e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
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 is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-Accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of
August 4, 2008, 57,216,591 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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June 30, 2008 |
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December 31, |
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(Unaudited) |
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2007 |
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ASSETS
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Current Assets: |
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Cash and cash equivalents |
|
$ |
79,201 |
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$ |
98,498 |
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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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10,452 |
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8,112 |
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Income tax refunds receivable |
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13,539 |
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Inventories |
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7,908 |
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7,429 |
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Prepaid expenses |
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18,529 |
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|
12,501 |
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Deferred income taxes |
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2,150 |
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5,463 |
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Total current assets |
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124,665 |
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151,967 |
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Property and Equipment, at cost: |
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Buildings and improvements |
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1,630,312 |
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1,296,474 |
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Furniture, fixtures and equipment |
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499,291 |
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466,977 |
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2,129,603 |
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1,763,451 |
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Less: accumulated depreciation and amortization |
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(613,520 |
) |
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(568,354 |
) |
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1,516,083 |
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1,195,097 |
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Land |
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83,183 |
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83,190 |
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Construction in progress |
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121,817 |
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360,675 |
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Total property and equipment, net |
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1,721,083 |
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1,638,962 |
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Goodwill and other intangible assets |
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441,600 |
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570,682 |
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Deposits and other assets |
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62,637 |
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50,485 |
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TOTAL ASSETS |
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$ |
2,349,985 |
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$ |
2,412,096 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities: |
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Accounts payable |
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$ |
26,135 |
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$ |
21,009 |
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Construction contracts payable |
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45,895 |
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31,239 |
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Income taxes payable |
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436 |
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Accrued liabilities |
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128,655 |
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93,841 |
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Current maturities of long-term debt |
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4,256 |
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4,337 |
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Total current liabilities |
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205,377 |
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150,426 |
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Long-term debt, net of current maturities |
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1,618,490 |
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1,641,615 |
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Deferred income taxes |
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28,455 |
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75,172 |
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Deferred compensation and other long-term liabilities |
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42,047 |
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41,757 |
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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, $.01 par value: Authorized - 120,000,000 shares; Issued - 58,003,615 and
57,946,167 shares; Outstanding - 57,216,379 and 57,158,931 shares |
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580 |
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579 |
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Additional paid-in capital |
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241,186 |
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234,983 |
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Treasury stock, at cost (787,236 shares) |
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(17,674 |
) |
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(17,674 |
) |
Accumulated other comprehensive income |
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2,200 |
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Retained earnings |
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229,324 |
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285,238 |
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Total stockholders equity |
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455,616 |
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503,126 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
2,349,985 |
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$ |
2,412,096 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
-2-
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
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Three Months |
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Six Months |
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Ended June 30, |
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Ended June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues: |
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Casino |
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$ |
338,915 |
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$ |
251,348 |
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$ |
670,672 |
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$ |
510,343 |
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Food and beverage |
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40,515 |
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32,010 |
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80,886 |
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64,881 |
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Rooms |
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15,390 |
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7,260 |
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26,329 |
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13,872 |
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Other |
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10,109 |
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7,447 |
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19,686 |
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14,116 |
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|
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404,929 |
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298,065 |
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797,573 |
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603,212 |
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Less: promotional allowances |
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(76,832 |
) |
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(44,836 |
) |
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(144,708 |
) |
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(90,838 |
) |
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Net revenues |
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328,097 |
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|
253,229 |
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|
652,865 |
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512,374 |
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Operating Expenses: |
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Casino |
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157,954 |
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|
108,212 |
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|
313,497 |
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|
218,360 |
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Food and beverage |
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18,723 |
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17,021 |
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|
37,702 |
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33,482 |
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Rooms |
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3,198 |
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2,084 |
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5,728 |
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|
3,931 |
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Other |
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5,175 |
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4,896 |
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|
11,250 |
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|
9,417 |
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Selling, general and administrative |
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68,159 |
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|
53,984 |
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|
132,272 |
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|
106,293 |
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Depreciation and amortization |
|
|
26,609 |
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|
23,644 |
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|
52,129 |
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|
47,520 |
|
Impairment loss on assets |
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|
274 |
|
|
|
49 |
|
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|
129,339 |
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|
116 |
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Total operating expenses |
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280,092 |
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|
209,890 |
|
|
|
681,917 |
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|
419,119 |
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|
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|
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|
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Income (loss) from operations |
|
|
48,005 |
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|
|
43,339 |
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|
|
(29,052 |
) |
|
|
93,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other Income (Expense): |
|
|
|
|
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|
|
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|
|
|
|
|
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Interest income |
|
|
176 |
|
|
|
465 |
|
|
|
403 |
|
|
|
850 |
|
Interest expense, net |
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|
(15,762 |
) |
|
|
(11,122 |
) |
|
|
(37,814 |
) |
|
|
(22,465 |
) |
Net loss on disposition of assets |
|
|
(633 |
) |
|
|
(7 |
) |
|
|
(558 |
) |
|
|
(3 |
) |
Other |
|
|
525 |
|
|
|
(375 |
) |
|
|
(327 |
) |
|
|
(375 |
) |
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Income (Loss) Before Income Tax
Provision (Benefit) |
|
|
32,311 |
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|
|
32,300 |
|
|
|
(67,348 |
) |
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|
71,262 |
|
Income tax provision (benefit) |
|
|
15,289 |
|
|
|
15,030 |
|
|
|
(23,440 |
) |
|
|
30,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
17,022 |
|
|
$ |
17,270 |
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|
$ |
(43,908 |
) |
|
$ |
41,221 |
|
|
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Earnings (Loss) Per Share: |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic |
|
$ |
0.30 |
|
|
$ |
0.30 |
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|
$ |
(0.77 |
) |
|
$ |
0.72 |
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Diluted |
|
$ |
0.29 |
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|
$ |
0.30 |
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|
$ |
(0.77 |
) |
|
$ |
0.71 |
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Cash Dividends Declared Per Share |
|
$ |
0.11 |
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|
$ |
0.10 |
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$ |
0.21 |
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$ |
0.21 |
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Weighted-Average Shares Outstanding: |
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|
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|
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|
|
|
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|
Basic |
|
|
57,182 |
|
|
|
57,281 |
|
|
|
57,166 |
|
|
|
56,961 |
|
|
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Diluted |
|
|
57,893 |
|
|
|
58,518 |
|
|
|
57,166 |
|
|
|
58,304 |
|
|
|
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|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
-3-
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
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|
Six Months |
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|
Ended June 30, |
|
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|
2008 |
|
|
2007 |
|
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Cash Flows from Operating Activities: |
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|
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|
Net (loss) income |
|
$ |
(43,908 |
) |
|
$ |
41,221 |
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
52,129 |
|
|
|
47,520 |
|
Amortization of debt issuance costs and debt discounts |
|
|
1,055 |
|
|
|
691 |
|
Stock-based compensation expense |
|
|
5,527 |
|
|
|
5,734 |
|
Net change in deferred compensation liability |
|
|
1,513 |
|
|
|
(320 |
) |
Impairment loss on assets |
|
|
129,339 |
|
|
|
116 |
|
Net loss on disposition of assets |
|
|
558 |
|
|
|
3 |
|
Net change in deferred income taxes |
|
|
(42,283 |
) |
|
|
4,405 |
|
Excess tax benefit from stock option exercises |
|
|
(172 |
) |
|
|
(5,212 |
) |
Net change in swap fair value |
|
|
(725 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(2,340 |
) |
|
|
3,427 |
|
Income tax refunds receivable |
|
|
13,539 |
|
|
|
(4,635 |
) |
Inventories |
|
|
(479 |
) |
|
|
340 |
|
Prepaid expenses |
|
|
(6,028 |
) |
|
|
2,752 |
|
Accounts payable |
|
|
5,126 |
|
|
|
(3,843 |
) |
Income taxes payable |
|
|
608 |
|
|
|
|
|
Accrued liabilities |
|
|
28,947 |
|
|
|
5,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
142,406 |
|
|
|
97,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(135,263 |
) |
|
|
(127,010 |
) |
Increase (decrease) in construction contracts payable |
|
|
14,656 |
|
|
|
(1,684 |
) |
Proceeds from sale of assets |
|
|
788 |
|
|
|
32 |
|
Increase in deposits and other non-current assets |
|
|
(13,353 |
) |
|
|
(33,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(133,172 |
) |
|
|
(162,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Principal payments of debt |
|
|
(37,221 |
) |
|
|
(17,182 |
) |
Debt borrowings |
|
|
14,015 |
|
|
|
52,000 |
|
Cash dividends paid |
|
|
(6,002 |
) |
|
|
(11,691 |
) |
Proceeds from stock option exercises |
|
|
505 |
|
|
|
16,134 |
|
Excess tax benefit from stock option exercises |
|
|
172 |
|
|
|
5,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(28,531 |
) |
|
|
44,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
(19,297 |
) |
|
|
(20,386 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents Beginning of Period |
|
|
98,498 |
|
|
|
101,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents End of Period |
|
$ |
79,201 |
|
|
$ |
80,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
29,719 |
|
|
$ |
22,249 |
|
|
|
|
|
|
|
|
Cash paid for federal and state income taxes, net of refunds received |
|
$ |
4,173 |
|
|
$ |
31,406 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-4-
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Principles of consolidation and basis of presentation
The accompanying consolidated financial statements include the accounts of Ameristar Casinos,
Inc. (ACI) and its wholly owned subsidiaries (collectively, the Company). Through its
subsidiaries, the Company owns and operates eight casino properties in seven markets. The
Companys portfolio of casinos consists of: Ameristar St. Charles (serving greater St. Louis,
Missouri); Ameristar Kansas City (serving the Kansas City metropolitan area); Ameristar
Council Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar East Chicago (serving
the Chicagoland area); Ameristar Vicksburg (serving Jackson, Mississippi and Monroe, Louisiana);
Ameristar Black Hawk (serving the Denver, Colorado metropolitan area); and Cactus Petes and The
Horseshu in Jackpot, Nevada (serving Idaho and the Pacific Northwest). The Company views each
property as an operating segment and all such operating segments have been aggregated into one
reporting segment. All significant intercompany transactions have been eliminated.
