UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): December 2, 2005

American Real Estate Partners, L.P.

(Exact name of registrant as specified in its charter)

100 South Bedford Road, Mt. Kisco, NY 10549

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (914) 242-7700

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Section 8 — Other Events

Item 8.01     Other Events.

      As a result of (1) our acquisitions of NEG Holding LLC, Panaco, Inc., GB Holdings, Inc. and Atlantic Coast Entertainment Holdings, Inc. in June 2005, (2) the elimination of investment and interest income as reportable segments, and (3) the reclassification of certain real estate and resorts to properties held for sale during the third quarter of 2005, our 99% owned subsidiary, American Real Estate Holdings Limited Partnership, or AREH, has reclassified the income and expenses of such properties to discontinued operations for the third quarter of 2005 and for all prior periods and restated its financial statements for the year ended December 31, 2004. Accordingly, it is providing updated information for the Financial Statements for the periods contained in its Annual Report on Form 10-K for the year ended December 31, 2004 (“Form 10-K”). These financial statements should be read in conjunction with our Current Report on Form 8-K filed on December 2, 2005 containing the “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Consolidated Financial Statements of American Real Estate Partners, L.P. for the periods contained in our Annual Report on Form 10-K for the year ended December 31, 2004.

Section 9 — Financial Statements and Exhibits

Item 9.01     Financial Statements and Exhibits.

      (c) Exhibits.

EXHIBIT INDEX

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 hereunto duly authorized.

Date: December 2, 2005

EXHIBIT 99.1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Partners of

American Real Estate Holdings Limited Partnership

      We have audited the accompanying consolidated balance sheet of American Real Estate Holdings Limited Partnership and Subsidiaries as of December 31, 2004, and the related consolidated statements of earnings, changes in partners’ equity and comprehensive income, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of GB Holdings, Inc. and Subsidiaries and Panaco, Inc., which statements reflect total assets of 12.4% and total revenue of 25.5% as of December 31, 2004. Those statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for GB Holdings, Inc. and Subsidiaries and Panaco, Inc., is based solely on the reports of the other auditors.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion.

      In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Real Estate Holdings Limited Partnership and Subsidiaries as of December 31, 2004, and the consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

      As further described in Note 1, these consolidated financial statements have been restated to reflect the acquisitions of entities under common control, which have been accounted for in a manner similar to a pooling-of-interests. In addition, these consolidated financial statements have been reclassified to reflect properties held for sale or sold through the nine months ended September 30, 2005, as further described in Note 2.

New York, New York

November 29, 2005

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors
Panaco, Inc.

      We have audited the balance sheet (not presented herein) of Panaco, Inc. (the “Company” or “Panaco”) as of December 31, 2004. These balance sheets are the responsibility of the Company’s management. Our responsibility is to express an opinion on this balance sheet based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the December 31, 2004 balance sheet referred to above presents fairly, in all material respects, the financial position of Panaco, Inc. as of December 31, 2004, in conformity with U.S. generally accepted accounting principles.

March 18, 2005

Houston, Texas

Report of Independent Registered Public Accounting Firm

To the Shareholders of GB Holdings, Inc.

      We have audited the consolidated balance sheets of GB Holdings, Inc. and subsidiaries as of December 31, 2004 and 2003 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows (not presented herein) for each of the years in the three-year period ended December 31, 2004. In connection with our audits of the 2004, 2003 and 2002 consolidated financial statements, we also have audited the related consolidated financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of GB Holdings, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

      The consolidated financial statements have been prepared assuming that GB Holdings, Inc. will continue as a going concern. As discussed in Notes 1 and 2 to the consolidated financial statements, the Company has suffered recurring net losses, has a net working capital deficiency and has significant debt obligations which are due within one year that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Notes 1 and 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Short Hills, New Jersey

March 11, 2005

Report of Independent Registered Public Accounting Firm

The Partners

American Real Estate Holdings Limited Partnership:

      We have audited the accompanying consolidated balance sheet of American Real Estate Holdings Limited Partnership and subsidiaries as of December 31, 2003, and the related consolidated statements of earnings, changes in partners’ equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Real Estate Holdings Limited Partnership and subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

      As discussed in Note 2 to the consolidated financial statements, effective January 1, 2003, the Partnership changed its method of accounting for asset retirement obligations.

