cash  securities     |  |               | 121,313 |  |              |   | 123,001 | 
|Hedge deposits  oil and gas     |  |               | 64,068  |  |              |   |        | 
|Other                            |  |               | 46,789  |  |              |   | 8,492   | 
|                                 |  |               |         |  |              |  
|                                 |  | $             | 287,090 |  |              | $ | 209,414 | 
|                                 |  |               |         |  |              |  



|         |                              
|-------- | -----------------------------
|Note 10. | Property, Plant and Equipment



|             |  |                    |           |             |                   |   |          |     |  |   |             |  |  |              |           |  |     |   |          |   |  |   |           | 
|------------ |  | ------------------ | --------- | ----------- | ----------------- | - | -------- | --- |  | - | ----------- |  |  | ------------ | --------- |  | --- | - | -------- | - |  | - | --------- | 
|             |  | September 30, 2005 |           |             | December 31, 2004 |  
|             |  |                    |           |             |                   |  
|             |  |                    |           | Accumulated |                   |   |          |     |  |   | Accumulated |  |  |             
|             |  |                    |           | Depletion/  |                   |   |          |     |  |   | Depletion/  |  |  |             
|             |  | Cost               |           |             | Depreciation      |   |          | Net |  |   | Cost        |  |  | Depreciation |           |  | Net |  
|             |  |                    |           |             |                   |   |          |     |  |   |             |  |  |              |           |  |     |  
|             |  | (In $000s)         |          
|Home fashion |  | $                  | 212,060   |             |                   | $ | (6,933   | )   |  | $ | 205,127     |  |  | $            |          |  |     | $ |         |   |  | $ |          | 
|Gaming       |  |                    | 604,450   |             |                   |   | (162,880 | )   |  |   | 441,570     |  |  |              | 587,073   |  |     |   | (141,673 | ) |  |   | 445,400   | 
|Oil and Gas  |  |                    | 1,099,660 |             |                   |   | (466,987 | )   |  |   | 632,673     |  |  |              | 928,689   |  |     |   | (401,305 | ) |  |   | 527,384   | 
|Real Estate  |  |                    | 314,933   |             |                   |   | (32,857  | )   |  |   | 282,076     |  |  |              | 311,230   |  |     |   | (20,162  | ) |  |   | 291,068   | 
|             |  |                    |           |             |                   |   |          |     |  |   |             |  |  |              |           |  |     |  
|Total P,P&E  |  | $                  | 2,231,103 |             |                   | $ | (669,657 | )   |  | $ | 1,561,446   |  |  | $            | 1,826,992 |  |     | $ | (563,140 | ) |  | $ | 1,263,852 | 
|             |  |                    |           |             |                   |   |          |     |  |   |             |  |  |              |           |  |     |  





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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






|         |                   
|-------- | ------------------
|Note 11. | Non-Current Assets



|                       |  |               |         |  |              |   |         | 
|---------------------- |  | ------------- | ------- |  | ------------ | - | ------- | 
|                       |  | September 30, |         |  | December 31, |  
|                       |  | 2005          |         |  | 2004         |  
|                       |  |               |         |  |              |  
|                       |  | (In $000s)    |        
|Deferred taxes         |  | $             | 49,761  |  |              | $ | 56,416  | 
|Deferred finance costs |  |               | 26,258  |  |              |   | 21,038  | 
|Restricted deposits    |  |               | 22,603  |  |              |   | 23,519  | 
|Other                  |  |               | 10,680  |  |              |   | 24,588  | 
|                       |  |               |         |  |              |  
|                       |  | $             | 109,302 |  |              | $ | 125,561 | 
|                       |  |               |         |  |              |  





|         |                                                     
|-------- | ----------------------------------------------------
|Note 12. | Other Non-Current Liabilities and Minority Interests



|                                       |  |               |         |  |              |   |         | 
|-------------------------------------- |  | ------------- | ------- |  | ------------ | - | ------- | 
|                                       |  | September 30, |         |  | December 31, |  
|                                       |  | 2005          |         |  | 2004         |  
|                                       |  |               |         |  |              |  
|                                       |  | (In $000s)    |        
|Minority interests                     |  | $             | 313,744 |  |              | $ | 17,740  | 
|Asset retirement obligations (note 17) |  |               | 42,056  |  |              |   | 56,524  | 
|Hedge liability (note 18)              |  |               | 31,543  |  |              |   | 7,800   | 
|Other                                  |  |               | 29,382  |  |              |   | 28,465  | 
|                                       |  |               |         |  |              |  
|                                       |  | $             | 416,725 |  |              | $ | 110,529 | 
|                                       |  |               |         |  |              |  

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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|         |               
|-------- | --------------
|Note 13. | Long Term Debt



|                                                   |  |               |           |   |              |   |         |  
|-------------------------------------------------- |  | ------------- | --------- | - | ------------ | - | ------- | -
|                                                   |  | September 30, |           |   | December 31, |  
|                                                   |  | 2005          |           |   | 2004         |  
|                                                   |  |               |           |   |              |  
|                                                   |  | (In $000s)    |          
|Senior unsecured 7.125% notes due 2013  AREP      |  | $             | 480,000   |   |              | $ |        |  
|Senior unsecured 8.125% notes due 2012  AREP      |  |               | 350,841   |   |              |   | 350,598 |  
|Senior secured 7.85% notes due 2012  ACEP         |  |               | 215,000   |   |              |   | 215,000 |  
|Borrowings under credit facilities  NEG Operating |  |               | 110,934   |   |              |   | 51,834  |  
|Mortgages payable                                  |  |               | 82,590    |   |              |   | 91,896  |  
|GBH 11% Notes                                      |  |               |          |   |              |   | 43,741  |  
|Other                                              |  |               | 5,612     |   |              |   | 4,977   |  
|                                                   |  |               |           |   |              |  
|Total long-term debt                               |  |               | 1,244,977 |   |              |   | 758,046 |  
|Less current maturities:                           |  |               |           |   |              |   |         |  
|Mortgages payable                                  |  |               | (18,192   | ) |              |   | (31,177 | )
|GBH 11% Notes                                      |  |               |          |   |              |   | (43,741 | )
|                                                   |  |               |           |   |              |  
|                                                   |  | $             | 1,226,785 |   |              | $ | 683,128 |  
|                                                   |  |               |           |   |              |  



| |                                       
| | --------------------------------------
| | Senior Unsecured 7.125% Notes Due 2013







| |              
| | -------------
| | GBH 11% Notes



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




| |                                 
| | --------------------------------
| | Borrowings Under Credit Facility













|         |                       
|-------- | ----------------------
|Note 14. | Other Income (Expense)



|                                            |  |                    |         |   |                   |   |     |      |  |   |         |   |  |   |        | 
|------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | --- | ---- |  | - | ------- | - |  | - | ------ | 
|                                            |  | Three Months Ended |         |   | Nine Months Ended |  
|                                            |  | September 30,      |         |   | September 30,     |  
|                                            |  |                    |         |   |                   |  
|                                            |  | 2005               |         |   | 2004              |   |     | 2005 |  |   | 2004    |  
|                                            |  |                    |         |   |                   |   |     |      |  |   |         |  
|                                            |  | (In $000s)         |        
|Net gains (losses) on marketable securities |  | $                  | (23,779 | ) |                   | $ |    |      |  | $ | (23,999 | ) |  | $ | 37,167 | 
|Minority interest                           |  |                    | 3,158   |   |                   |   | 579 |      |  |   | 4,705   |   |  |   | 1,322  | 
|Other                                       |  |                    | 397     |   |                   |   | 263 |      |  |   | 7,076   |   |  |   | 11,713 | 
|                                            |  |                    |         |   |                   |   |     |      |  |   |         |  
|                                            |  | $                  | (20,224 | ) |                   | $ | 842 |      |  | $ | (12,218 | ) |  | $ | 50,202 | 
|                                            |  |                    |         |   |                   |   |     |      |  |   |         |  



