e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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o |
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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: 0-22494
AMERISTAR CASINOS, INC.
(Exact name of Registrant as Specified in its Charter)
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Nevada
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88-0304799 |
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(State or other jurisdiction of
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(I.R.S. employer |
incorporation or organization)
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identification no.) |
3773 Howard Hughes Parkway
Suite 490 South
Las Vegas, Nevada 89169
(Address of principal executive offices)
(702) 567-7000
(Registrants telephone number, including area code)
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 þ No o
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
o No o
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. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of
August 5, 2009, 57,655,277 shares of Common Stock of the registrant were outstanding.
AMERISTAR CASINOS, INC.
FORM 10-Q
INDEX
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Page No(s). |
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2 |
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3 |
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4 |
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5 - 14 |
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15 - 23 |
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23 - 24 |
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24 |
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24 |
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25 |
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25 |
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26 |
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- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
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June 30, 2009 |
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December 31, |
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(Unaudited) |
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2008 |
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ASSETS
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Current Assets: |
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Cash and cash equivalents |
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$ |
94,030 |
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$ |
73,726 |
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Restricted cash |
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6,425 |
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6,425 |
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Accounts receivable, net |
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9,077 |
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12,635 |
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Income tax refunds receivable |
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1,544 |
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Inventories |
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7,398 |
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7,926 |
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Prepaid expenses |
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17,549 |
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8,029 |
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Deferred income taxes |
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2,991 |
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10,473 |
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Total current assets |
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139,014 |
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119,214 |
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Property and Equipment, at cost: |
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Buildings and improvements |
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1,663,034 |
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1,657,835 |
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Furniture, fixtures and equipment |
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511,467 |
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510,843 |
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2,174,501 |
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2,168,678 |
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Less: accumulated depreciation and amortization |
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(695,458 |
) |
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(655,422 |
) |
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1,479,043 |
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1,513,256 |
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Land |
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83,097 |
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83,183 |
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Construction in progress |
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235,142 |
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176,518 |
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Total property and equipment, net |
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1,797,282 |
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1,772,957 |
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Goodwill and other intangible assets |
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254,496 |
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255,170 |
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Deferred income taxes |
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5,904 |
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16,219 |
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Deposits and other assets |
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81,819 |
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61,678 |
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TOTAL ASSETS |
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$ |
2,278,515 |
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$ |
2,225,238 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities: |
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Accounts payable |
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$ |
22,020 |
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$ |
27,520 |
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Construction contracts payable |
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21,892 |
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37,121 |
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Income taxes payable |
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3,563 |
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Accrued liabilities |
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133,690 |
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116,313 |
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Current maturities of long-term debt |
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4,441 |
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4,503 |
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Total current liabilities |
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182,043 |
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189,020 |
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Long-term debt, net of current maturities |
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1,661,477 |
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1,643,997 |
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Deferred compensation and other long-term liabilities |
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48,734 |
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53,441 |
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Commitments and contingencies |
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Stockholders Equity: |
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Preferred stock, $.01 par value: Authorized - 30,000,000 shares; Issued None |
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Common stock, $.01 par value: Authorized - 120,000,000 shares; Issued - 58,356,824
and 58,093,041 shares; Outstanding - 57,551,657 and 57,300,719 shares |
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584 |
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581 |
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Additional paid-in capital |
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253,870 |
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246,662 |
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Treasury stock, at cost (805,167 and 792,322 shares) |
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(17,863 |
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(17,719 |
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Accumulated other comprehensive loss |
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(25,024 |
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(27,295 |
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Retained earnings |
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174,694 |
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136,551 |
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Total stockholders equity |
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386,261 |
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338,780 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
2,278,515 |
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$ |
2,225,238 |
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The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
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Three Months |
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Six Months |
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Ended June 30, |
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Ended June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Casino |
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$ |
315,526 |
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$ |
338,915 |
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$ |
638,404 |
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$ |
670,672 |
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Food and beverage |
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34,808 |
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40,515 |
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72,773 |
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80,886 |
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Rooms |
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15,810 |
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15,390 |
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30,486 |
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26,329 |
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Other |
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8,615 |
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10,109 |
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16,814 |
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19,686 |
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374,759 |
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404,929 |
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758,477 |
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797,573 |
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Less: promotional allowances |
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(65,857 |
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(76,832 |
) |
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(133,737 |
) |
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(144,708 |
) |
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Net revenues |
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308,902 |
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328,097 |
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624,740 |
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652,865 |
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Operating Expenses: |
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Casino |
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142,136 |
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157,954 |
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286,480 |
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313,497 |
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Food and beverage |
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16,580 |
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18,723 |
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33,084 |
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37,702 |
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Rooms |
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2,102 |
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3,198 |
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4,334 |
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5,728 |
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Other |
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4,355 |
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5,175 |
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7,747 |
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11,250 |
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Selling, general and administrative |
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62,050 |
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68,159 |
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115,585 |
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132,272 |
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Depreciation and amortization |
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26,229 |
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26,609 |
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52,701 |
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52,129 |
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Impairment loss on assets |
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42 |
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274 |
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95 |
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129,339 |
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Total operating expenses |
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253,494 |
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280,092 |
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500,026 |
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681,917 |
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Income (loss) from operations |
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55,408 |
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48,005 |
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124,714 |
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(29,052 |
) |
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Other Income (Expense): |
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Interest income |
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125 |
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176 |
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269 |
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403 |
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Interest expense, net of capitalized interest |
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(25,602 |
) |
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(15,762 |
) |
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(42,517 |
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(37,814 |
) |
Loss on early retirement of debt |
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(5,210 |
) |
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(5,210 |
) |
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Net gain (loss) on disposition of assets |
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170 |
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(633 |
) |
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165 |
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(558 |
) |
Other |
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1,028 |
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525 |
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583 |
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(327 |
) |
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Income (Loss) Before Income Tax Provision
(Benefit) |
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25,919 |
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32,311 |
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78,004 |
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(67,348 |
) |
Income tax provision (benefit) |
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11,639 |
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15,289 |
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33,823 |
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(23,440 |
) |
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Net Income (Loss) |
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$ |
14,280 |
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$ |
17,022 |
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$ |
44,181 |
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$ |
(43,908 |
) |
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Earnings (Loss) Per Share: |
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Basic |
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$ |
0.25 |
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$ |
0.30 |
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$ |
0.77 |
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$ |
(0.77 |
) |
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Diluted |
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$ |
0.25 |
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$ |
0.29 |
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$ |
0.76 |
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$ |
(0.77 |
) |
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Cash Dividends Declared Per Share |
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$ |
0.11 |
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$ |
0.11 |
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$ |
0.11 |
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$ |
0.21 |
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Weighted-Average Shares Outstanding: |
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Basic |
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57,483 |
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57,182 |
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|
57,411 |
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57,166 |
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Diluted |
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58,237 |
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57,893 |
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57,947 |
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57,166 |
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The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
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Six Months |
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Ended June 30, |
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|
2009 |
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|
2008 |
|
Cash Flows from Operating Activities: |
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Net income (loss) |
|
$ |
44,181 |
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$ |
(43,908 |
) |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
|
|
52,701 |
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|
52,129 |
|
Amortization of debt discount and deferred financing costs |
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|
2,504 |
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|
1,055 |
|
Loss on early retirement of debt |
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|
5,210 |
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|
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Stock-based compensation expense |
|
|
5,182 |
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|
5,527 |
|
Impairment loss on assets |
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|
95 |
|
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|
129,339 |
|
Net (gain) loss on disposition of assets |
|
|
(165 |
) |
|
|
558 |
|
Net change in deferred income taxes |
|
|
18,779 |
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|
(42,283 |
) |
Excess tax benefit from stock option exercises |
|
|
(132 |
) |
|
|
(172 |
) |
Net change in fair value of swap agreements |
|
|
(1,488 |
) |
|
|
(725 |
) |
Net change in deferred compensation liability |
|
|
(2,131 |
) |
|
|
1,513 |
|
Changes in operating assets and liabilities: |
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|
|
|
|
|
|
|
Accounts receivable, net |
|
|
3,558 |
|
|
|
(2,340 |
) |
Income tax refunds receivable |
|
|
(1,544 |
) |
|
|
13,539 |
|
Inventories |
|
|
528 |
|
|
|
(479 |
) |
Prepaid expenses |
|
|
(9,520 |
) |
|
|
(6,028 |
) |
Accounts payable |
|
|
(5,500 |
) |
|
|
5,126 |
|
Income taxes payable |
|
|
(3,431 |
) |
|
|
608 |
|
Accrued liabilities |
|
|
17,377 |
|
|
|
28,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
126,204 |
|
|
|
142,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash Flows from Investing Activities: |
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|
|
|
|
|
|
|
Capital expenditures |
|
|
(77,384 |
) |
|
|
(135,263 |
) |
(Decrease) increase in construction contracts payable |
|
|
(15,229 |
) |
|
|
14,656 |
|
Proceeds from sale of assets |
|
|
428 |
|
|
|
788 |
|
Increase in deposits and other non-current assets |
|
|
(4,219 |
) |
|
|
(13,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(96,404 |
) |
|
|
(133,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt and other borrowings |
|
|
659,485 |
|
|
|
14,015 |
|
Principal payments of debt |
|
|
(642,344 |
) |
|
|
(37,221 |
) |
Debt issuance and amendment costs |
|
|
(22,484 |
) |
|
|
|
|
Cash dividends paid |
|
|
(6,038 |
) |
|
|
(6,002 |
) |
Proceeds from stock option exercises |
|
|
1,897 |
|
|
|
505 |
|
Purchases of treasury stock |
|
|
(144 |
) |
|
|
|
|
Excess tax benefit from stock option exercises |
|
|
132 |
|
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(9,496 |
) |
|
|
(28,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
20,304 |
|
|
|
(19,297 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents Beginning of Period |
|
|
73,726 |
|
|
|
98,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End of Period |
|
$ |
94,030 |
|
|
$ |
79,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
37,707 |
|
|
$ |
29,719 |
|
|
|
|
|
|
|
|
Cash paid for federal and state income taxes, net of refunds received |
|
$ |
19,025 |
|
|
$ |
4,173 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 Principles of consolidation and basis of presentation
The accompanying consolidated financial statements include the accounts of Ameristar Casinos,
Inc. (ACI) and its wholly owned subsidiaries (collectively, the Company). Through its
subsidiaries, the Company owns and operates eight casino properties in seven markets. The
Companys portfolio of casinos consists of: Ameristar Casino Resort Spa St. Charles (serving the
St. Louis, Missouri metropolitan area); Ameristar Casino Hotel East Chicago (serving the
Chicagoland area); Ameristar Casino Hotel Kansas City (serving the Kansas City metropolitan area);
Ameristar Casino Hotel Council Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar
Casino Hotel Vicksburg (serving Jackson, Mississippi and Monroe, Louisiana); Ameristar Casino Black
Hawk (serving the Denver, Colorado metropolitan area); and Cactus Petes and The Horseshu in
Jackpot, Nevada (serving Idaho and the Pacific Northwest). The Company views each property as an
operating segment and all such operating segments have been aggregated into one reporting segment.
