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, 2006
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,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-Accelerated filer o
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 1, 2006, 56,387,663 shares of Common Stock of the registrant were issued and
outstanding.
AMERISTAR CASINOS, INC.
FORM 10-Q
INDEX
- 1 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
(Unaudited)
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June 30, |
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December 31, |
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2006 |
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2005 |
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ASSETS |
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Current Assets: |
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|
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Cash and cash equivalents |
|
$ |
111,391 |
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$ |
106,145 |
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Restricted cash |
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|
6,425 |
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|
6,474 |
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Accounts receivable, net |
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6,584 |
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|
|
5,242 |
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Inventories |
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|
7,265 |
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|
6,926 |
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Prepaid expenses |
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|
9,563 |
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|
9,184 |
|
Deferred income taxes |
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|
5,984 |
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|
5,672 |
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|
|
|
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|
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|
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Total current assets |
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147,212 |
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|
139,643 |
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Property and Equipment, at cost: |
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Buildings and improvements |
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1,059,156 |
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1,015,443 |
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Furniture, fixtures and equipment |
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384,106 |
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358,192 |
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|
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1,443,262 |
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1,373,635 |
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Less: accumulated depreciation and amortization |
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(434,619 |
) |
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(391,014 |
) |
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|
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1,008,643 |
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982,621 |
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Land |
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75,710 |
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75,524 |
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Construction in progress |
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111,666 |
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75,151 |
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Total property and equipment, net |
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1,196,019 |
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1,133,296 |
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Excess of purchase price over fair market value of net assets acquired |
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77,590 |
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78,192 |
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Deposits and other assets |
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35,457 |
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32,855 |
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TOTAL ASSETS |
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$ |
1,456,278 |
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$ |
1,383,986 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
10,624 |
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$ |
12,627 |
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Construction contracts payable |
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14,636 |
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9,500 |
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Income taxes payable |
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|
646 |
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3,373 |
|
Accrued liabilities |
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78,543 |
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|
83,889 |
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Current maturities of long-term debt |
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4,367 |
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|
4,374 |
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|
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Total current liabilities |
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108,816 |
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|
113,763 |
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|
|
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|
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|
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Long-term debt, net of current maturities |
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835,829 |
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776,029 |
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Deferred income taxes |
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|
90,985 |
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|
94,445 |
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Deferred compensation and other long-term liabilities |
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|
18,654 |
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|
16,039 |
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Commitments and contingencies |
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Stockholders Equity: |
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Preferred stock, $.01 par value: Authorized 30,000,000 shares; Issued None |
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Common stock, $.01 par value: Authorized 120,000,000 shares; Issued and outstanding |
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56,281,107 shares at June 30, 2006 and 55,958,358 shares at December 31, 2005
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563 |
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|
560 |
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Additional paid-in capital |
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188,166 |
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179,989 |
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Retained earnings |
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213,265 |
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203,161 |
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Total stockholders equity |
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401,994 |
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|
383,710 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
1,456,278 |
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|
$ |
1,383,986 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 2 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
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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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2006 |
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2005 |
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2006 |
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2005 |
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REVENUES: |
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Casino |
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$ |
248,987 |
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$ |
241,692 |
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$ |
511,199 |
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$ |
484,059 |
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Food and beverage |
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|
32,325 |
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30,509 |
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|
66,549 |
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60,796 |
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Rooms |
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7,208 |
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|
|
6,225 |
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|
|
13,843 |
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|
|
11,958 |
|
Other |
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|
7,321 |
|
|
|
6,348 |
|
|
|
14,262 |
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|
11,938 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,841 |
|
|
|
284,774 |
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|
605,853 |
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|
|
568,751 |
|
Less: Promotional allowances |
|
|
49,258 |
|
|
|
45,906 |
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|
|
103,176 |
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|
89,774 |
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|
|
|
|
|
|
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|
|
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Net revenues |
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|
246,583 |
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|
238,868 |
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|
502,677 |
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|
478,977 |
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OPERATING EXPENSES: |
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Casino |
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|
108,619 |
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|
|
108,031 |
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|
|
223,718 |
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|
213,554 |
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Food and beverage |
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|
17,111 |
|
|
|
16,324 |
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|
|
34,179 |
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|
|
32,111 |
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Rooms |
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|
