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 September 30, 2005
OR
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|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number: 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 |
(State or other jurisdiction of
|
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(I.R.S. employer |
incorporation or organization)
|
|
identification no.) |
3773 Howard Hughes Parkway
Suite 490 South
Las Vegas, Nevada 89109
(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 is an accelerated filer (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934).
Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934). Yes o No þ
As of November 2, 2005, 55,853,088 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
(Unaudited)
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|
|
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|
|
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September 30, |
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December 31, |
|
|
|
2005 |
|
|
2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
82,776 |
|
|
$ |
86,523 |
|
Restricted cash |
|
|
6,474 |
|
|
|
4,486 |
|
Accounts receivable, net |
|
|
4,097 |
|
|
|
6,454 |
|
Inventories |
|
|
7,132 |
|
|
|
6,927 |
|
Prepaid expenses |
|
|
11,957 |
|
|
|
8,764 |
|
Deferred income taxes |
|
|
52,570 |
|
|
|
52,570 |
|
Assets held for sale |
|
|
596 |
|
|
|
596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
165,602 |
|
|
|
166,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, at cost: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
|
970,553 |
|
|
|
951,858 |
|
Furniture, fixtures and equipment |
|
|
345,121 |
|
|
|
308,182 |
|
|
|
|
|
|
|
|
|
|
|
1,315,674 |
|
|
|
1,260,040 |
|
Less: accumulated depreciation and amortization |
|
|
(369,414 |
) |
|
|
(310,679 |
) |
|
|
|
|
|
|
|
|
|
|
946,260 |
|
|
|
949,361 |
|
|
|
|
|
|
|
|
Land |
|
|
71,748 |
|
|
|
70,106 |
|
Construction in progress |
|
|
92,081 |
|
|
|
24,717 |
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
|
1,110,089 |
|
|
|
1,044,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of purchase price over fair market value of net assets acquired |
|
|
78,709 |
|
|
|
79,612 |
|
Deposits and other assets |
|
|
29,077 |
|
|
|
25,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
1,383,477 |
|
|
$ |
1,315,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
14,777 |
|
|
$ |
12,904 |
|
Construction contracts payable |
|
|
13,983 |
|
|
|
5,063 |
|
Income taxes payable |
|
|
6,520 |
|
|
|
1,567 |
|
Accrued liabilities |
|
|
77,374 |
|
|
|
70,903 |
|
Current maturities of long-term debt |
|
|
274,921 |
|
|
|
4,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
387,575 |
|
|
|
94,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities |
|
|
467,853 |
|
|
|
761,799 |
|
Deferred income taxes |
|
|
141,239 |
|
|
|
126,339 |
|
Deferred compensation and other long-term liabilities |
|
|
14,548 |
|
|
|
11,092 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
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|
Preferred stock, $.01 par value: Authorized - 30,000,000 shares; Issued None |
|
|
|
|
|
|
|
|
Common
stock, $.01 par value: Authorized - 120,000,000 shares; Issued and
outstanding 55,843,320 shares at September 30, 2005 and 54,882,310 shares at December 31, 2004 |
|
|
558 |
|
|
|
549 |
|
Additional paid-in capital |
|
|
178,474 |
|
|
|
166,450 |
|
Retained earnings |
|
|
193,230 |
|
|
|
154,301 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
372,262 |
|
|
|
321,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
1,383,477 |
|
|
$ |
1,315,469 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-2-
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
$ |
241,287 |
|
|
$ |
215,001 |
|
|
$ |
725,346 |
|
|
$ |
642,216 |
|
Food and beverage |
|
|
32,023 |
|
|
|
28,828 |
|
|
|
92,818 |
|
|
|
86,073 |
|
Rooms |
|
|
6,804 |
|
|
|
6,959 |
|
|
|
18,762 |
|
|
|
20,019 |
|
Other |
|
|
6,720 |
|
|
|
6,370 |
|
|
|
18,657 |
|
|
|
17,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286,834 |
|
|
|
257,158 |
|
|
|
855,583 |
|
|
|
766,093 |
|
Less: Promotional allowances |
|
|
48,243 |
|
|
|
41,507 |
|
|
|
138,018 |
|
|
|
126,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
238,591 |
|
|
|
215,651 |
|
|
|
717,565 |
|
|
|
640,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino |
|
|
106,885 |
|
|
|
94,768 |
|
|
|
320,439 |
|
|
|
285,716 |
|
Food and beverage |
|
|
16,554 |
|
|
|
16,314 |
|
|
|
48,665 |
|
|
|
47,342 |
|
Rooms |
|
|
1,653 |
|
|
|
1,706 |
|
|
|
4,913 |
|
|
|
4,912 |
|
Other |
|
|
4,405 |
|
|
|
4,244 |
|
|
|
12,192 |
|
|
|
10,736 |
|
Selling, general and administrative |
|
|
47,153 |
|
|
|
39,321 |
|
|
|
138,671 |
|
|
|
115,555 |
|
Depreciation and amortization |
|
|
21,319 |
|
|
|
18,888 |
|
|
|
63,011 |
|
|
|
54,016 |
|
Impairment loss on assets held for sale |
|
|
143 |
|
|
|
100 |
|
|
|
683 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
198,112 |
|
|
|
175,341 |
|
|
|
588,574 |
|
|
|
518,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
40,479 |
|
|
|
40,310 |
|
|
|
128,991 |
|
|
|
121,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
184 |
|
|
|
69 |
|
|
|
532 |
|
|
|
157 |
|
Interest expense, net |
|
|
(14,850 |
) |
|
|
(13,806 |
) |
|
|
(45,321 |
) |
|
|
(43,029 |
) |
Loss on early retirement of debt |
|
|
|
|
|
|
(202 |
) |
|
|
(184 |
) |
|
|
(673 |
) |
Other |
|
|
(407 |
) |
|
|
50 |
|
|
|
(1,545 |
) |
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax Provision |
|
|
25,406 |
|
|
|
26,421 |
|
|
|
82,473 |
|
|
|
77,955 |
|
Income tax provision |
|
|
9,306 |
|
|
|
9,820 |
|
|
|
30,491 |
|
|
|
30,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
16,100 |
|
|
$ |
16,601 |
|
|
$ |
51,982 |
|
|
$ |
47,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.29 |
|
|
$ |
0.31 |
|
|
$ |
0.94 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.28 |
|
|
$ |
0.30 |
|
|
$ |
0.91 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
55,825 |
|
|
|
54,218 |
|
|
|
55,582 |
|
|
|
53,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
57,232 |
|
|
|
55,559 |
|
|
|
57,139 |
|
|
|
55,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
51,982 |
|
|
$ |
47,521 |
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
63,011 |
|
|
|
54,016 |
|