All significant intercompany transactions have been eliminated.
The accompanying consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements do not include all of the disclosures required
by generally accepted accounting principles. However, they do contain all adjustments (consisting
of normal recurring adjustments) that, in the opinion of management, are necessary to present
fairly the Companys financial position, results of operations and cash flows for the interim
periods included therein. The interim results reflected in these financial statements are not
necessarily indicative of results to be expected for the full fiscal year.
Certain of the Companys accounting policies require that the Company apply significant
judgment in defining the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. The Companys judgments
are based in part on its historical experience, terms of existing contracts, observance of trends
in the gaming industry and information obtained from independent valuation experts or other outside
sources. There is no assurance, however, that actual results will conform to estimates. To
provide an understanding of the methodology the Company applies, significant accounting policies
and basis of presentation are discussed where appropriate in Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations of this Quarterly Report. In addition,
critical accounting policies and estimates are discussed in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and the notes to the Companys audited
consolidated financial statements included in its Annual Report on Form 10-K for the year ended
December 31, 2008.
The accompanying consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2008.
The Company has evaluated certain events and transactions occurring after June 30, 2009 and
through August 10, 2009, the date of the Companys Form 10-Q filing, and determined that none met
the definition of a subsequent event for purposes of recognition or disclosure in its accompanying
consolidated financial statements for the period ended June 30, 2009.
- 5 -
Note 2
Accounting pronouncements
Recently adopted accounting pronouncements
In May 2009, the Financial Accounting Standards Boards (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 165, Subsequent Events. SFAS No. 165 establishes general
standards of accounting for and disclosure of events that occur after the balance sheet date but
prior to the issuance of the financial statements. The statement requires disclosure of the date
through which subsequent events were evaluated and the basis for that date. SFAS 165 sets forth
the following: (1) the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial
statements; and (3) the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS No. 165 applies prospectively to both interim and
annual financial periods ending after June 15, 2009. The Company has adopted the provisions of
SFAS No. 165 effective June 30, 2009 and has included the required disclosures in Note 1
Principles of consolidation and basis of presentation.
In April 2009, the FASB issued the following three new FASB Staff Positions (FSPs), all of
which impact the accounting and disclosure related to certain financial instruments:
|
§ |
|
FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly, provides guidance regarding how to determine whether there has been a
significant decrease in the volume and level of activity for the asset or liability when
compared with normal market activity for the asset or liability. In such situations, an
entity may conclude that transactions or quoted prices may not be determinative of fair
value, and may adjust the transactions or quoted prices to arrive at the fair value of the
asset or liability. |
|
|
§ |
|
FSP FAS 115-2 and FAS 124-2, Recognition of Other-Than-Temporary Impairment, provides
additional guidance on the timing of impairment recognition and greater clarity about the
credit and noncredit components of impaired debt securities that are not expected to be
sold. This FSP also requires additional disclosures about impairments in interim and
annual reporting periods. |
|
|
§ |
|
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments, amends SFAS No. 107 to require disclosures about the fair value of financial
instruments on an interim basis in addition to the annual disclosure requirements. |
All three FSPs were effective for the Company beginning April 1, 2009. The Companys adoption
of these FSPs did not have a material impact on its financial position, results of operations or
cash flows.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. This statement requires enhanced
disclosures about a companys derivative and hedging activities. The provisions were effective for
the Company as of January 1, 2009. The new disclosures required by this statement are included in
Note 7 Derivative instruments and hedging activities.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
No. 141(R)). SFAS No. 141(R) significantly changes the accounting for business combinations.
Under SFAS No. 141(R), an acquiring entity is required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions.
SFAS No. 141(R) changes the accounting treatment for certain specific acquisition-related items,
including: (1) expensing acquisition-related costs as incurred; (2)
- 6 -
valuing noncontrolling
interests at fair value at the acquisition date; and (3) expensing restructuring costs associated
with an acquired business. SFAS No. 141(R) also includes a substantial number of new disclosure
requirements. SFAS No. 141(R) was effective for the Company on January 1, 2009, and the
Company will apply SFAS No 141(R) prospectively to all business combinations subsequent to the
effective date. The Company expects SFAS No. 141(R) will have an impact on its accounting for
future business combinations, but the effect is dependent upon the acquisitions, if any, that are
made in the future.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, as amended in
February 2008 by FSP No. 157-2, Effective Date of FASB Statement No. 157. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157 clarifies how to
measure fair value as permitted under other accounting pronouncements, but does not require any new
fair value measurements. FSP No. 157-2 delayed the effective date of SFAS No. 157 for all
nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis, until January 1, 2009. As such, the Company partially
adopted the provisions of SFAS No. 157 effective January 1, 2008, without any material impact to
the Companys financial position, results of operations or cash flows. The remaining provisions of
SFAS No. 157 that were adopted beginning in 2009 did not have a material impact on the Companys
financial position, results of operations or cash flows.
The
Company measures the fair value of its interest rate swaps and its
deferred compensation plan assets and liabilities on a recurring basis pursuant
to SFAS No. 157. SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and Level 3, defined as
unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions. The Company categorizes the swap
contracts as Level 2 and its deferred compensation plan assets and
liabilities as Level 1. As of June 30, 2009, the Companys deferred compensation plan assets and
liabilities were valued at $15.3 million and $10.5 million, respectively.
Recently issued accounting pronouncement
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles -
a replacement of FASB Statement No. 162, and approved the FASB Accounting Standards
CodificationTM (Codification) as the single source of authoritative
nongovernmental US GAAP. The Codification does not change current US GAAP, but is intended to
simplify user access to all authoritative US GAAP by providing all the authoritative literature
related to a particular topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the Codification will be considered
non-authoritative. For the Company, the Codification is effective July 1, 2009 and will require
future references to authoritative US GAAP to refer to the appropriate section of the Codification.
This standard will not have an impact on the Companys financial position, results of operations
or cash flows.
Note 3 Stockholders equity
Changes in stockholders equity for the six months ended June 30, 2009 were as follows:
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
Balance at December 31, 2008 |
|
$ |
338,780 |
|
Net income |
|
|
44,181 |
|
Dividends |
|
|
(6,038 |
) |
Change in accumulated other comprehensive loss |
|
|
2,271 |
|
Stock-based compensation |
|
|
5,182 |
|
Proceeds from exercise of stock options |
|
|
1,897 |
|
Tax benefit from stock option exercises |
|
|
132 |
|
Shares remitted for tax withholding |
|
|
(144 |
) |
|
|
|
|
Balance at June 30, 2009 |
|
$ |
386,261 |
|
|
|
|
|
Accumulated other comprehensive loss includes changes in the fair value of interest rate
swaps, which qualify for hedge accounting.