1,621 |
|
|
|
1,762 |
|
|
|
3,374 |
|
|
|
3,261 |
|
Other |
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|
5,048 |
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|
|
3,987 |
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|
|
9,606 |
|
|
|
7,787 |
|
Selling, general and administrative |
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|
50,445 |
|
|
|
45,312 |
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|
|
101,739 |
|
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|
91,518 |
|
Depreciation and amortization |
|
|
23,957 |
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|
|
20,875 |
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|
|
46,529 |
|
|
|
41,693 |
|
Impairment loss on assets held for sale |
|
|
198 |
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|
|
347 |
|
|
|
291 |
|
|
|
540 |
|
|
|
|
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|
|
|
|
|
|
|
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Total operating expenses |
|
|
206,999 |
|
|
|
196,638 |
|
|
|
419,436 |
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|
390,464 |
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|
|
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|
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|
|
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Income from operations |
|
|
39,584 |
|
|
|
42,230 |
|
|
|
83,241 |
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|
|
88,513 |
|
|
|
|
|
|
|
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|
|
|
|
|
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OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Interest income |
|
|
756 |
|
|
|
229 |
|
|
|
1,376 |
|
|
|
348 |
|
Interest expense, net |
|
|
(12,228 |
) |
|
|
(15,210 |
) |
|
|
(25,768 |
) |
|
|
(30,471 |
) |
Loss on early retirement of debt |
|
|
|
|
|
|
(184 |
) |
|
|
(26,264 |
) |
|
|
(184 |
) |
Net gain (loss) on disposition of assets |
|
|
6 |
|
|
|
(451 |
) |
|
|
122 |
|
|
|
(1,138 |
) |
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|
|
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|
|
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|
|
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|
|
|
|
|
|
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|
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|
INCOME
BEFORE INCOME TAX PROVISION |
|
|
28,118 |
|
|
|
26,614 |
|
|
|
32,707 |
|
|
|
57,068 |
|
Income tax provision |
|
|
10,090 |
|
|
|
9,960 |
|
|
|
12,061 |
|
|
|
21,184 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
NET INCOME |
|
$ |
18,028 |
|
|
$ |
16,654 |
|
|
$ |
20,646 |
|
|
$ |
35,884 |
|
|
|
|
|
|
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EARNINGS PER SHARE: |
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|
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Basic |
|
$ |
0.32 |
|
|
$ |
0.30 |
|
|
$ |
0.37 |
|
|
$ |
0.65 |
|
|
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Diluted |
|
$ |
0.32 |
|
|
$ |
0.29 |
|
|
$ |
0.36 |
|
|
$ |
0.63 |
|
|
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|
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|
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|
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CASH DIVIDENDS DECLARED PER SHARE |
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.19 |
|
|
$ |
0.16 |
|
|
|
|
|
|
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|
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WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
56,238 |
|
|
|
55,682 |
|
|
|
56,151 |
|
|
|
55,459 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted |
|
|
57,184 |
|
|
|
57,265 |
|
|
|
57,166 |
|
|
|
57,089 |
|
|
|
|
|
|
|
|
|
|
|
|
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
20,646 |
|
|
$ |
35,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
46,529 |
|
|
|
41,693 |
|
Amortization of debt issuance costs and debt discounts |
|
|
616 |
|
|
|
2,078 |
|
Stock option compensation expense |
|
|
4,203 |
|
|
|
|
|
Loss on early retirement of debt |
|
|
26,264 |
|
|
|
184 |
|
Net change in deferred compensation liability |
|
|
165 |
|
|
|
236 |
|
Impairment loss on assets held for sale |
|
|
291 |
|
|
|
540 |
|
Net (gain) loss on disposition of assets |
|
|
(122 |
) |
|
|
1,138 |
|
Net change in deferred income taxes |
|
|
(3,170 |
) |
|
|
13,564 |
|
Excess tax benefit from stock option exercises |
|
|
(1,751 |
) |
|
|
5,509 |
|
Decrease in restricted cash |
|
|
49 |
|
|
|
2 |
|
(Increase) decrease in accounts receivable, net |
|
|
(1,342 |
) |
|
|
2,892 |
|
Increase in income tax refund receivable |
|
|
|
|
|
|
(257 |
) |
Increase in inventories |
|
|
(339 |
) |
|
|
(93 |
) |
(Increase) decrease in prepaid expenses |
|
|
(379 |
) |
|
|
1,099 |
|
Decrease in accounts payable |
|
|
(2,003 |
) |
|
|
(2,058 |
) |
Decrease in income taxes payable |
|
|
(976 |
) |
|
|
(1,567 |
) |
(Decrease) increase in accrued liabilities |
|
|
(5,346 |
) |
|
|
11,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
62,689 |
|
|
|
76,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
83,335 |
|
|
|
112,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(109,714 |
) |
|
|
(82,236 |
) |
Increase in construction contracts payable |
|
|
5,136 |
|
|
|
5,526 |
|
Proceeds from sale of assets |
|
|
308 |
|
|
|
825 |
|
Increase in deposits and other non-current assets |
|
|
(4,514 |
) |
|
|
(3,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(108,784 |
) |
|
|
(79,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(10,542 |
) |
|
|
(8,691 |
) |
Proceeds from revolving loan facility |
|
|
440,000 |
|
|
|
|
|
Principal payments of long-term debt |
|
|
(382,162 |
) |
|
|
(33,096 |
) |
Premium on early redemption of senior subordinated notes |
|
|
(20,425 |
) |
|
|
|
|
Proceeds from stock option exercises |
|
|
2,226 |
|
|
|
5,795 |
|
Excess tax benefit from stock option exercises |
|
|
1,751 |
|
|
|
|
|
Debt issuance costs |
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
30,695 |
|
|
|
(35,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
5,246 |
|
|
|
(3,450 |
) |
|
|
|
|
|
|
|
|
|
Cash and
Cash Equivalents Beginning of Period |
|
|
106,145 |
|
|
|
86,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
Cash Equivalents End of Period |
|
$ |
111,391 |
|
|
$ |
83,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
37,696 |
|
|
$ |
28,554 |
|
|
|
|
|
|
|
|
Cash paid for federal and state income taxes |
|
$ |
16,052 |
|
|
$ |
5,027 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
AMERISTAR CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Principles of consolidation and basis of presentation
The accompanying condensed consolidated financial statements include the accounts of Ameristar
Casinos, Inc. (ACI) and its wholly owned subsidiaries (collectively, the Company). Through its
subsidiaries, the Company owns and operates seven casino properties in six markets. The Companys
portfolio of casinos consists of: Ameristar St. Charles (serving greater St. Louis, Missouri);
Ameristar Kansas City (serving the Kansas City, Missouri metropolitan area); Ameristar Council
Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar Vicksburg (serving Jackson,
Mississippi and Monroe, Louisiana); Cactus Petes and the Horseshu in Jackpot, Nevada (serving Idaho
and the Pacific Northwest); and Ameristar Black Hawk (formerly known as Mountain High Casino;
serving the Denver, Colorado metropolitan area). The Company views each property as an operating
segment and all such operating segments have been aggregated into one reporting segment. All
significant intercompany transactions have been eliminated.
The accompanying condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the condensed consolidated financial statements do not include all of the
disclosures required by generally accepted accounting principles. However, they do contain all
adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are
necessary to present fairly the Companys financial position, results of operations and cash flows
for the interim periods included therein. The interim results reflected in these financial
statements are not necessarily indicative of results to be expected for the full fiscal year.
Certain of the Companys accounting policies require that the Company apply significant
judgment in defining the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. The Companys judgments
are based in part on its historical experience, terms of existing contracts, observance of trends
in the gaming industry and information obtained from independent valuation experts or other outside
sources. There is no assurance, however, that actual results will conform to estimates. To
provide an understanding of the methodology the Company applies, significant accounting policies
and basis of presentation are discussed where appropriate in Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations of this Quarterly Report. In addition,
critical accounting policies and estimates are also discussed in Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations and the notes to the Companys
audited consolidated financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 2005.
The accompanying condensed consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2005.
Note 2 Recently issued accounting pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No.
109, which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that a
company recognize the impact of a tax position in its financial statements if that position is more
likely than not to be sustained on audit, based on the technical merits of the position. The
provisions of FIN 48 are effective in the first quarter of 2007, with the cumulative effect of the
change in accounting principle recorded as an adjustment to opening retained earnings. The Company
is currently evaluating the impact of adopting FIN 48 on its financial statements.
- 5 -
Note 3 Earnings per share
The Company calculates earnings per share in accordance with Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. Basic earnings per share are computed by
dividing reported earnings by the weighted average number of common shares outstanding during the
period. Diluted earnings per share reflect the additional dilution from all potentially dilutive
securities such as stock options. For the periods presented, all outstanding options with an
exercise price lower than the market price have been included in the calculation of diluted
earnings per share.
The weighted average number of shares of common stock and common stock equivalents used in the
computation of basic and diluted earnings per share consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
|
|
Weighted average number of shares outstanding
basic earnings per share |
|
|
56,238 |
|
|
|
55,682 |
|
|
|
56,151 |
|
|
|
55,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
946 |
|
|
|
1,583 |
|
|
|
1,015 |
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
diluted earnings per share |
|
|
57,184 |
|
|
|
57,265 |
|
|
|
57,166 |
|
|
|
57,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months and six months ended June 30, 2006, the potentially dilutive stock
options excluded from the earnings per share computation, as their effect would be anti-dilutive,
totaled 1.5 million. There were no anti-dilutive stock options for the three months and six months
ended June 30, 2005.