The Company acquired Ameristar East Chicago (formerly known as Resorts East Chicago) on
September 18, 2007. Accordingly, the consolidated financial statements reflect operating results
for this property only for the three months and six months ended June 30, 2008.
The accompanying consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements do not include all of the disclosures required
by generally accepted accounting principles. However, they do contain all adjustments (consisting
of normal recurring adjustments) that, in the opinion of management, are necessary to present
fairly the Companys financial position, results of operations and cash flows for the interim
periods included therein. The interim results reflected in these financial statements are not
necessarily indicative of results to be expected for the full fiscal year.
Certain of the Companys accounting policies require that the Company apply significant
judgment in defining the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. The Companys judgments
are based in part on its historical experience, terms of existing contracts, observance of trends
in the gaming industry and information obtained from independent valuation experts or other outside
sources. There is no assurance, however, that actual results will conform to estimates. To
provide an understanding of the methodology the Company applies, significant accounting policies
and basis of presentation are discussed where appropriate in Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations of this Quarterly Report. In addition,
critical accounting policies and estimates are discussed in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and the notes to the Companys audited
consolidated financial statements included in its Annual Report on Form 10-K for the year ended
December 31, 2007.
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, 2007.
Note 2 Accounting pronouncements
Recently issued accounting pronouncements
In April 2008, the Financial Accounting Standards Board (FASB) issued Staff Position (FSP)
No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors
that should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized
-5-
intangible asset under FASB Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. This FSP is effective for fiscal years beginning after
December 15, 2008 and only applies prospectively to intangible assets acquired after the effective
date. Early adoption is not permitted. The Company believes this FSP, when adopted, will not
have a material impact on its financial position, results of operations or cash flows.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. The provisions will be effective as
of January 1, 2009. This statement requires enhanced disclosures about (i) how and why a company
uses derivative instruments, (ii) how it accounts for derivative instruments and related hedged
items under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and
(iii) how derivative instruments and related hedged items affect
a companys financial results. SFAS No. 161 also requires
several added quantitative disclosures in the financial statements.
The Company is in the process of evaluating the impact of this
standard; however, the
Company does not expect the adoption of SFAS No. 161
will have a material effect on its disclosures.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
No. 141(R)). SFAS No. 141(R) will significantly change the accounting for business combinations.
Under SFAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired
and liabilities assumed in a transaction at the acquisition-date fair value, with limited
exceptions. SFAS No. 141(R) will change the accounting treatment for certain specific
acquisition-related items, including: (1) expensing acquisition-related costs as incurred; (2)
valuing noncontrolling interests at fair value at the acquisition date; and (3) expensing
restructuring costs associated with an acquired business. SFAS No. 141(R) also includes a
substantial number of new disclosure requirements. SFAS No. 141(R) is to be applied prospectively
to business combinations for which the acquisition date is on or after January 1, 2009. The
Company expects SFAS No. 141(R) will have an impact on its accounting for future business
combinations once adopted, but the effect is dependent upon the acquisitions, if any, that are made
in the future.
Recently adopted accounting pronouncements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items at fair value,
with unrealized gains and losses related to these financial instruments reported in earnings at
each subsequent reporting date. The Company adopted the provisions of
SFAS No. 159, but chose not to elect the fair value option for eligible
items that existed at January 1, 2008. Accordingly, the Companys adoption of SFAS No. 159 did not
have a material impact on its financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, as amended in
February 2008 by FSP No. 157-2, Effective Date of FASB Statement No. 157. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157 clarifies how to
measure fair value as permitted under other accounting pronouncements, but does not require any new
fair value measurements. FSP No. 157-2 defers the effective date of SFAS No. 157 for all
nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis, until January 1, 2009. As such, the Company partially
adopted the provisions of SFAS No. 157 effective January 1,
2008, without any material impact to the Companys financial position, results of operations or cash flows. The Company expects to adopt the
remaining provisions of SFAS No. 157 beginning in 2009; however, the Company does not expect this
adoption to have a material impact on its financial position, results of operations or cash flows.
Note 3 Stockholders equity
Changes in stockholders equity for the six months ended June 30, 2008, were as follows:
-6-
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
Balance at
December 31, 2007 |
|
$ |
503,126 |
|
Net loss |
|
|
(43,908 |
) |
Dividends |
|
|
(12,006 |
) |
Stock-based compensation |
|
|
5,527 |
|
Proceeds from exercise of stock options |
|
|
505 |
|
Tax benefit from stock option exercises |
|
|
172 |
|
Change in accumulated other comprehensive income |
|
|
2,200 |
|
|
|
|
|
Balance at
June 30, 2008 |
|
$ |
455,616 |
|
|
|
|
|
Note 4 Earnings (loss) per share
The Company calculates earnings (loss) per share in accordance with SFAS No. 128, Earnings
Per Share. Basic earnings (loss) per share are computed by dividing reported earnings (loss) by
the weighted-average number of common shares outstanding during the period. For the three months
ended June 30, 2008 and for the 2007 periods presented, all outstanding options with an exercise
price lower than the market price have been included in the calculation of diluted earnings per
share. For the six months ended June 30, 2008, diluted loss per share excludes the additional
dilution from all potentially dilutive securities such as stock options.
