e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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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 March 31, 2010
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 May 5, 2010, 57,873,694 shares of Common Stock of the registrant were issued and outstanding.
AMERISTAR CASINOS, INC.
FORM 10-Q
INDEX
-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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March 31, 2010 |
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December 31, |
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(Unaudited) |
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2009 |
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ASSETS
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Current Assets: |
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Cash and cash equivalents |
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$ |
108,301 |
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$ |
96,493 |
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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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7,816 |
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8,048 |
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Income tax refunds receivable |
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17,404 |
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Inventories |
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7,321 |
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7,735 |
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Prepaid expenses |
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14,652 |
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13,212 |
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Deferred income taxes |
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13,825 |
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13,825 |
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Total current assets |
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158,340 |
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163,142 |
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Property and Equipment, at cost: |
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Buildings and improvements |
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1,892,197 |
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1,890,639 |
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Furniture, fixtures and equipment |
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549,966 |
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546,565 |
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2,442,163 |
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2,437,204 |
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Less: accumulated depreciation and amortization |
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(760,697 |
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(741,328 |
) |
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1,681,466 |
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1,695,876 |
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Land |
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83,403 |
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83,401 |
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Construction in progress |
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17,518 |
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18,423 |
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Total property and equipment, net |
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1,782,387 |
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1,797,700 |
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Goodwill |
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94,520 |
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94,821 |
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Other intangible assets |
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47,490 |
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47,546 |
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Deferred income taxes |
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21,248 |
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20,978 |
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Deposits and other assets |
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90,624 |
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90,441 |
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TOTAL ASSETS |
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$ |
2,194,609 |
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$ |
2,214,628 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities: |
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Accounts payable |
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$ |
15,622 |
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$ |
30,294 |
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Construction contracts payable |
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6,186 |
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8,746 |
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Income taxes payable |
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1,716 |
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Accrued liabilities |
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160,582 |
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147,411 |
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Current maturities of long-term debt |
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128,207 |
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135,389 |
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Total current liabilities |
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312,313 |
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321,840 |
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Long-term debt, net of current maturities |
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1,513,445 |
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1,541,739 |
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Deferred compensation and other long-term liabilities |
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15,860 |
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15,056 |
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Commitments and contingencies (Note 11) |
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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, $.01 par value: Authorized - 120,000,000
shares; Issued - 58,779,025 and 58,573,843 shares;
Outstanding - 57,929,639 and 57,730,296 shares |
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588 |
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586 |
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Additional paid-in capital |
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267,839 |
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262,582 |
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Treasury stock, at cost (849,386 and 843,547 shares) |
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(18,677 |
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(18,590 |
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Accumulated other comprehensive loss |
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(9,057 |
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(16,274 |
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Retained earnings |
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112,298 |
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107,689 |
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Total stockholders equity |
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352,991 |
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335,993 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
2,194,609 |
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$ |
2,214,628 |
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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 Ended |
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March 31, |
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2010 |
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2009 |
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Revenues: |
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Casino |
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$ |
314,539 |
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$ |
322,878 |
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Food and beverage |
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33,261 |
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37,964 |
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Rooms |
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19,387 |
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14,676 |
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Other |
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7,729 |
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8,199 |
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374,916 |
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383,717 |
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Less: promotional allowances |
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(72,297 |
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(67,880 |
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Net revenues |
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302,619 |
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315,837 |
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Operating Expenses: |
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Casino |
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135,540 |
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144,344 |
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Food and beverage |
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16,458 |
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16,505 |
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Rooms |
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4,558 |
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2,232 |
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Other |
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3,249 |
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3,392 |
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Selling, general and administrative |
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62,399 |
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53,534 |
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Depreciation and amortization |
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27,612 |
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26,472 |
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Impairment of fixed assets |
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52 |
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Net loss on disposition of assets |
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52 |
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5 |
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Total operating expenses |
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249,868 |
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246,536 |
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Income from operations |
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52,751 |
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69,301 |
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Other Income (Expense): |
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Interest income |
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112 |
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143 |
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Interest expense, net of capitalized interest |
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(34,440 |
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(16,915 |
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Other |
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421 |
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(445 |
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Income Before Income Tax Provision |
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18,844 |
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52,084 |
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Income tax provision |
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8,166 |
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22,184 |
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Net Income |
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$ |
10,678 |