Note 4 Accounting for stock-based compensation
The Company has various stock incentive plans for directors, officers, employees, consultants
and advisers of the Company. The plans permit the grant of options to purchase common stock
intended to qualify as incentive stock options or non-qualified stock options and also provide for
the award of restricted stock. The maximum number of shares available for issuance under the plans
is 14.0 million (net of options which terminate or are canceled without being exercised), subject
to certain limitations. The Compensation Committee of the Board of Directors administers the plans
and has broad discretion to establish the terms of stock awards, including, without limitation, the
power to set the term (up to 10 years), vesting schedule and exercise price of stock options.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R) requiring
that compensation cost relating to share-based payment transactions be recognized in the financial
statements. The cost is measured at the grant date, based on the calculated fair value of the
award, and is recognized as an expense over the employees requisite service period (generally the
vesting period of the equity award). Prior to January 1, 2006, the Company accounted for
share-based compensation to employees in accordance with Accounting Principles Board Opinion
(APB) No. 25 and related interpretations. The Company also followed the disclosure requirements
of SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition
and Disclosure. The Company adopted SFAS No. 123(R) using the modified prospective method and,
accordingly, financial statement amounts for prior periods presented in this Quarterly Report have
not been restated to reflect the fair value method of recognizing compensation cost relating to
non-qualified stock options.
For the three months and six months ended June 30, 2006, there was $2.1 million and $4.2
million, respectively, of compensation cost related to non-qualified stock options recognized in
operating results (included
-6-
in selling, general and administrative expenses). The associated income tax benefit
recognized was $0.4 million and $1.7 million during the three months and six months ended June 30,
2006, respectively. The adoption of SFAS No. 123(R) reduced the Companys basic and diluted
earnings per common share by $0.02 for the three months ended June 30, 2006. The adoption of SFAS
No. 123(R) reduced the Companys basic and diluted earnings per share by $0.05 for the six months
ended June 30, 2006. As of June 30, 2006, there was approximately $20.8 million of total
unrecognized compensation cost related to nonvested 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 3.5 years.
The fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model. Expected volatility is based on historical volatility
trends as well as implied future volatility observations as determined by independent third
parties. In determining the expected life of the option grants, the Company used historical data
to estimate option exercise and employee termination behavior. The expected term represents an
estimate of the time options are expected to remain outstanding. The risk-free interest rate for
periods within the contractual life of the option is based on the U.S. treasury yield in effect at
the time of grant. The following table sets forth fair value per share information, including
related assumptions, used to determine compensation cost for the Companys non-qualified stock
options consistent with the requirements of SFAS No. 123(R) for 2006 and SFAS No. 123 for 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Weighted-average fair value per share of options
granted during the period (estimated on grant date
using Black-Scholes-Merton option pricing model) |
|
$ |
6.94 |
|
|
$ |
11.59 |
|
|
$ |
7.36 |
|
|
$ |
10.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected stock price volatility |
|
|
40.7 |
% |
|
|
48.1 |
% |
|
|
40.9 |
% |
|
|
48.1 |
% |
Risk-free interest rate |
|
|
5.1 |
% |
|
|
3.8 |
% |
|
|
4.9 |
% |
|
|
3.8 |
% |
Expected option life (years) |
|
|
4.2 |
|
|
|
5.3 |
|
|
|
4.2 |
|
|
|
5.3 |
|
Expected annual dividend yield |
|
|
1.9 |
% |
|
|
1.2 |
% |
|
|
1.8 |
% |
|
|
1.2 |
% |
-7-
Under APB No. 25, there was no compensation cost recognized for the Companys
non-qualified stock options awarded in the three months and six months ended June 30, 2005 as these
non-qualified stock options had an exercise price equal to the market value of the underlying stock
at the grant date. The following table sets forth pro forma information as if compensation cost
had been determined consistent with the requirements of SFAS No. 123.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2005 |
|
|
June 30, 2005 |
|
|
|
(Amounts in thousands, except per share data) |
|
Net income: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
16,654 |
|
|
$ |
35,884 |
|
Deduct: compensation expense under fair value-
based method (net of tax) |
|
|
(1,258 |
) |
|
|
(1,481 |
) |
|
|
|
|
|
|
|
Pro forma |
|
$ |
15,396 |
|
|
$ |
34,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.30 |
|
|
$ |
0.65 |
|
Pro forma (net of tax) |
|
$ |
0.28 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.29 |
|
|
$ |
0.63 |
|
Pro forma (net of tax) |
|
$ |
0.27 |
|
|
$ |
0.60 |
|
The following table summarizes information about stock option activity for the six months
ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
Aggregate |
|
|
Options |
|
Average |
|
Contractual |
|
Intrinsic |
|
|
(Amounts in |
|
Exercise |
|
Term |
|
Value (Amounts |
|
|
Thousands) |
|
Price |
|
(Years) |
|
in Thousands) |
Outstanding at December 31, 2005 |
|
|
5,781 |
|
|
$ |
15.96 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
126 |
|
|
|
22.15 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(323 |
) |
|
|
6.81 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(144 |
) |
|
|
18.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006 |
|
|
5,440 |
|
|
$ |
16.59 |
|
|
|
6.2 |
|
|
$ |
23,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2006 |
|
|
1,927 |
|
|
$ |
14.56 |
|
|
|
5.8 |
|
|
$ |
11,394 |
|
The total intrinsic value of options (which is the amount by which the stock price
exceeded the exercise price of the options on the date of exercise) exercised during the three
months and six months ended June 30, 2006 was $1.2 million and $5.0 million, respectively. During
the three months and six months ended June 30, 2006, the amount of cash received from the exercise
of stock options was $0.8 million and $2.2 million, respectively.
On July 28, 2006, the Company granted non-qualified stock options exercisable for 420,000
shares of the Companys Common Stock and granted 95,876 restricted shares of Common Stock as part
of a compensation agreement with the Companys new President.
-8-
Note 5
Long-term debt
On November 10, 2005, the Company obtained a $1.2 billion senior secured credit facility that
provides for a seven-year $400.0 million term loan facility and a five-year $800.0 million
revolving loan facility.
On February 15, 2006, the Company redeemed all $380.0 million outstanding principal amount of
its 10.75% senior subordinated notes due 2009 at a redemption price of 105.375% of the principal
amount, plus $20.4 million in accrued and unpaid interest to the redemption date. The redemption
of the notes was funded through borrowings under the revolving loan facility. The retirement of
the notes resulted in a one-time charge for loss on early retirement of debt in the first quarter
of 2006 of approximately $26.3 million on a pre-tax basis.
At June 30, 2006, the Companys principal debt outstanding consisted of $440.0 million under
the revolving loan facility and $398.0 million under the term loan facility. As of June 30, 2006,
the amount of the revolving loan facility available for borrowing was $356.0 million, after giving
effect to $4.0 million of outstanding letters of credit. All mandatory principal repayments have
been made through June 30, 2006.
The borrowing under the term loan facility bears interest at the London Interbank Offered Rate
(LIBOR) plus 150 basis points or the base rate plus 50 basis points, at the Companys option.
Borrowings under the revolving loan facility currently bear interest at LIBOR plus 100 basis points
or the base rate plus 0 basis points. The LIBOR margin is subject to adjustment between 75 and 175
basis points and the base rate margin is subject to adjustment between 0 and 75 basis points, in
each case depending on the Companys leverage ratio, as defined.
In connection with obtaining the senior credit facilities on November 10, 2005, each of the
Companys subsidiaries (the Guarantors) entered into a guaranty (the Guaranty) pursuant to
which the Guarantors guaranteed the Companys obligations under the senior credit facilities. The
obligations of the Company under the senior credit facilities, and of the Guarantors under the
Guaranty, are secured by substantially all of the assets of the Company and the Guarantors.
The agreement governing the senior credit facilities 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, 2006 and December 31,
2005, the Company was in compliance with all applicable covenants.