The weighted-average number of shares of common stock and common stock equivalents used in the
computation of basic and diluted earnings (loss) per share consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
|
|
Weighted-average number of shares outstanding -
basic earnings (loss) per share |
|
|
57,182 |
|
|
|
57,281 |
|
|
|
57,166 |
|
|
|
56,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
711 |
|
|
|
1,237 |
|
|
|
|
|
|
|
1,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding -
diluted earnings (loss) per share |
|
|
57,893 |
|
|
|
58,518 |
|
|
|
57,166 |
|
|
|
58,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2008 and 2007, the potentially dilutive stock options
excluded from the earnings per share computation, as their effect would be anti-dilutive, totaled
3.8 million and 1.3 million, respectively. Anti-dilutive stock options for the six months ended
June 30, 2008 totaled 3.5 million. There were no anti-dilutive stock options for the six months
ended June 30, 2007.
Note 5 Goodwill and other intangible assets
As required under SFAS No. 142, the Company performs an annual assessment of its goodwill and
other intangible assets to determine if the carrying value exceeds the fair value. Additionally,
SFAS No. 142 requires an immediate impairment assessment if a change in circumstances can
materially negatively affect the fair value of the intangible assets. During the first quarter of
2008, the Company assessed its intangible assets at Ameristar East Chicago for impairment due to a
significant deterioration of the debt and equity capital markets, weakening economic conditions and
changes in the forecasted operations that materially affected the propertys fair value. As a
result, the Company recorded during the first quarter of 2008 a total
of $129.0 million in non-cash impairment charges relating to the
goodwill and gaming license acquired in the purchase of the East Chicago property. The impairment
charge reduced the carrying value of goodwill by $77.0 million and the gaming license by $52.0
million.
-7-
Note 6 Long-term debt
The Companys debt structure primarily consists of a $1.8 billion senior credit facility that
includes a $1.4 billion revolving loan facility maturing in November 2010 and a $400.0 million term
loan facility maturing in November 2012.
As of June 30, 2008, the principal debt outstanding under the senior credit facility consisted
of $1.2 billion under the revolving loan facility and $390.0 million under the term loan facility.
At June 30, 2008, the amount of the revolving loan facility available for borrowing was $163.6
million (after giving effect to $5.4 million of outstanding letters of credit); however, as of that
date the Companys ability to borrow under the revolving loan facility was limited to approximately
$46.0 million by the senior leverage ratio covenant described below. All mandatory principal
repayments have been made through June 30, 2008.
The agreement governing the senior credit facility requires the Company to comply with various
affirmative and negative financial and other covenants, including restrictions on the incurrence of
additional indebtedness, restrictions on dividend payments and other restrictions and requirements
to maintain certain financial ratios and tests. As of June 30, 2008, the Company was required to
maintain a leverage ratio, defined as consolidated debt divided by EBITDA, of no more than 6.25:1,
and a senior leverage ratio, defined as senior debt divided by EBITDA, of no more than 5.25:1. As
of June 30, 2008 and December 31, 2007, the Companys leverage ratio was 5.11:1 and 5.07:1,
respectively. The senior leverage ratio as of June 30, 2008 and December 31, 2007 was 5.10:1 and
5.07:1, respectively. As of June 30, 2008 and December 31, 2007, the Company was in compliance
with all applicable covenants.
Note 7 Derivative instruments and hedging activities
On
May 22, 2008, the Company entered into a forward interest rate swap with a
commercial bank to fix the interest rate on certain LIBOR-based
borrowings for a period of two years. The swap was designated
as an effective hedge on June 2, 2008 and became effective July 18,
2008. Pursuant to the
interest rate swap agreement, the Company is obligated to make quarterly fixed rate payments to the
counterparty at an annualized fixed rate of 3.1975%, calculated on a notional amount of $500.0
million, while the counterparty is obligated to make quarterly floating rate payments to the
Company based on three-month LIBOR for the same notional amount. The interest rate swap effectively
fixes the interest rate payable on $500.0 million of the Companys borrowings under its senior
revolving loan facility at 3.1975% plus the applicable margin, which is currently 1.75%.
The Company accounts for derivative instruments in accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended and interpreted. As required by
SFAS No. 133, the Company records all derivatives on the balance sheet at fair value. The
accounting for changes in the fair value of derivatives depends on the intended use of the
derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the
fair value of an asset, liability, or firm commitment attributable to a particular risk, such as
interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to
variability in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair
value of the derivative is initially reported in accumulated other comprehensive income on the
consolidated balance sheet and the ineffective portion of changes in the fair value of the derivative is
recognized directly in earnings. To the extent the effective portion
of a hedge subsequently becomes ineffective, the corresponding amount
of the change in fair value of the derivative initially reported in
accumulated other comprehensive income on the consolidated balance
sheet is reclassified and is recognized directly in earnings.
Accordingly, on a quarterly basis, the Company assesses the effectiveness of each hedging
relationship by comparing the changes in fair value or cash flows of the derivative hedging
instrument with the changes in fair value or cash flows of a
hypothetical designated hedged item or
transaction. If the change in the actual swap is greater than the
change in the perfect hypothetical swap, the difference is referred
to as ineffectiveness and is recognized in earnings in
the current period.
The Companys objective in using derivatives is to add stability to interest expense and to
manage its exposure to interest rate movements or other identified risks. To accomplish this
objective, the Company
-8-
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 fixed-rate payments in exchange for
variable-rate amounts over the life of the agreements without exchange of the underlying principal
amount. The Company does not use derivatives for trading or speculative purposes and currently
does not have any derivatives that are not designated as hedges. The Company may enter into
additional swap transactions or other interest rate protection agreements from time to time in the
future.
At June 30, 2008, the Companys interest rate swap had a fair value of $2.9 million and was
included in other assets. Hedge ineffectiveness of $0.2 million,
due to designation of effectiveness after the
trade date, was recognized in other income in the consolidated statements of operations during the
quarter and six months ended June 30, 2008. Additionally, the change in fair value of the swap
before it was designated as a hedge was $0.5 million and is included in other income in the
consolidated statements of operations for the three months and six months ended June 30, 2008.
Note 8 Stock-based compensation
The Company accounts for its stock-based compensation in accordance with SFAS No. 123(R),
Share-Based Payment.
Stock-based
compensation expense totaled $2.5 million and $2.9 million for the three months
ended June 30, 2008 and 2007, respectively. During the first six months of 2008 and 2007,
stock-based compensation expense was $5.5 million and $5.8 million, respectively. As of June 30,
2008, there was approximately $20.8 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
2.9 years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Weighted-average fair value per share of options
granted during the period (estimated on grant date
using Black-Scholes-Merton option pricing method) |
|
$ |
5.40 |
|
|
$ |
10.33 |
|
|
$ |
5.55 |
|
|
$ |
10.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility |
|
|
42.9 |
% |
|
|
35.9 |
% |
|
|
43.7 |
% |
|
|
36.3 |
% |
Risk-free interest rate |
|
|
3.5 |
% |
|
|
4.9 |
% |
|
|
3.3 |
% |
|
|
4.8 |
% |
Expected option life (years) |
|
|
4.2 |
|
|
|
3.9 |
|
|
|
4.2 |
|
|
|
4.0 |
|
Expected annual dividend yield |
|
|
2.7 |
% |
|
|
1.2 |
% |
|
|
2.6 |
% |
|
|
1.3 |
% |
-9-
Stock option activity during the six months ended June 30, 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
Aggregate |
|
|
|
|
|
|
Average |
|
Contractual |
|
Intrinsic |
|
|
Options |
|
Exercise |
|
Term |
|
Value |
|
|
(In Thousands) |
|
Price |
|
(Years) |
|
(In Thousands) |
Outstanding at December 31, 2007 |
|
|
5,632 |
|
|
$ |
21.91 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
38 |
|
|
|
17.47 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(55 |
) |
|
|
8.52 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(496 |
) |
|
|
23.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
5,119 |
|
|
$ |
21.84 |
|
|
|
4.7 |
|
|
$ |
4,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2008 |
|
|
2,618 |
|
|
$ |
17.81 |
|
|
|
4.1 |
|
|
$ |
4,752 |
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value
that would have been realized by the option holders had all option holders exercised their options
on June 30, 2008. The intrinsic value of a stock option is the excess of the Companys closing
stock price on June 30, 2008 over the exercise price, multiplied by the number of in-the-money
options. The total intrinsic value of options exercised during the six months ended June 30, 2008
and 2007 was $0.7 million and $14.2 million, respectively.