- 7 -
Note 4 Earnings (loss) per share
The Company calculates earnings (loss) per share in accordance with SFAS No. 128, Earnings
Per Share. Basic earnings (loss) per share are computed by dividing reported earnings (loss) by
the weighted-average number of common shares outstanding during the period. Diluted earnings per
share reflect the additional dilution from all potentially dilutive securities, such as stock
options and restricted stock units. For the three months ended June 30, 2008 and for the 2009
periods presented, all outstanding options with an exercise price lower than the market price have
been included in the calculation of diluted earnings per share. For the six months ended June 30,
2008, diluted loss per share excludes the additional dilution from all potentially dilutive
securities such as stock options.
The weighted-average number of shares of common stock and common stock equivalents used in the
computation of basic and diluted earnings (loss) per share consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(Amounts in Thousands) |
Weighted-average number of shares outstanding
basic earnings (loss) per share |
|
|
57,483 |
|
|
|
57,182 |
|
|
|
57,411 |
|
|
|
57,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
754 |
|
|
|
711 |
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding
diluted earnings (loss) per share |
|
|
58,237 |
|
|
|
57,893 |
|
|
|
57,947 |
|
|
|
57,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2009 and 2008, the potentially dilutive stock options
excluded from the earnings per share computation, as their effect would be anti-dilutive, totaled
3.0 million and 3.8 million, respectively. Anti-dilutive stock options for the six months ended
June 30, 2009 and 2008 totaled 3.2 million and 3.5 million, respectively.
Note 5 Goodwill and other intangible assets
As required under SFAS No. 142, the Company performs an annual assessment of its goodwill and
other intangible assets to determine if the carrying value exceeds the fair value. Additionally,
SFAS No. 142 requires an immediate impairment assessment if a change in circumstances can
materially negatively affect the fair value of the intangible assets. For the three months and six
months ended June 30, 2009, there were no impairment charges relating to goodwill and
indefinite-lived intangible assets. During the first quarter of 2008, the Company assessed its
intangible assets at Ameristar East Chicago for impairment due to a significant deterioration of
the debt and equity capital markets, weakening economic conditions and changes in the forecasted
operations that materially affected the propertys fair value. As a result, during the first
quarter of 2008 the Company recorded a total of $129.0 million in non-cash impairment charges
relating to the goodwill and gaming license acquired in the purchase of the East Chicago property.
The impairment charges reduced the carrying value of goodwill by $77.0 million and the gaming
license by $52.0 million. The Company will perform its annual review of goodwill and
indefinite-lived intangible assets in the fourth quarter of 2009.
- 8 -
Note 6 Long-term debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in Thousands) |
|
Senior credit facilities, secured by first priority security interest in
substantially all real and personal property assets of ACI and its
subsidiaries, consisting of the following facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loan facility, at variable interest (6.0% at June 30, 2009
and 4.5% at December 31, 2008); principal due November 10, 2010 |
|
$ |
643,000 |
|
|
$ |
1,259,000 |
|
Term loan facility, at variable interest (6.2% at June 30, 2009 and
2.5% at December 31, 2008); $1.0 million principal
payments due quarterly through September 30, 2011; $94.3
million principal payments due quarterly from December 31,
2011 through November 10, 2012 |
|
|
386,000 |
|
|
|
388,000 |
|
|
|
|
|
|
|
|
|
|
Senior notes, unsecured, 9.25% fixed interest, payable semi-annually
on June 1 and December 1, principal due June 1, 2014 (net of
$14,238 discount at June 30, 2009) |
|
|
635,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
1,156 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,665,918 |
|
|
|
1,648,500 |
|
|
|
|
|
|
|
|
|
|
Less: Current maturities |
|
|
(4,441 |
) |
|
|
(4,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,661,477 |
|
|
$ |
1,643,997 |
|
|
|
|
|
|
|
|
Senior unsecured notes
On May 27, 2009, the Company completed private offerings of $650.0 million aggregate principal
amount of
91/4%
Senior Notes due 2014 (the Notes). Of the total, $500.0 million principal amount of
the Notes were sold at a price of 97.097% of the principal amount and $150.0 million principal
amount of the Notes were sold at a price of 100% of the principal amount. The Company used the net
proceeds from the sale of the Notes (approximately $620.0 million, after deducting discounts and expenses) to
repay a portion of the revolving loan indebtedness outstanding under the Companys senior secured
credit facility (the Credit Facility). Simultaneously, the Company terminated $650.0 million of
revolving loan commitments under the Credit Facility that mature in November 2010.
The
terms of the Notes are governed by an indenture (the Indenture). Interest on the Notes is
payable semi-annually in arrears on June 1 and December 1 of each year, with the initial interest
payment due on December 1, 2009. The Notes mature on June 1, 2014. The Notes and the guarantees of
the Notes are senior unsecured obligations of the Company and certain of its subsidiaries
(the Guarantors), respectively, and rank equally with or senior to, in right of payment, all existing
or future unsecured indebtedness of the Company and each Guarantor, respectively, but will be
effectively subordinated in right of payment to the Credit Facility indebtedness and any future
secured indebtedness, to the extent of the value of the assets securing such indebtedness.
- 9 -
The
Guarantors have jointly and severally, and
fully and unconditionally, guaranteed the Notes. Each of the
Guarantors is a wholly owned subsidiary of ACI and the Guarantors constitute substantially all of ACIs direct and indirect
subsidiaries. ACI is a holding company with no operations or material assets independent of those
of the Guarantors, other than its investment in the Guarantors, and the aggregate assets,
liabilities, earnings and equity of the Guarantors are substantially equivalent to the assets,
liabilities, earnings and equity on a consolidated basis of the Company. Separate financial
statements and certain other disclosures concerning the Guarantors are not presented because, in
the opinion of management, such information is not material to investors. Other than customary
restrictions imposed by applicable corporate statutes, there are no restrictions on the ability of
the Guarantors to transfer funds to ACI in the form of cash dividends, loans or advances.
The Indenture contains covenants that limit the Companys and its Restricted Subsidiaries (as
defined in the Indenture) ability to (i) pay dividends or make distributions, repurchase equity
securities, prepay subordinated debt or make certain investments, (ii) incur additional debt or
issue certain disqualified stock or preferred stock,
(iii) create liens on assets, (iv) merge or consolidate with another company or sell all or
substantially all assets and (v) enter into transactions with affiliates. In addition, pursuant to
the Indenture, if the Company experiences certain changes of control, each holder of the Notes can
require the Company to repurchase all or a portion of such holders outstanding Notes at a price of
101% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if
any, to the repurchase date.
Credit facility
On March 13, 2009, the Company amended the Credit Facility to increase the maximum permitted
leverage and senior leverage ratios. Additionally, the amendment expanded the Companys ability to
incur unsecured debt and allowed it to request lenders to extend the maturity of their respective
portions of the revolving loan facility from November 10, 2010 to August 10, 2012. The amendment
also increased the interest rate add-on for term loan and revolving loan borrowings under the
Credit Facility by 125 basis points.
As a result of the amendment, from and after March 16, 2009, the borrowing under the term loan
facility bears interest at the London Interbank Offered Rate (LIBOR) plus 325 basis points or the
base rate plus 225 basis points, at the Companys option. From and after March 16, 2009, the
revolving loan facilitys LIBOR margin is subject to adjustment between 200 and 300 basis points
and the base rate margin is subject to adjustment between 100 and 200 basis points, in each case
depending on the Companys leverage ratio, as defined. The commitment fee on the revolving loan
facility ranges from 25 to 50 basis points, depending on the leverage ratio. In the case of
LIBOR-based loans, the Company has the option of selecting a one-, two-, three- or six-month
interest period. The Company also has the option to select a nine- or 12-month interest period if
agreed to by all Credit Facility lenders. Interest is payable at the earlier of three months from
the borrowing date or upon expiration of the interest period selected.
All mandatory principal payments have been made through June 30, 2009. As of June 30, 2009,
the amount of the revolving loan facility available for borrowing was $103.4 million, after giving
effect to $3.6 million of outstanding letters of credit.
Other debt items
In connection with the issuance of the Notes and the Credit Facility amendment, the Company
paid one-time fees and expenses totaling approximately $22.5 million during the first six months of
2009, most of which was capitalized and will be amortized over the respective remaining terms of
the Notes and the Credit Facility. During the second quarter of 2009, deferred debt issuance costs
totaling approximately $5.2 million were expensed as a result of the early retirement of a portion
of the outstanding revolving loan facility. The deferred debt
issuance costs remaining to be amortized are reflected in other
assets in the accompanying consolidated balance sheets.