Note 6 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, 2006 and December 31, 2005, the estimated liabilities for unpaid
and incurred but not reported claims totaled $10.2 million and $10.1 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 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.
-9-
Guarantees. In December 2000, the Company assumed several agreements with the Missouri 210
Highway Transportation Development District (Development District) that had been entered into in
order to assist the Development District in the financing of a highway improvement project in the
area around the Ameristar Kansas City property prior to the Companys purchase of that property.
In order to pay for the highway improvement project, the Development District issued revenue bonds
totaling $9.0 million with scheduled maturities from 2006 through 2011.
The Company has provided an irrevocable standby letter of credit from a bank in support of
obligations of the Development District for certain principal and interest on the revenue bonds.
The amount outstanding under this letter of credit was $2.6 million as of June 30, 2006. The
Company is obligated to pay any shortfall in the event that amounts on deposit are insufficient to
cover the obligations under the bonds, as well as any costs incurred by the Development District
that are not payable from the taxed revenues used to satisfy the bondholders. Through June 30,
2006, the Company had paid $1.0 million in shortfalls and other costs. As required by the
agreements, the Company anticipates that it will be reimbursed for these shortfall payments by the
Development District from future available cash flow, as defined, and has recorded a corresponding
receivable as of June 30, 2006.
Note 7
Subsequent Event
On July 24, 2006, the Companys Board of Directors approved the repurchase of up to 2.8
million shares of the Companys Common Stock, representing approximately 5% of its issued and
outstanding Common Stock, in a stock repurchase program. The shares may be repurchased from time
to time during the three-year period ending July 24, 2009 in open market transactions or privately
negotiated transactions at the Companys discretion, subject to market conditions and other
factors.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Overview
We develop, own and operate casinos and related hotel, food and beverage, entertainment and
other facilities, with seven properties in operation in Missouri, Iowa, Mississippi, Colorado and
Nevada. Our portfolio of casinos consists of: Ameristar St. Charles (serving greater St. Louis,
Missouri); Ameristar Kansas City (serving the Kansas City, Missouri metropolitan area); Ameristar
Council Bluffs (serving Omaha, Nebraska and southwestern Iowa); Ameristar Vicksburg (serving
Jackson, Mississippi and Monroe, Louisiana); Cactus Petes and the Horseshu in Jackpot, Nevada
(serving Idaho and the Pacific Northwest); and Ameristar Black Hawk (formerly known as Mountain
High Casino; serving the Denver, Colorado metropolitan area).
Our financial results are dependent upon the number of patrons that we attract to our
properties and the amounts those patrons spend per visit. Management uses various metrics to
evaluate these factors. Key metrics include: market share, representing our share of gross
gaming revenues in each of our markets other than Jackpot and our share of gaming devices in the
Jackpot market (Nevada does not publish separate gaming revenue statistics for this market); fair
share percentage of gross gaming revenues, which is based on the number of our gaming positions
relative to the total gaming positions in the market; admissions, representing the number of
patrons admitted to our casinos in jurisdictions that record admissions; and win per admission,
representing the amount of gaming revenues we generate per admission.
Our operating results may be affected by, among other things, competitive factors, gaming tax
increases, the commencement of new gaming operations, charges associated with debt refinancing or
property acquisition and disposition transactions, construction at existing facilities, general
public sentiment regarding travel, overall economic conditions affecting the disposable income of
our patrons and weather conditions affecting our
-10-
properties. Consequently, our operating results for any quarter or year are not necessarily
comparable and may not be indicative of future periods results.
The following significant factors and trends should be considered in analyzing our operating
performance:
|
|
|
Increased competitive pressures in our Iowa and Missouri markets. We continue
to face increased competitive pressure from a newly renovated and expanded land-based
casino in Iowa and from the aggressive promotional spending activities in our Missouri
markets. As a result of the heightened competition, our Council Bluffs, Kansas City and
St. Charles properties experienced decreases in operating income of $4.5 million (16.2%),
$2.3 million (8.7%), and $0.5 million (1.3%), respectively, during the six months ended
June 30, 2006, compared to the first half of 2005. Additionally, during the first six
months of 2006, operating margins declined by 4.1 percentage points at Ameristar Council
Bluffs, 2.4 percentage points at Ameristar Kansas City and 0.5 percentage point at
Ameristar St. Charles, from the same period in 2005. We believe we have addressed these
competitive challenges with the implementation of cost-containment initiatives that have
effectively modified our cost structure, creating operating efficiencies with the goal of
optimizing profitability. |
|
|
|
|
Promotional spending and marketing. For the six months ended June 30, 2006,
promotional allowances at our properties increased $13.4 million (14.9%) over the first six
months of 2005. The increase in our rate of promotional spending was partially
attributable to our ongoing efforts to strengthen the Ameristar brand through targeted
marketing, as evidenced by an overall 7.7% increase in rated play for the first half of
2006 compared to the same period in 2005. In addition to improving rated play, our
marketing and promotional spending in 2006 also increased, particularly in the first
quarter of 2006, as a result of the competitive pressures in the Missouri and
Iowa markets. However, as a result of the implemented cost-containment initiatives
mentioned above, the second quarter 2006 promotional spending declined from the first
quarter of 2006 by $4.7 million (8.6%). |
|
|
|
|
Ameristar Black Hawk. On April 1, 2006, we rebranded our newly renovated and
expanded casino in Black Hawk, Colorado. Ameristar Black Hawk, formerly known as Mountain
High Casino, now features an expanded parking garage with 1,550 parking spaces, refurbished
and rebranded dining venues, additional gaming space, 1,600 slot machines and an upscale
Star Club for our top players. Additionally, we recently commenced the construction of a
33-story, 536-room Four Diamond-quality hotel. This propertys financial performance was
adversely impacted by construction disruption during the first quarter of 2006. However,
during the second quarter of 2006, the property began to benefit from the completion of the
casino expansion and the rebranding, as evidenced by increases in net revenues and
operating income of 53.4% and 141.9%, respectively, over the prior-year second quarter. We
continue to believe the quality and scope of the property will ultimately enable us to
become the market share leader in the greater Denver market. We expect the total cost of
our planned capital improvements at Ameristar Black Hawk to be approximately $260 million,
which will bring our total investment in the property to approximately $380 million.
Capital expenditures relating to the remodeling and expansion projects totaled $24.9
million during the first six months of 2006. |
|
|
|
|
Post-hurricane improvement at Ameristar Vicksburg. In the first half of 2006,
Ameristar Vicksburg increased operating income by $6.0 million, or 35.6%, over the same
period in 2005. The improved financial performance of this property continues to be
primarily attributable to the increase in business volume following the closure of the
Mississippi Gulf Coast casinos as a result of Hurricane Katrina. However, this increase in
the propertys business volume diminished significantly from the fourth quarter of 2005
following the reopening of three Mississippi Gulf Coast casinos in December 2005, and we
expect it to decline further as more Gulf Coast casinos reopen later in 2006. We expect
the propertys financial performance to be better than that of 2005 through the third
quarter of 2006. However, we |
-11-
|
|
anticipate the increase in the propertys business volume observed following Hurricane
Katrina to diminish further, particularly in the fourth quarter of 2006, as the Gulf Coast
casinos continue to reopen. |
|
|
|
External development costs. Development activities contributed to our
corporate expense as we continue to pursue growth through development and acquisition
opportunities. Development-related costs totaled $2.3 million in the first half of 2006
compared to $3.5 million in the corresponding 2005 period. The decrease in costs is mostly
attributable to reduced efforts in the United Kingdom and the termination in November 2005
of our pursuit of a casino license application in Pennsylvania. On April 3, 2006, we
submitted a proposal to acquire a publicly traded U.S.-based gaming operator. The gaming
operator received several competing proposals and we ultimately determined not to further
pursue the acquisition. In connection with this proposed acquisition, professional fees
and internal costs totaled approximately $0.9 million. |
|
|
|
Renovations and enhancements at Ameristar St. Charles. At Ameristar St.