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$ |
29,900 |
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Earnings Per Share: |
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Basic |
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$ |
0.18 |
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$ |
0.52 |
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Diluted |
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$ |
0.18 |
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$ |
0.52 |
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Cash Dividends Declared Per Share |
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$ |
0.11 |
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$ |
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Weighted-Average Shares Outstanding: |
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Basic |
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57,811 |
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57,349 |
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Diluted |
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58,891 |
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57,586 |
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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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Three Months Ended March 31, |
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2010 |
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2009 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
10,678 |
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$ |
29,900 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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27,612 |
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26,472 |
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Amortization of debt discount and deferred financing costs |
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2,797 |
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800 |
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Stock-based compensation expense |
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4,190 |
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2,549 |
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Impairment loss on assets |
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52 |
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Net loss on disposition of assets |
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52 |
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5 |
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Net change in deferred income taxes |
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86 |
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23,254 |
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Excess tax benefit from stock option exercises |
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(132 |
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Net change in fair value of swap agreements |
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225 |
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8 |
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Net change in deferred compensation liability |
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329 |
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(2,167 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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232 |
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4,252 |
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Income tax refunds receivable |
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17,404 |
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Inventories |
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414 |
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315 |
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Prepaid expenses |
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(1,440 |
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(5,789 |
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Accounts payable |
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(14,672 |
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(9,461 |
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Income taxes payable |
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1,716 |
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(2,986 |
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Accrued liabilities |
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20,163 |
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1,967 |
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Net cash provided by operating activities |
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69,786 |
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69,039 |
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Cash Flows from Investing Activities: |
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Capital expenditures |
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(12,379 |
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(41,820 |
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Decrease in construction contracts payable |
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(2,560 |
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(7,268 |
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Proceeds from sale of assets |
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84 |
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140 |
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Increase in deposits and other non-current assets |
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(1,716 |
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(1,536 |
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Net cash used in investing activities |
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(16,571 |
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(50,484 |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of long-term debt and other borrowings |
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12,000 |
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24,000 |
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Principal payments of debt |
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(48,189 |
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(21,301 |
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Debt issuance and amendment costs |
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(131 |
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(9,670 |
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Cash dividends paid |
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(6,068 |
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Proceeds from stock option exercises |
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1,068 |
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378 |
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Purchases of treasury stock |
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(87 |
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(82 |
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Excess tax benefit from stock option exercises |
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132 |
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Net cash used in financing activities |
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(41,407 |
) |
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(6,543 |
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Net Increase in Cash and Cash Equivalents |
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11,808 |
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12,012 |
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Cash and Cash Equivalents Beginning of Period |
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96,493 |
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73,726 |
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Cash and Cash Equivalents End of Period |
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$ |
108,301 |
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$ |
85,738 |
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Supplemental Cash Flow Disclosures: |
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Cash paid for interest, net of amounts capitalized |
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$ |
17,047 |
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$ |
17,270 |
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Cash paid for federal and state income taxes, net of refunds received |
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$ |
(9,743 |
) |
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$ |
270 |
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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, ACI 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 Resort Spa Black
Hawk (serving the Denver, Colorado metropolitan area); and Cactus Petes Resort Casino and The
Horseshu Hotel and Casino 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 bases 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, 2009.
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, 2009.
Certain reclassifications have been made to the prior years consolidated financial statements
to conform to the current periods presentation. These reclassifications had no effect on the
previously reported net income.
The Company has evaluated certain events and transactions occurring after March 31, 2010 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 March 31,
2010.
- 5 -
Note 2 Accounting pronouncements
Recently adopted accounting pronouncements
ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements
The
Financial Accounting Standards Board (the FASB) issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. The guidance
clarifies and extends the disclosure requirements about recurring and nonrecurring fair value
measurements. The Standard is effective for reporting periods beginning after December 15, 2009.
The Company adopted ASU No. 2010-06 in the first quarter of 2010. The adoption of this Topic did
not have a material impact on the consolidated financial statements.
Recently issued accounting pronouncements
ASU No. 2010-16, Entertainment-Casinos (Topic 924): Accruals for Casino Jackpot Liabilities
The FASB issued ASU No. 2010-16, Entertainment-Casinos
(Topic 924): Accruals for Casino Jackpot Liabilities. The
guidance clarifies that an entity should not accrue jackpot
liabilities (or portions thereof) before a jackpot is won if
the entity can avoid paying that jackpot. Jackpots should be
accrued and charged to revenue when an entity has the obligation
to pay the jackpot. This guidance applies to both base jackpots
and the incremental portion of progressive jackpots. The guidance is
effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2010. This guidance
should be applied by recording a cumulative-effect adjustment to
opening retained earnings in the period of adoption. The Company
is currently determining the impact of this guidance on its consolidated financial statements.
Note 3 Stockholders equity
Changes in stockholders equity for the three months ended March 31, 2010 were as follows:
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
Balance at December 31, 2009 |
|
$ |
335,993 |
|
Net income |
|
|
10,678 |
|
Dividends |
|
|
(6,068 |
) |
Stock-based compensation |
|
|
4,190 |
|
Change in accumulated other comprehensive income |
|
|
7,217 |
|
Proceeds from exercise of stock options |
|
|
1,068 |
|
Shares remitted for tax withholding |
|
|
(87 |
) |
|
|
|
|
Balance at March 31, 2010 |
|
$ |
352,991 |
|
|
|
|
|
Total comprehensive income for the three months ended March 31, 2010 and 2009 was $17.9
million and $30.6 million, respectively.
Note 4 Earnings per share
The Company calculates earnings per share in accordance with ASC Topic 260. Basic earnings
per share are computed by dividing reported earnings 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 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.
The weighted-average number of shares of common stock and common stock equivalents used in the
computation of basic and diluted earnings per share consisted of the following:
- 6 -
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in Thousands) |
|
Weighted-average number of shares
outstanding basic earnings per share |
|
|
57,811 |
|
|
|
57,349 |
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
1,080 |
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding diluted earnings per share |
|
|
58,891 |
|
|
|
57,586 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2010 and 2009, potentially dilutive stock options
excluded from the earnings per share computation, as their effect would be anti-dilutive, totaled
3.5 million and 4.5 million, respectively.