- 10 -
As a result of the issuance of the Notes and the Credit Facility amendment, the Company
expects a significant increase in interest expense compared to 2008.
The agreement governing the Credit Facility requires the Company to comply with various
affirmative and negative financial and other covenants, including restrictions on the incurrence of
additional indebtedness,
restrictions on dividend payments and other restrictions and requirements to maintain certain
financial ratios and tests. As of June 30, 2009, the Company was required to maintain a leverage
ratio, defined as consolidated debt divided by EBITDA for the prior four full fiscal quarters, of
no more than 6.00:1, and a senior leverage ratio, defined as consolidated senior debt divided by
EBITDA for the prior four full fiscal quarters, of no more than 5.75:1. As of June 30, 2009 and
December 31, 2008, the Companys leverage ratio was 4.91:1 and 5.14:1, respectively. The senior
leverage ratio as of June 30, 2009 and December 31, 2008 was 4.91:1 and 5.14:1, respectively. As
of June 30, 2009 and December 31, 2008, the Company was in compliance with all applicable
covenants.
Fair value of long-term debt
The fair value of the Companys long-term debt at June 30, 2009 and December 31, 2008
approximated its book value. The Companys outstanding debt primarily consists of the recently
issued Notes and borrowings under the Credit Facility, which carry variable interest rates over
short-term interest periods.
Note 7 Derivative instruments and hedging activities
Effective January 1, 2009, the Company adopted SFAS No. 161. SFAS No. 161 amends and expands
the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, to provide users of financial statements with an enhanced understanding of (i) how and
why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations and (iii) how derivative
instruments and related hedged items affect an entitys financial position, results of operations
and cash flows.
Effective July 18, 2008, the Company entered into a forward interest rate swap with a commercial bank
to fix the interest rate on certain LIBOR-based borrowings under the Credit Facility for a period
of two years. The swap was designated as a cash flow hedge. Pursuant to the interest rate swap agreement, the Company is obligated to make
quarterly fixed rate payments to the counterparty at an annual rate of 3.1975%, calculated on a
notional amount of $500.0 million, while the counterparty is obligated to make quarterly floating
rate payments to the Company based on three-month LIBOR on the same notional amount. The interest
rate swap effectively fixes the annual interest rate payable on $500.0 million of the Companys
borrowings under its senior revolving loan facility at 3.1975% plus the applicable margin, which is
currently 2.875%. The swap terminates on July 19, 2010.
Effective October 20, 2008, the Company entered into an additional forward interest rate swap
with another commercial bank to fix the interest rate on certain LIBOR-based borrowings under the
Credit Facility. The swap was designated as a cash flow hedge. The Company is obligated to make quarterly fixed rate payments to the
counterparty at an annual rate of 2.98%, calculated on a notional amount of $525.0 million (giving effect to the partial
termination described below), while the counterparty is obligated to make quarterly floating rate
payments to the Company based on three-month LIBOR on the same notional amount. The interest rate
swap effectively fixes the annual interest rate payable on $525.0 million of the Companys
borrowings under the senior revolving loan facility and term loan facility at 2.98% plus the applicable margin. This swap
terminates on July 19, 2010.
The repayment of $620.0 million of the revolving loan indebtedness outstanding under the
Credit Facility described in Note 6 Long-term debt decreased the outstanding principal amount
of the revolving loan facility to $643.0 million. As a result,
the Company reallocated $382.0
million of the swaps from the revolving loan
- 11 -
facility to the term loan facility and terminated
$75.0 million of the original $600.0 million swap entered into in October 2008. The termination
cost of $1.8 million is being amortized to interest expense ratably through July 2010. The Company
concluded these changes did not impact the overall effectiveness of the swaps. Accordingly, the
Company continued its historical accounting for the swaps.
With the two swap
agreements, the Company has a total of approximately $1.0 billion of its debt hedged until
July 2010 at a weighted-average fixed rate of 3.09% plus the applicable margin.
For a derivative such as an
interest rate swap that is designated and that qualifies as a cash flow hedge, the
effective portion of changes in the fair value of the derivative (net of tax) is initially reported in
accumulated other comprehensive income on the consolidated balance sheet and is subsequently reclassified into earnings in
the period that the hedged forecasted transaction affects earnings. The ineffective
portion of changes in the fair value of the derivative is recognized directly in earnings. To the
extent the effective portion of a hedge subsequently becomes ineffective, the corresponding amount
of the change in fair value of the derivative initially reported in accumulated other comprehensive
income is reclassified and is recognized directly in earnings. Accordingly, on a quarterly basis,
the Company assesses the effectiveness of each hedging relationship by comparing the changes in
fair value or cash flows of the derivative hedging instrument with the changes in fair value or
cash flows of a hypothetical designated hedged item or transaction. If the change in the actual
swap is greater than the change in the perfect hypothetical swap, the difference is referred to as
ineffectiveness and is recognized in earnings in the current period.
The Companys objective in using derivatives is to add stability to interest expense and to
manage its exposure to interest rate movements or other identified risks. To accomplish this
objective, the Company primarily uses interest rate swaps as part of its cash flow hedging
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the
underlying principal amount. The Company does not use derivatives for trading or speculative
purposes and currently does not have any derivatives that are not designated as hedges. The
Company may enter into additional swap transactions or other interest rate protection agreements
from time to time in the future.
At June 30, 2009, the Companys interest rate swaps were valued as a $23.0 million liability
and were included in other long-term liabilities. Amounts reported in accumulated other
comprehensive income related to derivatives will be reclassified to interest expense as interest
payments are made on the Companys hedged variable-rate debt. For the three months and six months
ended June 30, 2009, the swaps increased the Companys interest expense by $5.6 million and $9.1
million, respectively. During the first six months of 2009, the Company recorded a total of $0.1
million in other income in the consolidated statement of operations as a result of hedge
ineffectiveness on the $500.0 million swap and a change in the fair value of the swap before it was
designated as a hedge. During the next 12 months, the Company estimates that an additional $24.5 million will be reclassified as an increase to interest expense.
Note 8 Stock-based compensation
The Company accounts for its stock-based compensation in accordance with SFAS No. 123(R),
Share-Based Payment.
- 12 -
Stock-based compensation expense totaled $2.6 million and $2.5 million for the three months
ended June 30, 2009 and 2008, respectively. During the first six months of 2009 and 2008,
stock-based compensation expense was $5.2 million and $5.5 million, respectively. The associated
future income tax benefit recognized was $0.1 million and $0.2 million during the six months ended
June 30, 2009 and 2008, respectively. As of June 30, 2009, there was approximately $19.3 million
of total unrecognized compensation cost related to unvested share-based compensation arrangements
granted under the Companys stock incentive plans. This unrecognized compensation cost is expected
to be recognized over a weighted-average period of 2.5 years.
The weighted-average fair value at the grant date of options granted during the quarter ended
June 30, 2008 was $5.40. There were no options granted during the second quarter of 2009. During
the six months ended June 30, 2009 and 2008, the weighted-average fair value of options granted was
$5.06 and $5.55, respectively. The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option pricing model with the following weighted-average
assumptions for the three months and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Weighted-average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility |
|
|
* |
|
|
|
42.9 |
% |
|
|
62.9 |
% |
|
|
43.7 |
% |
Risk-free interest rate |
|
|
* |
|
|
|
3.5 |
% |
|
|
1.5 |
% |
|
|
3.3 |
% |
Expected option life (years) |
|
|
* |
|
|
|
4.2 |
|
|
|
4.2 |
|
|
|
4.2 |
|
Expected annual dividend yield |
|
|
* |
|
|
|
2.7 |
% |
|
|
1.9 |
% |
|
|
2.6 |
% |
|
|
|
* |
|
The Company did not grant any options during the quarter ended June 30, 2009. |
Stock option activity during the six months ended June 30, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Contractual |
|
Intrinsic |
|
|
Options |
|
Exercise |
|
Term |
|
Value |
|
|
(In Thousands) |
|
Price |
|
(Years) |
|
(In Thousands) |
Outstanding at December 31, 2008 |
|
|
5,219 |
|
|
$ |
20.30 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
41 |
|
|
|
11.48 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(249 |
) |
|
|
7.61 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(356 |
) |
|
|
24.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
4,655 |
|
|
$ |
20.66 |
|
|
|
4.6 |
|
|
$ |
13,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2009 |
|
|
2,736 |
|
|
$ |
19.72 |
|
|
|
3.4 |
|
|
$ |
8,310 |
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic
value that would have been realized by the option holders had all option holders exercised their
options on June 30, 2009. The intrinsic value of a stock option is the excess of the Companys
closing stock price on June 30, 2009 over the exercise price, multiplied by the number of
in-the-money options. The total intrinsic value of options exercised during the six months ended
June 30, 2009 and 2008 was $2.2 million and $0.7 million, respectively.