Charles, we continue to make progress on the construction of a 400-room, all-suite hotel,
an indoor/outdoor swimming pool, a 7,000 square-foot full-service spa, 55,000 square feet
of new meeting and conference facilities and an additional 2,350-space parking garage. The
total cost of these projects is expected to be approximately $240.0 million, with the
completion dates projected to be the third quarter of 2006 for the conference facilities,
the first quarter of 2007 for the initial 1,400 spaces of the parking garage and the fourth
quarter of 2007 for the hotel and the remainder of the garage. We believe these planned
improvements will allow us to further enhance our competitive position in the St. Louis
market. |
|
|
|
Expansion project at Ameristar Vicksburg. At Ameristar Vicksburg, we continue
to proceed with the first phase of our master expansion plan with the construction of a new
1,100-space parking garage, which is expected to be completed in the second quarter of
2007. During the second quarter of 2006, we commenced an expansion of the casino vessel
that will directly connect to the new parking garage. The expanded casino will allow for
the addition of up to 800 slot machines. The expansion project will also include the
addition of two new restaurants, a new Star Club for our VIP guests, a poker room, a retail
shop and other amenities. This project is slated for a mid-year 2007 completion. The
expected cost of our planned capital improvements at Ameristar Vicksburg is approximately
$90 million. These improvements will help alleviate long-standing capacity constraints
and, we believe, will allow us to increase our market dominance in Vicksburg. |
|
|
|
Debt management. On February 15, 2006, we redeemed all $380.0 million
outstanding principal amount of our 10.75% senior subordinated notes due 2009 at a
redemption price of 105.375% of the principal amount, plus $20.4 million in accrued and
unpaid interest to the redemption date. The retirement of the notes resulted in a one-time
charge for loss on early retirement of debt in the first quarter of 2006 of approximately
$26.3 million on a pre-tax basis. The redemption of the senior subordinated notes was
funded through borrowings under our $800.0 million revolving loan facility, which bears
interest at variable rates that currently are substantially lower than the 10.75% fixed
rate on the notes, and we expect that the redemption will result in significant savings in
future interest expense. The redemption of the senior subordinated notes resulted in $5.9
million in pre-tax savings on interest expense through June 30, 2006. |
|
|
|
Stock option compensation expense. On January 1, 2006, we adopted SFAS No.
123(R), which requires the recognition of compensation expense in an amount equal to the
fair value of share-based payments (e.g., stock options) granted to employees. The
adoption of SFAS No. 123(R) resulted in a non-cash operating expense of $4.2 million for
the six months ended June 30, 2006. |
-12-
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, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Consolidated Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
49,797 |
|
|
$ |
62,489 |
|
|
$ |
83,335 |
|
|
$ |
112,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(55,887 |
) |
|
$ |
(46,303 |
) |
|
$ |
(108,784 |
) |
|
$ |
(79,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
$ |
9,618 |
|
|
$ |
(34,048 |
) |
|
$ |
30,695 |
|
|
$ |
(35,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
69,919 |
|
|
$ |
71,517 |
|
|
$ |
145,151 |
|
|
$ |
144,161 |
|
Ameristar Kansas City |
|
|
61,488 |
|
|
|
61,051 |
|
|
|
127,198 |
|
|
|
123,574 |
|
Ameristar Council Bluffs |
|
|
42,785 |
|
|
|
47,262 |
|
|
|
90,945 |
|
|
|
93,625 |
|
Ameristar Vicksburg |
|
|
33,598 |
|
|
|
28,846 |
|
|
|
70,357 |
|
|
|
58,643 |
|
Jackpot Properties |
|
|
17,530 |
|
|
|
16,335 |
|
|
|
33,351 |
|
|
|
30,868 |
|
Ameristar Black Hawk |
|
|
21,263 |
|
|
|
13,857 |
|
|
|
35,675 |
|
|
|
28,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenues |
|
$ |
246,583 |
|
|
$ |
238,868 |
|
|
$ |
502,677 |
|
|
$ |
478,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
$ |
16,167 |
|
|
$ |
16,449 |
|
|
$ |
33,585 |
|
|
$ |
34,041 |
|
Ameristar Kansas City |
|
|
11,063 |
|
|
|
11,794 |
|
|
|
23,931 |
|
|
|
26,208 |
|
Ameristar Council Bluffs |
|
|
10,549 |
|
|
|
14,529 |
|
|
|
23,363 |
|
|
|
27,895 |
|
Ameristar Vicksburg |
|
|
10,386 |
|
|
|
7,606 |
|
|
|
22,898 |
|
|
|
16,884 |
|
Jackpot Properties |
|
|
3,618 |
|
|
|
2,598 |
|
|
|
6,187 |
|
|
|
4,930 |
|
Ameristar Black Hawk |
|
|
1,778 |
|
|
|
735 |
|
|
|
1,560 |
|
|
|
3,009 |
|
Corporate and other |
|
|
(13,977 |
) |
|
|
(11,481 |
) |
|
|
(28,283 |
) |
|
|
(24,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
39,584 |
|
|
$ |
42,230 |
|
|
$ |
83,241 |
|
|
$ |
88,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income Margins (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameristar St. Charles |
|
|
23.1 |
% |
|
|
23.0 |
% |
|
|
23.1 |
% |
|
|
23.6 |
% |
Ameristar Kansas City |
|
|
18.0 |
% |
|
|
19.3 |
% |
|
|
18.8 |
% |
|
|
21.2 |
% |
Ameristar Council Bluffs |
|
|
24.7 |
% |
|
|
30.7 |
% |
|
|
25.7 |
% |
|
|
29.8 |
% |
Ameristar Vicksburg |
|
|
30.9 |
% |
|
|
26.4 |
% |
|
|
32.5 |
% |
|
|
28.8 |
% |
Jackpot Properties |
|
|
20.6 |
% |
|
|
15.9 |
% |
|
|
18.6 |
% |
|
|
16.0 |
% |
Ameristar Black Hawk |
|
|
8.4 |
% |
|
|
5.3 |
% |
|
|
4.4 |
% |
|
|
10.7 |
% |
Consolidated operating income margin |
|
|
16.1 |
% |
|
|
17.7 |
% |
|
|
16.6 |
% |
|
|
18.5 |
% |
|
|
|
(1) |
|
Operating income margin is operating income (loss) as a percentage of net revenues. |
-13-
The following table presents detail of our net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(Amounts in Thousands) |
|
|
|
(Unaudited) |
|
Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Slots |
|
$ |
222,565 |
|
|
$ |
214,843 |
|
|
$ |
455,402 |
|
|
$ |
427,533 |
|
Table games |
|
|
23,699 |
|
|
|
23,948 |
|
|
|
50,064 |
|
|
|
50,322 |
|
Other |
|
|
2,723 |
|
|
|
2,901 |
|
|
|
5,733 |
|
|
|
6,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino revenues |
|
|
248,987 |
|
|
|
241,692 |
|
|
|
511,199 |
|
|
|
484,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Casino Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage |
|
|
32,325 |
|
|
|
30,509 |
|
|
|
66,549 |
|
|
|
60,796 |
|
Rooms |
|
|
7,208 |
|
|
|
6,225 |
|
|
|
13,843 |
|
|
|
11,958 |
|
Other |
|
|
7,321 |
|
|
|
6,348 |
|
|
|
14,262 |
|
|
|
11,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-casino revenues |
|
|
46,854 |
|
|
|
43,082 |
|
|
|
94,654 |
|
|
|
84,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Promotional Allowances |
|
|
(49,258 |
) |
|
|
(45,906 |
) |
|
|
(103,176 |
) |
|
|
(89,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
246,583 |
|
|
$ |
238,868 |
|
|
$ |
502,677 |
|
|
$ |
478,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