Amortization of debt issuance costs and debt discounts |
|
|
3,115 |
|
|
|
3,359 |
|
Loss on early retirement of debt |
|
|
184 |
|
|
|
673 |
|
Net change in deferred compensation liability |
|
|
370 |
|
|
|
177 |
|
Impairment loss on assets held for sale |
|
|
683 |
|
|
|
196 |
|
Net loss (gain) on disposition of assets |
|
|
1,545 |
|
|
|
(176 |
) |
Net change in deferred income taxes |
|
|
15,803 |
|
|
|
25,258 |
|
Tax benefit from stock option exercises |
|
|
5,788 |
|
|
|
3,482 |
|
Increase in restricted cash |
|
|
(1,988 |
) |
|
|
(1,795 |
) |
Decrease in accounts receivable, net |
|
|
2,357 |
|
|
|
904 |
|
Decrease in income tax refund receivable |
|
|
|
|
|
|
184 |
|
Increase in inventories |
|
|
(205 |
) |
|
|
(314 |
) |
Increase in prepaid expenses |
|
|
(3,193 |
) |
|
|
(999 |
) |
Decrease in assets held for sale |
|
|
|
|
|
|
179 |
|
Increase (decrease) in accounts payable |
|
|
1,873 |
|
|
|
(8,039 |
) |
Increase in income taxes payable |
|
|
4,953 |
|
|
|
|
|
Increase (decrease) in accrued liabilities |
|
|
6,471 |
|
|
|
(350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
100,767 |
|
|
|
76,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
152,749 |
|
|
|
124,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(132,178 |
) |
|
|
(62,816 |
) |
Increase (decrease) in construction contracts payable |
|
|
8,920 |
|
|
|
(8,033 |
) |
Proceeds from sale of assets |
|
|
1,064 |
|
|
|
732 |
|
Increase in deposits and other non-current assets |
|
|
(3,125 |
) |
|
|
(2,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(125,319 |
) |
|
|
(72,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(13,053 |
) |
|
|
(10,141 |
) |
Proceeds from revolving credit facility |
|
|
10,000 |
|
|
|
|
|
Principal payments of long-term debt |
|
|
(34,025 |
) |
|
|
(47,660 |
) |
Proceeds from stock option exercises |
|
|
6,245 |
|
|
|
4,115 |
|
Debt issuance costs |
|
|
(344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(31,177 |
) |
|
|
(53,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
(3,747 |
) |
|
|
(2,018 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents Beginning of Period |
|
|
86,523 |
|
|
|
78,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End of Period |
|
$ |
82,776 |
|
|
$ |
76,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
52,441 |
|
|
$ |
50,098 |
|
|
|
|
|
|
|
|
Cash paid for federal and state income taxes (net of refunds received) |
|
$ |
5,693 |
|
|
$ |
2,286 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-4-
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Principles of consolidation and basis of presentation
The accompanying condensed 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 seven casino properties in six markets. The Companys
portfolio of casinos consists of: Ameristar St. Charles (serving greater St. Louis, Missouri);
Ameristar Kansas City (serving the Kansas City, Missouri metropolitan area); Ameristar Council
Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar Vicksburg (serving Jackson,
Mississippi and Monroe, Louisiana); Cactus Petes and The Horseshu in Jackpot, Nevada (serving Idaho
and the Pacific Northwest); and Mountain High in Black Hawk, Colorado (serving the Denver, Colorado
metropolitan area). 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 Company acquired Mountain High on December 21, 2004. Accordingly, the condensed
consolidated financial statements include Mountain Highs operating results only for the three
months and nine months ended September 30, 2005.
The accompanying condensed 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 condensed 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 also 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, 2004.
The accompanying condensed 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, 2004.
Certain reclassifications, having no effect on net income, have been made to the prior
periods condensed consolidated financial statements to conform to the current periods
presentation.
-5-
Note 2 Earnings per share
The Company calculates earnings per share in accordance with SFAS No. 128, Earnings Per
Share. 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. For the
periods presented, all outstanding options with an exercise price lower than the market price have
been included in the calculation of earnings per share.
On April 29, 2005, ACIs Board of Directors declared a 2-for-1 split of ACIs $0.01 par value
common stock, which was distributed at the close of business on June 20, 2005. As a result of the
split, 27.9 million additional shares were issued, common stock increased by $0.3 million and
additional paid-in capital was reduced by $0.3 million. All references to the number of common
shares and per-share amounts in this Quarterly Report give effect to the stock split.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Amounts in Thousands) |
|
Weighted average number of shares
outstanding basic earnings per share |
|
|
55,825 |
|
|
|
54,218 |
|
|
|
55,582 |
|
|
|
53,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
1,407 |
|
|
|
1,341 |
|
|
|
1,557 |
|
|
|
1,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding diluted earnings per share |
|
|
57,232 |
|
|
|
55,559 |
|
|
|
57,139 |
|
|
|
55,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The potentially dilutive stock options excluded from the earnings per share computation, as
their effect would be anti-dilutive, totaled 139,800 and 201,548 for the three months ended
September 30, 2005 and 2004, respectively, and 61,748 and 102,510 for the nine months ended
September 30, 2005 and 2004, respectively.
Note 3 Accounting for stock-based compensation
The Company currently accounts for stock incentive plans in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and
related interpretations. Under APB No. 25, compensation expense is recognized on the date of grant
only if the current market price of the underlying common stock at the date of grant exceeds the
exercise price. Had the Company determined compensation cost based on the fair value at the grant
date for stock options under Financial Accounting Standards Board (FASB) Statement No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), the Companys net income and earnings
per share would have been adjusted to the pro forma amounts in the following table.