- 13 -
The following table summarizes the Companys unvested stock option activity for the six months
ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Shares |
|
Average |
|
|
(Amounts in |
|
Exercise Price |
|
|
Thousands) |
|
(per Share) |
Unvested at December 31, 2008 |
|
|
2,172 |
|
|
$ |
22.08 |
|
Granted |
|
|
41 |
|
|
|
11.48 |
|
Vested |
|
|
(150 |
) |
|
19.73 |
|
Forfeited |
|
|
(144 |
) |
|
|
22.86 |
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2009 |
|
|
1,919 |
|
|
$ |
21.99 |
|
The following table summarizes the Companys unvested restricted stock, restricted stock
unit and performance share unit activity for the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Shares/Units |
|
Average Grant |
|
|
(Amounts in |
|
Date Fair Value |
|
|
Thousands) |
|
(per Share/Unit) |
Unvested at December 31, 2008 |
|
|
997 |
|
|
$ |
16.36 |
|
Granted |
|
|
41 |
|
|
|
5.71 |
|
Vested |
|
|
(58 |
) |
|
|
16.51 |
|
Forfeited |
|
|
(66 |
) |
|
|
16.18 |
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2009 |
|
|
914 |
|
|
$ |
15.45 |
|
Note 9 Income taxes
At June 30, 2009 and December 31, 2008, unrecognized tax benefits totaled $16.4 million and
$16.1 million, respectively. The total amount of unrecognized benefits that would affect the
effective tax rate if recognized was $1.7 million at June 30, 2009 and $1.6 million at December 31, 2008. As of
June 30, 2009, accrued interest and penalties totaled $3.2 million, of which $2.2 million would
affect the effective tax rate if recognized.
In connection with the impairment of intangible assets at Ameristar East Chicago, the Company
recorded a deferred tax benefit of $52.3 million during the three months ended March 31, 2008. The
tax effect of the impairment was reflected in the effective tax rate of 34.8% for the six months
ended June 30, 2008.
The Company files income tax returns in numerous tax jurisdictions. The statutes of
limitations vary by jurisdiction, with certain of these statutes expiring without examination each
year. With the normal expiration of statutes of limitations, the Company anticipates that the
amount of unrecognized tax benefits will decrease by $11.5 million within the next 12 months, of
which $2.4 million would affect the effective tax rate if recognized.
Note 10 Commitments and contingencies
Litigation. From time to time, the Company is a party to litigation, most of which arises in
the ordinary course of business. The Company is not currently a party to any litigation that
management believes would be likely to have a material adverse effect on the financial position,
results of operations or cash flows of the Company.
Self-Insurance Reserves. The Company is self-insured for various levels of general liability,
workers compensation and employee medical coverage. Insurance claims and reserves include
accruals of estimated settlements for known claims, as well as accrued estimates of incurred but
not reported claims. At June 30, 2009 and December 31, 2008, the estimated liabilities for unpaid
and incurred but not reported claims totaled $12.0 million and $12.3 million, respectively. The
Company utilizes actuaries who consider historical loss experience and certain unusual claims in
estimating these liabilities, based upon statistical data provided by the independent third party
administrators of the various programs. The Company believes the use of this method to account for
these liabilities provides a consistent and effective way to measure these highly judgmental
accruals; however, changes in health care costs, accident or illness frequency and severity and
other factors can materially affect the estimates for these liabilities.
- 14 -
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations |
Overview
We develop, own and operate casinos and related hotel, food and beverage, entertainment and
other facilities, with eight properties in operation in Missouri, Indiana, Iowa, Mississippi,
Colorado and Nevada. Our portfolio of casinos consists of: Ameristar Casino Resort Spa St. Charles
(serving the St. Louis, Missouri metropolitan area); Ameristar Casino Hotel East Chicago (serving
the Chicagoland area); Ameristar Casino Hotel Kansas City (serving the Kansas City metropolitan
area); Ameristar Casino Hotel Council Bluffs (serving Omaha, Nebraska and southwestern Iowa);
Ameristar Casino Hotel Vicksburg (serving Jackson, Mississippi and Monroe, Louisiana); Ameristar
Casino Black Hawk (serving the Denver metropolitan area); and Cactus Petes and The Horseshu in
Jackpot, Nevada (serving Idaho and the Pacific Northwest).
Our financial results are dependent upon the number of patrons that we attract to our
properties and the amounts those patrons spend per visit. Additionally, our operating results may
be affected by, among other things, competitive factors, gaming tax increases, the commencement of
new gaming operations, charges associated with debt refinancing or property acquisition and
disposition transactions, construction at existing facilities, general public sentiment regarding
travel, overall economic conditions affecting the disposable income of our patrons and weather
conditions affecting our properties. We may experience significant fluctuations in our quarterly
operating results due to seasonality and other factors. Consequently, our operating results for
any quarter or year are not necessarily comparable and may not be indicative of future periods
results.
The following significant factors and trends should be considered in analyzing our operating
performance:
|
|
|
General Economic Conditions. The economic recession continues to adversely
impact the gaming industry and our Company. We believe our guests have reduced their
discretionary spending as a result of uncertainty and instability relating to employment
and the credit, investment and housing markets. |
|
|
|
|
Cost Efficiencies. In July 2008, we began to implement a strategic plan to
improve efficiencies and reduce our cost structure as weak economic conditions continued to
adversely impact business volumes. As part of this plan, we reduced our workforce costs
through position eliminations, adjusting staffing practices and attrition. We also
restructured the organization of our property and corporate management teams to be more
efficient and streamlined. As a result of the actions taken to date, operating income
margins at four of our seven gaming locations increased over the prior-year second quarter.
Additionally, corporate expense decreased 14.6% from the second quarter of 2008 due mostly
to the realized cost efficiencies and the absence of $1.7 million of severance pay that
adversely impacted the second quarter of 2008. |
|
|
|
|
Missouri Properties. In late 2008, positive regulatory reform was implemented
at our Kansas City and St. Charles properties. The regulatory reform eliminated the $500
buy-in limit and the requirement for all casino guests to use player identification and
tracking cards. Additionally, the Missouri gaming reform raised taxes on gross gaming
receipts from 20% to 21% and placed a moratorium on the issuance of new gaming licenses.
During the first six months of 2009, operating income at our Kansas City and St. Charles
properties increased 27.6% and 24.6%, respectively, over the first half of 2008. The
improvement in operating income at both properties was mostly attributable to the
aforementioned cost savings initiatives and regulatory reform. Our St. Charles propertys
operating income in the second quarter of 2009 was adversely impacted by a $1.0 million
charge related to the termination of a third-party management contract for an entertainment
venue. |
|
|
|
|
Ameristar Black Hawk. In Colorado, voters approved the extension of casino
operating hours from 18 hours daily to up to 24 hours daily, the increase in maximum bet
limits from $5 to up to $100 and the addition of roulette and craps. These regulatory
changes were implemented on July 2, 2009. Also, we |
- 15 -
|
|
|
continue to progress toward a September
29, 2009 opening of our 536-room luxury hotel and spa. We
believe the regulatory changes, coupled with the new hotel, will allow us to more
effectively market our property. |
|
|
|
|
Ameristar Vicksburg. In October 2008, a new competitor opened a $100 million
casino-hotel in Vicksburg. The additional competition has adversely affected the financial
performance of Ameristar Vicksburg and the other facilities operating in the market, and
our propertys net revenues and operating income decreased 7.2% and 11.6%, respectively,
from the prior-year second quarter. We substantially completed a casino expansion and a new
1,000-space parking garage at our Vicksburg property in May 2008. We believe the expansion
has helped to offset the impact of the increased competition and the recessionary economic
conditions to date. |
|
|
|
|
Debt and Interest Expense. On March 13, 2009, we amended our senior credit
facility to provide us significant relief under our leverage ratio and senior leverage
ratio covenants for the foreseeable future (thereby improving our borrowing flexibility
related to currently available funds under our revolving loan facility). Additional
financial flexibility was created by provisions in the amendment that expand our ability to
incur unsecured debt and allow us to request lenders to extend the maturity of their
respective portions of the revolving loan facility from November 10, 2010 to August 10,
2012. We are in preliminary discussions with certain of the lenders regarding an
extension. We expect that any extension would require us to pay additional fees, and
potentially pay higher interest rate add-ons for the extended portions. The amendment also
increased the interest rate add-on for term loan and revolving loan borrowings under the
senior credit facility by 125 basis points. At June 30, 2009, our leverage and senior
leverage ratios (each as defined in the senior credit facility) were required to be no more
than 6.00:1 and 5.75:1, respectively. As of that date, our leverage ratio and senior
leverage ratio were each 4.91:1. |
On May 27, 2009, we issued $650.0 million aggregate principal amount of 91/4% Senior Notes due
2014 (the Notes). We used the net proceeds
from the sale of the Notes (approximately $620.0 million,
after deducting discounts and expenses) to repay a portion of the revolving loan
indebtedness outstanding under our senior credit facility.