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






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



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|         |                                             
|-------- | --------------------------------------------
|Note 16. | Earnings (Loss) Per Limited Partnership Unit



|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |       |   |   |            |      | 
|-------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------- | ---------- | ----- | ----------------- | - | ---------- | ---- |  | - | ---------- | ----- | - | - | ---------- | ---- | 
|                                                                           |                                          | Three Months Ended                        |            |       | Nine Months Ended |  
|                                                                           |                                          | September 30,                             |            |       | September 30,     |  
|                                                                           |                                          |                                           |            |       |                   |  
|                                                                           |                                          | 2005                                      |            |       | 2004              |   |            | 2005 |  |   | 2004       |      
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|                                                                           |                                          | (In $000s, except unit and per unit data) |           
|Attributable to Limited Partners:                                          |                                          |                                           |            |       |                   |   |            |      |  |   |            |       |   |   |            |     
|Basic income (loss) from continuing operations                             |                                          | $                                         | (121,669   | )     |                   | $ | 16,528     |      |  | $ | (108,694   | )     |   | $ | 88,787     |     
|Add Preferred LP Unit distribution                                         |                                          |                                           |           |       |                   |   | 1,260      |      |  |   |           |       |   |   | 3,721      |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Income (loss) before discontinued operations                               |                                          |                                           | (121,669   | )     |                   |   | 17,788     |      |  |   | (108,694   | )     |   |   | 92,508     |     
|Income (loss) from discontinued operations                                 |                                          |                                           | (247       | )     |                   |   | 10,116     |      |  |   | 21,816     |       |   |   | 68,487     |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Diluted earnings (loss)                                                    |                                          | $                                         | (121,916   | )     |                   | $ | 27,904     |      |  | $ | (86,878    | )     |   | $ | 160,995    |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Weighted average LP units outstanding                                      |                                          |                                           | 61,856,830 |       |                   |   | 46,098,284 |      |  |   | 51,351,133 |       |   |   | 46,098,284 |     
|Dilutive effect of LP options issued to CEO                                |                                          |                                           |           |       |                   |   |           |      |  |   |           |       |   |   |           |     
|Dilutive effect of redemption of Preferred LP Units                        |                                          |                                           |           |       |                   |   | 5,040,623  |      |  |   |           |       |   |   | 5,760,464  |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Weighted average LP units and equivalent partnership units
    outstanding |                                          |                                           | 61,856,830 |       |                   |   | 51,138,907 |      |  |   | 51,351,133 |       |   |   | 51,858,748 |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Basic earnings:                                                            |                                          |                                           |            |       |                   |   |            |      |  |   |            |       |   |   |            |     
|                                                                           | Income (loss) from continuing operations |                                           | $          | (1.97 | )                 |   | $          | .36  |  |   | $          | (2.12 | ) |   | $          | 1.93 | 
|                                                                           | Income from discontinued operations      |                                           |            |      |                   |   |            | .22  |  |   |            | .42   |   |   |            | 1.49 | 
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Basic earnings (loss) per LP unit                                          |                                          | $                                         | (1.97      | )     |                   | $ | .58        |      |  | $ | (1.70      | )     |   | $ | 3.42       |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Diluted earnings:(i)                                                       |                                          |                                           |            |       |                   |   |            |      |  |   |            |       |   |   |            |     
|                                                                           | Income (loss) from continuing operations |                                           | $          | (1.97 | )                 |   | $          | .35  |  |   | $          | (2.12 | ) |   | $          | 1.78 | 
|                                                                           | Income from discontinued operations      |                                           |            |      |                   |   |            | .20  |  |   |            | .42   |   |   |            | 1.32 | 
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      
|Diluted earnings (loss) per LP unit                                        |                                          | $                                         | (1.97      | )     |                   | $ | .55        |      |  | $ | (1.70      | )     |   | $ | 3.10       |     
|                                                                           |                                          |                                           |            |       |                   |   |            |      |  |   |            |      






|    |                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The computation of diluted earnings per LP unit for the three
    and nine months ended September 30, 2005 excludes the
    impact of the redemption of the Preferred LP units and the LP
    options as the impact of these items would have been
    anti-dilutive.

35



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




|                                                    |  |               |           |  |               |  |           | 
|--------------------------------------------------- |  | ------------- | --------- |  | ------------- |  | --------- | 
|                                                    |  | Three Months  |           |  | Nine Months   | 
|                                                    |  | Ended         |           |  | Ended         | 
|                                                    |  | September 30, |           |  | September 30, | 
|                                                    |  |               |           |  |               | 
|                                                    |  | 2005          |           |  | 2005          | 
|                                                    |  |               |           |  |               | 
|                                                    |  | (In $000s)    |          
|Dilutive effect of LP options issued to CEO         |  |               | 29,135    |  |               |  | 9,712     | 
|Dilutive effect of redemption of preferred LP units |  |               | 3,033,870 |  |               |  | 3,595,088 | 





|         |                             
|-------- | ----------------------------
|Note 17. | Asset Retirement Obligations





|                                                  |  |               |         |   |              |   |        |  
|------------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------ | -
|                                                  |  | September 30, |         |   | December 31, |  
|                                                  |  | 2005          |         |   | 2004         |  
|                                                  |  |               |         |   |              |  
|                                                  |  | (In $000s)    |        
|Asset retirement obligation  beginning of period |  | $             | 56,524  |   |              | $ | 6,746  |  
|Accretion expense                                 |  |               | 2,290   |   |              |   | 593    |  
|Acquisitions                                      |  |               |        |   |              |   | 49,538 |  
|Liabilities sold                                  |  |               | (16,758 | ) |              |   |       |  
|Revisions/settlements                             |  |               |        |   |              |   | (353   | )
|                                                  |  |               |         |   |              |  
|Asset retirement obligation  end of period       |  | $             | 42,056  |   |              | $ | 56,524 |  
|                                                  |  |               |         |   |              |  

