UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q





(Mark one)


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31, 2011




OR





 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from __________to ____________





Commission File Number: 000-52975





American Casino & Entertainment Properties LLC


(Exact name of registrant as specified in its charter)





Delaware

20-0573058(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)2000 Las Vegas Boulevard SouthLas Vegas, NV

89104(Address of principal executive offices)

(Zip code)





(702) 380-7777


(Registrant's telephone number, including area code)








(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x No  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ̈ No x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer  ̈                                                                                           Accelerated filer  ̈





Non-accelerated filer x (Do not check if a smaller reporting company)                 Smaller reporting company  ̈


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes  ̈ No x





TABLE OF CONTENTS





PagePart I

Financial InformationItem 1.
Unaudited Condensed Consolidated Financial Statements
1Condensed Consolidated Balance Sheets –March 31, 2011 (unaudited) and December 31, 2010
1Condensed Consolidated Statements of Operations (unaudited) – the three months ended March 31, 2011 and March 31, 2010
2Condensed Consolidated Statements of Cash Flows (unaudited) – the three months ended March 31, 2011 and March 31, 2010
3Condensed Consolidated Statement of Members’ Equity (unaudited) – the three months ended March 31, 2011
4Notes to Condensed Consolidated Financial Statements (unaudited)
5Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
10Item 3.
Quantitative and Qualitative Disclosures About Market Risk
15Item 4T.
Controls and Procedures
16Part II

Other InformationItem 6.
Exhibits
17




i


PART I-FINANCIAL INFORMATION







Item 1. Unaudited Condensed Consolidated Financial Statements.





AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC


CONDENSED CONSOLIDATED BALANCE SHEETS





As of


As ofMarch 31, 2011


December 31, 2010(Unaudited)(In thousands)AssetsCurrent Assets:Cash and cash equivalents

$
98,073


$
85,311Investments-restricted


1,171



1,171Accounts receivable, net


3,661



3,290Accounts receivable, net - related party


44



93Other current assets


11,690



9,935Total Current Assets


114,639



99,800Property and equipment, net


1,126,437



1,133,848Debt issuance costs, net


2,699



2,866Intangible and other assets


19,446



19,889Total Assets

$
1,263,221


$
1,256,403Liabilities and Members' EquityCurrent Liabilities:Accounts payable

$
4,846


$
4,828Accrued expenses


28,907



17,870Accounts payable and accrued expenses - related party


22



12Accrued payroll and related expenses


11,385



10,462Current portion of capital lease obligations


280



276Total Current Liabilities


45,440



33,448Long-Term Liabilities:Long-term debt, net of unamortized discount


356,750



355,618Capital lease obligations, less current portion


1,847



1,919Total Long-Term Liabilities


358,597



357,537Total Liabilities


404,037



390,985Commitments and ContingenciesMembers' Equity:Members' Equity


859,184



865,418Total Members' Equity


859,184



865,418Total Liabilities and Members' Equity

$
1,263,221


$
1,256,403





See notes to condensed consolidated financial statements.


1


AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS




Three months ended

March 31, 2011


Three months ended

March 31, 2010(Unaudited)(In thousands)Revenues:Casino

$
53,213


$
55,903Hotel


15,180



13,845Food and beverage


16,824



17,022Tower, retail, entertainment and other


7,436



7,291Gross revenues


92,653



94,061Less promotional allowances


6,238



6,288Net revenues


86,415



87,773Costs And Expenses:Casino


16,935



17,168Hotel


8,373



8,157Food and beverage


12,426



12,858Other operating expenses


3,186



3,030Selling, general and administrative


28,772



26,828Depreciation and amortization


11,042



10,612Pre-opening costs


-



154(Gain) loss on disposal of assets


10



(19
)Management fee - related party


319



375Total costs and expenses


81,063



79,163Income From Operations


5,352



8,610Other Income (Expense):Interest income


-



4Interest expense


(11,586
)


(11,306
)Total other expense, net


(11,586
)


(11,302
)Net Loss

$
(6,234
)

$
(2,692
)





See notes to condensed consolidated financial statements.