The following table summarizes the Companys unvested stock option activity for the six months
ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Shares |
|
Average |
|
|
(Amounts in |
|
Exercise Price |
|
|
Thousands) |
|
(per Share) |
Unvested at December 31, 2007 |
|
|
3,153 |
|
|
$ |
25.63 |
|
Granted |
|
|
38 |
|
|
|
17.47 |
|
Vested |
|
|
(239 |
) |
|
|
23.24 |
|
Forfeited |
|
|
(451 |
) |
|
|
23.84 |
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2008 |
|
|
2,501 |
|
|
$ |
26.05 |
|
The following table summarizes the Companys unvested restricted stock, restricted stock unit
and performance share unit activity for the six months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Shares/Units |
|
Average Grant |
|
|
(Amounts in |
|
Date Fair Value |
|
|
Thousands) |
|
(per Share/Unit) |
Unvested at December 31, 2007 |
|
|
437 |
|
|
$ |
27.02 |
|
Granted |
|
|
42 |
|
|
|
17.35 |
|
Vested |
|
|
(32 |
) |
|
|
20.77 |
|
Forfeited |
|
|
(64 |
) |
|
|
28.07 |
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2008 |
|
|
383 |
|
|
$ |
26.29 |
|
In July 2008, the Company granted 0.7 million stock options (at an exercise price of $12.57)
and 0.7 million restricted stock units to employees. The aggregate fair value of the July stock
option grants and the restricted stock unit grants was $2.8 million
and $8.9 million, respectively.
-10-
Note 9 Income taxes
In connection with the impairment of intangible assets at Ameristar East Chicago, the Company
recorded a deferred tax benefit of $52.3 million during the first quarter of 2008. The tax effect
of the impairment was also reflected in the effective tax rate for the first quarter of 2008.
As of June 30, 2008, unrecognized tax benefits and the related interest were $28.4 million and
$4.5 million, respectively, of which $1.7 million of tax and $3.0 million of interest would affect
the effective tax rate if recognized. During the six months ended June 30, 2008, the Company
recorded tax and interest related to uncertain tax positions of $0.5 million and $0.9 million,
respectively.
Note 10 Acquisition of Ameristar East Chicago
On September 18, 2007, the Company acquired all of the outstanding membership interests of RIH
Acquisitions IN, LLC, an Indiana limited liability company now known as Ameristar Casino East
Chicago, LLC (ACEC), from Resorts International Holdings, LLC. ACEC owns and operates the
Ameristar East Chicago casino and hotel in East Chicago, Indiana.
The pro forma consolidated results of operations, as if the acquisition of Ameristar East
Chicago had occurred on January 1, 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2007 |
|
June 30, 2007 |
|
|
(Amounts in Thousands, Except Per Share Data) |
Pro Forma |
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
323,829 |
|
|
$ |
660,859 |
|
Operating income |
|
$ |
51,897 |
|
|
$ |
112,427 |
|
Net income |
|
$ |
14,852 |
|
|
$ |
37,599 |
|
Basic earnings per common share |
|
$ |
0.26 |
|
|
$ |
0.66 |
|
Diluted earnings per common share |
|
$ |
0.25 |
|
|
$ |
0.64 |
|
The pro forma consolidated results of operations are not necessarily indicative of what the
actual consolidated results of operations of the Company would have been assuming the transaction
had been completed as set forth above, nor do they purport to represent the Companys consolidated
results of operations for future periods.
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 medical coverage. Insurance claims and reserves include
accruals of estimated settlements for known claims, as well as accrued estimates of incurred but
not reported claims. At June 30, 2008 and December 31, 2007, the estimated liabilities for unpaid
and incurred but not reported claims totaled $12.0 million and $12.1 million, respectively. The
Company utilizes actuaries who consider historical loss experience and certain unusual claims in
estimating these liabilities, based upon statistical data provided by the independent
-11-
third party
administrators of the various programs. The Company believes the use of this method to account for
these liabilities provides a consistent and effective way to measure these highly judgmental
accruals; however, changes in health care costs, accident or illness frequency and severity and
other factors can materially affect the estimates for these liabilities.
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, Iowa, Indiana, 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 metropolitan area);
Ameristar Council Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar East Chicago
(serving the Chicagoland area); Ameristar Vicksburg (serving Jackson, Mississippi and Monroe,
Louisiana); Ameristar Black Hawk (serving the Denver, Colorado metropolitan area); and Cactus Petes
and The Horseshu in Jackpot, Nevada (serving Idaho and the Pacific Northwest).
We acquired Ameristar East Chicago (formerly Resorts East Chicago) on September 18, 2007.
Accordingly, operating results are included for this property only for the three months and six
months ended June 30, 2008.
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:
|
|
|
Slots handle/Table games drop measurements of gaming volume; |
|
|
|
|
Win/Hold percentages the percentage of handle or drop that is won by the casino
and recorded as casino revenue; |
|
|
|
|
Hotel occupancy rate the average percentage of available hotel rooms occupied
during a period; |
|
|
|
|
Average daily room rate average price of occupied hotel rooms per day; |
|
|
|
|
REVPAR revenue per available room is a summary measure of hotel results that
combines average daily room rate and hotel occupancy rate; |
|
|
|
|
Market share 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); |
|
|
|
|
Fair share percentage a percentage of gross gaming revenues based on the number
of gaming positions relative to the total gaming positions in the market; and |
|
|
|
|
Win per patron the amount of gaming revenues generated per patron who enters our
casinos in jurisdictions that record this information. |
Our operating results may be affected by, among other things, competitive factors, gaming tax
increases, the commencement of new gaming operations, charges associated with debt refinancing or
property acquisition and disposition transactions, construction at existing facilities, general
public sentiment regarding travel, overall economic conditions affecting the disposable income of
our patrons and weather conditions affecting our properties. Consequently, our operating results
for any quarter or year are not necessarily comparable and may not be indicative of future periods
results.
-12-
The following significant factors and trends should be considered in analyzing our operating
performance:
|
|
|
Ameristar St. Charles Hotel. The 400-suite hotel, spa and indoor/outdoor pool were
substantially completed by the end of the second quarter. The St. Charles propertys
second quarter net revenues increased $3.6 million over the 2007 second quarter, primarily
as a result of the new hotel. However, operating income decreased $1.3 million from the
prior-year second quarter due to higher costs associated with operating the hotel and other
recently added amenities. Ameristar St. Charles regained, and has maintained, the number
one market share position following the opening of the first 100 guest suites in late
January 2008. |
|
|
|
|
Ameristar Vicksburg Expansion. We substantially completed the casino expansion and the
new 1,000-space parking garage at our Vicksburg property in late May 2008, one month ahead
of schedule. As a result of this project, we further strengthened our dominant market
share position and achieved 50.6 percent market share in June, an increase of 2.7
percentage points over our May market share. Since the opening of the garage and casino
expansion, a new VIP lounge was completed in July and two additional restaurants are
scheduled to open by this fall. Additionally, we are planning a limited refurbishment of
the existing casino that is expected to be completed later this year at a cost of
approximately $6 million. |
|
|
|
|
Ameristar East Chicago Rebranding. We rebranded our East Chicago property to
Ameristar on June 24, 2008, following the completion of a number of enhancements to the
property, including improved food and beverage offerings. The casino floor was remodeled
to include a new design and layout as well as an enhanced mix of games. We also introduced
our Ameristar Star Awards players program to guests. The total cost of the rebranding
renovations and related promotional and other expenses is approximately $30 million, of
which approximately $2.8 million has been expensed in 2008. Second quarter 2008 market
share increased 1.8 percentage points on a year-over-year basis. |
|
|
|
|
General Economic Conditions; Colorado Smoking Ban Impact. We believe the current
softness in the United States economy began to adversely impact our business in mid-2007.