We expect a significant increase in interest expense for the remainder of 2009 compared to
2008 as a result of the senior credit facility amendment and Notes issuance.
|
|
|
Promotional Spending. For the quarter ended June 30, 2009, promotional
allowances were $65.9 million compared to $76.8 million in the second quarter of 2008.
Financial results for the second quarter of 2008 were adversely impacted by a significant
increase in promotional spending as a result of an aggressive companywide marketing program
designed to capture profitable incremental revenue. However, the prior-year marketing
program to capture profitable incremental revenue was ineffective, and as a result we began
to curtail promotional spending commencing in the third quarter of 2008. |
- 16 -
Results of Operations
The following table sets forth certain information concerning our consolidated cash flows and
the results of operations of our operating properties:
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Consolidated Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
57,165 |
|
|
$ |
70,480 |
|
|
$ |
126,204 |
|
|
$ |
142,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(45,920 |
) |
|
$ |
(73,290 |
) |
|
$ |
(96,404 |
) |
|
$ |
(133,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by financing activities |
|
$ |
(2,953 |
) |
|
$ |
3,112 |
|
|
$ |
(9,496 |
) |
|
$ |
(28,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
73,311 |
|
|
$ |
75,332 |
|
|
$ |
150,483 |
|
|
$ |
147,015 |
|
Ameristar East Chicago |
|
|
68,495 |
|
|
|
74,470 |
|
|
|
136,122 |
|
|
|
149,822 |
|
Ameristar Kansas City |
|
|
58,656 |
|
|
|
61,935 |
|
|
|
118,826 |
|
|
|
123,863 |
|
Ameristar Council Bluffs |
|
|
39,989 |
|
|
|
44,722 |
|
|
|
82,239 |
|
|
|
90,233 |
|
Ameristar Vicksburg |
|
|
31,026 |
|
|
|
33,420 |
|
|
|
64,145 |
|
|
|
67,106 |
|
Ameristar Black Hawk |
|
|
20,649 |
|
|
|
20,405 |
|
|
|
41,045 |
|
|
|
40,678 |
|
Jackpot Properties |
|
|
16,776 |
|
|
|
17,813 |
|
|
|
31,880 |
|
|
|
34,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenues |
|
$ |
308,902 |
|
|
$ |
328,097 |
|
|
$ |
624,740 |
|
|
$ |
652,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
16,523 |
|
|
$ |
15,305 |
|
|
$ |
38,479 |
|
|
$ |
30,878 |
|
Ameristar East Chicago |
|
|
11,030 |
|
|
|
8,010 |
|
|
|
23,567 |
|
|
|
(110,781 |
) |
Ameristar Kansas City |
|
|
15,951 |
|
|
|
12,683 |
|
|
|
32,548 |
|
|
|
25,507 |
|
Ameristar Council Bluffs |
|
|
11,342 |
|
|
|
12,744 |
|
|
|
24,061 |
|
|
|
24,780 |
|
Ameristar Vicksburg |
|
|
8,490 |
|
|
|
9,601 |
|
|
|
19,290 |
|
|
|
20,763 |
|
Ameristar Black Hawk |
|
|
1,995 |
|
|
|
2,783 |
|
|
|
5,870 |
|
|
|
5,598 |
|
Jackpot Properties |
|
|
4,031 |
|
|
|
3,218 |
|
|
|
7,300 |
|
|
|
5,716 |
|
Corporate and other |
|
|
(13,954 |
) |
|
|
(16,339 |
) |
|
|
(26,401 |
) |
|
|
(31,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss) |
|
$ |
55,408 |
|
|
$ |
48,005 |
|
|
$ |
124,714 |
|
|
$ |
(29,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) Margins(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
|
22.5 |
% |
|
|
20.3 |
% |
|
|
25.6 |
% |
|
|
21.0 |
% |
Ameristar East Chicago |
|
|
16.1 |
% |
|
|
10.8 |
% |
|
|
17.3 |
% |
|
|
(73.9 |
%) |
Ameristar Kansas City |
|
|
27.2 |
% |
|
|
20.5 |
% |
|
|
27.4 |
% |
|
|
20.6 |
% |
Ameristar Council Bluffs |
|
|
28.4 |
% |
|
|
28.5 |
% |
|
|
29.3 |
% |
|
|
27.5 |
% |
Ameristar Vicksburg |
|
|
27.4 |
% |
|
|
28.7 |
% |
|
|
30.1 |
% |
|
|
30.9 |
% |
Ameristar Black Hawk |
|
|
9.7 |
% |
|
|
13.6 |
% |
|
|
14.3 |
% |
|
|
13.8 |
% |
Jackpot Properties |
|
|
24.0 |
% |
|
|
18.1 |
% |
|
|
22.9 |
% |
|
|
16.7 |
% |
Consolidated operating income (loss) margin |
|
|
17.9 |
% |
|
|
14.6 |
% |
|
|
20.0 |
% |
|
|
(4.4 |
%) |
|
|
|
(1) |
|
Operating income (loss) margin is operating income (loss) as a percentage of net
revenues. |
- 17 -
The following table presents detail of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In Thousands, Unaudited) |
|
Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slots |
|
$ |
276,939 |
|
|
$ |
297,702 |
|
|
$ |
564,247 |
|
|
$ |
585,969 |
|
Table games |
|
|
34,995 |
|
|
|
37,130 |
|
|
|
66,747 |
|
|
|
76,114 |
|
Other |
|
|
3,592 |
|
|
|
4,083 |
|
|
|
7,410 |
|
|
|
8,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenues |
|
|
315,526 |
|
|
|
338,915 |
|
|
|
638,404 |
|
|
|
670,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage |
|
|
34,808 |
|
|
|
40,515 |
|
|
|
72,773 |
|
|
|
80,886 |
|
Rooms |
|
|
15,810 |
|
|
|
15,390 |
|
|
|
30,486 |
|
|
|
26,329 |
|
Other |
|
|
8,615 |
|
|
|
10,109 |
|
|
|
16,814 |
|
|
|
19,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenues |
|
|
59,233 |
|
|
|
66,014 |
|
|
|
120,073 |
|
|
|
126,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Promotional Allowances |
|
|
(65,857 |
) |
|
|
(76,832 |
) |
|
|
(133,737 |
) |
|
|
(144,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
308,902 |
|
|
$ |
328,097 |
|
|
$ |
624,740 |
|
|
$ |
652,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
Consolidated net revenues for the quarter ended June 30, 2009 decreased $19.2 million, or
5.9%, from the second quarter of 2008. The decrease in consolidated net revenues was primarily
attributable to the ongoing economic recession and increased competition that opened in the second
half of 2008 in our East Chicago and Vicksburg markets. Second quarter net revenues declined on a
year-over-year basis at six of our seven gaming locations while Ameristar Black Hawks net revenues
remained relatively flat when compared to the prior-year second quarter. We believe Ameristar
Black Hawks revenues will increase due to the implementation of the beneficial regulatory reform
on July 2, 2009, coupled with the opening of the new hotel scheduled in September 2009.
During the three months ended June 30, 2009, consolidated promotional allowances decreased
$11.0 million (14.3%) from the comparable 2008 period. The decrease in promotional allowances was
primarily the result of the aggressive marketing program initiated in the second quarter of 2008.
We curtailed our promotional spending beginning in the third quarter of 2008 due to ineffectiveness
of the prior-year marketing program to generate profitable incremental revenue.
For the six months ended June 30, 2009, consolidated net revenues decreased $28.1 million, or
4.3%, from the corresponding 2008 period. During the first six months of 2009, net revenues
declined from the prior-year period by 9.1% at Ameristar East Chicago, 8.9% at Ameristar Council
Bluffs, 6.6% at our Jackpot Properties, 4.4% at Ameristar Vicksburg and 4.1% at Ameristar Kansas
City. We believe the weakening economic conditions and the increased competition in our East
Chicago and Vicksburg markets adversely impacted financial results throughout the first half of
2009. Net revenues at Ameristar St. Charles increased 2.4% over the first half of 2008, driven
primarily by the propertys new hotel and the beneficial impact of the regulatory reform in
Missouri.
For the six months ended June 30, 2009, consolidated promotional allowances decreased 7.6%
from the same 2008 period as a result of the factors mentioned above.
- 18 -
Operating Income (Loss)
In the second quarter of 2009, consolidated operating income increased $7.4 million, or 15.4%,
from the second quarter of 2008, primarily as a result of the previously mentioned implementation
of operational and marketing efficiencies at all our properties. Operating income margins
increased year-over-year at our Jackpot, Kansas City, East Chicago and St. Charles properties.
Operating income margin at our Council Bluffs property was flat compared to the prior-year second
quarter. Our Black Hawk propertys second quarter operating income was adversely impacted by a
$1.3 million one-time non-cash adjustment to property tax expense.