-6-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Amounts in Thousands, Except Per Share Data) |
|
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
16,100 |
|
|
$ |
16,601 |
|
|
$ |
51,982 |
|
|
$ |
47,521 |
|
Deduct: compensation expense under
fair value-based method (net of tax) |
|
|
(287 |
) |
|
|
(747 |
) |
|
|
(1,768 |
) |
|
|
(1,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
15,813 |
|
|
$ |
15,854 |
|
|
$ |
50,214 |
|
|
$ |
45,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.29 |
|
|
$ |
0.31 |
|
|
$ |
0.94 |
|
|
$ |
0.88 |
|
Pro forma (net of tax) |
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
0.90 |
|
|
$ |
0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.28 |
|
|
$ |
0.30 |
|
|
$ |
0.91 |
|
|
$ |
0.86 |
|
Pro forma (net of tax) |
|
$ |
0.28 |
|
|
$ |
0.29 |
|
|
$ |
0.88 |
|
|
$ |
0.82 |
|
For purposes of computing the pro forma compensation expense, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: risk-free interest rates of 4.2% as of September 30, 2005
and 3.6% as of September 30, 2004; expected lives of 5 years as of September 30, 2005 and 6 years
as of September 30, 2004; and expected volatility of 48% as of September 30, 2005 and 51% as of
September 30, 2004. The model assumes dividend payments of $0.3125 for the year ending December
31, 2005 and $0.25 for the year ended December 31, 2004. The estimated weighted-average fair value
per share of options granted was $3.14 as of September 30, 2005 and $2.54 as of September 30, 2004.
Note 4 Recently issued accounting pronouncements
On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a
revision to SFAS No. 123. SFAS No. 123(R) supersedes APB No. 25 and amends SFAS No. 95, Statement
of Cash Flows. Among other items, SFAS No. 123(R) requires the recognition of compensation
expense in an amount equal to the fair value of share-based payments, including employee stock
options and restricted stock, granted to employees. The Company is required to adopt SFAS No.
123(R) no later than January 1, 2006.
The adoption of SFAS No. 123(R) will have an impact on the Companys results of operations,
but it will not have any impact on the Companys overall financial position. The Company is
currently evaluating the provisions of SFAS No. 123(R) to determine its impact on future financial
statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as an operating cash flow.
This requirement will reduce net operating cash flows and increase net financing cash flows in
periods after adoption. The Company cannot estimate what those amounts will be in the future
because they depend on, among other things, when employees exercise stock options.
-7-
Note 5 Long-term debt
At September 30, 2005, the Companys principal debt outstanding consisted of $362.2 million
under term loan B-1 and the revolving credit facility of its senior secured credit facilities and
$380.0 million in aggregate principal amount of 10.75% senior subordinated notes due 2009. At
September 30, 2005, the amount of the $75.0 million revolving credit facility available for
borrowing was $59.3 million. The revolving credit facility expires in December 2005. The term
loan B-1 and the revolving credit facility bear interest at a variable rate based, at the Companys
option, on LIBOR (Eurodollar loans) or the prime rate (base rate loans), plus an applicable margin.
The Company is required to comply with various affirmative and negative financial and other
covenants under the senior credit facilities and the indenture governing the senior subordinated
notes. These covenants include, among other things, restrictions on the incurrence of additional
indebtedness, restrictions on dividend payments and other restrictions, as well as requirements to
maintain certain financial ratios and tests. The Company amended the senior credit facilities in
August 2005 to increase the allowable cumulative dividend payments from $25.0 million to $32.5
million. As of September 30, 2005 and December 31, 2004, the Company was in compliance with all
applicable covenants.
Without any changes to, or the replacement of, the senior credit facilities, it is likely that
the Company would violate covenants relating to permitted capital expenditures for the year ending
December 31, 2005. However, the Company is in the process of replacing its existing senior credit
facilities. The replacement senior secured credit facilities will include a $400.0 million
seven-year term loan and a five-year revolving credit facility with capacity for borrowing up to
$800.0 million. The term loan and the revolving credit facility will bear interest at a variable
rate based, at the Companys option, on LIBOR (Eurodollar loans) or the prime rate (base rate
loans), plus an applicable margin. All of the Companys operating subsidiaries will guarantee the
new senior credit facilities. Under the terms of the new debt, the Company will be required to
comply with various affirmative and negative financial and other covenants, including limitations
on capital expenditures, investments, restricted payments, asset sales and other indebtedness. The
Company will also be required to maintain certain financial ratios and tests. The replacement
senior credit facilities are expected to be completed in November 2005.
In connection with the anticipated replacement of the senior credit facilities, the Company
expects to redeem all of the outstanding senior subordinated notes. The notes are redeemable
beginning on February 15, 2006 at 105.375% of the principal amount, plus accrued interest. The
Company anticipates the early retirement of the senior subordinated notes will reduce the Companys
average interest rate and provide significant savings related to interest expense, although it will
result in a one-time charge for loss on early retirement of debt.
All of ACIs current operating subsidiaries (the Guarantors) have jointly and severally, and
fully and unconditionally, guaranteed the senior subordinated 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.
Note 6 Commitments and contingencies
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 September 30,
-8-
2005 and December 31, 2004, the estimated liabilities for
unpaid and incurred but not reported claims totaled $10.5 million and $7.9 million, respectively.
The Company considers 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 estimate for these liabilities.
Guarantees. In December 2000, the Company assumed several agreements with the Missouri 210
Highway Transportation Development District (Development District) that had been entered into in
order to assist the Development District in the financing of a highway improvement project in the
area around the Ameristar Kansas City property. In order to pay for the highway improvement
project, the Development District issued revenue bonds totaling $9.0 million with scheduled
maturities from 2006 through 2011.
The Company has provided an irrevocable standby letter of credit from a bank in support of
obligations of the Development District for certain principal and interest on the revenue bonds.
The amount outstanding under this letter of credit was $4.4 million as of September 30, 2005 and
may be subsequently reduced as principal and interest mature on the revenue bonds. Additionally,
the Company is obligated to pay any shortfall in the event that amounts on deposit are insufficient
to cover the obligations under the bonds, as well as any costs incurred by the Development District
that are not payable from the taxed revenues used to satisfy the bondholders. Through September
30, 2005, the Company had paid $0.8 million in shortfalls and other costs. As required by the
agreements, the Company anticipates that it will ultimately be reimbursed for these shortfall
payments by the Development District from future available cash flow, as defined, and has recorded
a corresponding receivable as of September 30, 2005.