Note 5 Goodwill and other intangible assets
As required under ASC Topic 350, the Company performs an annual assessment of its goodwill and
other intangible assets to determine if the carrying value exceeds the fair value. Additionally,
the guidance 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 ended
March 31, 2010 and 2009, there were no impairment charges relating to goodwill and indefinite-lived
intangible assets. The Company will perform its annual review of goodwill and indefinite-lived
intangible assets in the fourth quarter of 2010.
The Company utilized Level 2 inputs as described in Note 8 Fair value measurements to
determine fair value relating to goodwill and intangible assets.
- 7 -
Note 6 Long-term debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving loan facility, at
variable interest (3.4% at March
31, 2010 and 3.5% at December 31,
2009); as of March 31, 2010, $124.0
million due November 10, 2010;
$12.0 million quarterly commitment
reductions from December 31, 2010
through June 30, 2012 with
remaining balance of loans due
August 10, 2012 |
|
$ |
620,000 |
|
|
$ |
655,000 |
|
Term loan facility, at variable
interest (3.5% at March 31, 2010
and 3.5% at December 31, 2009);
$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 |
|
|
383,000 |
|
|
|
384,000 |
|
|
|
|
|
|
|
|
|
|
Senior notes, unsecured, 9.25% fixed interest, payable semi-annually
on June 1 and December 1, principal due June 1, 2014 (net of
$12,065 and $12,779 discount at March 31, 2010 and December 31, 2009,
respectively) |
|
|
637,935 |
|
|
|
637,221 |
|
Other |
|
|
717 |
|
|
|
907 |
|
|
|
|
|
|
|
|
|
|
|
1,641,652 |
|
|
|
1,677,128 |
|
Less: Current maturities |
|
|
(128,207 |
) |
|
|
(135,389 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,513,445 |
|
|
$ |
1,541,739 |
|
|
|
|
|
|
|
|
Credit facility
The Companys senior secured credit facility (the Credit Facility) currently includes a
$750.0 million revolving loan facility with a portion maturing
in November 2010 and the remaining portion maturing in August 2012
and a $383.0 million term loan facility maturing in November 2012.
In November 2009, the Company entered into an Extending Revolving Loan Commitment Agreement
(the Extending Commitment Agreement) that effectively extended the original maturity date of a
portion of the revolving loan facility. Pursuant to the Extending Commitment Agreement, an
aggregate of $600.0 million of revolving loan commitments maturing November 10, 2010 were replaced
by new extending revolving loan commitments maturing August 10, 2012.
After giving effect to the Extending Commitment Agreement, the Company has $150.0 million of
non-extending revolving loan commitments maturing in November 2010, under which $124.0 million of
loans were outstanding as of March 31, 2010, and $600.0 million of extending revolving loan
commitments maturing in August 2012, under which $496.0 million of loans were outstanding as of
March 31, 2010.
- 8 -
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.
The non-extending revolving loans 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 in the Credit Facility. The commitment
fee on the non-extending revolving loan commitments ranges from 25 to 50 basis points, depending on
the leverage ratio. The interest rate margin for the extending revolving loans ranges from 0.125
percentage point to 0.50 percentage point higher than the applicable margin for the non-extending
revolving loans, depending on the Companys leverage ratio. The commitment fee for the extending
revolving loan commitments is 0.125 percentage point higher than that for the non-extending
revolving loan commitments. 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 March 31, 2010. As of March 31, 2010,
the amount of the revolving loan facility available for borrowing was $125.6 million, after giving
effect to $4.4 million of outstanding letters of credit.
Senior unsecured notes
In May 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 Credit
Facility. Simultaneously, the Company terminated $650.0 million of revolving loan commitments
under the Credit Facility.
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 having been made 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.
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.
- 9 -
Debt covenants
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 March 31, 2010, the Company was required to
maintain a leverage ratio, calculated as consolidated debt divided by EBITDA (as defined) for the
prior four full fiscal quarters, of no more than 6.00:1, and a senior leverage ratio, calculated as
consolidated senior debt divided by EBITDA for the prior four full fiscal quarters, of no more than
5.75:1. As of March 31, 2010 and December 31, 2009, the Companys leverage ratio was 4.93:1 and
4.87:1, respectively. The senior leverage ratio as of March 31, 2010 and December 31, 2009 was
4.92:1 and 4.87:1, respectively.
The Indenture governing the Notes contains covenants that limit the Companys and its
Restricted Subsidiaries (as defined in the Indenture) ability to, among other things, (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.
As of March 31, 2010 and December 31, 2009, the Company was in compliance with all applicable
covenants.
Note 7 Derivative instruments and hedging activities
Effective January 1, 2009, the Company adopted the guidance under ASC Topic 815. The guidance
provides 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 the previous guidance and its related interpretations and (iii) how derivative
instruments and related hedged items affect an entitys financial position, results of operations
and cash flows.
In 2008, the Company entered into two forward interest rate swaps with two different
commercial banks to fix the interest rate on certain LIBOR-based borrowings under the Credit
Facility. Both swaps were designated as cash flow hedges. Pursuant to each of the interest rate
swap agreements, the Company is obligated to make quarterly fixed rate payments to the
counterparty, 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 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.