New York, New York

November 29, 2005

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

Nine Months Ended September 30, 2005 and 2004 (Unaudited) and

Years Ended December 31, 2004, 2003 and 2002

(In $000’s except per unit data)

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’

EQUITY AND COMPREHENSIVE INCOME

Years Ended December 31, 2004, 2003 and 2002

(In $000’s)

      Accumulated other comprehensive income (loss) at September 30, 2005 (unaudited) and December 31, 2004, 2003 and 2002 was ($4,700), ($122), $9,174 and ($242), respectively.

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2004, 2003 and 2002

(In $000’s)

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2003 and 2002

      American Real Estate Holdings Limited Partnership and its subsidiaries (the “Company” or “AREH”) are engaged in the following operating businesses: (1) home fashion; (2) gaming; (3) oil and gas; (4) property development; (5) rental real estate; and (6) resort operating activities.

      As a result of the Company’s expansion into non-real estate businesses, the Company has changed the presentation of its 2004 Consolidated Balance Sheet to a classified basis. The 2003 Consolidated Balance Sheet has been reclassified to conform to the 2004 presentation.

      AREH is a limited partnership formed in Delaware on February 17, 1987. American Real Estate Partners, L.P. (“AREP” or the “Limited Partner”) is a master limited partnership formed in Delaware on February 17, 1987. AREP owns a 99% limited partner interest in the Company. American Property Investors, Inc. (the “General Partner”) owns a 1% general partner interest in both AREH and AREP representing an aggregate 1.99% general partner interest in the Company and AREP. The General Partner is owned and controlled by Mr. Carl C. Icahn (“Icahn” or “Mr. Icahn”).

      On July 1, 1987, the Company, in connection with an exchange offer (the “Exchange”), entered into merger agreements with AREP and each of thirteen separate limited partnerships (collectively, the “Predecessor Partnerships”), pursuant to which the Company acquired all the assets, subject to the liabilities of the Predecessor Partnerships.

      On August 16, 1996, the Company amended its Partnership Agreement to permit non-real estate related acquisitions and investments to enhance unitholder value and further diversify its assets. Under the Amendment, investments may include equity and debt securities of domestic and foreign issuers. The portion of the Company’s assets invested in any one type of security or any single issuer are not limited.

      The Company will conduct its activities in such a manner so as not to be deemed an investment company under the Investment Company Act of 1940 (the “1940 Act”). Generally, this means that no more than 40% of the Company’s total assets will be invested in investment securities, as such term is defined in the 1940 Act. In addition, the Company does not intend to invest in securities as its primary business and will structure its investments to continue to be taxed as a partnership rather than as a corporation under the applicable publicly traded partnership rules of the Internal Revenue Code.

      During the second quarter of 2005, the Company acquired the membership interest in NEG Holding LLC (“NEG Holdings”) other than that already owned by National Energy Group, Inc. (“NEG”), (which is itself 50.01% owned by the Company); 100% of the equity of each of TransTexas Gas Corporation (“TransTexas”) and Panaco, Inc. (“Panaco”), all of which will be consolidated under AREP Oil & Gas LLC, which is wholly owned by AREH; 4,121,033 shares of common stock of GB Holdings, Inc. (“GBH”) and 1,133,284 shares of common stock of Atlantic Coast Entertainment Holdings, Inc. (“Atlantic Holdings”) which owns 100% of ACE Gaming LLC (“ACE”), the owner and operator of the Sands Hotel and Casino in Atlantic City, New Jersey (the “Sands”), from entities affiliated with Mr. Icahn for aggregate consideration of $637.0 million, of which $180.0 million was paid in cash and the balance was paid by the issuance of AREP’s limited partnership depositary units valued at $29 per unit. All of these entities are considered companies under common control. After the acquisition, affiliates of Mr. Icahn owned 90.0% of AREP’s outstanding limited partnership depositary units.

      The Company’s historical financial statements herein have been restated to reflect the acquisitions. In accordance with generally accepted accounting principles, assets and liabilities transferred between entities under common control are accounted for at historical cost similar to a pooling of interests, and the financial statements of previously separate companies for periods prior to the acquisition are restated on a combined basis.

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Principles of Consolidation. The consolidated financial statements include the accounts of AREH and its majority-owned subsidiaries in which control can be exercised. The Company is considered to have control if it has a direct or indirect ability to make decisions about an entity’s activities through voting or similar rights. The Company uses the guidance set forth in AICPA Statement of Position No. 78-9, Accounting for Investments in Real Estate Ventures, and Emerging Issues Task Force Issue No. 04-05, Investor’s Accounting or an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights, with respect to its investments in partnerships and limited liability companies. All material intercompany balances and transactions are eliminated.