On a same-store basis, in the first six months of 2008 our consolidated net revenues and
operating income declined 1.8% and 12.4%, respectively, from the same period in 2007.
During the first half of 2008, gross gaming revenues for the Black Hawk, Jackpot and
Vicksburg markets contracted 10.4%, 4.2% and 2.2%, respectively, when compared to the first
six months of 2007. We believe the increase in energy prices has adversely impacted all
our properties as it has reduced the discretionary income of our customers and deterred
potential customers from traveling to our properties in the more remote markets. In
addition to the general downturn in the economy, we believe the Black Hawk market was
negatively affected by a statewide smoking ban that became effective for casino floors on
January 1, 2008. |
|
|
|
|
Workforce Reductions. In July 2008, we implemented a strategic plan to improve
efficiencies and reduce our cost structure as weak economic conditions continue to
adversely impact business volumes. As a result, we recently terminated 244 team members,
or approximately 3% of our workforce. We have further reduced our workforce by the
equivalent of an additional 150 full-time positions through changes in scheduling and
staffing practices and attrition. We have also restructured the
organization of our property management teams to be
more efficient and streamlined. These actions are expected to produce annualized savings
of approximately $20 million, which is 6% of our compensation expense for the twelve months
ended June 30, 2008. This workforce reduction will result in a pre-tax charge to our third
quarter 2008 earnings of approximately $2.0 million for severance costs. |
|
|
|
|
Promotional Spending. Financial results for the second quarter of 2008 were adversely
impacted by a |
-13-
|
|
|
significant increase in promotional spending. Same-store promotional
allowances increased 29.7% over the prior-year second quarter as a result of an aggressive
companywide marketing program designed to capture profitable incremental revenue and our
efforts to introduce gaming customers to the new hotel
and spa in St. Charles. The marketing program was ineffective in the current economic
downturn, and as a result we began to curtail promotional spending commencing in the third
quarter, and more significant reductions will occur in the fourth quarter of 2008. |
|
|
|
|
Debt and Interest Expense. At June 30, 2008, total debt was $1.6 billion, a decrease of
$23.2 million from December 31, 2007. During the second quarter of 2008, net borrowings
under our senior credit facilities totaled $3.0 million. Our total debt leverage ratio
increased from 5.07:1 as of December 31, 2007 to 5.11:1 at June 30, 2008, due primarily to
a decline in EBITDA, as defined in our senior credit facilities, over the four preceding
fiscal quarters. During the first half of 2008, our net interest expense increased 68.3%
from the first six months of 2007, due primarily to a higher debt balance and increased
interest rate margins (add-ons) applicable to our senior debt following our financing of
the Ameristar East Chicago acquisition. Effective July 18, 2008, we entered into a
two-year interest rate swap agreement with a commercial bank to add stability to interest
expense and manage our exposure to interest rate movements on our variable-rate debt. The
interest rate swap effectively fixes the interest rate on $500.0 million of LIBOR-based
borrowings under our senior revolving loan facility at 3.1975% plus the applicable margin,
which is currently 1.75%. We expect the swap to be highly effective (as defined under
applicable accounting literature) as a cash flow hedging instrument and, therefore, the
value of the swap (net of tax) will be primarily recorded as accumulated other
comprehensive income as part of stockholders equity. |
-14-
Results of Operations
The following table sets forth certain information concerning our consolidated cash flows and
the results of operations of our operating properties:
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
70,480 |
|
|
$ |
39,689 |
|
|
$ |
142,406 |
|
|
$ |
97,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(73,290 |
) |
|
$ |
(97,293 |
) |
|
$ |
(133,172 |
) |
|
$ |
(162,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) financing activities |
|
$ |
3,112 |
|
|
$ |
43,363 |
|
|
$ |
(28,531 |
) |
|
$ |
44,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
75,332 |
|
|
$ |
71,737 |
|
|
$ |
147,015 |
|
|
$ |
145,513 |
|
Ameristar Kansas City |
|
|
61,935 |
|
|
|
63,019 |
|
|
|
123,863 |
|
|
|
127,590 |
|
Ameristar Council Bluffs |
|
|
44,722 |
|
|
|
44,037 |
|
|
|
90,233 |
|
|
|
90,054 |
|
Ameristar Vicksburg |
|
|
33,420 |
|
|
|
33,302 |
|
|
|
67,106 |
|
|
|
68,625 |
|
Ameristar East Chicago(1) |
|
|
74,470 |
|
|
|
|
|
|
|
149,822 |
|
|
|
|
|
Ameristar Black Hawk |
|
|
20,405 |
|
|
|
22,761 |
|
|
|
40,678 |
|
|
|
44,892 |
|
Jackpot Properties |
|
|
17,813 |
|
|
|
18,373 |
|
|
|
34,148 |
|
|
|
35,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenues |
|
$ |
328,097 |
|
|
$ |
253,229 |
|
|
$ |
652,865 |
|
|
$ |
512,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
15,305 |
|
|
$ |
16,630 |
|
|
$ |
30,878 |
|
|
$ |
34,835 |
|
Ameristar Kansas City |
|
|
12,683 |
|
|
|
12,610 |
|
|
|
25,507 |
|
|
|
26,956 |
|
Ameristar Council Bluffs |
|
|
12,744 |
|
|
|
12,098 |
|
|
|
24,780 |
|
|
|
24,686 |
|
Ameristar Vicksburg |
|
|
9,601 |
|
|
|
10,902 |
|
|
|
20,763 |
|
|
|
23,690 |
|
Ameristar East Chicago(1) |
|
|
8,010 |
|
|
|
|
|
|
|
(110,781 |
) |
|
|
|
|
Ameristar Black Hawk |
|
|
2,783 |
|
|
|
4,515 |
|
|
|
5,598 |
|
|
|
8,856 |
|
Jackpot Properties |
|
|
3,218 |
|
|
|
3,711 |
|
|
|
5,716 |
|
|
|
7,037 |
|
Corporate and other |
|
|
(16,339 |
) |
|
|
(17,127 |
) |
|
|
(31,513 |
) |
|
|
(32,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss) |
|
$ |
48,005 |
|
|
$ |
43,339 |
|
|
$ |
(29,052 |
) |
|
$ |
93,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) Margins(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
|
20.3 |
% |
|
|
23.2 |
% |
|
|
21.0 |
% |
|
|
23.9 |
% |
Ameristar Kansas City |
|
|
20.5 |
% |
|
|
20.0 |
% |
|
|
20.6 |
% |
|
|
21.1 |
% |
Ameristar Council Bluffs |
|
|
28.5 |
% |
|
|
27.5 |
% |
|
|
27.5 |
% |
|
|
27.4 |
% |
Ameristar Vicksburg |
|
|
28.7 |
% |
|
|
32.7 |
% |
|
|
30.9 |
% |
|
|
34.5 |
% |
Ameristar East Chicago(1) |
|
|
10.8 |
% |
|
|
|
|
|
|
(73.9 |
%) |
|
|
|
|
Ameristar Black Hawk |
|
|
13.6 |
% |
|
|
19.8 |
% |
|
|
16.7 |
% |
|
|
19.7 |
% |
Jackpot Properties |
|
|
18.1 |
% |
|
|
20.2 |
% |
|
|
16.2 |
% |
|
|
19.7 |
% |
Consolidated operating income (loss)
margin |
|
|
14.6 |
% |
|
|
17.1 |
% |
|
|
(4.4 |
%) |
|
|
18.2 |
% |
|
|
|
(1) |
|
Ameristar East Chicago was acquired on September 18, 2007. Accordingly,
operating results for this property are included only for the three months and six
months ended June 30, 2008. |
|
(2) |
|
Operating income (loss) margin is operating income (loss) as a
percentage of net revenues. |
-15-
The following table presents detail of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Amounts in Thousands) |
|
|
|
(Unaudited) |
|
Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slots |
|
$ |
297,702 |
|
|
$ |
224,893 |
|
|
$ |
585,969 |
|
|
$ |
456,143 |
|
Table games |
|
|
37,130 |
|
|
|
23,585 |
|
|
|
76,114 |
|
|
|
48,189 |
|
Other |
|
|
4,083 |
|
|
|
2,870 |
|
|
|
8,589 |
|
|
|
6,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenues |
|
|
338,915 |
|
|
|
251,348 |
|
|
|
670,672 |
|
|
|
510,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage |
|
|
40,515 |
|
|
|
32,010 |
|
|
|
80,886 |
|
|
|
64,881 |
|
Rooms |
|
|
15,390 |
|
|
|
7,260 |
|
|
|
26,329 |
|
|
|
13,872 |
|
Other |
|
|
10,109 |
|
|
|
7,447 |
|
|
|
19,686 |
|
|
|