36



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




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



|                                                                                |  |                  |                |  |                  |  |               |       |  |   |         |  |  |   |        | 
|------------------------------------------------------------------------------- |  | ---------------- | -------------- |  | ---------------- |  | ------------- | ----- |  | - | ------- |  |  | - | ------ | 
|Type of Contract                                                                |  | Production Month |                |  | Volume Per Month |  |               | Floor |  |   | Ceiling | 
|                                                                                |  |                  |                |  |                  |  |               |       |  |   |         | 
|No cost collars                                                                 |  |                  | Jan-Dec 2005   |  |                  |  | 40,000 Bbls   |       |  | $ | 42.50   |  |  | $ | 46.00  | 
|No cost collars                                                                 |  |                  | March-Dec 2005 |  |                  |  | 14,000 Bbls   |       |  |   | 44.50   |  |  |   | 48.00  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2005   |  |                  |  | 25,000 Bbls   |       |  |   | 43.60   |  |  |   | 45.80  | 
|No cost collars                                                                 |  |                  | March-Dec 2005 |  |                  |  | 250,000 MMBTU |       |  |   | 6.05    |  |  |   | 7.30   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2005   |  |                  |  | 550,000 MMBTU |       |  |   | 6.00    |  |  |   | 8.35   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2005   |  |                  |  | 300,000 MMBTU |       |  |   | 3.25    |  |  |   | 4.60   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2005   |  |                  |  | 300,000 MMBTU |       |  |   | 4.75    |  |  |   | 5.45   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2005   |  |                  |  | 250,000 MMBTU |       |  |   | 6.00    |  |  |   | 8.70   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006   |  |                  |  | 31,000 Bbls   |       |  |   | 41.65   |  |  |   | 45.25  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006   |  |                  |  | 16,000 Bbls   |       |  |   | 41.75   |  |  |   | 45.40  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006   |  |                  |  | 570,000 MMBTU |       |  |   | 6.00    |  |  |   | 7.25   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006   |  |                  |  | 120,000 MMBTU |       |  |   | 6.00    |  |  |   | 7.28   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006   |  |                  |  | 500,000 MMBTU |       |  |   | 4.50    |  |  |   | 5.00   | 
|No cost collars                                                                 |  |                  | Jan-Dec 2006   |  |                  |  | 46,000 Bbls   |       |  |   | 60.00   |  |  |   | 68.50  | 
|(The company participates in a second ceiling at $84.50 on the
    46,000 Bbls)
|No cost collars                                                                 |  |                  | Jan-Dec 2007   |  |                  |  | 30,000 Bbls   |       |  |   | 57.00   |  |  |   | 70.50  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2007   |  |                  |  | 30,000 Bbls   |       |  |   | 57.50   |  |  |   | 72.00  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2007   |  |                  |  | 930,000 MMBTU |       |  |   | 8.00    |  |  |   | 10.225 | 
|No cost collars                                                                 |  |                  | Jan-Dec 2008   |  |                  |  | 46,000 Bbls   |       |  |   | 55.00   |  |  |   | 69.00  | 
|No cost collars                                                                 |  |                  | Jan-Dec 2008   |  |                  |  | 750,000 MMBTU |       |  |   | 7.00    |  |  |   | 10.35  | 



|                              |                 |                    |        |        |                   |   |        |       |  |   |         |         |  |   |        |        | 
|----------------------------- | --------------- | ------------------ | ------ | ------ | ----------------- | - | ------ | ----- |  | - | ------- | ------- |  | - | ------ | ------ | 
|                              |                 | Three Months Ended |        |        | Nine Months Ended |  
|                              |                 | September 30,      |        |        | September 30,     |  
|                              |                 |                    |        |        |                   |  
|                              |                 | 2005               |        |        | 2004              |   |        | 2005  |  |   | 2004    |        
|                              |                 |                    |        |        |                   |   |        |       |  |   |         |        
|                              |                 | (In $000s)         |       
|Realized loss (cash payments) |                 | $                  | 11,497 |        |                   | $ | 4,694  |       |  | $ | 19,486  |         |  | $ | 8,559  |       
|                              | Unrealized loss |                    |        | 79,798 |                   |   |        | 9,347 |  |   |         | 111,631 |  |   |        | 23,165 | 
|                              |                 |                    |        |        |                   |   |        |       |  |   |         |        
|                              |                 | $                  | 91,295 |        |                   | $ | 14,041 |       |  | $ | 131,117 |         |  | $ | 31,724 |       
|                              |                 |                    |        |        |                   |   |        |       |  |   |         |        



37



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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






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













|          |                |                      |   |         |                   |  |   |         |        |  |      |         |        |  |   |         |        | 
|--------- | -------------- | -------------------- | - | ------- | ----------------- |  | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|          |                | Three Months Ended   |   |         | Nine Months Ended | 
|          |                | September 30,        |   |         | September 30,     | 
|          |                |                      |   |         |                   | 
|          |                | 2005                 |   |         | 2004              |  |   | 2005    |        |  | 2004 |        
|          |                |                      |   |         |                   |  |   |         |        |  |      |        
|          |                | (In $000s)           |  
|Revenues: |                |                      |   |         |                   |  |   |         |        |  |      |         |        |  |   |        
|          | Home fashion   |                      | $ | 183,627 |                   |  | $ |        |        |  | $    | 183,627 |        |  | $ |        |       
|          | Gaming         |                      |   | 126,239 |                   |  |   | 119,265 |        |  |      | 371,474 |        |  |   | 352,979 |       
|          | Oil and gas    |                      |   | (2,362  | )                 |  |   | 26,027  |        |  |      | 86,709  |        |  |   | 89,034  |       
|          | Real estate    |                      |   |         |                   |  |   |         |        |  |      |         |        |  |   |         |       
|          |                | Property development |   |         | 11,519            |  |   |         | 3,047  |  |      |         | 34,257 |  |   |         | 20,503 | 
|          |                | Rental real estate   |   |         | 4,825             |  |   |         | 4,366  |  |      |         | 12,609 |  |   |         | 14,244 | 
|          |                | Resort activities    |   |         | 7,914             |  |   |         | 6,794  |  |      |         | 20,081 |  |   |         | 11,068 | 
|          |                |                      |   |         |                   |  |   |         |        |  |      |        
|          |                | Total real estate    |   |         | 24,258            |  |   |         | 14,207 |  |      |         | 66,947 |  |   |         | 45,815 | 
|          |                |                      |   |         |                   |  |   |         |        |  |      |        
|          | Total revenues |                      | $ | 331,762 |                   |  | $ | 159,499 |        |  | $    | 708,757 |        |  | $ | 487,828 |       
|          |                |                      |   |         |                   |  |   |         |        |  |      |        

38



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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