      Investments in affiliated companies determined to be voting interest entities in which AREH owns between 20% and 50%, and therefore exercises significant influence, but which it does not control, are accounted for using the equity method.

      In accordance with generally accepted accounting principles, assets and liabilities transferred between entities under common control are accounted for at historical costs similar to a pooling of interests, and the financial statements of previously separate companies for periods prior to the acquisition are restated on a combined basis.

      Cash and Cash Equivalents. The Company considers short-term investments, which are highly liquid with original maturities of three months or less at date of purchase, to be cash equivalents. Included in cash and cash equivalents at September 30, 2005, December 31, 2004 and 2003 are investments in government-backed securities of approximately $0, $658,534,000 and $378,000,000, respectively.

      Restricted Cash. Restricted cash consists of funds held by third parties in connection with tax free property exchanges pursuant to Internal Revenue Code Section 1031 and is included in other current assets.

      In addition, restricted cash includes escrows established to provide satisfaction of the Company’s eventual responsibility to plug abandoned wells and remove structures when certain fields are no longer in use.

                  Investments.

      a. Investments in equity and debt securities are classified as either trading, held-to-maturity or available for sale for accounting purposes. Trading securities are valued at quoted market value at each balance sheet date with the unrealized gains or losses reflected in the Consolidated Statements of Earnings. Investments in

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

U.S. Government and Agency Obligations are classified as available for sale. Available for sale securities are carried at fair value on the balance sheet of the Company. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of Partners’ Equity and when sold are reclassified out of Partners’ Equity based on specific identification. Held-to-maturity securities are recorded at amortized cost.

      A decline in the market value of any held-to-maturity or available for sale security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income is recorded when declared and interest income is recognized when earned.

      b. The Company accounts for secured bank debt acquired at a discount for which the Company believes it is not probable that the undiscounted future cash collection will be sufficient to recover the face amount of the loan and constructive interest utilizing the cost recovery method in accordance with Practice Bulletin 6, “Amortization of Discounts on Certain Acquired Loans.” For secured bank debt acquired at a discount where recovery is probable, the Company amortizes the discount on the loan over the period in which the payments are probable of collection, only if the amounts are reasonably estimable and the ultimate collectibles of the acquisition amount of the loan and the discount is probable. The Company evaluates collectibility for every loan at each balance sheet date.

      SOP 03-03, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer,” which is effective for fiscal years beginning after December 15, 2004, limits the yield that may be accreted to the excess of the Company’s estimate of undiscounted cash flows expected to be collected over the Company’s initial investment in a loan. The Company does not expect that the adoption of this SOP will have a significant impact on its financial statements.

      c. The Company has provided development financing for certain real estate projects. The security for these loans is either a second mortgage or a pledge of the developers’ ownership interest in the properties. Such loans are subordinate to construction financing and are generally referred to as mezzanine loans. Generally, interest is not paid periodically but is due at maturity or earlier from unit sales or refinancing proceeds. The Company defers recognition of interest income on mezzanine loans pending receipt of all principal payments.

      Oil and Natural Gas Properties. The Company utilizes the full cost method of accounting for its crude oil and natural gas properties. Under the full cost method, all productive and nonproductive costs incurred in connection with the acquisition, exploration and development of crude oil and natural gas reserves are capitalized and amortized on the units-of-production method based upon total proved reserves. The costs of unproven properties are excluded from the amortization calculation until the individual properties are evaluated and a determination is made as to whether reserves exist. Conveyances of properties, including gains or losses on abandonments of properties, are treated as adjustments to the cost of crude oil and natural gas properties, with no gain or loss recognized.

      Under the full cost method, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% per year (the ceiling limitation). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, abandonment costs, and certain production related and ad-valorem taxes are deducted. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes, which are fixed and determinable by existing contracts. The net book value of oil and gas properties is compared to the ceiling limitation on a quarterly basis.

      The Company has capitalized internal costs of $0.7 million, $0.8 million, $1.0 million, $0.6 million and $0.6 million for the nine months ended September 30, 2005 and 2004 and for the years ended December 31,

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2004, 2003 and 2002, respectively, with respect to its oil and gas activities. The Company has not capitalized interest expense.

      The Company is subject to extensive Federal, state, and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environment effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.