2


AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





Three months ended

March 31, 2011


Three months ended

March 31, 2010(Unaudited)(In thousands)Cash Flows From Operating Activities:Net loss

$
(6,234
)

$
(2,692
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


11,042



10,612Amortization of debt issuance and debt discount costs


1,299



1,179(Gain) loss on disposal of assets


10



(19
)Changes in operating assets and liabilities:Accounts receivable, net


(278
)


90Other assets


(1,767
)


(1,945
)Accounts payable and accrued expenses


11,760



10,511Related party activity, net


(34
)


(151
)Net Cash Provided by Operating Activities


15,798



17,585Cash Flows From Investing Activities:Acquisition of property and equipment


(2,989
)


(4,423
)Increase in intangible assets


-



(338
)Proceeds from sale of property and equipment


21



70Net Cash Used in Investing Activities


(2,968
)


(4,691
)Cash Flows From Financing Activities:Debt issuance costs


-



(109
)Payments on capital lease obligation


(68
)


(66
)Net Cash Used in Financing Activities


(68
)


(175
)Net increase in cash and cash equivalents


12,762



12,719Cash and cash equivalents - beginning of period


85,311



101,092Cash and cash equivalents - end of period

$
98,073


$
113,811Supplemental Disclosures of Cash Flow Information:Cash paid during the period for interest, net of amounts capitalized

$
37


$
40Supplemental Disclosures of Non-Cash Items:Accrued intangible assets

$
-


$
707Accrued capital expenditures

$
218


$
-Accrued debt issuance costs

$
-


$
472





See notes to condensed consolidated financial statements.


3


AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC


CONDENSED CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY


(Unaudited)


(In thousands)





Class A

Equity


Class B

Equity


Total EquityBalances at December 31, 2010

$
-


$
865,418


$
865,418Net loss


-



(6,234
)


(6,234
)Balances at March 31, 2011

$
-


$
859,184


$
859,184





See notes to condensed consolidated financial statements.


4


AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




Note 1.  The Company




American Casino & Entertainment Properties LLC, or ACEP, was formed in Delaware on December 29, 2003. As used in this Quarterly Report on Form 10-Q, the terms “ACEP”, “company”, “we”, “our”, “ours”, and “us” refer to American Casino & Entertainment Properties LLC and its subsidiaries, unless the context suggests otherwise. ACEP owns and operates the Stratosphere Casino Hotel & Tower, or the Stratosphere, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada, and the Aquarius Casino Resort, or the Aquarius, in Laughlin, Nevada.





On April 22, 2007, American Entertainment Properties Corp., or AEP, our former direct parent, entered into a Membership Interest Purchase Agreement, or the Agreement, with W2007/ACEP Holdings, LLC, or Holdings, an affiliate of Whitehall Street Real Estate Funds, or Whitehall, a series of real estate investment funds affiliated with Goldman, Sachs & Co., to sell all of our issued and outstanding membership interests to Holdings, for approximately $1.3 billion.  Pursuant to the Assignment and Assumption Agreement, dated December 4, 2007, between Holdings and W2007/ACEP Managers Voteco, LLC, or Voteco, Holdings assigned all of its rights, obligations and interests under the Agreement to Voteco. Voteco’s acquisition of ACEP, or the Acquisition, closed at a purchase price of $1.2 billion on February 20, 2008.





On February 23, 2010, ACEP and ACEP Finance Corp., or ACEP Finance and, together with ACEP, the Issuers, completed an exchange offer registered with the Securities and Exchange Commission, or SEC, in which the Issuers issued approximately $374.9 million aggregate principal amount of their 11% Senior Secured Notes due 2014, or SEC-Registered Notes, in exchange for $374.9 million of their outstanding, 11% Senior Secured Notes due 2014, or the Unregistered Notes, issued in a transaction pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, or the Securities Act. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act. The SEC-Registered Notes and the Unregistered Notes are collectively referred to herein as the 11% Senior Secured Notes.




Note 2.  Basis of Presentation




The accompanying condensed consolidated financial statements included herein have been prepared by ACEP, without audit, in accordance with the accounting policies described in our 2010 audited consolidated financial statements and pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (consisting only of those of a normal recurring nature), which are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results to be expected for any future interim period or for the entire fiscal year.





These condensed consolidated financial statements should be read in conjunction with the notes to the 2010 consolidated audited financial statements presented in our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 21, 2011 (SEC File No. 000-52975). Our reports are available electronically by visiting the SEC website at http://www.sec.gov. You may also visit the investor relations section of the American Casino & Entertainment Properties LLC website at http://www.acepllc.com.





Principles of Consolidation




The condensed consolidated financial statements include the accounts of ACEP and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.


5


Recently Issued Accounting Pronouncements





In April 2010, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2010-16, Accruals for Casino Jackpot Liabilities, which clarifies that an entity should not accrue jackpot liabilities before they are won if the payout can be avoided. This guidance is effective beginning with our first quarter of 2011. There was no impact to our results of operations, financial position or cash flows related to the adoption of this guidance.