|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |          |        |   |         |        |        | 
|----------------------------------------------------------------- | ---------------------------------------- | -------------------------- | ------- | -------- | ----------------- | - | ------- | ------ | ----- | - | ------- | -------- | ------ | - | ------- | ------ | ------ | 
|                                                                  |                                          | Three Months Ended         |         |          | Nine Months Ended |  
|                                                                  |                                          | September 30,              |         |          | September 30,     |  
|                                                                  |                                          |                            |         |          |                   |  
|                                                                  |                                          | 2005                       |         |          | 2004              |   |         | 2005   |       |   | 2004    |         
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|                                                                  |                                          | (In $000s)                 |        
|Net segment operating income (loss):                              |                                          |                            |         |          |                   |   |         |        |       |   |         |          |        |   |         |       
|                                                                  | Home fashion                             |                            | $       | (5,090   | )                 |   | $       |       |       |   | $       | (5,090   | )      |   | $       |       |       
|                                                                  | Gaming                                   |                            |         | 11,819   |                   |   |         | 11,130 |       |   |         | 47,260   |        |   |         | 39,850 |       
|                                                                  | Oil and gas                              |                            |         | (39,615  | )                 |   |         | 1,412  |       |   |         | (29,215  | )      |   |         | 12,398 |       
|                                                                  | Real estate                              |                            |         |          |                   |   |         |        |       |   |         |          |        |   |         |        |       
|                                                                  |                                          | Property development       |         |          | 2,686             |   |         |        | 470   |   |         |          | 6,241  |   |         |        | 6,864  | 
|                                                                  |                                          | Rental real estate         |         |          | 2,662             |   |         |        | 1,736 |   |         |          | 6,990  |   |         |        | 7,862  | 
|                                                                  |                                          | Resort activities          |         |          | 550               |   |         |        | 1,136 |   |         |          | (485   | ) |         |        | 471    | 
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|                                                                  |                                          | Total real estate earnings |         |          | 5,898             |   |         |        | 3,342 |   |         |          | 12,746 |   |         |        | 15,197 | 
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|                                                                  | Total segment operating income           |                            |         | (26,988  | )                 |   |         | 15,884 |       |   |         | 25,701   |        |   |         | 67,445 |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|Holding company costs(i)                                          |                                          |                            | 3,168   |          |                   |   | 1,550   |        |       |   | 12,153  |          |        |   | 4,727   |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|Total operating income (loss)                                     |                                          |                            | (30,156 | )        |                   |   | 14,334  |        |       |   | 13,548  |          |        |   | 62,718  |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|Interest expense                                                  |                                          |                            | (27,420 | )        |                   |   | (18,659 | )      |       |   | (78,874 | )        |        |   | (44,653 | )     
|Interest income                                                   |                                          |                            | 10,871  |          |                   |   | 18,464  |        |       |   | 37,457  |          |        |   | 34,998  |       
|Impairment loss on GBH                                            |                                          |                            | (52,366 | )        |                   |   |        |        |       |   | (52,366 | )        |        |   |        |       
|Other income (expense)                                            |                                          |                            | (20,224 | )        |                   |   | 842     |        |       |   | (12,218 | )        |        |   | 50,202  |       
|Income tax expense                                                |                                          |                            | (6,558  | )        |                   |   | (4,057  | )      |       |   | (18,993 | )        |        |   | (14,232 | )     
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|                                                                  | Income (loss) from continuing operations |                            | $       | (125,853 | )                 |   | $       | 10,924 |       |   | $       | (111,446 | )      |   | $       | 89,033 |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|Depreciation, depletion and amortization (D, D&A) by
    segment: |                                          |                            |         |          |                   |   |         |        |       |   |         |          |        |   |         |       
|                                                                  | Home fashion                             |                            | $       | 6,934    |                   |   | $       |       |       |   | $       | 6,934    |        |   | $       |       |       
|                                                                  | Gaming                                   |                            |         | 9,801    |                   |   |         | 9,387  |       |   |         | 28,377   |        |   |         | 28,927 |       
|                                                                  | Oil and gas                              |                            |         | 21,796   |                   |   |         | 14,210 |       |   |         | 68,573   |        |   |         | 45,321 |       
|Real estate:                                                      |                                          |                            |         |          |                   |   |         |        |       |   |         |          |        |   |         |       
|                                                                  | Rental real estate                       |                            |         | 722      |                   |   |         | 475    |       |   |         | 1,752    |        |   |         | 1,871  |       
|                                                                  | Resort operating properties              |                            |         | 854      |                   |   |         | 712    |       |   |         | 2,952    |        |   |         | 1,989  |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|                                                                  |                                          | Total real estate          |         |          | 1,576             |   |         |        | 1,187 |   |         |          | 4,704  |   |         |        | 3,860  | 
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|                                                                  | DD&A in operating expenses               |                            | $       | 40,107   |                   |   | $       | 24,784 |       |   | $       | 108,588  |        |   | $       | 78,108 |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|Amortization in interest expense                                  |                                          |                            | 538     |          |                   |   | 290     |        |       |   | 1,577   |          |        |   | 473     |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         
|Total DD&A                                                        |                                          | $                          | 40,645  |          |                   | $ | 25,074  |        |       | $ | 110,165 |          |        | $ | 78,581  |       
|                                                                  |                                          |                            |         |          |                   |   |         |        |       |   |         |         






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

39



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




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



|         |  |                    |        |   |                   |   |        |      |  |   |         |   |  |   |         |  
|-------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|         |  | Three Months Ended |        |   | Nine Months Ended |  
|         |  | September 30,      |        |   | September 30,     |  
|         |  |                    |        |   |                   |  
|         |  | 2005               |        |   | 2004              |   |        | 2005 |  |   | 2004    |  
|         |  |                    |        |   |                   |   |        |      |  |   |         |  
|         |  | (In $000s)         |       
|Current  |  | $                  | (3,937 | ) |                   | $ | (109   | )    |  | $ | (7,778  | ) |  | $ | (4,050  | )
|Deferred |  |                    | (2,621 | ) |                   |   | (3,948 | )    |  |   | (11,215 | ) |  |   | (10,182 | )
|         |  |                    |        |   |                   |   |        |      |  |   |         |  
|         |  | $                  | (6,558 | ) |                   | $ | (4,057 | )    |  | $ | (18,993 | ) |  | $ | (14,232 | )
|         |  |                    |        |   |                   |   |        |      |  |   |         |  



|                     |                                  |                               |        |             |              |  |         |         |        | 
|-------------------- | -------------------------------- | ----------------------------- | ------ | ----------- | ------------ |  | ------- | ------- | ------ | 
|                     |                                  | September 30,                 |        |             | December 31, | 
|                     |                                  | 2005                          |        |             | 2004         | 
|                     |                                  |                               |        |             |              | 
|                     |                                  |                               |        | (Unaudited) |             
|Deferred tax assets: |                                  |                               |        |             |              |  |         |        
|                     | Property, plant and equipment    |                               | $      | 9,379       |              |  | $       | 16,871  |       
|                     | Net operating loss carryforwards |                               |        | 56,865      |              |  |         | 90,490  |       
|                     | Investment in NEG Holding LLC    |                               |        | (3,901      | )            |  |         | 5,333   |       
|                     | Other                            |                               |        | 34,983      |              |  |         | 36,940  |       
|                     |                                  |                               |        |             |              | 
|                     |                                  |                               | 97,326 |             |              |  | 149,634 |        
|                     | Valuation allowance              |                               |        | (44,880     | )            |  |         | (88,590 | )     
|                     |                                  |                               |        |             |              | 
|                     |                                  | Sub-total                     |        |             | 52,446       |  |         |         | 61,044 | 
|                     | Less current portion             |                               |        | (2,685      | )            |  |         | (4,628  | )     
|                     |                                  |                               |        |             |              | 
|                     |                                  | Long-term deferred tax assets |        | $           | 49,761       |  |         | $       | 56,416 | 
|                     |                                  |                               |        |             |              | 





40



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AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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














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







| |                    
| | -------------------
| | WPI Rights Offering





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



| |           
| | ----------
| | Securities



41



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##### Table of Contents



AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q SEPTEMBER 30, 2005


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




| |                                                           
| | ----------------------------------------------------------
| | Offer to Acquire Remaining Shares in National Energy Group







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





| |                              
| | -----------------------------
| | Appointment of new CEO at WPI



42



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



|   |  |                                  |  |  |  | 
|-- |  | -------------------------------- |  |  |  | 
|1. |  | Overview                         |  |  |  | 
|2. |  | Results of Operations            |  |  |  | 
|   |  |  Consolidated Financial Results |  |  |  | 
|   |  |  Home Fashion                   |  |  |  | 
|   |  |  Gaming                         |  |  |  | 
|   |  |  Oil and Gas                    |  |  |  | 
|   |  |  Real Estate                    |  |  |  | 
|   |  |  Corporate and Investments      |  |  |  | 
|3. |  | Liquidity and Capital Resources  |  |  |  | 
|   |  |  Consolidated Financial Results |  |  |  | 
|   |  |  Home Fashion                   |  |  |  | 
|   |  |  Gaming                         |  |  |  | 
|   |  |  Oil and Gas                    |  |  |  | 
|   |  |  Real Estate                    |  |  |  | 
|4. |  | Certain Trends and Uncertainties |  |  |  | 

Overview




Results of Operations




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







43



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| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to three
    months ended September 30, 2004



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Losses on hedging transactions. Unrealized losses on
    hedging transactions at our oil and gas operations were
    $79.8 million. This loss offset otherwise favorable results
    from higher prices for oil and gas and higher production
    volumes. On a reported basis, operating income from oil and gas
    activities in the third quarter of 2005 was $41.0 million
    lower than operating income from oil and gas activities for the
    same period in the prior year. On a gross basis, revenues were
    $47.8 million higher in the third quarter of 2005 when
    compared with the same period in the prior year (see
    page 50).
|
| |  | Interest Expense. Higher interest expense in the current
    year as a result of higher debt levels. On a reported basis,
    interest expense increased approximately $8.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Losses on marketable securities. Net losses on securities
    were $23.8 million in the current year. There were no gains
    or losses on securities in the comparable period of the prior
    year.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Loss on investment in GB Holdings, Inc., or GBH. In
    connection with the bankruptcy filing of GBH, we incurred
    impairment charges of $52.4 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Reduced gains on sales of properties. On a reported
    basis, income from gains on discontinued operations fell
    $9.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to nine
    months ended September 30, 2004