- 10 -
The following table presents the principal terms, fair value and balance sheet
classification of the Companys derivative financial instruments as of March 31, 2010 and December
31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Liability |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
Rate |
|
March 31, |
|
December 31, |
|
|
|
|
|
Balance Sheet |
Effective Date |
|
Amount (1) |
|
Paid |
|
2010 |
|
2009 |
|
Maturity Date |
|
Classification |
July 18, 2008 |
|
$ |
500,000 |
|
|
|
3.20 |
% |
|
$ |
4,337 |
|
|
$ |
7,747 |
|
|
July 19, 2010 |
|
Accrued liabilities |
October 20, 2008 |
|
|
490,000 |
|
|
|
2.98 |
% |
|
|
3,930 |
|
|
|
7,512 |
|
|
July 19, 2010 |
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
990,000 |
|
|
|
|
|
|
$ |
8,267 |
|
|
$ |
15,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The original notional amount of $600.0 million for the October 20, 2008 swap was reduced
by $35.0 million in the first quarter of 2010 and $75.0 million in 2009 as a result of the
reduction of revolving loan commitments under the Credit Facility. |
For the three months ended March 31, 2010, the swaps increased the Companys interest
expense by $8.0 million. During the next 12 months, the Company estimates that an additional $9.1
million will be reclassified as an increase to interest expense.
In March 2010, the Company repaid $35.0 million of the principal balance outstanding under the
revolving credit facility. As a result, the Company terminated $35.0 million of the October 20,
2008 swap. The termination cost of $0.3 million is being amortized to interest expense ratably
over the remaining term of the swap. The Company concluded this termination did not impact the
overall effectiveness of the swaps. Accordingly, the Company continued its historical accounting
for the swaps.
Note 8 Fair value measurements
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 ASC Topic 820. ASC Topic 820
establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value. These tiers include:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical
or similar instruments in markets that are not active; and model-derived valuations whose inputs
are observable or whose significant value driver is observable.
Level 3: Unobservable inputs in which little or no market data is available, therefore
requiring an entity to develop its own assumptions.
- 11 -
The following table presents the Companys financial assets and liabilities that were
accounted for at fair value as of March 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
Quoted Market Prices |
|
Significant Other |
|
Significant |
|
|
in Active Markets |
|
Observable Inputs |
|
Unobservable Inputs |
|
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan assets |
|
$ |
|
|
|
$ |
17,157 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
$ |
|
|
|
$ |
8,267 |
|
|
$ |
|
|
Deferred compensation plan liabilities |
|
$ |
|
|
|
$ |
13,017 |
|
|
$ |
|
|
The valuation techniques used to measure the fair value of the Companys interest rate
swap contracts, which are with counterparties that have high credit ratings, were derived from
pricing models, such as discounted cash flow techniques. The Companys discounted cash flow
techniques use observable market inputs, such as LIBOR-based yield curves. The fair value of the
deferred compensation assets is based on the cash-surrender value of rabbi-trust owned life
insurance policies, which are invested in variable life insurance separate accounts that are
similar to mutual funds. These investments are in the same accounts and purchased in substantially
the same amounts as the deferred compensation plan participants selected investments, which
represent the underlying liabilities to participants. Liabilities under the deferred compensation
plan are recorded at amounts due to participants, based on the fair value of participants selected
investments.
Fair value of long-term debt
The estimated fair value of the Companys long-term debt at March 31, 2010 was approximately
$1.668 billion, versus its book value of $1.642 billion. The estimated fair value of the Companys
long-term debt at December 31, 2009 was approximately $1.704 billion, versus its book value of
$1.677 billion. The estimated fair value of the Notes and the term loan facility debt was based on
quoted market prices on or about March 31, 2010 and December 31, 2009. The estimated fair value of
the revolving loan facility debt was based on its bid price on or about March 31, 2010 and December
31, 2009.
Note 9 Stock-based compensation
The Company accounts for its stock-based compensation in accordance with ASC Topic 718.
Stock-based compensation expense totaled $4.2 million and $2.5 million for the three months ended
March 31, 2010 and 2009, respectively. During the three months ended March 31, 2010, no associated
future income tax benefit was recognized and $0.1 million was recognized during the three months
ended March 31, 2009. As of March 31, 2010, there was approximately $25.8 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 2.7 years.
The weighted-average fair value at the grant date of options granted during the quarter
ended March 31, 2010 and 2009 was $6.73 and $5.71, respectively. The fair value of each option
award is estimated on the date of grant
- 12 -
using the Black-Scholes-Merton option pricing model with the following weighted-average
assumptions for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2010 |
|
2009 |
Weighted-average assumptions: |
|
|
|
|
|
|
|
|
Expected stock price volatility |
|
|
50.2 |
% |
|
|
62.9 |
% |
Risk-free interest rate |
|
|
2.4 |
% |
|
|
1.5 |
% |
Expected option life (years) |
|
|
4.5 |
|
|
|
4.2 |
|
Expected annual dividend yield |
|
|
2.3 |
% |
|
|
1.9 |
% |
Stock option activity during the three months ended March 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Options |
|
|
Exercise |
|
|
Contractual |
|
|
Value |
|
|
|
(In Thousands) |
|
|
Price |
|
|
Term (Years) |
|
|
(In Thousands) |
|
Outstanding at December 31, 2009 |
|
|
5,090 |
|
|
$ |
20.40 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
15 |
|
|
|
18.34 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(118 |
) |
|
|
9.04 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(71 |
) |
|
|
22.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
4,916 |
|
|
$ |
20.66 |
|
|
|
4.5 |
|
|
$ |
9,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2010 |
|
|
3,167 |
|
|
$ |
20.71 |
|
|
|
3.0 |
|
|
$ |
6,699 |
|
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 March 31, 2010. The intrinsic value of a stock option is the excess of the Companys
closing stock price on March 31, 2010 over the exercise price, multiplied by the number of
in-the-money options. The total intrinsic value of options exercised during the three months ended
March 31, 2010 and 2009 was $1.0 million and $0.4 million, respectively.