Note 3.   Related Party Transactions





On February 20, 2008, we entered into a consulting agreement with Highgate Hotels, L.P., or Highgate, pursuant to which Highgate provides asset management consulting services to us.Highgate owns a less than 5% membership interest in Holdings. The agreement was amended to reduce fees payable thereunder on June 25, 2009 and Highgate converted amounts due them from ACEP to contributed capital in Holdings. The consulting agreement expires on June 20, 2013.  Highgate is entitled to receive a $1.5 million per year base consulting fee for the periods through February 20, 2011 and a $1.0 million per year consulting fee for the periods after February 20, 2011, additional consulting fees up to $500,000 per year for periods after February 20, 2011 based on EBITDA results at the properties and development fees at 4% of the aggregate costs of any agreed upon development projects.  We incurred Highgate fees of approximately $319,000 and $375,000 for the three months ended March 31, 2011 and March 31, 2010, respectively. As of March 31, 2011 and December 31, 2010, we owed Highgate $0.  For the three months ended March 31, 2011, we provided IT consulting services to Highgate of approximately $14,000. As of March 31, 2011 and December 31, 2010, Highgate owed us approximately $0 and $4,000, respectively.





On June 16, 2008, we entered into an agreement with Travel Tripper LLC, or TTL, to utilize their technology for online hotel reservations. TTL is owned by an affiliate of Goldman Sachs (9%), an affiliate of Highgate (9%) and an employee of Highgate (40%). TTL is paid 4% of room revenues booked utilizing its system. As of August 1, 2010, the fee paid to TTL was reduced to 2%. We expensed fees of approximately $52,000 and $102,000 for the three months ended March 31, 2011 and March 31, 2010, respectively. As of March 31, 2011 and December 31, 2010, we owed TTL approximately $18,000 and $10,000, respectively.





Archon Group, LP, or Archon, an affiliate of Goldman Sachs, provides various services to us such as construction management, cash management and insurance brokers.  We expensed fees of approximately $20,000 and $23,000 for the three months ended March 31, 2011 and March 31, 2010, respectively. In addition, we provided construction management services to Archon for hotels managed by them.  We recorded the services as a reduction of general and administrative expenses of approximately $146,000 for the three months ended March 31, 2011.  As of March 31, 2011 and December 31, 2010, we owed Archon $0. As of March 31, 2011 and December 31, 2010, Archon owed us approximately $44,000 and $89,000, respectively.





On October 3, 2008, we entered into a participation agreement with Nor1, Inc., or Nor1, to utilize their technology to help sell perishable suite and room inventories. Nor1 gives the guest who books on-line the opportunity to book a non-guaranteed suite or upgraded rooms at a discounted rate if such is available at check-in. If the suite or upgraded room is awarded, Nor1 is paid 25% of the upgrade fee. Goldman Sachs owns less than 5% of Nor1. We expensed fees of approximately $12,000 and $12,000 for the three months ended March 31, 2011 and March 31, 2010, respectively. As of March 31, 2011 and December 31, 2010, we owed Nor1 approximately $4,000 and $2,000, respectively.





We follow a related party transaction approval policy for reviewing related person transactions. These procedures are intended to ensure that transactions with related persons are fair to us and in our best interests. If a proposed transaction appears to or does involve a related person, the transaction is presented to our audit committee for review. The audit committee is authorized to retain and pay such independent advisors as it deems necessary to properly evaluate the proposed transaction, including, without limitation, outside legal counsel and financial advisors to determine the fair value of the transaction.





Note 4.  Intangible Assets





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


6





Our finite-lived acquired intangible assets include our player loyalty plan and a non-compete agreement. Our infinite-lived acquired intangible assets include trade names. Acquired assets are recorded at fair value on the date of acquisition and finite-lived assets are amortized over the estimated period to be benefited.





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


(in thousands)March 31, 2011


December 31, 2010Gross





Net


Gross





NetAsset

Carrying


Accumulated


Carrying


Carrying


Accumulated


CarryingLife

Amount


Amortization


Amount


Amount


Amortization


AmountAmortizing intangible assets:Player Loyalty Plan

5 Years


7,450



(4,593
)


2,857



7,450



(4,221
)


3,229Non-Compete Agreement

38 Months


1,045



(413
)


632



1,045



(330
)


715$
8,495


$
(5,006
)

$
3,489


$
8,495


$
(4,551
)

$
3,944Non-amortizing intangible assets:Trade Name











$
15,797










$
15,797$
19,286










$
19,741





Note 5.  Debt





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





As of


As ofMarch 31, 2011


December 31, 2010(In thousands)11% Senior Secured Notes due June 15, 2014

$
375,000


$
375,000Unamortized discount


(18,250
)