For the three months ended June 30, 2009, corporate expense declined $2.4 million, due mostly
to the realized cost efficiencies and the absence of $1.7 million of severance pay that adversely
impacted the second quarter of 2008. The year-over-year decrease in corporate expense was
partially offset by a $1.1 million increase in deferred compensation expense in the second quarter
of 2009 due to fluctuations in the investment markets.
For the six months ended June 30, 2009, our operating income was $124.7 million, compared to
an operating loss of $29.1 million for the same prior-year
period. The increase is primarily
attributable to the $129.0 million non-cash impairment charge recorded in the first quarter of 2008
relating to East Chicagos intangible assets. Excluding the impairment charge, consolidated
operating income improved $24.8 million, or 24.8%, when compared to the first half of 2008
primarily due to the operational efficiencies implemented in the second half of 2008.
Interest Expense
The following table summarizes information related to interest on our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in Thousands,
Unaudited) |
|
Interest cost |
|
$ |
27,968 |
|
|
$ |
19,942 |
|
|
$ |
47,105 |
|
|
$ |
48,261 |
|
Less: Capitalized interest |
|
|
(2,366 |
) |
|
|
(4,180 |
) |
|
|
(4,588 |
) |
|
|
(10,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
25,602 |
|
|
$ |
15,762 |
|
|
$ |
42,517 |
|
|
$ |
37,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net
of amounts
capitalized |
|
$ |
20,437 |
|
|
$ |
6,162 |
|
|
$ |
37,707 |
|
|
$ |
29,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average total debt
outstanding |
|
$ |
1,662,726 |
|
|
$ |
1,627,756 |
|
|
$ |
1,665,093 |
|
|
$ |
1,636,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
5.4 |
% |
|
|
4.8 |
% |
|
|
5.1 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2009, consolidated interest expense, net of amounts
capitalized, increased $9.8 million (62.4%) from the 2008 second quarter. The increase is due
primarily to a full quarter of higher interest rate add-ons resulting from the credit facility
amendment and approximately one month of increased interest expense from the issuance of the Notes.
Year to date, consolidated interest expense, net of amounts capitalized, increased $4.7 million
(12.4%) from the first half of 2008 due to the increased interest from the credit facility
amendment and Notes issuance. Additionally, when we open the Black Hawk hotel we will no longer capitalize the interest on the associated debt, which will cause our net
interest expense to rise relative to prior periods.
- 19 -
Income Taxes
Our effective income tax rate was 44.9% for the quarter ended June 30, 2009, compared to 47.3%
for the same period in 2008. The year-over-year decrease is primarily due to the absence in 2009
of costs we incurred in 2008 associated with the Missouri and Colorado ballot initiatives, which
are considered lobbying costs and are not deductible for income tax purposes. For the six months
ended June 30, 2009 and 2008, our effective income tax rates were 43.4% and 34.8%, respectively.
Excluding the impact of the intangible asset impairment at Ameristar East Chicago, the effective
tax rate for the six months ended June 30, 2008 would have been
46.2%, which is 2.8 percentage
points higher than the six months ended June 30, 2009. This difference is mostly due to the
Missouri and Colorado ballot initiative costs incurred in 2008 as described above.
Net Income (Loss)
For the three months ended June 30, 2009, consolidated net income decreased $2.7 million, or
16.1%, from the second quarter of 2008. The decrease is primarily due to higher interest expense
and a loss on early retirement of debt in the second quarter of 2009, partially offset by the
improvement in operating income described above. Diluted earnings per share were $0.25 in the
quarter ended June 30, 2009, compared to $0.29 in the corresponding prior-year quarter. For the
six months ended June 30, 2009 and 2008, we reported net income of $44.2 million and a net loss of
$43.9 million, respectively. Diluted earnings per share were $0.76 for the first half of 2009,
compared to a diluted loss per share of $0.77 in the corresponding prior-year period. The
impairment charge at Ameristar East Chicago adversely affected diluted earnings per share in the
first six months of 2008 by $1.34.
- 20 -
Liquidity and Capital Resources
Cash Flows Summary
Our cash flows consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In Thousands, Unaudited) |
|
Net cash provided by operating activities |
|
$ |
126,204 |
|
|
$ |
142,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(77,384 |
) |
|
|
(135,263 |
) |
(Decrease) increase in construction contracts payable |
|
|
(15,229 |
) |
|
|
14,656 |
|
Proceeds from sale of assets |
|
|
428 |
|
|
|
788 |
|
Increase in deposits and other non-current assets |
|
|
(4,219 |
) |
|
|
(13,353 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(96,404 |
) |
|
|
(133,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt and other borrowings |
|
|
659,485 |
|
|
|
14,015 |
|
Principal payments of debt |
|
|
(642,344 |
) |
|
|
(37,221 |
) |
Debt issuance and amendment costs |
|
|
(22,484 |
) |
|
|
|
|
Cash dividends paid |
|
|
(6,038 |
) |
|
|
(6,002 |
) |
Proceeds from stock option exercises |
|
|
1,897 |
|
|
|
505 |
|
Purchases of treasury stock |
|
|
(144 |
) |
|
|
|
|
Excess tax benefit from stock option exercises |
|
|
132 |
|
|
|
172 |
|
|
|
|
|
|
|
|
Net cash
used in financing activities |
|
|
(9,496 |
) |
|
|
(28,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
20,304 |
|
|
$ |
(19,297 |
) |
|
|
|
|
|
|
|
For the six months ended June 30, 2009, net cash provided by operating activities
decreased $16.2 million from 2008, mostly as a result of the changes in several of our working
capital assets and liabilities in 2009 and our receipt of a $10.0 million federal income tax refund
in 2008.
The construction of our luxury hotel is progressing at Ameristar Black Hawk. The 33-story
towers 536 rooms will feature upscale furnishings and amenities. The tower will include a
versatile meeting and ballroom center and will also have Black Hawks only full-service spa, an
enclosed rooftop swimming pool and indoor/outdoor whirlpool facilities. Once completed, Ameristar
Black Hawk will offer destination resort amenities and services that are unequaled in the Denver
gaming market. The hotel is expected to open on September 29, 2009, with full completion to occur
early in the fourth quarter. The cost of the hotel is expected to be approximately $235 million.
During the first six months of 2009, capital expenditures related to the hotel project totaled
$55.9 million.
Capital expenditures during the first half of 2008 were primarily related to the hotel project
at Ameristar Black Hawk ($40.0 million), our expansion at Ameristar Vicksburg ($33.5 million), the
Ameristar St. Charles hotel and expansion ($18.7 million) and the acquisition of slot product at
all our properties.
During the second quarter of 2009, our Board of Directors reinstituted a quarterly cash
dividend of $0.105 per share. To date in 2009, we have paid cash dividends in May and July.
- 21 -
On
May 27, 2009, we used the net proceeds from the sale of
the Notes (approximately $620.0 million, after
deducting discounts and expenses) to repay a portion of the revolving loan indebtedness outstanding
under our senior credit facility. Simultaneously, we terminated $650.0 million of revolving loan
commitments under the senior credit
facility that mature in November 2010. Interest on the Notes is payable semi-annually in
arrears on June 1 and December 1 of each year, with the initial interest payment due on December 1,
2009.
On March 13, 2009, we amended our senior credit facility to increase the maximum permitted
leverage and senior leverage ratios (each as defined in the senior credit facility). Increases of
0.25:1 to 0.50:1 were made to the maximum permitted leverage ratio for each of our fiscal quarters
ending on and after September 30, 2009, and increases of 0.50:1 to 1.25:1 were made to the maximum
permitted senior leverage ratio for each of our fiscal quarters ending on and after March 31, 2009.
Additionally, the amendment increased the interest rate add-on for all revolving and term loan
borrowings under the senior credit facility by 125 basis points; reduced permitted annual dividends
from $40.0 million to $30.0 million beginning with the year ending December 31, 2009, with any
unused portion of such amount permitted to be carried over to future years; increased the aggregate
limit on capital expenditures by $100.0 million; and decreased the permitted amount of cumulative
stock repurchases, in addition to any amount available under the dividend basket, from $125.0
million to $50.0 million. The amendment also eliminated the $500.0 million limit on the future
issuance of subordinated debt and permits us to issue an unlimited amount of senior unsecured debt.
The amendment provides us significant relief under the leverage and senior leverage ratios for
the foreseeable future (thereby improving our borrowing flexibility related to our currently
available funds under the revolving loan facility). Additional financial flexibility was created
by the provisions in the amendment that expand our ability to incur unsecured debt and will allow
us to request (but not require) lenders to extend the maturity of their respective portions of the
revolving loan facility from November 10, 2010 to August 10, 2012.
All mandatory principal repayments have been made through June 30, 2009. As of June 30, 2009,
the amount of the revolving loan facility available for borrowing was $103.4 million, after giving
effect to $3.6 million of outstanding letters of credit.