The following table summarizes the Companys unvested stock option activity for the three
months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Shares |
|
|
Average |
|
|
|
(Amounts in |
|
|
Exercise Price |
|
|
|
Thousands) |
|
|
(per Share) |
|
Unvested at December 31, 2009 |
|
|
1,780 |
|
|
$ |
20.57 |
|
Granted |
|
|
15 |
|
|
|
18.34 |
|
Vested |
|
|
(22 |
) |
|
|
23.53 |
|
Forfeited |
|
|
(24 |
) |
|
|
18.56 |
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2010 |
|
|
1,749 |
|
|
$ |
20.56 |
|
- 13 -
The following table summarizes the Companys unvested restricted stock, restricted stock
unit and performance share unit activity for the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Shares/Units |
|
|
Average Grant |
|
|
|
(Amounts in |
|
|
Date Fair Value |
|
|
|
Thousands) |
|
|
(per Share/Unit) |
|
Unvested at December 31, 2009 |
|
|
1,453 |
|
|
$ |
17.34 |
|
Granted |
|
|
80 |
|
|
|
15.71 |
|
Vested |
|
|
(86 |
) |
|
|
17.55 |
|
Forfeited |
|
|
(9 |
) |
|
|
15.95 |
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2010 |
|
|
1,438 |
|
|
$ |
17.24 |
|
Note 10 Income taxes
At March 31, 2010 and December 31, 2009, unrecognized tax benefits totaled $5.2 million and
$5.1 million, respectively. The total amount of unrecognized benefits that would affect the
effective tax rate if recognized was $1.2 million at March 31, 2010 and $1.1 million at December
31, 2009. As of March 31, 2010, accrued interest and penalties totaled $0.6 million, of which $0.5
million would affect the effective tax rate if recognized.
For the three months ended March 31, 2010 and 2009, the effective income tax rates were 43.3%
and 42.6%, respectively.
The Company files income tax returns in numerous 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 $1.0 million within the next 12 months, of which none
would affect the effective tax rate if recognized. The reversal of interest expense related to
these unrecognized tax benefits of $0.6 million would impact the effective tax rate if recognized.
Note 11 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 health 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 March 31, 2010 and December 31, 2009, the estimated liabilities for unpaid and
incurred but not reported claims totaled $11.2 million and $11.1 million, respectively. The
Company considers historical loss experience and certain unusual claims in estimating these
liabilities. 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 Kansas City
(serving the Kansas City metropolitan area); Ameristar Casino Hotel East Chicago (serving the
Chicagoland area); Ameristar Casino Hotel Council Bluffs (serving Omaha, Nebraska and southwestern
Iowa); Ameristar Casino Hotel Vicksburg (serving Jackson, Mississippi and Monroe, Louisiana);
Ameristar Casino Resort Spa Black Hawk (serving the Denver metropolitan area); and Cactus Petes
Resort Casino and The Horseshu Hotel and Casino 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, overall economic conditions affecting the disposable income of
our patrons, weather conditions affecting our properties, achieving and maintaining cost
efficiencies, competitive factors, gaming tax increases and other regulatory changes, the
commencement of new gaming operations, charges associated with debt refinancing or property
acquisition and disposition transactions, construction at existing facilities and general public
sentiment regarding travel. 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 weak economic conditions continue 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. |
|
|
|
Ameristar Black Hawk. On July 2, 2009, we implemented positive regulatory
changes at our Black Hawk property that extended casino operating hours from 18 hours daily
to 24 hours daily, increased the maximum single bet limit from $5 to up to $100 and allowed
for additional table games, including roulette and craps. Also, on September 29, 2009, we
opened a 536-room luxury hotel and spa featuring upscale furnishings and amenities. The
hotel includes a versatile meeting and ballroom center and also has Black Hawks only
full-service spa and an enclosed rooftop swimming pool with indoor/outdoor whirlpool
facilities. Ameristar Black Hawk offers destination resort amenities and services that we
believe are unequaled in the Denver gaming market. As a result of these regulatory changes
and the opening of the new hotel, first quarter net revenues and operating income increased
year-over-year by 81.2% and 98.0%, respectively, and the property increased its first
quarter market share on a year-over-year basis from 17.7% to 26.9%. |
|
|
|
East Chicago Bridge Closure. During the fourth quarter of 2009, the highway
bridge near our Ameristar East Chicago property was permanently closed by the Indiana
Department of Transportation due to safety concerns. The bridge closure has made access to
the property inconvenient for many of our guests and has significantly impacted the
propertys admission levels and operating results. As a result, first quarter net revenues
and operating income decreased year-over-year by 17.2% and 63.3%, respectively. The
decline in business is expected to continue unless and until improved access is developed. |
|
|
|
The Indiana Department of Transportation recently announced a plan to make improvements to an
alternate route to the Ameristar East Chicago property. These improvements include
converting a portion of the route from surface streets to highway and enhancing street
lighting and signage. The improvements are |
- 15 -
|
|
|
scheduled to be completed in two phases, with
the initial phase estimated to be completed in late 2010 and the second phase in 2012. |
|
|
|
Ameristar St. Charles. In early March 2010, a gaming operator opened a new
casino facility located in the southeastern portion of St. Louis County, approximately 30
miles from our St. Charles property. The additional competition has adversely affected the
financial performance of Ameristar St. Charles and the other facilities operating in the
market. The new casino contributed to declines in our propertys net revenues and
operating income of 8.9% and 18.7%, respectively, from the prior-year first quarter. |
|
|
|
Also in early March 2010, a highway improvement project commenced near our St. Charles
property. The construction has resulted in lane restrictions and closures hindering
convenient access to the property. We expect the project will have an adverse effect on our
market share during the construction period, similar to the disruption we experienced in
2007 during the roadway project that enhanced the primary access to Ameristar St. Charles.