14,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenues |
|
|
66,014 |
|
|
|
46,717 |
|
|
|
126,901 |
|
|
|
92,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Promotional Allowances |
|
|
(76,832 |
) |
|
|
(44,836 |
) |
|
|
(144,708 |
) |
|
|
(90,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
328,097 |
|
|
$ |
253,229 |
|
|
$ |
652,865 |
|
|
$ |
512,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
Consolidated net revenues for the quarter ended June 30, 2008 increased $74.9 million, or
29.6%, over the second quarter of 2007. The increase in consolidated net revenues was primarily
attributable to Ameristar East Chicago, which contributed $74.5 million and was not owned by the
Company during the second quarter of 2007. For the three months ended June 30, 2008, net revenues
increased 5.0% at Ameristar St. Charles and 1.6% at Ameristar Council Bluffs compared to the same
period in 2007. Our St. Charles propertys net revenue improvement was mostly due to the
completion of the hotel during the second quarter. Our Council Bluffs property benefited from
operating in a market that appears to be withstanding the difficult economy better than most other
markets, as evidenced by market growth of 2.4% over the 2007 second quarter without any change in
the competitive environment. Net revenues were flat at Ameristar Vicksburg and declined at each of
the other properties when compared to the prior-year second quarter. We believe Ameristar Black
Hawks 10.4% decline in net revenues from the 2007 second quarter was mostly attributable to the
statewide smoking ban that became effective for casino floors on January 1, 2008, the soft economic
conditions and high fuel prices.
During the three months ended June 30, 2008, consolidated promotional allowances increased
$32.0 million (71.4%) over the comparable 2007 period. Ameristar East Chicagos promotional
allowances were $18.7 million, representing 58.4% of the consolidated increase from the prior-year
second quarter. The rise in promotional allowances on a same-store basis was primarily the result
of the aggressive marketing program initiated in the second quarter of 2008 and the promotional
activity associated with our new hotel in St. Charles. We are curtailing our promotional spending
beginning in the third quarter of 2008 as described above.
For the six months ended June 30, 2008, consolidated net revenues grew by $140.5 million, or
27.4%, from the corresponding 2007 period. Ameristar East Chicagos net revenues were $149.8
million for the six-month period ended June 30, 2008. During the first six months of 2008, an
increase in net revenues of 1.0% at Ameristar St. Charles was more than offset by net revenue
declines from the same prior-year period of 9.4% at Ameristar
-16-
Black Hawk, 4.3% at our Jackpot properties, 2.9% at Ameristar Kansas City and 2.2% at
Ameristar Vicksburg. We believe the weakening economic conditions, including rising fuel prices
and shrinking discretionary income, and the Colorado smoking ban adversely impacted financial
results throughout the first half of 2008.
For the six months ended June 30, 2008, consolidated promotional allowances increased 59.3%
over the same 2007 period as a result of the factors mentioned above.
Operating Income (Loss)
In the second quarter of 2008, consolidated operating income increased $4.7 million, or 10.8%,
from the second quarter of 2007. Excluding Ameristar East Chicagos second quarter 2008 operating
income of $8.0 million, same-store operating income decreased $3.3 million, or 7.7%, from the
prior-year second quarter. For the three months ended June 30, 2008, consolidated operating income
margin declined 2.5 percentage points compared to the second quarter of 2007. The inclusion of the
East Chicago property negatively impacted the consolidated operating income margin due to the
higher gaming tax rate in Indiana compared to the other jurisdictions in which we operate. On a
same-store basis, operating income margin decreased 1.3 percentage points compared to the 2007
second quarter. We believe the decline in operating income and the related margin mostly resulted
from the impact of the weakening economy and higher fuel prices on our gaming revenues and the
increased promotional spending mentioned above.
For the three months ended June 30, 2008, corporate expense declined $0.8 million year over
year, due mostly to decreases in employee benefit costs and professional fees, which were partially
offset by a $1.8 million increase in severance pay primarily associated with our senior management
changes in early June 2008, as well as expenses related to ballot initiatives in Missouri and
Colorado.
For the six months ended June 30, 2008 we incurred an operating loss of $29.1 million,
compared to operating income of $93.3 million for the same prior-year period. The decrease is
primarily attributable to the $129.0 million non-cash impairment charge recorded in the first
quarter of 2008 relating to East Chicagos intangible assets. On a same-store basis, consolidated
operating income declined $11.5 million, or 12.4%, when compared to the first half of 2007 for the
reasons mentioned above.
Interest Expense
The following table summarizes information related to interest on our long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in Thousands) |
|
Interest cost |
|
$ |
19,942 |
|
|
$ |
15,693 |
|
|
$ |
48,261 |
|
|
$ |
30,579 |
|
Less: Capitalized interest |
|
|
(4,180 |
) |
|
|
(4,571 |
) |
|
|
(10,447 |
) |
|
|
(8,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
15,762 |
|
|
$ |
11,122 |
|
|
$ |
37,814 |
|
|
$ |
22,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net
of amounts capitalized |
|
$ |
6,162 |
|
|
$ |
10,998 |
|
|
$ |
29,719 |
|
|
$ |
22,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average total debt
outstanding |
|
$ |
1,627,756 |
|
|
$ |
906,784 |
|
|
$ |
1,636,727 |
|
|
$ |
900,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
4.8 |
% |
|
|
6.8 |
% |
|
|
5.8 |
% |
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
For the quarter ended June 30, 2008, consolidated interest expense, net of amounts
capitalized, increased $4.6 million (41.7%) from the 2007 second quarter. The increase was due
primarily to the greater weighted-average total debt outstanding principally related to the
acquisition of the East Chicago property in the third quarter of 2007, offset slightly by a two
percentage-point decrease in the weighted-average quarterly interest rate.
Year to date, consolidated interest expense, net of amounts capitalized, increased $15.3
million (68.3%) from the first half of 2007. The increase mostly resulted from the larger debt
balance during the first six months of 2008 compared to the same 2007 period. We expect
capitalized interest will decline relative to prior-year periods for the foreseeable future
primarily due to the recent completion of several of our major construction projects.
Income Taxes
Our effective income tax rate was 47.3% for the quarter ended June 30, 2008, compared to 46.5%
for the same period in 2007. The income tax benefit was $23.4 million for the six months ended
June 30, 2008, as compared to a provision of $30.0 million for the same period in 2007. For the
six months ended June 30, 2008 and 2007, our effective income tax rates were 34.8% and 42.2%,
respectively. Excluding the impact of the intangible asset impairment at Ameristar East Chicago,
the effective tax rate for the six months ended June 30, 2008 would have been 46.5%, representing a
4.3 percentage-point increase over the effective tax rate for the first half of 2007. This
increase was mostly attributable to the impact of the higher effective Indiana state tax rate on
the blended consolidated effective tax rate.