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 seven properties in operation in Missouri, Iowa, Mississippi, Colorado and
Nevada. Our portfolio of casinos consists of: Ameristar St. Charles (serving greater St. Louis,
Missouri); Ameristar Kansas City (serving the Kansas City, Missouri metropolitan area); Ameristar
Council Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar Vicksburg (serving
Jackson, Mississippi and Monroe, Louisiana); Cactus Petes and the Horseshu in Jackpot, Nevada
(serving Idaho and the Pacific Northwest); and Mountain High in Black Hawk, Colorado (serving the
Denver, Colorado metropolitan area). We acquired Mountain High on December 21, 2004.
Our financial results are dependent upon the number of patrons that we attract to our
properties and the amounts those patrons spend per visit. Management uses various metrics to
evaluate these factors. Key metrics include: market share, representing our share of gross gaming
revenues in each of our markets other than Jackpot and our share of gaming devices in the Jackpot
market (Nevada does not publish separate gaming revenue statistics for this market); admissions,
representing the number of patrons admitted to our casinos in jurisdictions that record admissions;
and win per admission, representing the amount of gaming revenues we generate per admission.
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
-9-
properties. 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:
|
|
|
Post-hurricane improvement at Ameristar Vicksburg. During the third quarter
of 2005, Ameristar Vicksburg increased operating income by $1.8 million, or 28.8%, over the
third quarter of 2004. The improved financial performance of this property is mostly
attributable to the substantial increase in business volume following the closure of the
Gulf Coast casinos as a result of Hurricane Katrina. We expect the property to continue to
benefit until gaming capacity on the Gulf Coast is restored to a level necessary to meet
demand. |
|
|
|
|
Mountain High Casino acquisition and expansion. As part of our strategy to
grow the Company, we acquired Mountain High in Black Hawk, Colorado on December 21, 2004.
Mountain High contributed $39.2 million to net revenues and $1.6 million to operating
income during the first nine months of 2005. Mountain Highs 2005 financial results have
been adversely impacted by a temporary road closure and construction disruption as we
progress toward the completion of the initial phases of planned capital improvement
projects at the property. The expansion of the parking garage, which will nearly double
the capacity to 1,550 parking spaces, will be completed in November 2005 and the remodeling
of the casino and non-gaming venues on the first floor will be substantially completed in
December 2005. In February 2006, we expect to complete the second floor of the casino,
which will include an additional 700 slot machines. The property will be rebranded as
Ameristar Black Hawk in the second quarter of 2006. We also plan to begin construction of
a 537-room hotel at the property in early 2006. We expect the total cost of our planned
capital improvements at Mountain High to be approximately $260 million, which will bring
the total investment in the property to approximately $380 million. |
|
|
|
|
Increased competitive pressures in the St. Louis market. The St. Louis market
has developed into a more competitive environment in response to which we increased costs
associated with marketing and promotional activities at Ameristar St. Charles to maintain
our competitive position in the market. As a result, Ameristar St. Charles experienced a
decrease of $2.0 million in operating income and a decline of 1.6 percentage points in
operating income margin for the nine months ended September 30, 2005 compared to the nine
months ended September 30, 2004. We have commenced construction to expand the property,
which will provide us with additional amenities with which to compete in the market and
which we believe will lead to the extension of our market share leadership upon completion.
The expansion projects include the construction of a 400-room all-suite hotel, an
indoor/outdoor swimming pool, an additional parking garage and a conference center. The
total cost of the projects is expected to be approximately $240 million, with the projected
completion dates ranging from the second quarter of 2006 for the conference center to the
fourth quarter of 2007 for the hotel. |
|
|
|
|
Coinless slot machines and slot mix. Consolidated casino revenues increased
$83.1 million from the first nine months of 2004 in large part due to the completion of
implementation of coinless slot technology at all our Ameristar-branded properties and our
successful slot mix strategy, which includes the continued introduction of popular
new-generation, low-denomination slot machines. |
|
|
|
|
Impact of branding and marketing programs. We continued to strengthen the
Ameristar brand through targeted marketing, as evidenced by a 6.8% increase in rated play
at our Ameristar-branded properties for the first nine months of 2005 compared to the same
period in 2004. |
|
|
|
|
Rising health benefit costs. For the nine months ended September 30, 2005,
our health benefit costs increased $7.1 million, or 44.8%, over the corresponding
prior-year period. The rise in health benefit |
-10-
|
|
|
costs is primarily attributable to a
significant increase in the number and size of large claims experienced in 2005. |
|
|
|
|
External development costs. Development activities contributed to our
increased corporate expense as we continued to pursue growth through development and
acquisition opportunities. Year to date, development-related costs totaled $5.7 million
compared to $2.6 million for the same period in 2004. For the nine months ended September
30, 2005 and 2004, we incurred costs relating to our pursuit of a casino license in
Pennsylvania totaling approximately $2.6 million and $0.3 million, respectively. In early
November 2005, we suspended our development efforts in Pennsylvania. For the nine months
ended September 30, 2005 and 2004, we spent approximately $1.0 million and $1.1 million,
respectively, in development-related costs in the United Kingdom. Development costs in the
United Kingdom were substantially reduced beginning in the second quarter of 2005. |
|
|
|
|
Renovations and enhancements at our properties. Capital expenditures for the