Consolidated net revenues for the quarter ended June 30, 2006 increased $7.7 million, or 3.2%,
over the second quarter of 2005. Net revenues for the second quarter of 2006 increased over the
prior-year period by 53.4% at Ameristar Black Hawk, 16.5% at Ameristar Vicksburg, 7.3% at the
Jackpot Properties and 0.7% at Ameristar Kansas City. The Black Hawk property benefited from the
rebranding and reduced construction disruption following the completion of the initial phase of our
expansion activities in the first quarter of 2006. Our Vicksburg propertys improved financial
performance and the 14.9% growth in the overall Vicksburg market are mostly attributable to the
third quarter closure of the Mississippi Gulf Coast casinos following Hurricane Katrina. Our
Council Bluffs and St. Charles properties faced heightened competition, which resulted in decreases
in net revenues of 9.5% and 2.2%, respectively, compared to the prior-year second quarter.
For the quarter, Ameristar Black Hawk increased market share by 4.7 percentage points over the
prior-year second quarter, to 15.4%, while Ameristar Vicksburgs leadership position remained
unchanged with a share of 46.5% of its market. Ameristar Kansas City continued as the market share
leader, despite a decrease of 0.3 percentage point in market share to 36.6% compared to the second
quarter of 2005. The market share for Ameristar Council Bluffs declined 6.1 percentage points to
37.3% and Ameristar St. Charles experienced a decrease in market share of 1.4 percentage points to
30.5%. Our Council Bluffs propertys market share was adversely impacted by the completion of a
major expansion and rebranding by a competing land-based casino in March 2006. Despite the
increased competition, we maintained a fair share percentage of gross gaming revenues (based on
the number of our gaming positions relative to the total gaming positions in the market) of 106.3%
during the second quarter of 2006 and currently anticipate maintaining a market share in the
three-property Council Bluffs market of approximately 37%.
Consolidated casino revenues for the second quarter of 2006 increased $7.3 million over the
2005 second quarter, principally due to a $7.4 million (55.6%) increase in slot revenues at
Ameristar Black Hawk, which now features an increased number of slot machines on its expanded
casino floor. We further believe casino revenues increased in part as a result of the continued
successful implementation of our targeted marketing programs, as
-14-
evidenced by an overall 4.9% increase in rated play at our properties from the second quarter
of 2005. Ameristar Black Hawk contributed to the improvement in the consolidated rated play during
the 2006 second quarter with an increase of 57.4% over the prior-year second quarter. For the
quarter ended June 30, 2006, promotional allowances increased $3.4 million, or 7.3%, over the
prior-year second quarter, due in part to the rise in rated play and the increasingly competitive
environment in our Missouri and Iowa markets.
For the six months ended June 30, 2006, consolidated net revenues grew by $23.7 million, or
4.9%, from the corresponding 2005 period. All of our properties, with the exception of Ameristar
Council Bluffs, increased net revenues during the first six months of 2006 when compared to 2005,
including improvements of 26.9% at Ameristar Black Hawk, 20.0% at Ameristar Vicksburg, 8.0% at the
Jackpot Properties, 2.9% at Ameristar Kansas City and 0.7% at Ameristar St. Charles. During the
first half of 2006, our Council Bluffs property experienced a decline of 2.9% in net revenues from
the same period in 2005.
For the six months ended June 30, 2006, casino revenues increased $27.1 million, or 5.6%,
compared to the first six months of 2005. We believe the $27.9 million (6.5%) increase in slot
revenues over the prior-year six-month period is the result of the aforementioned factors,
including the increase in business volume at Ameristar Vicksburg following Hurricane Katrina and
the completion of the expansion and rebranding at Ameristar Black Hawk.
Operating Income
In the second quarter of 2006, consolidated operating income decreased $2.6 million, or 6.3%,
from the 2005 second quarter. Consolidated operating income margin decreased 1.6 percentage points
from the prior-year second quarter. The declines in the consolidated operating income and the
related margin were attributable in part to the increased competition in our Council Bluffs market,
where we experienced a 27.4% decrease in operating income and a 6.0 percentage point drop in
operating income margin from the prior-year second quarter. The financial performance of the Iowa
and Missouri properties was partially offset by strong second quarter 2006 results at our Black
Hawk, Vicksburg and Jackpot properties.
Consolidated operating income was also negatively affected by $2.1 million as a result of the
stock option compensation expense we were required to recognize in the second quarter of 2006 as
described above, which expense was not recognized during the comparable period of 2005.
Additionally, depreciation and amortization expense increased $3.1 million (14.8%) over the second
quarter of 2005, primarily due to $1.9 million in depreciation expense from the capital
improvements placed in service as part of the Ameristar Black Hawk expansion. Finally, health
benefit costs moderated significantly over the first two quarters of 2006 compared to the prior
years trend.
For the quarter ended June 30, 2006, our Black Hawk propertys operating income increased $1.0
million, or 141.9%, and its operating income margin increased 3.1 percentage points compared to the
prior-year second quarter. The recently completed casino expansion project favorably affected this
propertys operating results during the second quarter. During the quarter ended June 30, 2006,
our Black Hawk property also incurred $1.3 million in non-recurring costs related to its rebranding
as Ameristar Black Hawk that occurred on April 1, 2006.
During the second quarter of 2006, Ameristar Vicksburg increased operating income by $2.8
million over the prior-year second quarter. Additionally, our Vicksburg propertys operating
income margin increased over the 2005 second quarter by 4.5 percentage points. As previously
mentioned, we expect the propertys quarterly financial performance to be better than that of 2005
through the third quarter of 2006.
At Ameristar St. Charles, decreased revenues were mostly offset by reduced health benefit
costs and the effective implementation of cost-containment initiatives relating to marketing and
promotional activities. As a result, operating income and the related margin were relatively flat
compared to the prior-year second quarter.
-15-
Ameristar Kansas Citys 2006 second quarter operating income decreased $0.7 million (6.2%) and
operating income margin declined 1.3 percentage points from the second quarter of 2005, due in part
to increased depreciation expense of $0.8 million.