Net Income (Loss)
For the three months ended June 30, 2008, consolidated net income decreased $0.2 million, or
1.4%, from the second quarter of 2007. Diluted earnings per share were $0.29 in the quarter ended
June 30, 2008, compared to $0.30 in the corresponding prior-year quarter. For the six months ended
June 30, 2008 and 2007, we reported a net loss of $43.9 million and net income of $41.2 million,
respectively. The decrease is primarily due to the $129.0 million East Chicago impairment charge
and the declines in same-store revenues and operating margins as discussed above. The impairment
charge affected net income by $83.9 million (calculated using the federal statutory tax rate of
35%). Diluted loss per share was $0.77 for the first half of 2008, compared to earnings per share
of $0.71 in the corresponding prior-year period.
-18-
Liquidity and Capital Resources
Cash Flows Summary
Our cash flows consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In Thousands) |
|
Net cash provided by operating activities |
|
$ |
142,406 |
|
|
$ |
97,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(135,263 |
) |
|
|
(127,010 |
) |
Increase (decrease) in construction contracts payable |
|
|
14,656 |
|
|
|
(1,684 |
) |
Proceeds from sale of assets |
|
|
788 |
|
|
|
32 |
|
Increase in deposits and other non-current assets |
|
|
(13,353 |
) |
|
|
(33,579 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(133,172 |
) |
|
|
(162,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Principal payments of debt |
|
|
(37,221 |
) |
|
|
(17,182 |
) |
Debt borrowings |
|
|
14,015 |
|
|
|
52,000 |
|
Cash dividends paid |
|
|
(6,002 |
) |
|
|
(11,691 |
) |
Proceeds from stock option exercises |
|
|
505 |
|
|
|
16,134 |
|
Excess tax benefit from stock option exercises |
|
|
172 |
|
|
|
5,212 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(28,531 |
) |
|
|
44,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
$ |
(19,297 |
) |
|
$ |
(20,386 |
) |
|
|
|
|
|
|
|
Our business is primarily conducted on a cash basis. Accordingly, operating cash flows tend
to follow trends in our operating income. The increase in operating cash flows from 2007 to 2008
was mostly attributable to the improvement in consolidated operating income (excluding the non-cash
impact of the East Chicago impairment charge) and our receipt of a $10.0 million federal income tax
refund.
Capital expenditures during the first half of 2008 were primarily related to the hotel project
at Ameristar Black Hawk ($40.0 million), our expansion at Ameristar Vicksburg ($33.5 million), the
Ameristar St. Charles hotel and expansion ($18.7 million) and the acquisition of slot product at
all our properties ($14.0 million).
Capital expenditures during the first half of 2007 were primarily related to our hotel and
expansion project at Ameristar St. Charles ($66.6 million), the Ameristar Black Hawk hotel project
($14.6 million) and our expansion at Ameristar Vicksburg ($8.0 million).
At Ameristar St. Charles, we substantially completed construction of the 400-room, all-suite
hotel with an indoor/outdoor pool and a 7,000 square-foot, full-service spa by the end of the
second quarter 2008.
We substantially completed the $100 million casino expansion and the new 1,000-space parking
garage at our Vicksburg property in late May 2008, one month ahead of schedule. Since the opening
of the garage and casino expansion, a new VIP lounge was completed in July and two additional
restaurants are scheduled to open by this fall. Additionally, we are planning a limited
refurbishment of the existing casino that is expected to be completed later this year at a cost of
approximately $6 million.
The
construction of our AAA four-diamond-quality hotel is progressing at Ameristar Black Hawk.
The 33-story towers 536 well-appointed, oversized rooms will feature upscale furnishings and
amenities. The tower will
-19-
include a versatile meeting and ballroom center and will also have Black Hawks only
full-service spa, an enclosed rooftop swimming pool and indoor/outdoor whirlpool facilities. Once
completed, Ameristar Black Hawk will offer destination resort amenities and services that we
believe are unprecedented in the Denver gaming market. The hotels completion date is expected to
be in the fall of 2009, and the cost of the hotel is expected to be between $235 million and $240
million.
A renovation of the Cactus Petes hotel was completed in May 2008 at a cost of approximately
$16 million.
During each of the initial two quarters of 2008 and 2007, our Board of Directors declared
quarterly cash dividends in the amount of $0.105 per share and $0.1025 per share, respectively.
Our debt structure primarily consists of a $1.8 billion senior credit facility that includes a
$1.4 billion revolving loan facility maturing in November 2010 and a $400.0 million term loan
facility maturing in November 2012.
As of June 30, 2008, the principal debt outstanding under the senior credit facility consisted
of $1.2 billion under the revolving loan facility and $390.0 million under the term loan facility.
At June 30, 2008, the amount of the revolving loan facility available for borrowing was $163.6
million (after giving effect to $5.4 million of outstanding letters of credit); however, as of that
date our ability to borrow under the revolving loan facility was limited to approximately $46.0
million by the senior leverage ratio coverage described below. All mandatory principal repayments
have been made through June 30, 2008.
In July 2008, we borrowed an additional $30.0 million under our revolving loan facility.
The agreement governing the senior credit facility requires us to comply with various
affirmative and negative financial and other covenants, including restrictions on the incurrence of
additional indebtedness, restrictions on dividend payments and other restrictions and requirements
to maintain certain financial ratios and tests. As of June 30, 2008 and December 31, 2007, we were
in compliance with all applicable covenants.
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, or if we fail to remain in compliance with the covenants applicable to our senior
credit facilities, we will be required to seek additional financing that would have
significantly less attractive terms than our senior credit facilities, scale back our capital
plans, reduce or eliminate our dividend payments and/or seek an amendment to the senior credit
facilities. Without any change to our senior credit facilities or obtaining subordinated debt, we
may exceed the maximum permitted senior leverage ratio in 2008. We anticipate that any amendment
to the senior credit facilities would result in additional costs and/or fees. 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.
As noted above, we had $163.6 million available for borrowing under the senior credit
facilities at June 30, 2008; however, our ability to borrow under the senior credit facilities at
any time is limited based upon, among other restrictions, our senior
leverage ratio (defined as senior debt divided by EBITDA), which can be no more than 5.25:1 through
March 31, 2009 and must be maintained at lower levels thereafter through the maturity of the senior
credit facilities. As of June 30, 2008, our senior leverage
ratio was 5.10:1. Under certain
circumstances, the senior credit facilities permit us to incur subordinated note indebtedness of up
to $500 million and secured purchase money indebtedness of up to $25 million, subject to the
maintenance of required leverage ratios. In addition to the availability under the senior credit
facilities, we had $79.2 million of cash and cash equivalents at June 30, 2008, approximately $65.0
million of which were required for daily operations.
-20-
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, 2007.
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 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 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 1A.
Business Risk Factors and Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2007
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. The senior credit
facilities bear interest equal to LIBOR (in the case of Eurodollar loans) or the prime interest
rate (in the case of base rate loans), plus an applicable margin, or add-on. As of June 30,
2008, we had $1.6 billion outstanding under our senior credit facilities, bearing interest at
variable rates based on LIBOR rates with maturities up to five months from that date. At June 30,
2008, the average interest rate applicable to the senior credit facilities outstanding was 4.6%.
-21-
During the second quarter, in order to hedge against increases in variable interest rates, we
entered into an interest rate swap agreement with a commercial bank counterparty, effective
July 18, 2008, pursuant to which we are obligated to make quarterly fixed rate payments to the
counterparty at an annualized fixed rate of 3.1975%, calculated on a notional amount of $500.0
million, while the counterparty is obligated to make quarterly floating rate payments to us based
on three-month LIBOR for the same notional amount. The interest rate swap effectively fixes the
interest rate payable on $500.0 million of borrowings under our senior revolving loan facility at
3.1975% plus the applicable margin. The swap agreement terminates on July 18, 2010 and had a fair
value of $2.9 million at June 30, 2008. (See Note 7 Derivative instruments and hedging
activities of Notes to Consolidated Financial Statements for more discussion of the interest rate
swap.)