      The Company’s oil and gas operations are subject to all of the risks inherent in oil and natural gas exploration, drilling, and production. These hazards can result in substantial losses to the Company due to personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage, or suspension or operations. The Company maintains insurance of various types customary in the industry to cover its operations and believes it is insured prudently against certain of these risks. In addition, the Company maintains operator’s extra expense coverage that provides coverage for the care, custody and controls of wells drilled by the Company. The Company’s insurance does not cover every potential risk associated with the drilling and production of oil and natural gas. As a prudent operator, the Company does maintain levels of insurance customary in the industry to limit its financial exposure in the event of a substantial environmental claim resulting from sudden and accidental discharges. However, 100% coverage is not maintained. The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on the Company’s financial condition and results of operations. Moreover, no assurance can be given that the Company will be able to maintain adequate insurance in the future at rates it considers reasonable. The Company believes that, in all material respects, it operates in compliance with government regulations and in accordance with safety standards, which meet or exceed industry standards.

      Income Taxes. No provision has been made for Federal, state or local income taxes on the results of operations generated by partnership activities, as such taxes are the responsibility of the partners. Provision has been made for Federal, state or local income taxes on the results of operations generated by the Company’s corporate subsidiaries. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

      Leases. The Company leases to others substantially all its real property under long-term net leases and accounts for these leases in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 13, “Accounting for Leases,” as amended. This Statement sets forth specific criteria for determining whether a lease is to be accounted for as a financing lease or an operating lease.

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Properties. Properties held for investment, other than those accounted for under the financing method, are carried at cost less accumulated depreciation unless declines in the values of the properties are considered other than temporary, at which time the property is written down to net realizable value. A property is classified as held for sale at the time management determines that the criteria in Statement of Financial Accounting Standards (“SFAS”) 144 have been met. Properties held for sale are carried at the lower of cost or net realizable value. Such properties are no longer depreciated and their operations are included in discontinued operations. As a result of the reclassification of certain real estate to properties held for sale during the nine months ended September 30, 2005 income and expenses of such properties are reclassified to discontinued operations for all prior periods. If management determines that a property classified as held for sale no longer meets the criteria in SFAS 144, the property is reclassified as held for use.

      Depreciation. Depreciation is principally computed using the straight-line method over the estimated useful life of the particular property or equipment, which range from 3 to 45 years.

      Use of Estimates. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. The more significant estimates include the valuation of (1) long-lived assets; (2) mortgages and notes receivable; (3) marketable equity and debt securities and other investments; (4) costs to complete for land, house and condominium developments; (5) gaming-related liability and loyalty programs; (6) deferred tax assets; (7) oil and gas reserve estimates; (8) asset retirement obligations; (9) fair value of derivatives; and (10) customer incentives.

      1. Revenue from real estate sales and related costs are recognized at the time of closing primarily by specific identification. The Company follows the guidelines for profit recognition set forth by FASB Statement No. 66, Accounting for Sales of Real Estate.

      2. Gaming revenues, and promotional allowances — Gaming revenue consists of casino, hotel and restaurant revenues. The Company recognizes revenues in accordance with industry practice. Casino revenue is the net win from gaming activities (the difference between gaming wins and losses). Casino revenues are net of accruals for anticipated payouts of progressive and certain other slot machine jackpots. Revenues include the retail value of rooms, food and beverage and other items that are provided to customers on a complimentary basis. A corresponding amount is deducted as promotional allowances. The cost of such complimentary is included in “Gaming” expenses. Hotel and restaurant revenue is recognized when services are performed.

      The Company also rewards customers, through the use of loyalty programs with points based on amounts wagered, that can be redeemed for a specified period of time for cash. The Company deducts the cash incentive amounts from casino revenue.

      3. Sales, advertising and promotion — These costs are expensed as incurred and were approximately $43.3 million, $36.5 million and $29.9 million for the years ended December 31, 2004, 2003 and 2002, respectively.

      4. Natural Gas Production Imbalances — The Company accounts for natural gas production imbalances using the sales method, whereby the Company recognizes revenue on all natural gas sold to its customers notwithstanding the fact its ownership may be less than 100% of the natural gas sold. Liabilities are recorded by the Company for imbalances greater than the Company’s proportionate share of remaining natural gas reserves.

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      5. Home Fashion.