(19,382
)Capital lease obligations


2,127



2,195Total long-term debt and capital lease obligations


358,877



357,813Current portion of capital lease obligations


280



276Total long-term debt and capital lease obligations, net

$
358,597


$
357,537





11% Senior Secured Notes





On August 14, 2009, the Issuers issued the Unregistered Notes pursuant to the Indenture among the Issuers, certain subsidiary guarantors and The Bank of New York Mellon, as trustee, or the Indenture. The 11% Senior Secured Notes mature on June 15, 2014 and bear interest at a rate of 11% per annum. Interest is computed on the basis of a 360-day year composed of twelve 30-day months and is payable semi-annually on June 15 and December 15 of each year, beginning on December 15, 2009. The obligations are jointly, severally and unconditionally guaranteed by all of the subsidiaries of ACEP other than ACEP Finance and will be so guaranteed by any future domestic subsidiaries of ACEP, subject to certain exceptions. The 11% Senior Secured Notes are collateralized by substantially all fee and leasehold real property comprising the Stratosphere, the Aquarius, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder.





On February 23, 2010, the Issuers completed an exchange offer registered with the SEC in which the Issuers issued approximately $374.9 million aggregate principal amount of their SEC-Registered Notes in exchange for $374.9 million of their Unregistered Notes. The SEC-Registered Notes have substantially identical terms to the Unregistered Notes, except that the SEC-Registered Notes were issued in a transaction registered under the Securities Act.


7





In accordance with positions established by the SEC, separate financial information with respect to the parent, co-issuer, guarantor subsidiaries and non-guarantor subsidiaries is not required as the parent and co-issuer have no independent assets or operations, the guarantees are full and unconditional and joint and several, and the total assets, stockholders’ equity, revenues, income from operations before income taxes and cash flows from operating activities of the non-guarantor subsidiaries is less than 3% of ACEP’s consolidated amounts.





The fair value of our debt is estimated based on market prices for the same or similar issues. We issued the Unregistered Notes on August 14, 2009. The estimated fair value of the 11% Senior Secured Notes was approximately $395.6 million as of March 31, 2011.





On or after June 15, 2012, the Issuers may redeem all or a part of the 11% Senior Secured Notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest to the applicable redemption date. In addition, at any time prior to June 15, 2012, the Issuers may, on one or more than one occasion, redeem some or all of the 11% Senior Secured Notes at a redemption price equal to 100% of the principal amount of the 11% Senior Secured Notes redeemed, plus a “make-whole” premium, and accrued and unpaid interest to the applicable redemption date. At any time prior to June 15, 2012, we may also redeem up to 35% of the aggregate principal amount of the 11% Senior Secured Notes, using the proceeds of certain qualified equity offerings, at a redemption price of 111% of the principal amount thereof, plus accrued and unpaid interest to the applicable redemption date. We may, not more than once in any 12-month period ending on June 15, 2010, 2011 and 2012, redeem up to 5% of the original aggregate principal amount of the 11% Senior Secured Notes at a redemption price equal to 102% of the principal amount of the 11% Senior Secured Notes redeemed plus accrued and unpaid interest to the applicable redemption date. As described in “Note 7. Subsequent Events” below, on April 15, 2011 the Issuers announced that they have elected to redeem 5% of the aggregate principal amount of the 11% Senior Secured Notes.





If certain change of control events occur as specified in the Indenture, we must offer to repurchase the 11% Senior Secured Notes at a repurchase price equal to 101% of the principal amount of the 11% Senior Secured Notes repurchased, plus accrued and unpaid interest to the applicable repurchase date.





If ACEP or its subsidiaries sell assets under certain circumstances or experience certain events of loss, we must offer to repurchase the 11% Senior Secured Notes at a repurchase price equal to 100% of the principal amount of the Notes repurchased, plus accrued and unpaid interest to the date of purchase, prepayment or redemption, as the case may be.





We are bound by certain covenants contained and defined in the Indenture that requires us to file quarterly and annual reports, and among other things, restricts our ability to:





•
declare or pay dividends and distributions on our equity interests, purchase, redeem, or otherwise retire for value any equity interest, make payments on debt, or make investments;





•
incur indebtedness or issue preferred stock;





•
sell, create liens, or otherwise encumber our assets or equity interests; and





•
enter into transactions with affiliates.





These covenants contained in the Indenture are subject to a number of important limitations and exceptions.