nine months ended September 30, 2005 totaled $132.2 million, which included the capital
improvement projects underway at Mountain High, completed hotel room renovations at our
Council Bluffs and Kansas City properties, the purchase of new slot product and the
acquisition of fixed assets relating to various capital maintenance projects at each of our
properties. |
-11-
Results of Operations
The following table sets forth certain information concerning our consolidated cash flows and
the results of operations of our properties:
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
|
Ended September 30, |
|
Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
Consolidated Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
40,338 |
|
|
$ |
28,071 |
|
|
$ |
152,749 |
|
|
$ |
124,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(45,450 |
) |
|
$ |
(22,447 |
) |
|
$ |
(125,319 |
) |
|
$ |
(72,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
$ |
4,815 |
|
|
$ |
(19,100 |
) |
|
$ |
(31,177 |
) |
|
$ |
(53,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
71,367 |
|
|
$ |
68,883 |
|
|
$ |
215,527 |
|
|
$ |
209,332 |
|
Ameristar Kansas City |
|
|
62,127 |
|
|
|
59,520 |
|
|
|
185,701 |
|
|
|
174,160 |
|
Ameristar Council Bluffs |
|
|
46,956 |
|
|
|
44,229 |
|
|
|
140,580 |
|
|
|
129,056 |
|
Ameristar Vicksburg |
|
|
29,516 |
|
|
|
26,364 |
|
|
|
88,160 |
|
|
|
81,289 |
|
Jackpot Properties |
|
|
17,553 |
|
|
|
16,655 |
|
|
|
48,421 |
|
|
|
46,182 |
|
Mountain High (1) |
|
|
11,072 |
|
|
|
|
|
|
|
39,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenues |
|
$ |
238,591 |
|
|
$ |
215,651 |
|
|
$ |
717,565 |
|
|
$ |
640,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
15,157 |
|
|
$ |
15,380 |
|
|
$ |
49,197 |
|
|
$ |
51,147 |
|
Ameristar Kansas City |
|
|
12,439 |
|
|
|
12,111 |
|
|
|
38,648 |
|
|
|
33,487 |
|
Ameristar Council Bluffs |
|
|
15,151 |
|
|
|
13,317 |
|
|
|
43,045 |
|
|
|
38,388 |
|
Ameristar Vicksburg |
|
|
8,040 |
|
|
|
6,241 |
|
|
|
24,924 |
|
|
|
20,972 |
|
Jackpot Properties |
|
|
3,909 |
|
|
|
3,501 |
|
|
|
8,839 |
|
|
|
7,054 |
|
Mountain High (1) |
|
|
(1,454 |
) |
|
|
|
|
|
|
1,555 |
|
|
|
|
|
Corporate and other |
|
|
(12,763 |
) |
|
|
(10,240 |
) |
|
|
(37,217 |
) |
|
|
(29,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
40,479 |
|
|
$ |
40,310 |
|
|
$ |
128,991 |
|
|
$ |
121,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income Margins (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
|
21.2 |
% |
|
|
22.3 |
% |
|
|
22.8 |
% |
|
|
24.4 |
% |
Ameristar Kansas City |
|
|
20.0 |
% |
|
|
20.3 |
% |
|
|
20.8 |
% |
|
|
19.2 |
% |
Ameristar Council Bluffs |
|
|
32.3 |
% |
|
|
30.1 |
% |
|
|
30.6 |
% |
|
|
29.7 |
% |
Ameristar Vicksburg |
|
|
27.2 |
% |
|
|
23.7 |
% |
|
|
28.3 |
% |
|
|
25.8 |
% |
Jackpot Properties |
|
|
22.3 |
% |
|
|
21.0 |
% |
|
|
18.3 |
% |
|
|
15.3 |
% |
Mountain High (1) |
|
|
(13.1 |
%) |
|
|
|
|
|
|
4.0 |
% |
|
|
|
|
Consolidated operating income margin |
|
|
17.0 |
% |
|
|
18.7 |
% |
|
|
18.0 |
% |
|
|
19.0 |
% |
|
|
|
(1) |
|
We acquired Mountain High on December 21, 2004, and operating results are included only for
the three and nine months ended September 30, 2005. |
(2) |
|
Operating income margin is operating income as a percentage of net revenues. |
-12-
The following table presents detail of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended September 30, |
|
|
Ended September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slots |
|
$ |
213,791 |
|
|
$ |
188,661 |
|
|
$ |
641,324 |
|
|
$ |
560,253 |
|
Table games |
|
|
24,486 |
|
|
|
23,697 |
|
|
|
74,808 |
|
|
|
73,951 |
|
Other |
|
|
3,010 |
|
|
|
2,643 |
|
|
|
9,214 |
|
|
|
8,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenues |
|
|
241,287 |
|
|
|
215,001 |
|
|
|
725,346 |
|
|
|
642,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage |
|
|
32,023 |
|
|
|
28,828 |
|
|
|
92,818 |
|
|
|
86,073 |
|
Rooms |
|
|
6,804 |
|
|
|
6,959 |
|
|
|
18,762 |
|
|
|
20,019 |
|
Other |
|
|
6,720 |
|
|
|
6,370 |
|
|
|
18,657 |
|
|
|
17,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenues |
|
|
45,547 |
|
|
|
42,157 |
|
|
|
130,237 |
|
|
|
123,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Promotional Allowances |
|
|
(48,243 |
) |
|
|
(41,507 |
) |
|
|
(138,018 |
) |
|
|
(126,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
238,591 |
|
|
$ |
215,651 |
|
|
$ |
717,565 |
|
|
$ |
640,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
Consolidated net revenues for the quarter ended September 30, 2005 increased $22.9 million, or
10.6%, over the third quarter of 2004. All of our properties (other than Mountain High, which we
did not acquire until December 21, 2004) improved in net revenues compared to the third quarter of
2004, with increases of 12.0% at Ameristar Vicksburg, 6.2% at Ameristar Council Bluffs, 5.4% at the
Jackpot Properties, 4.4% at Ameristar Kansas City and 3.6% at Ameristar St. Charles.
For the quarter, all of our Ameristar-branded properties improved their market leadership
positions over the prior-year third quarter. Ameristar Vicksburg and Ameristar Council Bluffs
extended and improved their long-time market leadership positions by 2.4 and 1.6 percentage points
to 47.4% and 43.0%, respectively, over the third quarter of 2004. Ameristar Kansas City and
Ameristar St. Charles increased reported market share by 2.0 and 0.7 percentage points to 37.3% and
31.8%, respectively, over the prior-year third quarter. Ameristar St. Charles has led the St.
Louis market for 10 of the last 12 quarters.
Led by a $25.1 million (13.3%) increase in slot revenues, consolidated casino revenues for the
third quarter of 2005 increased 12.2% from the third quarter of 2004. Mountain High contributed
$11.7 million to casino revenues during the third quarter of 2005. We believe that the growth in
slot revenues at our other properties has been driven by our complete implementation of coinless
slot technology at our Ameristar-branded properties and our successful slot mix strategy, which
includes the continued introduction of new-generation, low-denomination slot machines that have
been increasingly popular with our customers. We further believe casino revenues increased in part
as a result of the continued successful implementation of our targeted marketing programs, as
evidenced by a 6.0% increase in rated play at our Ameristar-branded properties from the third
quarter of 2004.