Assuming no change in our loan elections under our credit facility, an increase of one
percentage point in LIBOR for all relevant maturities after June 30, 2008 would increase our annual
interest cost (and decrease pre-tax earnings) by approximately $11.2 million.
The decision to enter into the swap agreement was based on an analysis of risks to the Company
presented by possible changes in interest rates and the financial instruments available to manage
those risks. We continue to monitor interest rate markets and, in order to control interest rate
risk, may enter into additional interest rate swap or collar agreements or other derivative
instruments as market conditions warrant. We may also refinance a portion of our variable rate
debt through the issuance of long-term fixed-rate securities. We do not use derivatives for
trading or speculative purposes.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the
Exchange Act), the Companys management, including our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this Quarterly Report. Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of the end of
the period covered by this Quarterly Report.
(b) Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, the Companys management, including our
Chief Executive Officer and our Chief Financial Officer, has evaluated our internal control over
financial reporting to determine whether any changes occurred during the second fiscal quarter of
2008 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on that evaluation, there has been no such change during
the second fiscal quarter of 2008.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
St.
Charles Hotel Project Construction Litigation. In November, 2005,
Ameristar St. Charles
entered into a contract (the Contract) with Walton
Construction Company, L.L.C. (Walton), pursuant to which
Walton was to
provide general contracting and construction management services for the construction of the
400-suite hotel and related amenities. The Contract provides for payment of the actual cost of the
work subject to a guaranteed maximum price (GMP).
The original Contract completion date was November 12, 2007 and was extended by written amendment
in March 2007 to December 7, 2007. While we were able to open the hotel facility in stages as
it was being completed in
-22-
2008 in order to mitigate damages from the delay, the project was only recently substantially
completed and final work is still being performed. After the March 2007 amendment, Walton asserted
various claims for additional compensation, in excess of the agreed-upon GMP, based on alleged changes to
the Contract scope of work and asserted delays and other impacts to the completion of the project.
We reviewed and rejected many of these claims, but did accept others and issued appropriate change
orders to Walton. The current GMP, as agreed to by us, is slightly less than $201 million.
On June 20, 2008, Walton filed a mechanics lien against the St. Charles property in the amount of
approximately $37.2 million. In addition, on that same day, Walton filed suit in the Circuit Court of St.
Charles County, Missouri seeking recovery of the amounts included in its mechanics lien. Walton
also has sought interest on this amount pursuant to the Missouri Prompt Pay Act, which imposes 11/2%
per month interest on amounts that are not paid pursuant to the
terms of an enforceable contract and permits recovery
of attorneys fees by the prevailing party in the dispute.
The $37.2 million amount asserted in Waltons lawsuit and set forth in its mechanics lien includes
claims for the Contract balance and retainage that were not due at
the time the lawsuit and mechanics lien were filed. To date, the Company has paid more than $5 million of these amounts and
additional amounts will be paid as appropriate pursuant to the Contract. After factoring in
amounts that are expected to become payable under the Contract as agreed to by the Company, we
believe that the actual disputed amount is approximately $20 million.
We deny Waltons claims and will defend against them vigorously. We are required to
respond to Waltons lawsuit on or before August 25, 2008.
We intend to file a counterclaim against
Walton seeking damages based on the delay in completion of the project and defective and deficient
work performed by Walton.
In addition to Waltons mechanics lien, certain subcontractors to Walton have filed or are
expected to file mechanics liens against the St. Charles property, and some are expected to file
suit to foreclose on such liens. Such actions by subcontractors are not expected to materially
affect the total amount being sought in connection with the project.
Other
Litigation. There have been no material developments during the
three months ended June 30, 2008 relating to the matters described
under the heading Legal Proceedings in our Quarterly
Report on Form 10-Q for the period ended March 31, 2008, to which
reference should be made.
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, 2007.
In April 2008, a statewide indoor smoking ban was enacted in Iowa. The measure includes an
exemption for casino floors and 20% of all hotel rooms. The new law took effect on July 1, 2008
and may adversely affect our business at Ameristar Council Bluffs.
In June 2008, the Kansas Supreme Court held that the recent Kansas law authorizing up to four
state-owned and operated land-based casinos and three racetrack-slot machine parlors is
constitutional. One of the land-based casinos and one of the racetrack-slot machine parlors would
present direct additional competition to Ameristar Kansas City if the new facilities were to be
constructed and opened. This potential new competition for Ameristar Kansas City could have a
material adverse effect on the results of operations of that property.
Item 4. Submission of Matters to a Vote of Security Holders
|
(a) |
|
Our 2008 Annual Meeting of Stockholders was held on June 20, 2008. |
|
|
(b) |
|
and (c) The following table shows the tabulation of votes for all matters put
to vote at our 2008 Annual Meeting of Stockholders.
|
-23-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
Matters Put to Vote |
|
For |
|
Against/Withheld |
|
Abstentions |
|
Non-Votes |
Election of Luther
P. Cochrane as a
Class A Director |
|
|
54,081,831 |
|
|
|
1,208,145 |
|
|
|
|
|
|
|
|
|
Election of Larry
A. Hodges as a
Class A Director |
|
|
53,677,290 |
|
|
|
1,612,686 |
|
|
|
|
|
|
|
|
|
Election of Ray H.
Neilsen as a Class
A Director |
|
|
40,647,180 |
|
|
|
14,642,796 |
|
|
|
|
|
|
|
|
|
Proposal to approve
certain provisions
of the Companys
Amended and
Restated 1999 Stock
Incentive Plan
relating to the
grant of
performance share
units |
|
|
47,837,798 |
|
|
|
3,982,893 |
|
|
|
14,959 |
|
|
|
3,454,326 |
|
Item 6. Exhibits
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description of Exhibit |
|
Method of Filing |
|
|
|
|
|
3.1
|
|
Amended and Restated Bylaws of ACI, adopted May 31, 2008
|
|
Incorporated by reference to
Exhibit 3.1 to ACIs Current
Report on Form 8-K filed on
June 2, 2008 (the Form
8-K). |
|
|
|
|
|
10.1
|
|
Executive Employment Agreement, dated as of May 31,
2008, between ACI and Ray H. Neilsen
|
|
Incorporated by reference to
Exhibit 10.1 to the Form 8-K. |
|
|
|
|
|
10.2
|
|
Amendment Number 2 to Amended and Restated Executive
Employment Agreement, dated as of May 31, 2008, between
ACI and Gordon R. Kanofsky
|
|
Incorporated by reference to
Exhibit 10.2 to the Form 8-K. |
|
|
|
|
|
10.3
|
|
Executive Employment Agreement, dated as of May 31,
2008, between ACI and Larry A. Hodges
|
|
Incorporated by reference to
Exhibit 10.3 to the Form 8-K. |
|
|
|
|
|
10.4
|
|
Amendment Number 2 to Executive Employment Agreement,
dated as of May 31, 2008, between ACI and Peter C.
Walsh
|
|
Incorporated by reference to
Exhibit 10.4 to the Form 8-K. |
|
|
|
|
|
10.5
|
|
Separation Agreement and General and Special Release,
dated May 31, 2008, between ACI and John M. Boushy
|
|
Incorporated by reference to
Exhibit 10.5 to the Form 8-K. |
|
|
|
|
|
31.1
|
|
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
|
|
Filed electronically herewith. |
-24-
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description of Exhibit |
|
Method of Filing |
|
|
|
|
|
31.2
|
|
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
|
|
Filed electronically herewith. |
|
|
|
|
|
32
|
|
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
|
|
Filed electronically herewith. |
-25-
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.
|
|
|
|
|
|
AMERISTAR CASINOS, INC.
Registrant
|
|
Date: August 11, 2008 |
By: |
/s/ Thomas M. Steinbauer
|
|
|
|
Thomas M. Steinbauer |
|
|
|
Senior Vice President of Finance, Chief
Financial Officer and Treasurer |
|
|
-26-