The construction is estimated to be completed in September 2010. |
|
|
|
Debt and Interest Expense. At March 31, 2010, total debt was $1.65 billion.
Net repayments totaled $36.2 million during the first quarter of 2010, including a $35.0
million repayment of a portion of the principal balance outstanding under the revolving
credit facility. After taking into consideration the repayments, the Company has $124.0
million due in November 2010, with approximately $100 million available for borrowing under
the extended portion of the revolving credit facility. The Company intends to repay all
2010 debt maturities with cash from operations and availability under the extended portion
of the revolving credit facility. At March 31, 2010, 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 4.93:1 and 4.92:1, respectively. |
|
|
|
Our interest expense has increased significantly as a result of the senior credit facility
amendment, senior notes issuance and extension of our revolving loan facility that all took
place in 2009. For the first quarter of 2010, consolidated net interest expense increased
by $17.5 million compared to prior-year first quarter. Additionally, capitalized interest
decreased from $2.2 million for the first quarter of 2009 to $0.3 million in the 2010 first
quarter, due to the completion of the Ameristar Black Hawk hotel. |
- 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 |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Consolidated Cash Flow Information: |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
69,786 |
|
|
$ |
69,039 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(16,571 |
) |
|
$ |
(50,484 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
$ |
(41,407 |
) |
|
$ |
(6,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues: |
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
70,309 |
|
|
$ |
77,172 |
|
Ameristar East Chicago |
|
|
56,020 |
|
|
|
67,627 |
|
Ameristar Kansas City |
|
|
54,624 |
|
|
|
60,169 |
|
Ameristar Council Bluffs |
|
|
38,926 |
|
|
|
42,250 |
|
Ameristar Vicksburg |
|
|
30,651 |
|
|
|
33,119 |
|
Ameristar Black Hawk |
|
|
36,954 |
|
|
|
20,396 |
|
Jackpot Properties |
|
|
15,135 |
|
|
|
15,104 |
|
|
|
|
|
|
|
|
Consolidated net revenues |
|
$ |
302,619 |
|
|
$ |
315,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
17,818 |
|
|
$ |
21,915 |
|
Ameristar East Chicago |
|
|
4,599 |
|
|
|
12,527 |
|
Ameristar Kansas City |
|
|
14,277 |
|
|
|
16,656 |
|
Ameristar Council Bluffs |
|
|
11,929 |
|
|
|
12,725 |
|
Ameristar Vicksburg |
|
|
10,086 |
|
|
|
10,781 |
|
Ameristar Black Hawk |
|
|
7,673 |
|
|
|
3,875 |
|
Jackpot Properties |
|
|
2,986 |
|
|
|
3,269 |
|
Corporate and other |
|
|
(16,617 |
) |
|
|
(12,447 |
) |
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
52,751 |
|
|
$ |
69,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) Margins(1): |
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
|
25.3 |
% |
|
|
28.4 |
% |
Ameristar East Chicago |
|
|
8.2 |
% |
|
|
18.5 |
% |
Ameristar Kansas City |
|
|
26.1 |
% |
|
|
27.7 |
% |
Ameristar Council Bluffs |
|
|
30.6 |
% |
|
|
30.1 |
% |
Ameristar Vicksburg |
|
|
32.9 |
% |
|
|
32.6 |
% |
Ameristar Black Hawk |
|
|
20.8 |
% |
|
|
19.0 |
% |
Jackpot Properties |
|
|
19.7 |
% |
|
|
21.6 |
% |
Consolidated operating income margin |
|
|
17.4 |
% |
|
|
21.9 |
% |
|
|
|
(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 Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In Thousands, Unaudited) |
|
Casino Revenues: |
|
|
|
|
|
|
|
|
Slots |
|
$ |
279,895 |
|
|
$ |
287,308 |
|
Table games |
|
|
30,818 |
|
|
|
31,752 |
|
Other |
|
|
3,826 |
|
|
|
3,818 |
|
|
|
|
|
|
|
|
Casino revenues |
|
|
314,539 |
|
|
|
322,878 |
|
|
|
|
|
|
|
|
Non-Casino Revenues: |
|
|
|
|
|
|
|
|
Food and beverage |
|
|
33,261 |
|
|
|
37,964 |
|
Rooms |
|
|
19,387 |
|
|
|
14,676 |
|
Other |
|
|
7,729 |
|
|
|
8,199 |
|
|
|
|
|
|
|
|
Non-casino revenues |
|
|
60,377 |
|
|
|
60,839 |
|
|
|
|
|
|
|
|
|
|
|
374,916 |
|
|
|
383,717 |
|
Less: Promotional Allowances |
|
|
(72,297 |
) |
|
|
(67,880 |
) |
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
302,619 |
|
|
$ |
315,837 |
|
|
|
|
|
|
|
|
Net Revenues
Consolidated net revenues for the quarter ended March 31, 2010 decreased $13.2 million, or
4.2%, from the first quarter of 2009. The decrease in consolidated net revenues was primarily
attributable to the weak economy, unusually low table games hold percentages, inclement weather
conditions and the permanent bridge closure in East Chicago. First quarter 2010 net revenues
declined on a year-over-year basis at five of our seven gaming locations, while Jackpots net
revenues remained flat and Ameristar Black Hawks net revenues increased by $16.6 million, or
81.2%, when compared to the first quarter of 2009. Ameristar Black Hawks net revenue increase is
due to the opening of the new hotel on September 29, 2009 and the implementation of the beneficial
regulatory reform on July 2, 2009.