Food and beverage revenues increased $3.2 million (11.1%) over the prior-year third quarter.
The increase was mostly attributable to the acquisition of Mountain High, which contributed $1.8
million in additional food and beverage revenues during the third quarter of 2005.
-13-
Room revenues for the quarter ended September 30, 2005 decreased 2.2% from the third quarter
of 2004. The decrease was primarily due to reduced room capacity as a result of the renovation of
the hotel rooms at Ameristar Kansas City, which is now complete.
For the nine months ended September 30, 2005, net revenues grew by $77.5 million, or 12.1%,
from the corresponding 2004 period. All of our properties increased net revenues during the first
nine months of 2005 when compared to 2004, including improvements of 8.9% at Ameristar Council
Bluffs, 8.5% at Ameristar Vicksburg, 6.6% at Ameristar Kansas City, 4.8% at the Jackpot Properties
and 3.0% at Ameristar St. Charles.
For the nine months ended September 30, 2005, casino revenues increased $83.1 million, or
12.9%, compared to the first nine months of 2004. We believe the $81.1 million (14.5%) increase
in slot revenues over the prior-year period is the result of the aforementioned factors, including
our implementation of coinless slots and the increasing popularity of low-denomination slot
machines.
Operating Income
Consolidated operating income in the third quarter of 2005 increased $0.2 million, or 0.4%,
compared to the 2004 third quarter. Consolidated operating income margin decreased 1.7 percentage
points from the prior-year third quarter. Consolidated operating income and the related margin
were negatively impacted by a $1.0 million charge related to our development efforts in
Pennsylvania, greater than expected construction disruption at Mountain High and increased
competitive pressures in our St. Charles market, which are more fully discussed elsewhere in this
report.
Consolidated operating income was also affected by an increase in depreciation expense.
Depreciation and amortization expense increased $2.4 million (12.9%) over the third quarter of
2004, primarily due to the increase in our depreciable assets resulting from the purchase of
new-generation, low-denomination slot product and $1.7 million in depreciation expense relating to
Mountain High.
Corporate expense increased $2.5 million compared to the prior-year third quarter. The
increase in corporate expense reflects the $1.0 million charge in connection with our pursuit of a
casino license in Philadelphia, Pennsylvania. Following an in-depth analysis of the Philadelphia
market, operational projections and construction cost estimates, we have determined that execution
of our core business strategy of developing first-class gaming and entertainment properties cannot
generate a sufficient return on our investment to justify proceeding with a casino license
application for Philadelphia at this time. We will continue to monitor governmental affairs for
developments relating to gaming taxes and other governmental charges that may produce a more
attractive market for investment.
During the third quarter of 2005, Ameristar Vicksburg increased operating income by $1.8
million, or 28.8%, over the third quarter of 2004. As discussed above, the improved financial
performance of this property is mostly attributable to the substantial increase in business volume
following the closure of the Gulf Coast casinos as a result of Hurricane Katrina. We expect the
property to continue to benefit until gaming capacity on the Gulf Coast is restored to a level
necessary to meet demand.
The St. Louis market has developed into a more competitive environment in response to which we
increased costs associated with marketing and promotional activities at Ameristar St. Charles. As
a result, Ameristar St. Charles experienced a 1.1 percentage point decrease in operating income
margin compared to the prior-year third quarter.
Ameristar Council Bluffs increased third quarter operating income by $1.8 million, or 13.8%,
compared to the prior-year period. The substantial increase in revenues at our Council Bluffs
property from the prior-year period enabled the property to increase its operating income margin by
2.2 percentage points. We continue to
-14-
benefit from significant construction disruption and a reduced number of available slot
machines at the competing racetrack casino. We believe that competition will intensify in this
market when the improvements at the racetrack casino are completed, which is expected to occur in
the first quarter of 2006.
For the quarter ended September 30, 2005, Mountain High had a $1.5 million operating loss.
Significant construction disruption due to the casino expansion project currently underway
materially affected Mountain Highs operating results during the third quarter, and we expect the
disruption to continue for the remainder of this year and through the first quarter of 2006.
Mountain High was also adversely affected during most of the third quarter of 2005 by the temporary
closure of a principal highway connecting Black Hawk and Denver.
Consolidated operating income for the nine months ended September 30, 2005 increased $7.4
million (6.1%) over the first nine months of 2004. Year-to-date operating income improved $5.2
million at Ameristar Kansas City, $4.7 million at Ameristar Council Bluffs, $4.0 million at
Ameristar Vicksburg and $1.8 million at the Jackpot Properties. We believe that the improvements
at these properties were attributable to the effective implementation of our core operating
strategies, particularly including cost-containment initiatives and revenue enhancement through the
deployment of new slot product. During the first nine months of 2005, operating income at
Ameristar St. Charles declined $2.0 million compared to the corresponding period in 2004, due
primarily to the increases in promotional spending, depreciation expense and employee benefits.
Year to date, corporate expense increased $7.7 million, or 27.1%, compared to the first nine
months of 2004. The increase was primarily the result of higher employee compensation, employee
benefits and professional fees and related costs associated with our development activities. For
the nine months ended September 30, 2005, development-related costs increased $3.1 million over the
same period in 2004. During the first nine months of 2005, corporate employee compensation and
benefits increased $3.6 million compared to the corresponding period in 2004.
Interest Expense
Consolidated interest expense, net of amounts capitalized, for the quarter ended September 30,
2005 increased $1.0 million, or 7.6%, over the 2004 third quarter, due primarily to a 0.7
percentage point rise in our average interest rate and, to a lesser extent, an increase in our
long-term debt level resulting from the $115.0 million borrowed in December 2004 to acquire
Mountain High. Consolidated net interest expense for the nine months ended September 30, 2005
increased $2.3 million, or 5.3%, compared to the same period in 2004. Year to date, the increases
in the average interest rate and long-term debt level were partially offset by a decrease in
interest expense resulting from the termination of our interest rate swap agreement on March 31,
2004 and an increase in capitalized interest of $2.2 million.