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Losses on hedging transactions. Unrealized losses on
    hedging transactions were the largest component of the year over
    year comparison. Unrealized loss on hedging transactions at our
    oil and gas operations were $111.6 million. This was offset
    by otherwise favorable results from higher prices of oil and gas
    and higher production volume. On a reported basis, operating
    income for oil and gas activities was $41.6 million lower
    than the same period in the prior year. On a gross basis,
    revenues were $94.5 million higher in the third quarter of
    2005 when compared to the same period in the prior year (see
    page 50).
|
| |  | Reduction in gains on securities. Net losses on
    securities were $24.0 million in the current year versus
    gains of $37.2 million in the prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Loss on investment in GBH. In connection with the
    bankruptcy filing of GBH, we incurred impairment charges of
    $52.4 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Interest Expense. Higher interest expense in the current
    year as a result of higher debt levels. On a reported basis,
    interest expense increased approximately $34.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Reduced gain on sales of properties. On a reported basis,
    income from gains on discontinued operations fell
    $43.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



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



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to three
    months ended September 30, 2004.





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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to nine
    months ended September 30, 2004











| |             
| | ------------
| | Home fashion





45



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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Adverse competitive conditions for U.S. mills compared to
    mills located overseas;                
|
| |  | Protracted bankruptcy proceedings resulting in loss of customers,                                    
|
| |  | Growth of low priced imports from Asia and Latin America
    resulting from lifting of import quotas;
|
| |  | Retailers of consumer goods have become fewer and more powerful
    over time; and                   
|
| |  | Long term increases in pricing and availability of raw materials.                                    



| |                                                                               
| | ------------------------------------------------------------------------------
| | Results of Operations for period from August 8, 2005 to
    September 30, 2005



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Revenues                            |  | $ | 183,627 |  
|Expenses:                           |  |   |         |  
|Cost of sales                       |  |   | 159,152 |  
|Selling, general and administrative |  |   | 29,565  |  
|                                    |  |   |        
|Operating loss                      |  | $ | (5,090  | )
|                                    |  |   |        













| |                  
| | -----------------
| | Subsequent events





| |      
| | -----
| | Other



46



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



|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |         |  |   |         |         | 
|----------------------------------- | ------------------------ | ------------------ | ------- | ---------- | ----------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                    |                          | Three Months Ended |         |            | Nine Months Ended |  
|                                    |                          | September 30,      |         |            | September 30,     |  
|                                    |                          |                    |         |            |                   |  
|                                    |                          | 2005               |         |            | 2004              |   |         | 2005    |  |   | 2004    |        
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|                                    |                          |                    |         | (In $000s) |                   |   |        
|Revenues:                           |                          |                    |         |            |                   |   |         |         |  |   |         |         |  |   |         |        
|Casino                              |                          | $                  | 84,568  |            |                   | $ | 82,617  |         |  | $ | 250,806 |         |  | $ | 244,024 |        
|Hotel                               |                          |                    | 18,681  |            |                   |   | 16,179  |         |  |   | 55,370  |         |  |   | 48,970  |        
|Food and beverage                   |                          |                    | 24,749  |            |                   |   | 22,394  |         |  |   | 69,998  |         |  |   | 66,604  |        
|Tower, retail and other income      |                          |                    | 10,283  |            |                   |   | 10,037  |         |  |   | 29,401  |         |  |   | 28,564  |        
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|Gross revenues                      |                          |                    | 138,281 |            |                   |   | 131,227 |         |  |   | 405,575 |         |  |   | 388,162 |        
|Less promotional allowances         |                          |                    | 12,042  |            |                   |   | 11,962  |         |  |   | 34,101  |         |  |   | 35,183  |        
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|Net revenues                        |                          |                    | 126,239 |            |                   |   | 119,265 |         |  |   | 371,474 |         |  |   | 352,979 |        
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|Expenses:                           |                          |                    |         |            |                   |   |         |         |  |   |         |         |  |   |         |        
|Casino                              |                          |                    | 28,671  |            |                   |   | 28,388  |         |  |   | 83,993  |         |  |   | 84,721  |        
|Hotel                               |                          |                    | 8,517   |            |                   |   | 7,525   |         |  |   | 23,276  |         |  |   | 20,450  |        
|Food and beverage                   |                          |                    | 16,038  |            |                   |   | 14,227  |         |  |   | 44,822  |         |  |   | 41,985  |        
|Other operating expenses            |                          |                    | 4,349   |            |                   |   | 4,082   |         |  |   | 12,520  |         |  |   | 11,062  |        
|Selling, general and administrative |                          |                    | 47,044  |            |                   |   | 44,526  |         |  |   | 131,226 |         |  |   | 125,984 |        
|Depreciation and amortization       |                          |                    | 9,801   |            |                   |   | 9,387   |         |  |   | 28,377  |         |  |   | 28,927  |        
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|                                    | Total Costs and Expenses |                    |         | 114,420    |                   |   |         | 108,135 |  |   |         | 324,214 |  |   |         | 313,129 | 
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|Income from operations              |                          | $                  | 11,819  |            |                   | $ | 11,130  |         |  | $ | 47,260  |         |  | $ | 39,850  |        
|                                    |                          |                    |         |            |                   |   |         |         |  |   |         |        
|Operating income %                  |                          |                    | 9.4     | %          |                   |   | 9.3     | %       |  |   | 12.7    | %       |  |   | 11.3    | %      



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to the
    three months ended September 30, 2004









47



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| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to the
    nine months ended September 30, 2004









48



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



|                          |              |                    |        |         |                   |   |        |         |  |   |         |         |  |   |         |         | 
|------------------------- | ------------ | ------------------ | ------ | ------- | ----------------- | - | ------ | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                          |              | Three Months Ended |        |         | Nine Months Ended |  
|                          |              | September 30,      |        |         | September 30,     |  
|                          |              |                    |        |         |                   |  
|                          |              | 2005               |        |         | 2004              |   |        | 2005    |  |   | 2004    |        
|                          |              |                    |        |         |                   |   |        |         |  |   |         |        
|Net revenues:             |              |                    |        |         |                   |   |        |         |  |   |         |         |  |   |         |        
|Las Vegas                 |              | $                  | 81,781 |         |                   | $ | 75,139 |         |  | $ | 246,128 |         |  | $ | 223,508 |        
|Atlantic City             |              |                    | 44,458 |         |                   |   | 44,126 |         |  |   | 125,346 |         |  |   | 129,471 |        
|                          |              |                    |        |         |                   |   |        |         |  |   |         |        
|                          | Total gaming |                    | $      | 126,239 |                   |   | $      | 119,265 |  |   | $       | 371,474 |  |   | $       | 352,979 | 
|                          |              |                    |        |         |                   |   |        |         |  |   |         |        
|Operating income (loss):  |              |                    |        |         |                   |   |        |         |  |   |         |         |  |   |         |        
|Las Vegas                 |              | $                  | 14,300 |         |                   | $ | 10,408 |         |  | $ | 52,077  |         |  | $ | 36,302  |        
|Atlantic City (excl. GBH) |              |                    | (1,342 | )       |                   |   | 738    |         |  |   | (3,486  | )       |  |   | 3,616   |        
|GBH                       |              |                    | (1,139 | )       |                   |   | (16    | )       |  |   | (1,331  | )       |  |   | (68     | )      
|                          |              |                    |        |         |                   |   |        |         |  |   |         |        
|                          | Total gaming |                    | $      | 11,819  |                   |   | $      | 11,130  |  |   | $       | 47,260  |  |   | $       | 39,850  | 
|                          |              |                    |        |         |                   |   |        |         |  |   |         |        