The Indenture provides for events of default, including, but not limited to, cross defaults to certain other debt of ACEP and its subsidiaries. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding 11% Senior Secured Notes will become due and payable immediately without further action or notice. Management believes that we are in compliance with the provisions of the Indenture as of quarter end and the date of this filing.


8





Note 6.  Legal Proceedings





We are, from time to time, a party to various legal proceedings arising out of our businesses.  We believe, however, there are no proceedings pending or threatened against us, which, if determined adversely, would have a material adverse effect upon our financial condition, results of operations or liquidity.




Note 7.  Subsequent Events





On April 15, 2011, the Issuers announced they have elected to redeem five percent (5%) of aggregate principal amount of the 11% Senior Secured Notes pursuant to paragraph 5(b) of the 11% Senior Secured Notes and the redemption provisions of the Indenture (Section 3.07(b)). The redemption date will be May 31, 2011. The redemption price for the 11% Senior Secured Notes will be 102% of the principal amount of the 11% Senior Secured Notes redeemed, or $19.125 million, plus accrued but unpaid interest, if any, to the redemption date. Unless the Issuers default in making such redemption payment, interest on the 11% Senior Secured Notes called for redemption ceases to accrue on and after the redemption date.




9


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





With the exception of historical facts, the matters discussed in this quarterly report on Form 10-Q are forward looking statements. Forward-looking statements may relate to, among other things, future actions, future performance generally, business development activities, future capital expenditures, strategies, the outcome of contingencies such as legal proceedings, future financial results, financing sources and availability and the effects of regulation and competition. When we use the words “believe”, “intend”, “expect”, “may”, “will”, “should”, “anticipate”, “could”, “estimate”, “plan”, “predict”, “project”, or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements.





These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These factors include, but are not limited to: the size of our indebtedness, our indebtedness' effect on our business, the adverse effect of government regulation and other matters affecting the gaming industry, increased operating costs of our properties, increased competition in the gaming industry, adverse effects of economic downturns and terrorism, our failure to make necessary capital expenditures, increased costs associated with our growth strategy, the loss of key personnel, risks associated with geographical market concentration, our failure to satisfy our working capital needs from operations or our indebtedness, our inability to raise additional money, our dependence on water, energy and technology services, adverse effects of increasing energy costs, and the availability of and costs associated with potential sources of financing.





You should also read, among other things, the risks and uncertainties described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 21, 2011 (SEC File No. 000-52975).





We warn you that forward-looking statements are only predictions. Actual events or results may differ as a result of risks that we face. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update them.





The following discussion contains management’s discussion and analysis of financial condition and results of operations. Management’s discussion and analysis should be read in conjunction with “Item 1. Financial Statements” of this quarterly report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations presented in our annual report on Form 10-K for the year ended December 31, 2010.





Overview





We own and operate four gaming and entertainment properties in Clark County, Nevada. The four properties are the Stratosphere Casino Hotel & Tower, or the Stratosphere, which is located on the Las Vegas Strip and caters to visitors to Las Vegas, two off-Strip casinos, Arizona Charlie's Decatur and Arizona Charlie's Boulder, which cater primarily to residents of Las Vegas and the surrounding communities, and the Aquarius Casino Resort, in Laughlin, Nevada, or the Aquarius, which caters to visitors to Laughlin. The Stratosphere is one of the most recognized landmarks in Las Vegas, our two Arizona Charlie’s properties are well-known casinos in their respective marketplaces and the Aquarius has the largest hotel in Laughlin. Each of our properties offers customers a value-oriented experience by providing competitive odds in our casinos, quality rooms in our hotels, award-winning dining facilities and, at the Stratosphere and Aquarius, an offering of competitive value-oriented entertainment attractions. We believe the value we offer our customers, together with a strong focus on customer service, will enable us to continue to attract customers to our properties.





Our operating results are greatly dependent on the volume of customers at our properties, which in turn affects the price we can charge for our non-gaming amenities. A substantial portion of our operating income is generated from our gaming operations, more specifically slot play (including video poker). Approximately 57.4% of our gross revenue for the three months ended March 31, 2011 was generated from our gaming operations. Hotel and food and beverage sales generated similar percentages of our gross revenue during the three months ended March 31, 2011, with hotel sales representing 16.4% and food and beverage sales representing 18.2%.The majority of our revenue is cash based through customers wagering with cash or paying for non-gaming amenities with cash or credit card.  Because our business is capital intensive, we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development.


10





Las Vegas is one of the largest entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. We believe that the Las Vegas gaming market has two distinct sub-segments: the tourist market, which tends to be concentrated on the Las Vegas Strip and Downtown Las Vegas, and the local market, which includes the surrounding Las Vegas area.