Income Taxes
Our effective income tax rate was 36.6% for the quarter ended September 30, 2005, compared to
37.2% for the same period in 2004. For the nine months ended September 30, 2005 and 2004, the
effective income tax rate was 37.0% and 39.0%, respectively. The federal income tax statutory rate
was 35% in all periods presented. Year to date, our effective state income tax rate decreased from
4.0% in 2004 to 2.0% in 2005. This decrease in the effective state income tax rate favorably
affected diluted earnings per share for the nine months ended September 30, 2005 by $0.03.
Net Income
For the third quarter of 2005, consolidated net income decreased $0.5 million, or 3.0%, from
the third quarter of 2004. Diluted earnings per share were $0.28 in the quarter ended September
30, 2005, compared to $0.30 in the corresponding prior-year quarter. Consolidated net income for
the nine months ended September 30, 2005
-15-
increased $4.5 million, or 9.4%, over the corresponding 2004 period. Diluted earnings per
share were $0.91 in the nine months ended September 30, 2005, compared to $0.86 in the first nine
months of 2004. Average diluted shares outstanding increased over the prior-year periods, in large
part due to the substantial increase in our stock price that resulted in increased dilution from
in-the-money employee stock options. The increase in average diluted shares adversely impacted
diluted earnings per share for the three months and nine months ended September 30, 2005 by $0.01
and $0.03, respectively. For the quarter and nine months ended September 30, 2005, other
non-operating expenses included losses on disposal of assets related to our Kansas City hotel
renovation project totaling $0.5 million and $1.7 million, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $152.7 million for the nine months ended
September 30, 2005, compared to $124.3 million for the same period of 2004. This increase is
primarily due to improvements in operating results, as discussed under Results of Operations
above.
Net cash used in investing activities was $125.3 million for the first nine months of 2005,
compared to $72.6 million for the corresponding prior-year period. During the first nine months of
2005, we incurred $132.2 million in capital expenditures, which included $39.7 million in capital
improvement projects underway at Mountain High, $14.9 million on the recently completed hotel room
renovations at our Kansas City property and $5.3 million on the completed Ameristar Council Bluffs
hotel room renovations. Additionally, we purchased $24.5 million in slot product and $47.8 million
for fixed assets relating to other capital maintenance and improvement projects. Although
operating performance has been negatively impacted by the construction disruption, we believe these
renovations and enhancements will further increase each propertys competitive position within
their respective markets upon completion.
We continue to make progress toward the completion of the first phase of capital improvements
at Mountain High. The expansion of the parking garage, which will nearly double the capacity to
1,550 parking spaces, will be completed in November 2005 and the remodeling of the casino and
non-gaming venues on the first floor will be substantially completed in December 2005. In February
2006, we expect to complete the second floor of the casino, which will include an additional 700
slot machines. The property will be rebranded as Ameristar Black Hawk in the second quarter of
2006. Additionally, in order to allow us to fully capitalize on the opportunities in the Black
Hawk market, we have expanded the scope of the hotel construction project by increasing the number
of rooms to be built from 400 to 537. The hotel project is planned to begin in early 2006 and is
expected to be completed in mid-2008. After giving effect to the increase in the scope of the
hotel project, we now expect the cost of our planned capital improvements at Mountain High to be
approximately $260 million, which will bring the total investment in the property to approximately
$380 million. We believe the quality and scope of our property will enable us to significantly
expand the market and become the market share leader in Black Hawk after these improvements are
completed.
At Ameristar St. Charles, we have commenced expansion activities for the construction of a
400-room all-suite luxury hotel, indoor/outdoor swimming pool and spa, an additional 2,000-space
parking garage and a 20,000-square foot conference center. The total cost of these projects is
expected to be approximately $240 million, with the projected completion dates ranging from the
second quarter of 2006 for the conference center to the fourth quarter of 2007 for the hotel. We
believe these planned improvements will allow us to further enhance our competitive position in the
St. Louis market, which should permit us to extend our market share leadership. We expect minimal
construction disruption to existing operations as these capital improvement projects are being
completed.
At Ameristar Vicksburg, we have commenced the first phase of our master expansion plan with
the construction of a new 1,083-space parking garage, which is expected to be completed by June
2006. In February 2006, we plan to commence an expansion of the casino vessel to allow for the
addition of up to 800 slot
-16-
machines. The expansion project will also include the addition of two restaurants, a new Star Club, a
poker room, a retail shop and other amenities. This project is slated for a September 2006
completion. However, in order to expand the casino vessel to the extent we plan, we will have to
permanently dry-dock the vessel in concrete, as permitted by a recent change in Mississippi law.
This project presents unique design and construction issues that we are currently evaluating with
prospective contractors. Accordingly, we cannot be sure that we will proceed with the entire
project as planned. The expected cost of all of our planned capital improvements at Ameristar
Vicksburg is approximately $90 million. These improvements will help alleviate capacity
constraints in terms of available parking and gaming positions, which we believe will allow us to
increase our market dominance in Vicksburg.
While we have decided to proceed on a number of internal capital expenditure projects, we will
continue to explore and pursue attractive development opportunities in new jurisdictions and
potential growth from acquisitions in an attempt to further diversify our assets and increase
shareholder value.
During the first nine months of 2004, we incurred $62.8 million of capital expenditures, which
included $29.1 million related to the purchase of slot machines and $33.7 million for other capital
improvement and renovation projects. Construction contracts payable decreased by $8.0 million
during the first nine months of 2004, mostly as a result of the close-out of the general contract
for the Ameristar St. Charles construction project completed in 2002.
Net cash used in financing activities was $31.2 million during the first nine months of 2005,
compared to $53.7 million for the nine months ended September 30, 2004. In 2005, we reduced our
long-term debt by approximately $34.0 million, including $26.0 million of prepayments on our senior
credit facilities and a $4.0 million prepayment of debt related to Ameristar Vicksburg. During the
first three quarters of 2005, the debt payments were partially offset by an August 2005 borrowing
of $10.0 million under the revolving credit facility. During the first nine months of 2004, we
repaid $47.7 million of long-term debt, including $45.0 million in prepayments on our senior credit
facilities. We received $6.2 million and $4.1 million in proceeds from employee stock option
exercises during the first nine months of 2005 and 2004, respectively.