During the three months ended March 31, 2010, consolidated promotional allowances increased
$4.4 million (6.5%) from the corresponding 2009 period. The increase in promotional allowances in
the first quarter of 2010 was primarily the result of additional promotional spending related to
the new Black Hawk hotel and to encourage guest visitation to our East Chicago property following
the bridge closure.
Operating Income
In the first quarter of 2010, consolidated operating income decreased $16.6 million, or 23.9%,
from the first quarter of 2009, primarily as a result of the revenue declines described above. The
consolidated operating income margin declined 4.5 percentage points in the first quarter of 2010
from the corresponding 2009 period due to the factors mentioned above in addition to increased
employee benefit costs in the first quarter of 2010.
For the three months ended March 31, 2010, corporate expense increased $4.2 million, due
mostly to increases in stock-based compensation expense of $1.6 million, deferred compensation
expense of $1.1 million and health benefits expense of $0.7 million compared to the first quarter
of 2009.
- 18 -
Interest Expense
The following table summarizes information related to interest on our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in Thousands, Unaudited) |
|
Interest cost |
|
$ |
34,714 |
|
|
$ |
19,137 |
|
Less: Capitalized interest |
|
|
(274 |
) |
|
|
(2,222 |
) |
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
34,440 |
|
|
$ |
16,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net
of amounts capitalized |
|
$ |
17,047 |
|
|
$ |
17,270 |
|
|
|
|
|
|
|
|
Weighted-average total debt
outstanding |
|
$ |
1,688,038 |
|
|
$ |
1,667,486 |
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
8.2 |
% |
|
|
4.8 |
% |
|
|
|
|
|
|
|
For the quarter ended March 31, 2010, consolidated interest expense, net of amounts
capitalized, increased $17.5 million (103.6%) from the 2009 first quarter. The increase is due
primarily to higher interest rate add-ons resulting from the senior credit facility amendment,
increased interest expense from the issuance of the senior unsecured notes and the incremental
interest incurred on the portion of the revolving credit facility that was extended. Additionally,
since we have opened the Black Hawk hotel we no longer capitalize the interest on the associated
debt, which has caused our net interest expense to rise relative to prior periods.
Income Taxes
For the quarters ended March 31, 2010 and 2009, our income tax provision was $8.2 million and
$22.2 million, respectively. Our effective income tax rate was 43.3% for the quarter ended March
31, 2010, compared to 42.6% for the corresponding 2009 period.
Net Income
For the three months ended March 31, 2010, consolidated net income decreased $19.2 million, or
64.3%, from the first quarter of 2009. The decrease is primarily attributable to the decline in
net revenues and the increase in interest expense described above. Diluted earnings per share were
$0.18 for the first quarter of 2010, compared to $0.52 in the corresponding 2009 period, based on
diluted common shares of 58.9 million and 57.6 million for the quarters ended March 31, 2010 and
2009, respectively.
- 19 -
Liquidity and Capital Resources
Cash Flows Summary
Our cash flows consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In Thousands, Unaudited) |
|
Net cash provided by operating activities |
|
$ |
69,786 |
|
|
$ |
69,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(12,379 |
) |
|
|
(41,820 |
) |
Decrease in construction contracts payable |
|
|
(2,560 |
) |
|
|
(7,268 |
) |
Proceeds from sale of assets |
|
|
84 |
|
|
|
140 |
|
Increase in deposits and other non-current assets |
|
|
(1,716 |
) |
|
|
(1,536 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(16,571 |
) |
|
|
(50,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt and other borrowings |
|
|
12,000 |
|
|
|
24,000 |
|
Principal payments of debt |
|
|
(48,189 |
) |
|
|
(21,301 |
) |
Debt issuance and amendment costs |
|
|
(131 |
) |
|
|
(9,670 |
) |
Cash dividends paid |
|
|
(6,068 |
) |
|
|
|
|
Proceeds from stock option exercises |
|
|
1,068 |
|
|
|
378 |
|
Purchases of treasury stock |
|
|
(87 |
) |
|
|
(82 |
) |
Excess tax benefit from stock option exercises |
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(41,407 |
) |
|
|
(6,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
11,808 |
|
|
$ |
12,012 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2010, net cash provided by operating activities
increased $0.7 million from 2009, mostly as a result of changes in several of our working capital
assets and liabilities in 2010.