We use certain key measurements to evaluate operating revenue.  Casino revenue measurements include “table games drop” and “slot coin-in,” which are measures of the total amounts wagered by patrons. Win or hold percentage represents the percentage of table games drop or slot coin-in that is retained by the casino and recorded as casino revenue.  Hotel revenue measurements include hotel occupancy rate, which is the average percentage of available hotel rooms occupied during a period, and average daily room rate, which is the average price of occupied rooms per day.  Food and beverage revenue measurements include number of covers, which is the number of guests served, and the average check amount per guest.


11





Results of Operations





Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010





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





Three months

ended


Three months

endedMarch 31, 2011


March 31, 2010(in millions)Income Statement Data:Revenues:Casino

$
53.2


$
55.9Hotel


15.2



13.9Food and beverage


16.8



17.0Tower, retail, entertainment and other


7.4



7.3Gross revenues


92.6



94.1Less promotional allowances


6.2



6.3Net revenues


86.4



87.8Costs and expenses:Casino


16.9



17.2Hotel


8.4



8.2Food and beverage


12.4



12.9Other operating expenses


3.2



3.0Selling, general and administrative


29.1



27.1Pre-opening costs


-



0.2Depreciation and amortization


11.0



10.6Total costs and expenses


81.0



79.2Income from operations

$
5.4


$
8.6EBITDA Reconciliation:Net loss

$
(6.2
)

$
(2.7
)Interest income


-



-Interest expense


11.6



11.3Depreciation and amortization


11.0



10.6EBITDA

$
16.4


$
19.2





We believe that our presentation of EBITDA is an important supplemental measure of our operating performance to investors. EBITDA is a commonly used measure of performance in our industry which we believe, when considered with measures calculated in accordance with United States Generally Accepted Accounting Principles (GAAP), gives investors a more complete understanding of operating results before the impact of investing and financing transactions and income taxes and facilitates comparisons between us and our competitors. Although EBITDA is a non-GAAP measure, we believe this measure will be used by investors in their assessment of our operating performance and the valuation of our company.





Our consolidated gross revenues decreased 1.6% to $92.6 million for the three months ended March 31, 2011 from $94.1 million for the three months March 31, 2010. Our consolidated income from operations and EBITDA decreased 37.2% and 14.6% to $5.4 million and $16.4 million for the three months ended March 31, 2011 compared to $8.6 million and $19.2 million for the three months ended March 31, 2010. The decrease in our gross revenues, operating income and EBITDA are due primarily to the general economic slowdown and market factors, such as the increased rooms inventory in Las Vegas, and the increased cost of gas and airfare. In addition, operating income and EBITDA for the three months ended March 31, 2011 were impacted by the launch of the Elevate Your Expectations branding and advertising campaign for the Stratosphere and an advertising campaign supporting the opening of Ron’s Steakhouse at Arizona Charlie’s Decatur. Advertising expenses for the three months ended March 31, 2011 were $3.5 million compared to $1.3 million for the three months ended March 31, 2010. We also spent $178,000 for a Las Vegas Motor Speedway Sponsorship and our Arizona Charlie’s properties spent approximately $154,000 to replace old bill validators and monitors.





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Casino





Casino revenues consist of revenues from slot machines, table games, poker, race and sports book, bingo and keno. Casino revenues decreased 4.8% to $53.2 million for the three months ended March 31, 2011, compared to $55.9 million for the three months ended March 31, 2010. This decrease was primarily due to a 4.6% decrease in slot coin-in, a 2.3% decrease in table games hold percentage, and a 1.7% decrease in table drop. As a result of lower volumes at our properties, our slot and table revenues declined 3.6% and 10.3% respectively. For the three months ended March 31, 2011, slot machine revenues were 84.8% of casino revenues, and table game revenues were 11.5% of casino revenues, compared to 83.7% and 12.2% of casino revenues, respectively, for the three months ended March 31, 2010. Other casino revenues, consisting of race and sports book, poker, bingo and keno, decreased 13.0% for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The decrease in other casino revenues were driven primarily by a 6.8% decrease in race and sports handle and a 1.6% decrease in the race and sports book hold percentage. Casino operating expenses decreased 1.7% to $16.9 million, for the three months ended March 31, 2011, from $17.2 million for the three months ended March 31, 2010. This decrease was primarily due to decreased labor costs and revenue taxes.