      Allowance for Doubtful Accounts. The Company monitors its accounts receivable balances on a monthly basis to ensure they are collectible. On a quarterly basis, the Company uses its historical experience to determine its accounts receivable reserve. The Company’s allowance for doubtful accounts is an estimate based on specifically identified accounts as well as general reserves. The Company evaluates specific accounts where it has information that the customer may have an inability to meet its financial obligations. In these cases, management uses its judgment, based upon the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. The company also establishes a general reserve based upon a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change, the Company’s estimate of the recoverability of amounts due the company could be reduced or increased by a material amount. Such a change in estimated recoverability would be accounted for in the period in which the facts that give rise to the change become known.

      Inventories. Inventories reflected on the opening balance sheet are stated at fair value. Going forward, inventories will be valued on the first in first out basis and costs include material, labor and factory overhead. Inventories are stated at the lower of cost or market (net realizable value).

      Inventories consisted of the following:

      Oil and Gas Derivatives. From time to time, the Company enters into derivative contracts, principally commodity price collar agreements (the Hedge Agreements) to reduce its exposure to price risk in the spot market for natural gas and oil. The Company follows SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which was amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. These pronouncements established accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either

AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. (See Note 17).

      Accounting for Asset Retirement Obligations. Effective January 1, 2003 the Company adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 provides accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets. Under SFAS No. 143, an asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount for the related long-lived asset which is depreciated over its useful life. In each subsequent period, the liability is adjusted to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. Upon adoption, the Company recorded an obligation of $3.0 million. (See Note 16).

      Land and Construction-in-Progress. These costs are stated at the lower of cost or net realizable value. Interest is capitalized on expenditures for long-term projects until a salable condition is reached. The capitalization rate is based on the interest rate on specific borrowings to fund the projects.

      Accounting for Impairment of a Loan. If it is probable that, based upon current information, the Company will be unable to collect all amounts due according to the contractual terms of a loan agreement, the Company considers the asset to be “impaired.” Reserves are established against impaired loans in amounts equal to the difference between the recorded investment in the asset and either the present value of the cash flows expected to be received, or the fair value of the underlying collateral if foreclosure is deemed probable or if the loan is considered collateral dependent.

      Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Long-lived assets held and used by the Company and long-lived assets to be disposed of, are reviewed for impairment whenever events or changes in circumstances, such as vacancies and rejected leases, indicate that the carrying amount of an asset may not be recoverable.

      In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset an impairment loss is recognized. Measurement of an impairment loss for long-lived assets that the Company expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

      Accrued Insurance — The Company’s Atlantic City casino is self insured for a portion of its general liability, workers’ compensation, certain health care and other liability exposures. A third party insures losses over prescribed levels. Accrued insurance includes estimates of such accrued liabilities based on an evaluation of the merits of individual claims and historical claims experience. Accordingly, the Company’s ultimate liability may differ from the amounts accrued.

      Property Sales — The Company has generally not recognized any profit in connection with the property sales in which certain purchase money mortgages were taken back. Such profits are being deferred and will be recognized when the principal balances on the purchase money mortgages are received.

      On September 28, 2004, the SEC released Staff Accounting Bulletin (“SAB”) 106 regarding the application of SFAS 143, “Accounting for Asset Retirement Obligations (“AROs”), “by oil and gas producing companies following the full cost accounting method. Pursuant to SAB 106, oil and gas producing companies that have adopted SFAS 143 should exclude the future cash outflows associated with settling AROs (ARO liabilities) from the computation of the present value of estimated future net revenues for the purposes of the full cost ceiling calculation. In addition, estimated dismantlement and abandonment costs, net

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of estimated salvage values, that have been capitalized (ARO assets) should be included in the amortization base for computing depreciation, depletion and amortization expense. Disclosures are required to include discussion of how a company’s ceiling test and depreciation, depletion and amortization calculations are impacted by the adoption of SFAS 143. SAB 106 is effective prospectively as of the beginning of the first fiscal quarter beginning after October 4, 2004. The adoption of SAB 106 is not expected to have a material impact on either the ceiling test calculation or depreciation, depletion and amortization.