49



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



|                                         |  |                    |         |            |                   |   |        |      |  |   |          |   |  |   |         |  
|---------------------------------------- |  | ------------------ | ------- | ---------- | ----------------- | - | ------ | ---- |  | - | -------- | - |  | - | ------- | -
|                                         |  | Three Months Ended |         |            | Nine Months Ended |  
|                                         |  | September 30,      |         |            | September 30,     |  
|                                         |  |                    |         |            |                   |  
|                                         |  | 2005               |         |            | 2004              |   |        | 2005 |  |   | 2004     |  
|                                         |  |                    |         |            |                   |   |        |      |  |   |          |  
|                                         |  |                    |         | (In $000s) |                   |   |       
|Revenues                                 |  | $                  | 75,675  |            |                   | $ | 34,715 |      |  | $ | 193,633  |   |  | $ | 110,101 |  
|Unrealized hedging loss                  |  |                    | (79,798 | )          |                   |   | (9,347 | )    |  |   | (111,631 | ) |  |   | (23,165 | )
|Plant/ Field operations                  |  |                    | 1,761   |            |                   |   | 659    |      |  |   | 4,707    |   |  |   | 2,098   |  
|                                         |  |                    |         |            |                   |   |        |      |  |   |          |  
|Total revenues                           |  |                    | (2,362  | )          |                   |   | 26,027 |      |  |   | 86,709   |   |  |   | 89,034  |  
|                                         |  |                    |         |            |                   |   |        |      |  |   |          |  
|Cost and expenses                        |  |                    |         |            |                   |   |        |      |  |   |          |   |  |   |         |  
|Lease operating expenses                 |  |                    | 6,098   |            |                   |   | 3,431  |      |  |   | 19,373   |   |  |   | 10,077  |  
|Transportation and gathering             |  |                    | 1,560   |            |                   |   | 783    |      |  |   | 3,764    |   |  |   | 2,427   |  
|Taxes, other than income                 |  |                    | 4,186   |            |                   |   | 2,629  |      |  |   | 11,184   |   |  |   | 7,498   |  
|Plant/ Field operations                  |  |                    | 781     |            |                   |   | 792    |      |  |   | 2,223    |   |  |   | 2,509   |  
|Depreciation, depletion and amortization |  |                    | 21,796  |            |                   |   | 14,210 |      |  |   | 68,573   |   |  |   | 45,321  |  
|General and administrative expenses      |  |                    | 2,832   |            |                   |   | 2,770  |      |  |   | 10,807   |   |  |   | 8,804   |  
|                                         |  |                    |         |            |                   |   |        |      |  |   |          |  
|Total expenses                           |  |                    | 37,253  |            |                   |   | 24,615 |      |  |   | 115,924  |   |  |   | 76,636  |  
|                                         |  |                    |         |            |                   |   |        |      |  |   |          |  
|Operating income (loss)                  |  | $                  | (39,615 | )          |                   | $ | 1,412  |      |  | $ | (29,215  | ) |  | $ | 12,398  |  
|                                         |  |                    |         |            |                   |   |        |      |  |   |          |  







|                                      |          |                    |         |        |                   |   |        |        |  |   |          |        |  |   |         |        | 
|------------------------------------- | -------- | ------------------ | ------- | ------ | ----------------- | - | ------ | ------ |  | - | -------- | ------ |  | - | ------- | ------ | 
|                                      |          | Three Months Ended |         |        | Nine Months Ended |  
|                                      |          | September 30,      |         |        | September 30,     |  
|                                      |          |                    |         |        |                   |  
|                                      |          | 2005               |         |        | 2004              |   |        | 2005   |  |   | 2004     |       
|                                      |          |                    |         |        |                   |   |        |        |  |   |          |       
|                                      |          | (In $000s)         |        
|Gross oil and gas revenue             |          | $                  | 87,172  |        |                   | $ | 39,409 |        |  | $ | 213,118  |        |  | $ | 118,660 |       
|Realized derivative losses            |          |                    | (11,497 | )      |                   |   | (4,694 | )      |  |   | (19,486  | )      |  |   | (8,559  | )     
|Unrealized derivative gains (losses)  |          |                    | (79,798 | )      |                   |   | (9,347 | )      |  |   | (111,631 | )      |  |   | (23,165 | )     
|Plant, platform, and field operations |          |                    | 1,761   |        |                   |   | 659    |        |  |   | 4,708    |        |  |   | 2,098   |       
|                                      |          |                    |         |        |                   |   |        |        |  |   |          |       
|                                      | Revenues |                    | $       | (2,362 | )                 |   | $      | 26,027 |  |   | $        | 86,709 |  |   | $       | 89,034 | 
|                                      |          |                    |         |        |                   |   |        |        |  |   |          |       

50



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|                                         |  |                    |        |  |                   |   |       |      |  |   |        |  |  |   |        | 
|---------------------------------------- |  | ------------------ | ------ |  | ----------------- | - | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                                         |  | Three Months Ended |        |  | Nine Months Ended |  
|                                         |  | September 30,      |        |  | September 30,     |  
|                                         |  |                    |        |  |                   |  
|                                         |  | 2005               |        |  | 2004              |   |       | 2005 |  |   | 2004   | 
|                                         |  |                    |        |  |                   |   |       |      |  |   |        | 
|Production data:                         |  |                    |        |  |                   |   |       |      |  |   |        |  |  |   |        | 
|Oil (Mbbls)                              |  |                    | 334    |  |                   |   | 228   |      |  |   | 1,065  |  |  |   | 738    | 
|Natural gas (MMcf)                       |  |                    | 7,623  |  |                   |   | 4,596 |      |  |   | 20,616 |  |  |   | 14,022 | 
|Natural gas liquids (Mbbls)              |  |                    | 81     |  |                   |   | 109   |      |  |   | 267    |  |  |   | 435    | 
|Natural gas equivalents (MMcfe)          |  |                    | 10,113 |  |                   |   | 6,617 |      |  |   | 28,605 |  |  |   | 21,064 | 
|Average Sales Price:                     |  |                    |        |  |                   |   |       |      |  |   |        |  |  |   |        | 
|Oil (per Bbl)                            |  | $                  | 51.09  |  |                   | $ | 33.07 |      |  | $ | 48.88  |  |  | $ | 31.59  | 
|Natural gas (per Mcf)                    |  |                    | 7.33   |  |                   |   | 5.18  |      |  |   | 6.46   |  |  |   | 5.40   | 
|Natural gas liquids (per Bbl)            |  |                    | 33.91  |  |                   |   | 30.90 |      |  |   | 31.30  |  |  |   | 25.31  | 
|Natural gas Equivalents (per Mcfe)       |  |                    | 7.48   |  |                   |   | 5.25  |      |  |   | 6.77   |  |  |   | 5.23   | 
|Expense per Mcfe:                        |  |                    |        |  |                   |   |       |      |  |   |        |  |  |   |        | 
|Lease operating expenses                 |  | $                  | 0.60   |  |                   | $ | 0.52  |      |  | $ | 0.68   |  |  | $ | 0.48   | 
|Transportation and gathering             |  |                    | 0.15   |  |                   |   | 0.12  |      |  |   | 0.13   |  |  |   | 0.12   | 
|Taxes, other than income                 |  |                    | 0.41   |  |                   |   | 0.40  |      |  |   | 0.39   |  |  |   | 0.36   | 
|Depreciation, depletion and amortization |  |                    | 2.16   |  |                   |   | 2.15  |      |  |   | 2.40   |  |  |   | 2.15   | 
|General and administrative expenses      |  |                    | 0.31   |  |                   |   | 0.44  |      |  |   | 0.38   |  |  |   | 0.44   | 







| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to the
    three months ended September 30, 2004