Hotel





Hotel revenues increased 9.4% to $15.2 million for the three months ended March 31, 2011 from $13.9 million for the three months ended March 31, 2010. The Stratosphere had higher average daily room rate and a slight increase in occupancy resulting in a 15.1% increase in revenue. Increased occupancy for our Arizona Charlie’s properties resulted in a 20.5% increase in revenue. Aquarius revenues declined 7.5% due to lower occupancy. Overall room occupancy fell to 65.4 % for the three months ended March 31, 2011 compared to 66.0% for the three months ended March 31, 2010 and the average daily room rate increased 11.6% for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. Our hotel expenses increased 2.4% to $8.4 million for the three months ended March 31, 2011, compared to $8.2 million for the three months ended March 31, 2010 due primarily to higher labor costs. Due to the increase in revenues, our hotel operating margin increased to 44.7% for the three months ended March 31, 2011 as compared to 40.6% for the three months ended March 31, 2010.





Food & Beverage





Food and beverage revenues decreased 1.2% to $16.8 million for the three months ended March 31, 2011 compared to $17.0 million for the three months ended March 31, 2010. The decline in revenues was driven largely by the reduction in food and beverage covers at our properties. Food covers and beverage covers for the three months ended March 31, 2011 decreased 9.4% and 6.1%, respectively, compared to the three months ended March 31, 2010. Average revenue per cover for the three months ended March 31, 2011 increased 9.1% compared to the three months ended March 31, 2010. Our food and beverage expenses decreased 3.9% to $12.4 million for the three months ended March 31, 2011 compared to $12.9 million for the three months ended March 31, 2010 due to an overall decrease in our food and beverage costs and payroll and related expenses. As a result, our food and beverage operating margin increased to 26.2% for the three months ended March 31, 2011 as compared to 24.1% for the three months ended March 31, 2010.





Tower, Retail, Entertainment and Other





Tower, retail, entertainment and other revenues increased 1.4% to $7.4 million for the three months ended March 31, 2011 from $7.3 million for the three months ended March 31, 2010. Tower revenues increased 17.3% for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. The primary reason for the increase in Tower revenues was the introduction of the Sky Jump Las Vegas ride. The Sky Jump Las Vegas ride opened to the public on April 21, 2010. Entertainment revenue declined 31.0% for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. The decrease in revenue was due to reduced showroom occupancy at the Stratosphere. Retail revenue decreased 6.8% for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. Other operating income decreased 8.1% for the three months ended March 31, 2011, compared to the three months ended March 31, 2010. The decrease in revenue was primarily due to lower ATM commission revenues. Other operating expenses increased 6.7% to $3.2 million for the three months ended March 31, 2011, compared to $3.0 million for the three months ended March 31, 2010. This increase was primarily due to labor costs associated with the Sky Jump Las Vegas ride.


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Promotional Allowances





Promotional allowances are comprised of the retail value of goods and services provided to casino patrons under various marketing programs. As a percentage of casino revenues, promotional allowances increased to 11.7% for the three months ended March 31, 2011 from 11.3% for the three months ended March 31, 2010. This increase was primarily due to increased room promotions at the Stratosphere and the Aquarius.





Selling, General and Administrative (‘‘SG&A’’)





Selling, general and administrative expenses are primarily comprised of payroll, marketing, advertising, utilities and other administrative expenses. These expenses increased 7.4% to $29.1 million, or 31.4% of gross revenues, for the three months ended March 31, 2011, compared to $27.1 million, or 28.8% of gross revenues for the three months ended March 31, 2010. This increase was primarily due to higher advertising and payroll expenses.  Advertising expenses increased 169.2% to $3.5 million for the three months ended March 31, 2011 from $1.3 million for the three months ended March 31, 2010 due to the launch of the Elevate Your Expectations branding and advertising campaign for the Stratosphere and an advertising campaign supporting the opening of Ron’s Steakhouse at Arizona Charlie’s Decatur.




Pre-opening Expense





We did not incur any pre-opening costs for the three months ended March 31, 2011 compared to $154,000 for the three months ended March 31, 2010.  Pre-opening costs were primarily comprised of marketing related expenses, labor costs and supplies for Sky Jump Las Vegas.  Sky Jump Las Vegas opened to the public on April 21, 2010.





Interest Expense





Interest expense increased 2.7% to $11.6 million for the three months ended March 31, 2011, compared to $11.3 million for the three months ended March 31, 2010. The increase was due primarily to higher debt issuance amortization expenses and a reduction in the amount of capitalized interest.