      In December 2004, FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”). This revised accounting standard eliminates the ability to account for share-based compensation transactions using the intrinsic value method in accordance with APB Opinion No. 25 and requires instead that such transactions be accounted for using a fair-value-based method. SFAS No. 123R requires public entities to record noncash compensation expense related to payment for employee services by an equity award, such as stock options, in their financial statements over the requisite service period. The Company has adopted SFAS No. 123R as of June 30, 2005. The adoption of SFAS No. 123R did not have any impact on the Company’s previously issued consolidated financial statements.

      a. On June 30, 2005, the Company acquired a 50% membership interest in NEG Holdings, 100% of the equity of Panaco, 4,121,033 shares of common stock of GBH and 1,133,284 shares of common stock of Atlantic Holdings from entities affiliated with Mr. Icahn for 15,758,546 of AREP’s limited partnership depositary units valued at approximately $457.0 million. Mr. Icahn is Chairman of the Board of American Property Investors, Inc. The terms of the transaction were approved by the Audit Committee of the Board of Directors of the General Partner (“Audit Committee”), which was advised by its independent financial advisor and by its counsel. (See Notes 5 and 6).

      b. On April 6, 2005, AREP Oil and Gas LLC, a wholly owned subsidiary of the Company, acquired TransTexas from an entity affiliated with Mr. Icahn, for $180.0 million in cash. The terms of the transaction were approved by the Audit Committee, which was advised by its independent financial advisor and by its counsel. (See Note 6).

      c. On May 26, 2004, our wholly-owned subsidiary, American Casino and Entertainment Properties LLC (“American Casino”) acquired two Las Vegas casino/hotels, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder from Mr. Icahn and an entity affiliated with Mr. Icahn, for aggregate consideration of $125.9 million. The terms of the transactions were approved by the Audit Committee, which was advised by its independent financial advisor and by counsel. (See Note 5).

      d. At December 31, 2002, the Company held a $250 million note receivable from Mr. Icahn, which was repaid in October 2003. Interest income of approximately $7.9 million and $9.9 million was earned on this loan in the years ended December 31, 2003 and 2002, respectively, and is included in “Interest income” in the Consolidated Statements of Earnings.

      e. Administrative Services

      In 1997, the Company entered into a license agreement for a portion of office space from an affiliate. The license agreement dated as of February 1, 1997 expired May 22, 2004 and was extended on a month-to-month basis through June 2005. In July 2005, the Company entered into a new license agreement with an API affiliate for the non-exclusive use of approximately 1,514 square feet for which it pays monthly base rent of $13,000 plus 16.4% of certain “additional rent.” The terms of the license agreement were reviewed and approved by the Audit Committee. The license agreement expires in May 2012. Under the agreement, base rent is subject to increases in July 2008 and December 2011. Additionally, the Company is entitled to certain annual rent credits each December beginning December 2005 and continuing through December 2011. Pursuant to the license agreement, the Company has the non-exclusive use of approximately 2,275 square feet

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of office space and common space for which it paid $11,185 plus 10.77% of “additional rent”. For the nine months ended September 30, 2005 and 2004 and for the years ended December 31, 2004, 2003 and 2002, the Company paid such affiliate approximately $117,000, $123,000, $162,000, $159,000 and $153,000, respectively, in connection with this licensing agreement. The terms of such sublease were reviewed and approved by the Audit Committee. If the Company must vacate the space, it believes there will be adequate alternative space available.

      For the nine months ended September 30, 2005, 2004 and for the years ended December 31, 2004, 2003 and 2002, the Company paid approximately $717,000, $211,000, $325,000, $273,000 and $160,900, respectively, to XO Communications, Inc., an affiliate of the General Partner for telecommunication services.

      An affiliate of the General Partner provided certain administrative services to the Company which paid to such affiliate approximately $46,000, $61,000, $81,600, $78,300, and $78,250, for the nine months ended September 30, 2005 and 2004 and for the years ended December 31, 2004, 2003 and 2002, respectively.

      The Company provided certain administrative services to an affiliate of the General Partner and was paid approximately $18,000, $80,000, $80,000, $68,000 and $47,000 for the nine months ended September 30, 2005 and 2004 and for the years ended December 31, 2004, 2003 and 2002, respectively.

      f. See Note 6 regarding the purchase of TransTexas and Panaco debt from Icahn affiliates.

      g. See Note 5 regarding the purchase of Atlantic Holdings Notes from Icahn affiliates.

      h. See Note 14 regarding additional related party obligations.

      The Company conducts its home fashion operations through its majority ownership in WPI.

      A summary balance sheet for home fashion as of September 30, 2005 as included in the consolidated balance sheet and as of August 8, 2005, the acquisition date, is as follows:

      Summarized statement of earnings information for the period from August 8, 2005 to September 30, 2005 , is as follows (in $000s):

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      Total depreciation for the period was $6.9 million, of which $5.1 million was included in cost of sales and $1.8 million was included in selling, general and administrative.