In connection with the issuance of the Notes and the senior credit facility amendment, we paid
one-time fees and expenses totaling approximately $22.5 million during the first six months of
2009, most of which was capitalized and will be amortized over the respective remaining terms of
the Notes and the senior credit facility. During the second quarter of 2009, deferred debt
issuance costs totaling approximately $5.2 million were expensed as a result of the early
retirement of a portion of the outstanding revolving loan facility.
As a result of the issuance of the Notes and the credit facility amendment, we expect a
significant increase in interest expense compared to 2008.
In addition to the availability under the senior credit facility, we had $94.0 million of cash
and cash equivalents at June 30, 2009, approximately $60.0 million of which were required for daily
operations.
Historically, we have funded our daily operations through net cash provided by operating
activities and our significant capital expenditures primarily through operating cash flows, bank
debt and other debt financing. If our existing sources of cash are insufficient to meet our
operations and liquidity requirements, we will be required to seek additional financing that would
be significantly more expensive than our senior credit facility and/or scale back our capital plans
or reduce other expenditures. Any loss from service of our properties for any reason could
materially adversely affect us, including our ability to fund daily operations and to satisfy debt
covenants.
- 22 -
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Securities and Exchange Commission
Regulation S-K.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with accounting principles
generally accepted in the United States. Certain of our accounting policies, including the
estimated useful lives assigned to our assets, asset impairment, health benefit reserves, workers
compensation and general liability reserves, purchase price allocations made in connection with
acquisitions, the determination of bad debt reserves and the calculation of our income tax
liabilities, require that we apply significant judgment in defining the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty. Our judgments are based in part on our historical experience, terms of
existing contracts, observance of trends in the gaming industry and information obtained from
independent valuation experts or other outside sources. We cannot assure you that our actual
results will conform to our estimates. For additional information on critical accounting policies
and estimates, see Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations and the notes to our audited consolidated financial statements included in
our Annual Report on Form 10-K for the year ended December 31, 2008.
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements, including the plans and
objectives of management for our business, operations and financial performance. These
forward-looking statements generally can be identified by the context of the statement or the use
of forward-looking terminology, such as believes, estimates, anticipates, intends,
expects, plans, is confident that, should or words of similar meaning, with reference to us
or our management. Similarly, statements that describe our future operating performance, financial
results, financial position, plans, objectives, strategies or goals are forward-looking statements.
Although management believes that the assumptions underlying the forward-looking statements are
reasonable, these assumptions and the forward-looking statements are subject to various factors,
risks and uncertainties, many of which are beyond our control, including but not limited to
uncertainties concerning operating cash flow in future periods, our borrowing capacity under the
senior credit facility or any replacement financing, our properties future operating performance,
our ability to undertake and complete capital expenditure projects in accordance with established
budgets and schedules, changes in competitive conditions, regulatory restrictions and changes in
regulation or legislation (including gaming tax laws) that could affect us. Accordingly, actual
results could differ materially from those contemplated by any forward-looking statement. In
addition to the other risks and uncertainties mentioned in connection with certain forward-looking
statements throughout this Quarterly Report, attention is directed to Item 1A. Business Risk
Factors and Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the year ended December 31, 2008 for a discussion
of the factors, risks and uncertainties that could affect our future results.
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 exposure to
market risk is interest rate risk associated with our senior credit facility. The senior credit
facility bears interest equal to LIBOR (in the case of Eurodollar loans) or the prime interest rate
(in the case of base rate loans), plus an applicable margin, or add-on. As of June 30, 2009, we
had $1.03 billion outstanding under our senior credit facility, bearing interest at variable rates
based on LIBOR. At June 30, 2009, the average interest rate applicable to the senior credit
facility outstanding, before giving effect to interest rate hedging transactions in place on that
date, was 3.9%.
- 23 -
During the second quarter of 2008, in order to hedge against increases in variable interest
rates, we entered into an interest rate swap agreement with a commercial bank counterparty,
effective July 18, 2008, pursuant to which we are obligated to make quarterly fixed rate payments
to the counterparty at an annual rate of 3.1975%, calculated on a notional amount of $500.0
million, while the counterparty is obligated to make quarterly floating rate payments to us based
on three-month LIBOR on the same notional amount. The interest rate swap effectively fixes the
annual interest rate on $500.0 million of borrowings under our senior revolving loan facility at
3.1975% plus the applicable margin. The swap terminates on July 19, 2010.
Effective October 20, 2008, we entered into an additional interest rate swap transaction with
another commercial bank counterparty. We are obligated to make quarterly fixed rate payments to
the counterparty, calculated on a notional amount of $525.0 million (giving effect to the partial
termination described below), while the counterparty is obligated to make quarterly floating rate
payments to us based on three-month LIBOR on the same notional amount. The swap transaction
effectively fixes the annual interest rate on $525.0 million of our revolving loan and term loan debt at 2.98% plus
the applicable margins. The swap terminates on July 19, 2010.
On
May 27, 2009, we used the net proceeds from the sale of the Notes to repay a portion of the outstanding
revolving loans. As a result of replacing $620.0 million of variable rate debt with fixed rate
debt, we reallocated $382.0 million of the swaps from the revolving loan facility to the term loan
facility and terminated $75.0 million of the original
$600.0 million swap entered into in October 2008.
Giving effect to the two swap agreements, we have a total of $1.0 billion of our variable rate
debt hedged until July 2010 at a weighted-average fixed rate of 3.09% plus the applicable margin.
(See Note 7 Derivative instruments and hedging activities of Notes to Consolidated Financial
Statements for more discussion of the interest rate swaps.) Substantially all of our other debt
consists of the Notes that bear interest at a fixed rate.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the
Exchange Act), the Companys management, including our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this Quarterly Report. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of the end of
the period covered by this Quarterly Report.
(b) Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, the Companys management, including our
Chief Executive Officer and our Chief Financial Officer, has evaluated our internal control over
financial reporting to determine whether any changes occurred during the second fiscal quarter of
2009 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on that evaluation, there has been no such change during
the second fiscal quarter of 2009.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
We incorporate by reference the risk factors discussed in Item 1A. Risk Factors of our
Annual Report on Form 10-K for the year ended December 31, 2008.
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Item 4. Submission of Matters to a Vote of Security Holders
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(a) |
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Our 2009 Annual Meeting of Stockholders was held on June 3, 2009. |
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(b) and (c) |
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The following table shows the tabulation of votes for all matters put
to vote at our 2009 Annual Meeting of Stockholders. |
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Broker |
Matters Put to Vote |
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For |
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Against/Withheld |
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Abstentions |
|
Non-Votes |
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Election of Leslie
Nathanson Juris as
a Class
B Director |
|
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51,922,800 |
|
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3,870,712 |
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Election of Thomas
M. Steinbauer as a
Class
B Director |
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47,418,863 |
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8,374,649 |
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|
|
|
|
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Proposal to approve
the Companys 2009
Stock Incentive
Plan |
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40,223,761 |
|
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12,722,522 |
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11,012 |
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|
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2,836,187 |
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Item 6. Exhibits
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Exhibit |
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Number |
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Description of Exhibit |
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Method of Filing |
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4.1
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Indenture, dated as of May 27, 2009, among ACI, the
Guarantors named therein and Deutsche Bank
Trust Company Americas, as trustee
|
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Incorporated by reference to
Exhibit 4.1 to ACIs Current
Report on Form 8-K filed on
May 29, 2009. |
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10.1
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Ameristar Casinos, Inc. 2009 Stock Incentive Plan
|
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Incorporated by reference to
Exhibit 10.1 to ACIs Current
Report on Form 8-K filed on
June 4, 2009. |
|
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|
|
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10.2
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Registration Rights Agreement,
dated May 27, 2009, among ACI, the Guarantors named therein and
Banc of America Securities LLC, Wachovia Capital Markets, LLC and
Deutsche Bank Securities Inc., as representatives of the Initial
Purchasers.
|
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Incorporated by reference to
Exhibit 10.1 to ACIs Current
Report on Form 8-K filed on
May 29, 2009. |
|
|
|
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31.1
|
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Certification of Gordon R. Kanofsky, Chief Executive
Officer and Vice Chairman, pursuant to Rules 13a-14
and 15d-14 under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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Filed electronically herewith. |
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31.2
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Certification of Thomas M. Steinbauer, Senior Vice
President of Finance, Chief Financial Officer and
Treasurer, pursuant to Rules 13a-14 and 15d-14 under
the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
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Filed electronically herewith. |
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32
|
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Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
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Filed electronically herewith. |
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SIGNATURE
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.
|
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AMERISTAR CASINOS, INC.
Registrant
|
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Date: August 10, 2009 |
By: |
/s/ Thomas M. Steinbauer
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Thomas M. Steinbauer |
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Senior Vice President of Finance, Chief
Financial Officer and Treasurer |
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