During the second quarter of 2006, operating income at our Jackpot Properties increased over
the 2005 second quarter by $1.0 million. During the quarter ended June 30, 2006, operating income
margin increased 4.7 percentage points over the same period in 2005. Improvement in the second
quarter operating income and operating income margin is mostly attributable to increased gaming
revenues and a reduction in health benefit costs compared to the prior-year second quarter.
During the second quarter of 2006, corporate expense increased $2.5 million, or 21.7%,
compared to the 2005 second quarter. The increase resulted primarily from the recognition in the
2006 period of $1.4 million of stock option compensation expense at the corporate level related to
the adoption of FAS 123(R) (the remaining $0.7 million of this expense was recognized at our
various properties). During the second quarter of 2006, we also incurred $0.7 million in
professional fees and internal costs in connection with the major acquisition opportunity described
above.
Consolidated operating income for the six months ended June 30, 2006 decreased $5.3 million
(6.0%) from the first six months of 2005. During the first half of 2006, operating income declined
by $4.5 million at Ameristar Council Bluffs, $2.3 million at Ameristar Kansas City, $1.4 million at
Ameristar Black Hawk and $0.5 million at Ameristar St. Charles, from the corresponding period in
2005. The Iowa and Missouri properties were adversely affected by the heightened competition in
their markets, and the Black Hawk property was negatively impacted by construction disruption in
the first quarter of 2006. Year-to-date operating income improved $6.0 million at Ameristar
Vicksburg and $1.3 million at the Jackpot Properties. The increase in operating income at our
Vicksburg property was mostly attributable to the post-Katrina business volumes while the Jackpot
Properties benefited from reduced health benefit costs.
Year to date, corporate expense increased $3.8 million, or 15.7%, compared to the first six
months of 2005. The increase resulted primarily from the recognition in the 2006 period of $2.9
million of stock option compensation expense at the corporate level related to the adoption of FAS
123(R).
Interest Expense
Consolidated interest expense, net of amounts capitalized, for the three months and six months
ended June 30, 2006 decreased $3.0 million (19.6%) and $4.7 million (15.4%), respectively, from the
corresponding 2005 periods. The decreases are due primarily to a reduced average interest rate
resulting from the November 2005 refinancing of our senior secured credit facility and the February
2006 redemption of our senior subordinated notes with borrowings under the new credit facility at
substantially lower interest rates.
Income Taxes
Our effective income tax rate was 35.9% for the quarter ended June 30, 2006, compared to
37.4% for the same period in 2005. For the six months ended June 30, 2006 and 2005, the effective income tax rate was 36.9% and 37.1%,
respectively. The federal income tax statutory rate was 35% in all periods presented. Our effective income tax rate for the quarter ended March 31, 2006 was 42.9%. The difference in our effective tax rates between the first and
second quarters of 2006 was mostly attributable to changes in our recorded tax reserves and the increase in pre-tax earnings in the second quarter of 2006.
-16-
Net Income
For the three months ended June 30, 2006, consolidated net income increased $1.4 million, or
8.3%, over the first six months of 2006. Diluted earnings per share were $0.32 in the quarter
ended June 30, 2006, compared to $0.29 in the corresponding prior-year quarter. Consolidated net
income for the six months ended June 30, 2006 decreased $15.2 million, or 42.5%, from the six-month
period ended June 30, 2005. We incurred a one-time charge relating to the loss on redemption of
our senior subordinated notes of approximately $26.3 million that adversely impacted diluted
earnings per share by $0.30. Additionally, diluted earnings per share for the first six months of
2006 were negatively impacted by $0.05 by the adoption of SFAS No. 123(R).
Liquidity and Capital Resources
Our business is primarily conducted on a cash basis. Accordingly, operating cash flows tend
to follow trends in our operating income. For the six months ended June 30, 2006 and 2005, net
cash provided by operating activities was $83.3 million and $112.4 million, respectively. Factors contributing to the change in operating cash flows include a decline in operating
income, a reduction in accrued interest following the February 2006 redemption of the senior subordinated notes and increased income tax cash payments.
For the six months ended June 30, 2006 and 2005, net cash used in investing activities was
$108.8 million and $79.9 million, respectively. During the first six months of 2006, we incurred
$109.7 million in capital expenditures. These expenditures were mostly funded with cash from
operations and, to a lesser extent, with the borrowings under our senior credit facility. Capital
expenditures during the first half of 2006 included $34.5 million related to our expansion
activities at Ameristar St. Charles described below, $24.9 million for capital improvement projects
at Ameristar Black Hawk, $20.2 million for the acquisition of slot machines at all our properties
and $13.0 million for the construction of a new parking garage at Ameristar Vicksburg. Capitalized
interest for the six months ended June 30, 2006 totaled $3.1 million.
In July 2006, we commenced construction on a 33-story, 536-room four diamond-quality hotel at
Ameristar Black Hawk. The hotel and related amenities are expected to be completed in the fourth
quarter of 2008. We expect the cost of our planned capital improvements at Ameristar Black Hawk
will be approximately $260 million, which will bring our total investment in the property to
approximately $380 million.
At Ameristar St. Charles, we continue to make progress on the construction of a 400-room,
all-suite hotel, an indoor/outdoor swimming pool, a 7,000 square-foot full-service spa, 55,000
square feet of new meeting and conference facilities and an additional 2,350-space parking garage.
The total cost of these projects is expected to be approximately $240 million, with the completion
dates projected to be the third quarter of 2006 for the conference facilities, the first quarter of
2007 for the initial 1,400 spaces of the parking garage and the fourth quarter of 2007 for the
hotel and the remainder of the garage. We believe these planned improvements will allow us to
further enhance our competitive position in the St. Louis market.
At Ameristar Vicksburg, we continue to proceed with the first phase of our master expansion
plan with the construction of a new 1,100-space parking garage, which is expected to be completed
in second quarter of 2007. During the second quarter of 2006, we commenced an expansion of the
casino vessel that will directly connect to the new parking garage. The expanded casino will allow
for the addition of up to 800 slot machines. The expansion project will also include the addition
of two new restaurants, a new Star Club for our VIP guests, a poker room, a retail shop and other
amenities. This project is slated for a mid-year 2007 completion. The expected cost of our
planned capital improvements at Ameristar Vicksburg is approximately $90 million. These
improvements will help alleviate long-standing capacity constraints, which we believe will allow us
to increase our market dominance in Vicksburg.
Our properties that are undergoing construction and expansion projects may experience
construction disruption to existing operations during the remainder of 2006.
-17-
For the six months ended June 30, 2006, net cash provided by financing activities was $30.7
million. Net cash used in financing activities during the first six months of 2005 was $36.0
million. During the first half of 2006, we borrowed $440.0 million under the revolving loan
facility primarily to fund the redemption of the senior subordinated notes. Our $800.0 million
revolving loan facility bears interest at variable rates that currently are substantially lower
than the 10.75% fixed rate on the senior subordinated notes. We expect that the redemption will
continue to result in significant savings in future interest expense. The redemption of the senior
subordinated notes resulted in $5.9 million in pre-tax savings on interest expense through June 30,
2006.