51



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|                              |                        |                    |        |        |                   |   |        |       |  |   |         |         |  |   |        |        | 
|----------------------------- | ---------------------- | ------------------ | ------ | ------ | ----------------- | - | ------ | ----- |  | - | ------- | ------- |  | - | ------ | ------ | 
|                              |                        | Three Months Ended |        |        | Nine Months Ended |  
|                              |                        | September 30,      |        |        | September 30,     |  
|                              |                        |                    |        |        |                   |  
|                              |                        | 2005               |        |        | 2004              |   |        | 2005  |  |   | 2004    |        
|                              |                        |                    |        |        |                   |   |        |       |  |   |         |        
|                              |                        | (In $000s)         |       
|Realized loss (cash payments) |                        | $                  | 11,497 |        |                   | $ | 4,694  |       |  | $ | 19,486  |         |  | $ | 8,559  |       
|                              | Unrealized (gain) loss |                    |        | 79,798 |                   |   |        | 9,347 |  |   |         | 111,631 |  |   |        | 23,165 | 
|                              |                        |                    |        |        |                   |   |        |       |  |   |         |        
|                              |                        | $                  | 91,295 |        |                   | $ | 14,041 |       |  | $ | 131,117 |         |  | $ | 31,724 |       
|                              |                        |                    |        |        |                   |   |        |       |  |   |         |        





















52



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| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to the
    nine months ended September 30, 2004



















53



---



##### Table of Contents





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



|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |        |        | 
|------------------- | -------------------- | ----------------------------------- |  | ------ | ----------------- |  |  | ----- | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|                    |                      | Three Months Ended                  |  |        | Nine Months Ended | 
|                    |                      | September 30,                       |  |        | September 30,     | 
|                    |                      |                                     |  |        |                   | 
|                    |                      | 2005                                |  |        | 2004              |  |  | 2005  |        |  | 2004 |       
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | (In $000s except per unit data)     | 
|Revenues:           |                      |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |       
|                    | Rental real estate:  |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |        |       
|                    |                      | Interest income on financing leases |  | $      | 1,780             |  |  | $     | 2,253  |  |      | $      | 5,547  |  |  | $      | 7,679  | 
|                    |                      | Rental income                       |  |        | 3,045             |  |  |       | 2,113  |  |      |        | 7,062  |  |  |        | 6,565  | 
|                    | Property development |                                     |  | 11,519 |                   |  |  | 3,047 |        |  |      | 34,257 |        |  |  | 20,503 |       
|                    | Resort activities    |                                     |  | 7,914  |                   |  |  | 6,794 |        |  |      | 20,081 |        |  |  | 11,068 |       
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | Total revenues                      |  |        | 24,258            |  |  |       | 14,207 |  |      |        | 66,947 |  |  |        | 45,815 | 
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|Operating expenses: |                      |                                     |  |        |                   |  |  |       |        |  |      |        |        |  |  |       
|                    | Rental real estate   |                                     |  | 2,163  |                   |  |  | 2,630 |        |  |      | 5,619  |        |  |  | 6,382  |       
|                    | Property development |                                     |  | 8,833  |                   |  |  | 2,577 |        |  |      | 28,016 |        |  |  | 13,639 |       
|                    | Resort activities    |                                     |  | 7,364  |                   |  |  | 5,658 |        |  |      | 20,566 |        |  |  | 10,597 |       
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | Total expenses                      |  |        | 18,360            |  |  |       | 10,865 |  |      |        | 54,201 |  |  |        | 30,618 | 
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       
|                    |                      | Operating income                    |  | $      | 5,898             |  |  | $     | 3,342  |  |      | $      | 12,746 |  |  | $      | 15,197 | 
|                    |                      |                                     |  |        |                   |  |  |       |        |  |      |       



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



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to the
    three months ended September 30, 2004





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to the
    nine months ended September 30, 2004.



|                                                   |  |                              |    |   |                   |   |        |      |  |   |        |  |  |   |         | 
|-------------------------------------------------- |  | ---------------------------- | -- | - | ----------------- | - | ------ | ---- |  | - | ------ |  |  | - | ------- | 
|                                                   |  | Three Months Ended           |    |   | Nine Months Ended |  
|                                                   |  | September 30,                |    |   | September 30,     |  
|                                                   |  |                              |    |   |                   |  
|                                                   |  | 2005                         |    |   | 2004              |   |        | 2005 |  |   | 2004   | 
|                                                   |  |                              |    |   |                   |   |        |      |  |   |        | 
|                                                   |  | (In $000s, except unit data) |   
|Properties sold                                    |  |                              |   |   |                   |   | 12     |      |  |   | 11     |  |  |   | 45      | 
|Proceeds received (costs incurred)                 |  | $                            | (6 | ) |                   | $ | 13,852 |      |  | $ | 37,602 |  |  | $ | 131,988 | 
|Mortgage debt                                      |  | $                            |   |   |                   | $ |       |      |  | $ | 10,702 |  |  | $ | 93,845  | 
|                                                  
|Gain (loss) recorded in operations                 |  | $                            |   |   |                   | $ | (10    | )    |  | $ | 176    |  |  | $ | 5,811   | 
|Gain (loss) recorded in discontinued operations(i) |  | $                            | (6 | ) |                   | $ | 9,347  |      |  | $ | 15,652 |  |  | $ | 64,533  | 
|                                                   |  |                              |    |   |                   |   |        |      |  |   |        | 
|Total gain (loss) recorded                         |  | $                            | (6 | ) |                   | $ | 9,337  |      |  | $ | 15,828 |  |  | $ | 70,344  | 
|                                                   |  |                              |    |   |                   |   |        |      |  |   |        | 






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

54



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##### Table of Contents







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



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to the
    three months ended September 30, 2004





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to the
    three months ended September 30, 2004







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



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three months ended September 30, 2005 compared to the
    three months ended September 30, 2004







| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2005 compared to the
    nine months ended September 30, 2004







| |                          
| | -------------------------
| | Corporate and Investments





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



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three Months ended September 30, 2005 compared to the
    three months ended September 30, 2004



55



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##### Table of Contents





| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Nine Months ended September 30, 2005 compared to the
    nine months ended September 30, 2004





| |                  
| | -----------------
| | Acquisition Costs





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







| |                       
| | ----------------------
| | Other Income (Expense)



|                                            |  |                    |         |            |                   |   |     |      |  |   |         |   |  |   |        | 
|------------------------------------------- |  | ------------------ | ------- | ---------- | ----------------- | - | --- | ---- |  | - | ------- | - |  | - | ------ | 
|                                            |  | Three Months Ended |         |            | Nine Months Ended |  
|                                            |  | September 30,      |         |            | September 30,     |  
|                                            |  |                    |         |            |                   |  
|                                            |  | 2005               |         |            | 2004              |   |     | 2005 |  |   | 2004    |  
|                                            |  |                    |         |            |                   |   |     |      |  |   |         |  
|                                            |  |                    |         | (In $000s) |                   |   |    
|Net gains (losses) on marketable securities |  | $                  | (23,779 | )          |                   | $ |    |      |  | $ | (23,999 | ) |  | $ | 37,167 | 
|Minority interest                           |  |                    | 3,158   |            |                   |   | 579 |      |  |   | 4,705   |   |  |   | 1,322  | 
|Other                                       |  |                    | 397     |            |                   |   | 263 |      |  |   | 7,076   |   |  |   | 11,713 | 
|                                            |  |                    |         |            |                   |   |     |      |  |   |         |  
|                                            |  | $                  | (20,224 | )          |                   | $ | 842 |      |  | $ | (12,218 | ) |  | $ | 50,202 | 
|                                            |  |                    |         |            |                   |   |     |      |  |   |         |  