First quarter 2010 capital expenditures included minor construction projects, slot machine
purchases and the acquisition of long-lived assets relating to various capital maintenance projects
at all of our properties.
Capital expenditures during the first three months of 2009 were primarily related to the hotel
project at Ameristar Black Hawk that totaled $32.7 million. Other first quarter 2009 capital
expenditures included slot machine purchases and the acquisition of long-lived assets relating to
various capital maintenance projects at all of our properties.
During the first quarter of 2010, our Board of Directors declared a cash dividend of $0.105
per share, which was paid on March 15, 2010. No cash dividend was paid in the first quarter of
2009 due to the temporary suspension of dividend payments following the third quarter of 2008. In
April 2009, our Board of Directors reinstituted a cash dividend of $0.105 per share that was paid
in the second quarter of 2009.
During the first quarter of 2010, net debt repayments totaled $36.2 million, including a $35.0
million repayment of a portion of the principal balance outstanding under the revolving credit
facility. After taking into consideration the repayments, we have $124.0 million due in November
2010, with approximately $100 million available for borrowing under the extended portion of the
revolving credit
facility. We intend to repay all 2010 debt maturities with cash from operations
and availability under the extended portion of the revolving credit
- 20 -
facility. At March 31, 2010,
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 4.93:1 and 4.92:1, respectively.
All mandatory principal repayments have been made through March 31, 2010. As of March 31,
2010, the amount of the revolving loan facility available for borrowing was $125.6 million, after
giving effect to $4.4 million of outstanding letters of credit.
In connection with the issuance of the senior unsecured notes and the senior credit facility
amendment, we paid one-time fees and expenses totaling approximately $9.7 million during the first
three months of 2009, most of which was capitalized and will be amortized over the respective
remaining terms of the the senior credit facility.
Our interest expense has increased significantly as a result of the senior credit facility
amendment, senior notes issuance and extension of our revolving loan facility that took place in
2009. For the first quarter of 2010, consolidated net interest expense increased by $17.5 million
compared to prior-year first quarter. Additionally, capitalized interest decreased from $2.2
million for the first quarter of 2009 to $0.3 million in the 2010 first quarter, due to the
completion of the Ameristar Black Hawk hotel. As a result of our 2009 debt restructuring efforts
and the anticipated decrease in capitalized interest, we expect a significant increase in interest
expense compared to the prior year.
In addition to the availability under the senior credit facility, we had $108.3 million of
cash and cash equivalents at March 31, 2010, 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
likely be 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.
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, 2009.
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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. 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, 2009 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. Outstanding amounts
borrowed under our senior credit facility bear interest at a rate 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 March 31, 2010, we had $1.0 billion outstanding under our senior credit
facility, bearing interest at variable rates indexed to three-month LIBOR. Since substantially all
of this debt is hedged pursuant to interest rate swap agreements (as described in further detail
below) and our other debt consists of the Notes that bear interest at a fixed rate, a hypothetical
1% interest rate increase would have no impact on our pre-tax earnings.
We currently have two interest rate swap agreements, both of which terminate on July 19, 2010.
(See Note 7 Derivative instruments and hedging activities of Notes to Consolidated Financial
Statements for more discussion of the interest rate swaps.) These swaps effectively fix
three-month LIBOR on a $1.0 billion notional amount at a weighted-average rate of 3.09%. At March
31, 2010, three-month LIBOR was approximately 0.29%. Therefore, the expiration of these swaps
(assuming three-month LIBOR remains constant at its March 31, 2010 level) would result in an annual
decrease in interest expense (and an increase in pre-tax earnings) of $27.7 million.
Assuming we choose not to replace any portion of these swaps upon their expiration on July 19,
2010, we would be exposed to interest rate risk such that an increase, after such date, in LIBOR of
0.5%, 1.0% and 1.5% would result in an increase to annualized interest expense under our senior
credit facility (and a decrease to pre-tax earnings) of approximately $5.0 million, $10.0 million
and $15.0 million, respectively. However, the net effect of the expiration of the swaps by their
terms at such date, together with an increase in LIBOR of 0.5%, 1.0% and 1.5% from its March 31,
2010 level immediately after the expiration of the swaps, would be an annual decrease to interest
expense (and increase to pre-tax earnings) of $22.7 million, $17.7 million and $12.7 million,
respectively.
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Our objective in using derivatives is to add stability to interest expense and to manage our
exposure to interest rate movements or other identified risks. To accomplish this objective, we
have used interest rate swaps as part of our 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. We do not use derivatives for trading or speculative purposes and do not have any
derivatives that are not designated as hedges. We may enter into additional swap transactions or
other interest rate protection agreements from time to time in the future. However, the May 2009
refinancing of a substantial portion of our variable-rate debt with the fixed-rate senior unsecured
notes reduces our exposure to interest rate risk and may reduce the need for the use of hedging
instruments in the future.
By using derivative instruments to hedge exposure to changes in interest rates, we are exposed
to the potential failure of our counterparties to perform under the terms of the agreements. We
minimize this risk by entering into interest rate swap agreements with highly rated commercial
banks. These institutions are also members of the bank group providing our senior credit facility,
which we believe further minimizes the risk of nonperformance.
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 our 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 first fiscal quarter of
2010 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 first fiscal quarter of 2010.
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, 2009.
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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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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: May 10, 2010 |
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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