Financial Condition





Liquidity and Capital Resources





The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business, financial condition, results of operations, dispositions, acquisitions, renovation projects and our subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, financial market risks, the ability to maintain existing management, competition within the gaming industry, the cyclical nature of the hotel business and gaming business, economic conditions, regulatory matters and litigation and other risks described in our filings with the SEC. In addition, renovation projects entail significant risks, including shortages of materials or skilled labor, unforeseen regulatory problems, work stoppages, weather interference, floods, unanticipated cost increases, and disruption to business. The anticipated costs and construction periods are based on budgets, conceptual design documents and construction schedule estimates. There can be no assurance that the budgeted costs or construction period will be met. All forward-looking statements are based on our current expectations and projections about future events.





Net cash provided by operating activities was $15.8 million for the three months ended March 31, 2011 compared to $17.6 million for the three months ended March 31, 2010. The primary reason for the decrease was the approximate $1.4 million decrease in net revenues and $2.2 million increase in advertising expenses as described above.





During the three months ended March 31, 2011, our total capital expenditures were $3.2 million (including approximately $0.2 million in non-cash items), of which approximately $1.3 million was spent on slot machine replacements and conversions, $200,000 on hotel room renovations and upgrades, $1.0 million for renovations to our public areas and food and beverage venues and $700,000 on our facilities, operations and information technology. For the three months ended March 31, 2010, our total capital expenditures were $4.4 million, of which approximately $1.1 million was spent on the Sky Jump ride, $740,000 on hotel room renovations, $400,000 on slot machine replacements and conversions, $810,000 for renovations of our food and beverage venues and public areas and $1.3 million on our facilities, operations and information technology.


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Our primary cash requirements for the next twelve months are expected to include (i) expenses associated with ongoing day-to-day operations, (ii) interest payments on indebtedness, (iii) payments for design and development costs of future projects, and (iv) regular maintenance and other capital expenditures. We currently anticipate that we will spend approximately $20.5 million on regular maintenance and renovation capital projects during 2011. Approximately $17.2 million of that amount is associated with regular maintenance of our properties and operations, including slot machines.





We may from time to time seek to retire or repurchase our outstanding 11% Senior Secured Notes through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material. On April 15, 2011, the Issuers announced they have elected to redeem five percent (5%) of aggregate principal amount of the 11% Senior Secured Notes. The redemption date will be May 31, 2011. The redemption price for the 11% Senior Secured Notes will be 102% of the principal amount of the 11% Senior Secured Notes redeemed, or $19.125 million, plus accrued but unpaid interest, if any, to the redemption date. Unless the Issuers default in making such redemption payment, interest on the 11% Senior Secured Notes called for redemption ceases to accrue on and after the redemption date.





We believe our cash flow from operations and our cash balances will be sufficient to fund our operations, interest payments and capital expenditures for the next 12 months. However, our ability to fund our operations, make payments on our debt and fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control as well as the factors described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 21, 2011 (SEC File No. 000-52975).





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.





Recently Issued Accounting Pronouncements





In April 2010, the FASB issued Accounting Standards Update 2010-16, Accruals for Casino Jackpot Liabilities, which clarifies that an entity should not accrue jackpot liabilities before they are won if the payout can be avoided. This guidance is effective beginning with our first quarter of 2011. There was no impact to our results of operations, financial position or cash flows related to the adoption of this guidance.





Item 3. Quantitative and Qualitative Disclosures About Market Risk





Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary risk exposure relates to interest rate risk. All of our long-term debt is subject to fixed rates of interest at 11% and does not mature until June 15, 2014.


The fair value of our debt is estimated based on the quoted market prices for the same or similar issues. ACEP issued the Unregistered Notes on August 14, 2009. The estimated fair value of the 11% Senior Secured Notes was approximately $395.6 million as of March 31, 2011.





For the three months ended March 31, 2011, we incurred approximately $11.6 million in interest expense.





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




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Item 4T. Controls and Procedures





Our principal executive officer and principal financial officer, based on their evaluation of our disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q, have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.





There were no changes in our internal control over financial reporting that occurred during the first three months of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met.  In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.




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PART II-OTHER INFORMATION





You should also read, among other things, the risks and uncertainties described in the section entitled Risk Factors in Item 1A of our annual report on Form 10-K, filed with the SEC on March 21, 2011 (SEC File No. 000-52975). There were no material changes to those risk factors during the three months ended March 31, 2011.





Item 6.   Exhibits





The list of exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the exhibits index.




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




AMERICAN CASINO & ENTERTAINMENT PROPERTIES LLC





By:
/s/ EDWARD W. MARTIN, IIIEdward W. Martin, IIIAuthorized Officer, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)Date:
May 12, 2011




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EXHIBITS INDEX





EXHIBIT NO.

DESCRIPTION31.1

Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.31.2

Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




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