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



56



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##### Table of Contents











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



Liquidity and Capital Resources




| |                                            
| | -------------------------------------------
| | Consolidated Liquidity and Capital Reserves





|                                                   |  |               |           |   |              |   |         |  
|-------------------------------------------------- |  | ------------- | --------- | - | ------------ | - | ------- | -
|                                                   |  | September 30, |           |   | December 31, |  
|                                                   |  | 2005          |           |   | 2004         |  
|                                                   |  |               |           |   |              |  
|                                                   |  | (In $000s)    |          
|                                                   |  | (Unaudited)   |          
|Senior unsecured 7.125% notes due 2013  AREP      |  | $             | 480,000   |   |              | $ |        |  
|Senior unsecured 8.125% notes due 2012  AREP      |  |               | 350,841   |   |              |   | 350,598 |  
|Senior secured 7.85% notes due 2012  ACEP         |  |               | 215,000   |   |              |   | 215,000 |  
|Borrowings under credit facilities  NEG Operating |  |               | 110,934   |   |              |   | 51,834  |  
|Mortgages payable                                  |  |               | 82,590    |   |              |   | 91,896  |  
|GBH 11% notes                                      |  |               |          |   |              |   | 43,741  |  
|Other                                              |  |               | 5,612     |   |              |   | 4,977   |  
|                                                   |  |               |           |   |              |  
|Total long-term debt                               |  |               | 1,244,977 |   |              |   | 758,046 |  
|Less current maturities:                           |  |               |           |   |              |   |         |  
|Mortgages payable                                  |  |               | (18,192   | ) |              |   | (31,177 | )
|GBH 11% notes                                      |  |               |          |   |              |   | (43,741 | )
|                                                   |  |               |           |   |              |  
|                                                   |  | $             | 1,226,785 |   |              | $ | 683,128 |  
|                                                   |  |               |           |   |              |  



57



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##### Table of Contents















| |                                               
| | ----------------------------------------------
| | Distribution Policy and Quarterly Distribution





| |                           
| | --------------------------
| | American Casino Borrowings



58



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##### Table of Contents





| |                                  
| | ---------------------------------
| | Proposed AREP Oil & Gas Financing





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



|                                         |       |           |       |                 |       |  |       |       |  |  |         |       |  |          |       |         |  |  |       |         | 
|---------------------------------------- | ----- | --------- | ----- | --------------- | ----- |  | ----- | ----- |  |  | ------- | ----- |  | -------- | ----- | ------- |  |  | ----- | ------- | 
|                                         |       | Less Than |       |                 | 1-3   |  |       | 3-5   |  |  | After   |       |  |         
|                                         |       | 1 Year    |       |                 | Years |  |       | Years |  |  | 5 Years |       |  | Total(1) |      
|                                         |       |           |       |                 |       |  |       |       |  |  |         |       |  |          |      
|                                         |       |           |       | (In $ millions) |       |  |      
|Mortgages payable                        |       |           | 18.2  |                 |       |  | 28.1  |       |  |  | 7.0     |       |  |          | 29.3  |         |  |  | 82.6  |        
|Senior secured notes payable             |       |           |      |                 |       |  |      |       |  |  |        |       |  |          | 215.0 |         |  |  | 215.0 |        
|Senior unsecured notes payable           |       |           |      |                 |       |  |      |       |  |  |        |       |  |          | 831.0 |         |  |  | 831.0 |        
|Capital expenditures                     |       |           | 139.9 |                 |       |  |      |       |  |  |        |       |  |          |      |         |  |  | 139.9 |        
|Operating leases                         |       |           | 15.4  |                 |       |  | 24.3  |       |  |  | 12.7    |       |  |          | 16.9  |         |  |  | 69.3  |        
|Interest on borrowings                   |       |           | 82.5  |                 |       |  | 159.0 |       |  |  | 159.0   |       |  |          | 272.7 |         |  |  | 673.2 |        
|Construction and development obligations |       |           | 28.0  |                 |       |  | 15.0  |       |  |  |        |       |  |          |      |         |  |  | 43.0  |        
|                                         |       |           |       |                 |       |  |       |       |  |  |         |       |  |          |      
|                                         | Total |           | $     | 284.0           |       |  | $     | 226.4 |  |  | $       | 178.7 |  |          | $     | 1,364.9 |  |  | $     | 2,054.0 | 
|                                         |       |           |       |                 |       |  |       |       |  |  |         |       |  |          |      





| |                      
| | ---------------------
| | GBH 11% Notes Payable





| |                        
| | -----------------------
| | Textile purchase orders





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



59



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##### Table of Contents





| |                                                          
| | ---------------------------------------------------------
| | Discussion of Segment Liquidity and Capital
    Resources



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







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









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





60



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##### Table of Contents









| |                                  
| | ---------------------------------
| | Proposed AREP Oil & Gas Financing





| |                      
| | ---------------------
| | Oil & Gas Acquisition





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







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





61



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##### Table of Contents





Certain Trends and Uncertainties






| |             
| | ------------
| | Home fashion



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Product margins may be less than those projected;                                                                                                                                                 
|
| |  | Additional reserves may be required for bad debts, returns,
    allowances, governmental compliance costs, or litigation;                                                                         
|
| |  | There may be changes in foreign currency exchange rates that
    could adversely affect our costs;                                                                                                
|
| |  | Unanticipated natural disasters could have a material impact
    upon results of operations;                                                                                                      
|
| |  | There may be changes in the general economic conditions that
    affect customer practices or consumer spending;                                                                                  
|
| |  | We face significant competition for retail and wholesale
    customers. Pricing and transportation of products may vary from
    time to time due to seasonal variations or otherwise;            
|
| |  | Customer demand for our products can be affected by competition,
    or general market demand for domestic or imported goods or the
    quantity, quality, price or delivery time of our products;
|
| |  | There could be an unanticipated loss of a material customer or a
    material license;                                                                                                            
|
| |  | The availability and price of raw materials could be affected by
    weather, disease, energy costs or other factors; and                                                                         
|
| |  | There may be changes in governmental standards for our products
    that materially affect the cost of production or availability of
    raw materials.                                           






|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK



| |                      
| | ---------------------
| | Corporate/real estate









62



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##### Table of Contents





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







| |             
| | ------------
| | Home fashion







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








|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES









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



63



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##### Table of Contents



PART II.     OTHER
INFORMATION


Item 1. Legal Proceedings




Item 6.     Exhibits


| |    |    |  |                                                                                                              
| | -- | -- |  | -------------------------------------------------------------------------------------------------------------
| | 31 | .1 |  | Certification of Chief Executive Officer  pursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002. 
| | 31 | .2 |  | Certification of Chief Financial Officer  pursuant to
    Section 302(a) of the Sarbanes-Oxley Act of 2002. 
| | 32 | .1 |  | Certification of Principal Executive Officer 
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | 32 | .2 |  | Certification of Principal Financial Officer 
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

64



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##### 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/ Jon F. Weber                                                                                 

| |             
| | ------------
| |             
| | Jon F. Weber
| | President   





| |                                    
| | -----------------------------------
| | 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  

65