We received $2.2 million and $5.8 million in proceeds from employee stock option exercises
during the first six months of 2006 and 2005, respectively.
During 2006 and 2005, our Board of Directors declared quarterly cash dividends in the amount
of $0.09375 per share and $0.078125 per share, respectively. The cash dividends paid for the six
months ended June 30, 2006 and 2005 totaled $10.5 million and $8.7 million, respectively.
On July 24, 2006, our Board of Directors approved the repurchase of up to 2.8 million shares
of our Common Stock, representing approximately 5% of our issued and outstanding Common Stock, in a
stock repurchase program. The shares may be repurchased from time to time during the three-year
period ending July 24, 2009 in open market transactions or privately negotiated transactions at our
discretion, subject to market conditions and other factors.
At June 30, 2006, our principal debt outstanding consisted of $440.0 million under the
revolving loan facility and $398.0 million under the term loan facility. As of June 30, 2006, the
amount of the revolving loan facility available for borrowing was $356.0 million, after giving
effect to $4.0 million of outstanding letters of credit. All mandatory principal repayments have
been made through June 30, 2006.
The agreement governing the senior credit facilities 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, 2006, 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. We believe that our cash flows from operations, cash and cash
equivalents and availability under our senior credit facilities will be able to support our
operations and liquidity requirements, including all of our currently planned capital expenditures
and dividend payments on our Common Stock. However, if our existing sources of cash are
insufficient to meet such needs, we will be required to seek additional financing or scale back our
capital plans. Any loss from service of our riverboat and barge facilities for any reason could
materially adversely affect us, including our ability to fund daily operations and to satisfy debt
covenants. Our ability to borrow funds under our senior credit facilities at any time is primarily
dependent upon the amount of our EBITDA, as defined for purposes of our senior credit facilities,
for the preceding four fiscal quarters. As of June 30, 2006, in addition to the $356.0 million
available for borrowing under the senior credit facilities, we had $111.4 million of cash and cash
equivalents, approximately $48.0 million of which were required for daily operations.
-18-
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Securities and Exchange Commission Regulation
S-K.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States. Certain of our accounting policies, including
the estimated useful lives assigned to our assets, asset impairment, health benefit reserves,
purchase price allocations made in connection with acquisitions, the determination of bad debt
reserves and the calculation of our income tax liabilities, require that we apply significant
judgment in defining the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based
in part on our historical experience, terms of existing contracts, observance of trends in the
gaming industry and information obtained from independent valuation experts or other outside
sources. We cannot assure you that our actual results will conform to our estimates. For
additional information on critical accounting policies and estimates, see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations and the notes to our
audited consolidated financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2005.
Stock-Based Compensation
We account for stockbased compensation in accordance with the fair value recognition
provisions of SFAS No. 123(R). We use the BlackScholes-Merton optionpricing model, which
requires the input of subjective assumptions. These assumptions include estimating (1) the length
of time employees will retain their vested stock options before exercising them (expected term),
(2) the volatility of our common stock price over the expected term and (3) the number of options
that will ultimately not fully vest (forfeitures). We retained a third-party consultant that
utilized our historical data to validate our assumptions for our stock option grants. Changes in
the subjective assumptions can materially affect the estimate of fair value of stockbased
compensation and, consequently, the related expense recognized on the consolidated statements of
operations.
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements, including the plans and
objectives of management for our business, operations and economic performance. These
forward-looking statements generally can be identified by the context of the statement or the use
of forward-looking terminology, such as believes, estimates, anticipates, intends,
expects, plans, is confident that or words of similar meaning, with reference to us or our
management. Similarly, statements that describe our future operating performance, financial
results, financial position, plans, objectives, strategies or goals are forward-looking statements.
Although management believes that the assumptions underlying the forward-looking statements are
reasonable, these assumptions and the forward-looking statements are subject to various factors,
risks and uncertainties, many of which are beyond our control, including but not limited to
uncertainties concerning operating cash flow in future periods, our borrowing capacity under the
senior credit facilities or any replacement financing, our properties future operating
performance, our ability to undertake and complete capital expenditure projects in accordance with
established budgets and schedules, changes in competitive conditions, regulatory restrictions and
changes in regulation or legislation (including gaming tax laws and restrictions on smoking at our
facilities) 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
-19-
in our Annual Report on Form 10-K for the year ended December 31, 2005 for a discussion of the
factors, risks and uncertainties that could affect our future results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such
as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to
market risk is interest rate risk associated with our senior credit facilities. As of June 30,
2006, we had $838.0 million outstanding under our senior credit facilities, bearing interest at
variable rates. 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. At June 30, 2006, the average interest rate applicable to the senior credit facilities was
6.4%. An increase of one percentage point in the average interest rate applicable to the senior
credit facilities outstanding at June 30, 2006 would increase our annual interest cost by
approximately $8.4 million.
Substantially all of our long-term debt is subject to variable interest rates. We continue to
monitor interest rate markets and, in order to control interest rate risk, may enter into interest
rate collar or swap agreements or other derivative instruments as market conditions warrant.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the
Exchange Act), the Companys management, including our President and Chief Executive Officer and
our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation,
the President and Chief Executive Officer and the Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were
effective as of the end of the period covered by this Quarterly Report.
(b) Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, the Companys management, including our
President and Chief Executive Officer and our Chief Financial Officer, has evaluated our internal
control over financial reporting to determine whether any changes occurred during the second fiscal
quarter of 2006 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 2006.
-20-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
|
(a) |
|
Our 2006 Annual Meeting of Stockholders was held on June 9, 2006. |
|
|
(b)and (c) |
|
The following table shows the tabulation of votes for all matters put
to vote at our 2006 Annual Meeting of Stockholders. |
|
|
|
|
|
|
|
|
|
Matters Put to Vote |
|
For |
|
Against/Withheld |
Election of Leslie Nathanson Juris as a Class B Director |
|
|
50,166,280 |
|
|
|
1,116,206 |
|
Election of Thomas M. Steinbauer as a Class B Director |
|
|
44,569,684 |
|
|
|
6,712,802 |
|
Item 6. Exhibits
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description of Exhibit |
|
Method of Filing |
10.1
|
|
Executive Employment
Agreement, dated as of
July 28, 2006, between the
Registrant and John M.
Boushy.
|
|
Incorporated by reference to Exhibit
10.1 to the Current Report on Form
8-K filed by the Registrant on
August 2, 2006 (the Form 8-K). |
|
|
|
|
|
10.2
|
|
Restricted Stock
Agreement, dated July 28,
2006, between the
Registrant and John M.
Boushy.
|
|
Incorporated by reference to Exhibit
10.2 to the Form 8-K. |
|
|
|
|
|
31.1
|
|
Certification of Craig H.
Neilsen, Chairman,
President and Chief
Executive Officer,
pursuant to Rules 13a-14
and 15d-14 under the
Securities Exchange Act of
1934, as adopted pursuant
to Section 302 of the
Sarbanes-Oxley Act of
2002.
|
|
Filed electronically herewith. |
|
|
|
|
|
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. |
-21-
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 9, 2006 |
By: |
/s/ Thomas M. Steinbauer
|
|
|
|
Thomas M. Steinbauer |
|
|
|
Senior Vice President of Finance, Chief
Financial Officer and Treasurer |
|
|
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