On February 8, 2005, May 2, 2005 and August 15, 2005, our Board of Directors declared
quarterly cash dividends in the amount of $0.078125 per share, which we paid to stockholders on
March 15, 2005, June 20, 2005 and September 15, 2005, respectively. The cash dividends paid for
the nine months ended September 30, 2005 totaled $13.1 million. During the first nine months of
2004, cash dividend payments totaled $10.1 million.
At September 30, 2005, our principal debt outstanding consisted of $362.2 million under term
loan B-1 and the revolving credit facility of our senior secured credit facilities and $380.0
million in aggregate principal amount of 10.75% senior subordinated notes due 2009. At September
30, 2005, the amount of the $75.0 million revolving credit facility available for borrowing was
$59.3 million. At September 30, 2005, our total debt was $742.8 million, representing an increase
of $73.0 million from September 30, 2004.
All mandatory principal repayments have been made through September 30, 2005. We expect to
fund all remaining principal repayments in 2005 from cash flows from operating activities.
Significant principal repayments would be required on term loan B-1 in 2006; however, as noted
below, we are in the process of refinancing this debt.
We are required to comply with various affirmative and negative financial and other covenants
under the senior credit facilities and the indenture governing the senior subordinated notes. These
covenants include, among other things, restrictions on the incurrence of additional indebtedness,
restrictions on dividend payments and other restrictions, as well as requirements to maintain
certain financial ratios and tests. We amended the senior credit facilities in August 2005 to
increase the allowable cumulative dividend payments from $25.0 million to $32.5 million. As of
September 30, 2005 and December 31, 2004, we were in compliance with all applicable covenants.
-17-
Without any changes to, or the replacement of, the senior credit facilities, it is likely that
we would violate covenants relating to permitted capital expenditures for the year ended December
31, 2005. However, we are in the process of replacing the existing senior credit facilities. The
replacement senior secured credit facilities will include a $400.0 million seven-year term loan and
a five-year revolving credit facility with capacity for borrowing up to $800.0 million. The term
loan and the revolving credit facility will bear interest at a variable rate based, at our option,
on LIBOR (Eurodollar loans) or the prime rate (base rate loans), plus an applicable margin. The
refinancing will result in lower interest rate margins compared to our existing senior credit
facilities and will allow us to proceed with our currently planned capital improvement projects.
The replacement senior credit facilities are expected to be completed in November 2005.
In connection with the anticipated replacement of the senior credit facilities, we expect to
redeem all of the outstanding senior subordinated notes. The notes are redeemable beginning on
February 15, 2006 at 105.375% of the principal amount, plus accrued interest. We anticipate that
the early retirement of the senior subordinated notes with borrowings under the new senior credit
facilities will reduce our average interest rate and provide significant savings related to
interest expense, although it will result in a one-time charge for loss on early retirement of debt.
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. It is possible that our cash flows from operations, cash and cash
equivalents and availability under our senior credit facilities will not be able to support our
operations and liquidity requirements, including all of our currently planned capital expenditures.
If our existing sources of cash are insufficient to meet such needs, we will be required to seek
additional borrowings or scale back our capital plans. While we believe we will have access to
additional funds on attractive terms, we cannot provide assurance of that. Any loss from service of
our riverboat and barge facilities for any reason could materially adversely affect us, including
our ability to fund daily operations and to satisfy debt covenants. Our ability to borrow funds
under our senior credit facilities at any time is primarily dependent upon the amount of our
EBITDA, as defined for purposes of our senior credit facilities, for the preceding four fiscal
quarters. As of September 30, 2005, in addition to the $59.3 million available for borrowing under
the senior credit facilities, we had $82.8 million of cash and cash equivalents, approximately
$48.0 million of which were required for daily operations.
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 condensed 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,
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, 2004.
-18-
Recently Issued Accounting Standards
On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a
revision to SFAS No. 123. SFAS No. 123(R) supersedes APB No. 25 and amends SFAS No. 95, Statement
of Cash Flows. Among other items, SFAS No. 123(R) requires the recognition of compensation
expense in an amount equal to the fair value of share-based payments, including employee stock
options and restricted stock, granted to employees. We are required to adopt SFAS No. 123(R) no
later than January 1, 2006.
The adoption of SFAS No. 123(R) will have an impact on our results of operations, but it will
not have any impact on our overall financial position. We are currently evaluating the provisions
of SFAS No 123(R) to determine its impact on future financial statements. SFAS No. 123(R) also
requires the benefits of tax deductions in excess of recognized compensation cost to be reported as
a financing cash flow, rather than as an operating cash flow. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after adoption. We cannot
estimate what those amounts will be in the future because they depend on, among other things, when
employees exercise stock options.
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements, including the plans and
objectives of management for our business, operations and economic 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 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 facilities 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 1.
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, 2004
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 facilities. As of September
30, 2005, we had $362.2 million outstanding under our senior credit facilities, bearing interest at
variable rates. Other than the borrowings under the senior credit facilities at September 30, 2005
(Variable Rate Debt), all of our long-term debt bears interest at fixed rates. The Variable Rate
Debt 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. At September 30, 2005, the average
interest rate applicable to the Variable Rate Debt was 5.8%. An increase of one percentage point
in the average interest rate applicable to the Variable Rate Debt outstanding at September 30, 2005
would increase our annual interest cost by approximately $3.6 million. We continue to monitor
interest rate markets and may enter into interest rate
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collar or swap agreements or other derivative instruments in order to hedge our interest rate
exposure under the senior credit facilities as market conditions warrant.
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 President and 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 President and 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
President and Chief Executive Officer and our Chief Financial Officer, has evaluated our internal
control over financial reporting to determine whether any changes occurred during the third fiscal
quarter of 2005 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 third fiscal quarter of 2005.
PART II. OTHER INFORMATION
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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Eighth Amendment to Credit
Agreement, dated as of
August 10, 2005, among the
Registrant, the various
lenders party thereto and
Deutsche Bank Trust
Company Americas, as
Administrative Agent.
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Incorporated by reference to Exhibit
4.1 to the Registrants Current
Report on Form 8-K filed on August
12, 2005. |
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31.1
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Certification of Craig H.
Neilsen, Chairman,
President and Chief
Executive Officer,
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: November 9, 2005 |
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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