      On August 8, 2005, WPI, an indirect subsidiary of the Company, completed the acquisition of substantially all of the assets of WestPoint. The acquisition was completed pursuant to an agreement dated June 23, 2005, which was subsequently approved by the U.S. Bankruptcy Court. WPI is engaged in the business of manufacturing, sourcing, marketing and distributing bed and bath home fashion products including, among others, sheets, pillowcases, comforters, blankets, bedspreads, pillows, mattress pads, towels and related products. WPI conducts its operations exclusively in the consumer home fashion industry and recognizes revenue primarily through the sale of home fashion products to a variety of retail and institutional customers. WPI also operates 35 retail outlet stores that sell home fashion products, including, but not limited to, WPI’s home fashion products. In addition, WPI receives a small portion of its revenues through the licensing of its trademarks.

      The acquisition was made in furtherance of the Company’s objective of acquiring undervalued companies in distressed or out of favor industries.

      The terms of the agreement provided for the issuance of stock in WPI that will own, indirectly, all of the assets of WestPoint. The holders of the first lien debt of WestPoint received 35% of the common stock of WPI. As the holder of 40% of the first lien debt, the Company acquired approximately 14% of the common stock of WPI The Company paid approximately $206 million for the first and second lien debt of WestPoint that it previously owned. The holders of first and second lieu debt will receive rights to subscribe for an aggregate of 47.5% of the common stock of WPI.

      The Company has also invested $187 million in cash for an additional 17.5% of the common stock of WPI and an additional $32.9 million for shares acquired in connection with rights. An additional $92.1 million may be invested, depending upon the results of the planned rights offering. Depending on the exercise of the subscription rights, the Company’s ultimate ownership of WPI could range from approximately 50.5% (at a cost of $450.4 million) to 79.0% (at a cost of $520.5 million) of the common stock. As of August 8, 2005 and September 30, 2005, the Company owned 67.7% of the common stock of WPI.

      The aggregate consideration paid for the acquisition was as follows:

      The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on August 8, 2005. The initial purchase price allocations are based on estimated fair values as determined by

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independent appraisers and may be adjusted within one year of the purchase date as the Company completes its detailed valuation work:

      The amount allocated to intangible assets was attributed to trademarks, which have been determined to have an indefinite life.

      The Company’s basis in WPI is less than its share of the equity in WPI by approximately $110 million. The excess of fair value over cost of net assets acquired has been reflected as a reduction of long-lived assets in the Company’s consolidated balance sheet. Fixed assets were reduced by $98.7 million and intangible assets were reduced by $11.3 million. A reduction in depreciation expense of $3.2 million for the period to September 30, 2005 was recorded related to the excess of fair value over cost that had been assigned to fixed assets.

      The following table summarizes unaudited pro forma financial information assuming the acquisition of WPI had occurred on January 1, 2004. This unaudited pro forma financial information does not necessarily represent what would have occurred if the transaction had taken place on the dates presented and should not be taken as representative of our future consolidated results of operations or financial position. (In $000s):

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      The pro forma adjustments relate to the elimination of interest expense at WPI, a reduction in interest income of AREH and adjustments to reflect AREHs depreciation expense and a minority interest of 32.32%.

      WPI balances included in the pro forma table for the nine months ended September 30, 2005 are for the period from January 1, 2005 to the date of acquisition, August 8, 2005. Data for the period from August 9, 2005 to September 30, 2005 are included in the AREH results.

      The Company owns and operates gaming properties in Las Vegas and Atlantic City. The Company operates three gaming and entertainment properties in the Las Vegas metropolitan area through American Casino. The three properties are the Stratosphere Casino Hotel and Tower, which is located on the Las Vegas Strip and caters to visitors to Las Vegas, and 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. The Company also owns and operates the Sands Hotel and Casino in Atlantic City, New Jersey through its majority ownership of Atlantic Holdings.

      A summary balance sheet for gaming as of September 30, 2005, December 31, 2004 and 2003, included in the consolidated balance sheet, is as follows:

      Included in property and equipment at September 30, 2005 and December 31, 2004 and 2003 are assets recorded under capital leases of $4.2 million, $4.0 million and $4.0 million, respectively.

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      Summarized income statement information for the nine months ended September 30, 2005 and 2004 and for the years ended December 31, 2004, 2003 and 2002 is as follows: