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ASCA > SEC Filings for ASCA > Form 10-Q on 8-Nov-2012All Recent SEC Filings

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Form 10-Q for AMERISTAR CASINOS INC


8-Nov-2012

Quarterly Report


Item 2. Management's 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, Colorado, Mississippi, Indiana and Nevada. Our portfolio of casinos consists of:
•Ameristar Casino Resort Spa St. Charles (serving the St. Louis, Missouri metropolitan area);
•Ameristar Casino Hotel Kansas City (serving the Kansas City metropolitan area);
•Ameristar Casino Hotel Council Bluffs (serving the Omaha, Nebraska metropolitan area and southwestern Iowa);
•Ameristar Casino Resort Spa Black Hawk (serving the Denver metropolitan area);
•Ameristar Casino Hotel Vicksburg (serving Jackson, Mississippi and Monroe, Louisiana);
•Ameristar Casino Hotel East Chicago (serving the Chicagoland area); and
•Cactus Petes Resort Casino and The Horseshu Hotel and Casino in Jackpot, Nevada (serving Idaho and the Pacific Northwest). We are in the process of constructing Ameristar Casino Resort Spa Lake Charles as discussed below. This property will serve southwestern Louisiana and southeastern Texas, including the Houston metropolitan area. Our financial results are dependent upon the number of guests that we attract to our properties and the amounts those guests spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions affecting the disposable income of our guests, weather conditions affecting our properties, achieving and maintaining cost efficiencies, competitive factors, gaming tax increases and other regulatory changes, the commencement of new gaming operations, charges associated with debt refinancing or property acquisition and disposition transactions, construction at existing facilities and general public sentiment regarding travel. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods' results. The following significant factors and trends should be considered in analyzing our operating performance:
• Effect of Economic Conditions on Operations. Over the last few years, the weak economic conditions have adversely impacted our business volumes and the amount our guests spend at our properties. We have implemented operating and marketing efficiencies and significantly reduced our cost structure in response to the weak economic conditions. These enhancements have improved our operating margins.

• Growth Initiatives. We continue to look for advantageous opportunities to grow. We anticipate that our growth will come from disciplined expansions at selected properties and through strategic acquisitions and new developments.

?Lake Charles. On March 14, 2012, we entered into a definitive agreement to acquire all of the equity interests of Creative. Creative is the developer of a luxury casino resort in Lake Charles, Louisiana. This acquisition included the last remaining riverboat gaming license available in Louisiana under current law.
The acquisition closed on July 16, 2012 and construction commenced on July 20, 2012 and is progressing on schedule. Pursuant to the purchase agreement, we paid $32.5 million, inclusive of $5.0 million deposited into an escrow account at closing to secure the seller's indemnification obligations under the purchase agreement for a period of 18 months. Ameristar Casino Resort Spa Lake Charles is being developed on a leased 243-acre site and will include a casino, hotel, a variety of food and beverage outlets, an 18-hole golf course, tennis club, swimming pools, spa and other resort amenities. The Lake Charles market draws primarily from the Houston metropolitan area as well as other southeastern Texas and southwestern Louisiana communities. The license conditions as revised by the Louisiana Gaming Control Board require us to invest at least $500 million in the project. The cost of the project, inclusive of the purchase price, is expected to be between $560 million and $580 million, excluding capitalized interest and pre-opening expenses. We are required to maintain a $25.0 million deposit, which will be fully refunded upon the timely completion of the project within two years of construction commencement. We anticipate funding the project through a combination of cash from operations and borrowings under our revolving loan facility. We expect to open the resort in the third quarter of 2014. ?Springfield. In January 2012, we purchased a 40-acre site in Springfield, Massachusetts for approximately $16.9 million, with the intent to apply for the sole casino license for western Massachusetts and, if awarded, build a luxury hotel and entertainment resort. On October 23, 2012, we publicly announced plans for Ameristar Casino Resort Spa Springfield, which include a 150,000-square-foot casino featuring 3,300 slot machines and 110 table games, including a poker room. The project is also planned to include a 500-room luxury hotel (including 50 suites), indoor and outdoor swimming pools, a spa, a fitness center and retail amenities, a variety of nationally- and locally-recognized food and beverage venues and a conference and entertainment center. The project is master-planned to accommodate significant


future expansions of the casino, hotel and parking garages. The preliminary project budget is $910 million, inclusive of capitalized interest and pre-opening expenses. It is anticipated that decisions regarding the awarding of licenses will be made in the first quarter of 2014.
• Recent Debt Offering. On April 26, 2012, we completed a private placement of $240.0 million principal amount of additional 7.50% Senior Notes due 2021 (the "Additional 2021 Notes"). The Additional 2021 Notes were issued under the same indenture as the $800.0 million principal amount of 7.50% Senior Notes due 2021 that we issued in April 2011. The Additional 2021 Notes were sold at a price of 103% of the principal amount, resulting in a yield to maturity of 6.88%. We received net proceeds from the sale of the Additional 2021 Notes of approximately $244.0 million. We used $236.0 million of the proceeds to repay all amounts outstanding under the revolving loan tranche of the Credit Facility (which amounts may be reborrowed from time to time) and the remaining proceeds for general corporate purposes.

• Debt and Interest Expense. At September 30, 2012, total debt was $1.9 billion. Net principal payments totaled $2.5 million during the third quarter of 2012. After applying the proceeds from the sale of the Additional 2021 Notes to the outstanding revolving loan facility, we had $496.0 million available for borrowing under the revolving loan facility.

For the third quarter of 2012, our consolidated net interest expense increased by $2.3 million compared to the prior-year third quarter. As a result of the recent debt offering mentioned above, and based on current interest rates, we expect increased interest expense for the remainder of 2012 compared to the prior year.
• Ameristar Kansas City. On February 3, 2012, a casino operator opened a land-based casino and entertainment facility at the Kansas Speedway, approximately 24 miles from Ameristar Kansas City. The increased competition contributed to expected declines in our property's net revenues and operating income of 7.1% and 8.7%, respectively, from the prior-year third quarter. We anticipate the year-over-year declines to continue until the new competition reaches its first anniversary.

• Ameristar East Chicago. The property experienced declines in net revenues and operating income of 8.5% and 46.4%, respectively, from the prior-year third quarter. The third quarter results were primarily a result of low table games hold and increased competition in the Chicagoland market. Although the anniversary of the new Chicagoland competition was reached in July 2012, we anticipate continued adverse impact from the increased competitive environment. A promotional program intended to counter Ameristar East Chicago's new competitive environment contributed to a year-over-year increase in Ameristar East Chicago's third quarter promotional allowances of $1.5 million, or 9.8%. The promotional program was curtailed early in the fourth quarter of 2012; however, it contributed to an increase of $0.6 million in consolidated third quarter promotional allowances over the prior-year third quarter.

• Jackpot Properties. During the third quarter of 2012, our Jackpot properties' results were adversely affected by a road repaving project on Highway 93 between Twin Falls, Idaho and Jackpot that concluded late in the third quarter and construction disruption relating to the renovation of 89 hotel rooms that was completed in late July 2012. These contributed to declines in the Jackpot properties' net revenues and operating income of 1.6% and 10.9%, respectively, from the prior-year third quarter.

• St. Charles Bridge Construction. In connection with a major renovation of the westbound span of the Blanchette Bridge, which carries Interstate 70 over the Missouri River near Ameristar St. Charles, this span was closed beginning in early November 2012 and is expected to reopen in fall 2013. While construction is ongoing, the bridge will be reduced from 10 lanes to six lanes. We expect the project will create an inconvenience for our guests and materially adversely affect business levels until the bridge construction is completed.


Results of Operations
The following table sets forth certain information concerning our consolidated
cash flows and the results of operations of our operating properties:
                            AMERISTAR CASINOS, INC. AND SUBSIDIARIES
                              SUMMARY CONSOLIDATED FINANCIAL DATA
                                     (Dollars in Thousands)
                                          (Unaudited)

                                           Three Months Ended             Nine Months Ended
                                              September 30,                 September 30,
                                           2012           2011           2012           2011
Consolidated Cash Flow Information:
Net cash provided by operating
activities                             $   87,252     $   66,311     $  203,069     $  209,279
Net cash (used in) provided by
investing activities                   $  (86,354 )   $   11,204     $ (139,465 )   $  (18,675 )
Net cash used in financing activities  $  (20,114 )   $  (69,154 )   $  (33,012 )   $ (169,875 )
Net Revenues:
Ameristar St. Charles                  $   68,160     $   68,036     $  202,504     $  203,630
Ameristar Kansas City                      51,960         55,920        160,357        170,115
Ameristar Council Bluffs                   40,902         40,654        125,742        123,849
Ameristar Black Hawk                       42,402         40,105        121,563        115,060
Ameristar Vicksburg                        29,243         29,586         92,064         89,961
Ameristar East Chicago                     49,790         54,405        159,666        169,119
Jackpot Properties                         15,551         15,801         44,500         46,610
Consolidated net revenues              $  298,008     $  304,507     $  906,396     $  918,344
Operating Income (Loss):
Ameristar St. Charles                  $   16,988     $   17,357     $   53,004     $   54,561
Ameristar Kansas City                      14,794         16,199         47,702         50,820
Ameristar Council Bluffs                   15,532         14,140         47,161         43,985
Ameristar Black Hawk                       11,567         10,211         32,126         27,685
Ameristar Vicksburg                         9,684          9,475         31,891         30,442
Ameristar East Chicago                      2,521          4,705         16,098         18,525
Jackpot Properties                          3,126          3,509          9,149         11,223
Corporate and other                       (16,824 )      (14,459 )      (51,462 )      (54,120 )
Consolidated operating income          $   57,388     $   61,137     $  185,669     $  183,121
Operating Income Margins(1):
Ameristar St. Charles                        24.9 %         25.5 %         26.2 %         26.8 %
Ameristar Kansas City                        28.5 %         29.0 %         29.7 %         29.9 %
Ameristar Council Bluffs                     38.0 %         34.8 %         37.5 %         35.5 %
Ameristar Black Hawk                         27.3 %         25.5 %         26.4 %         24.1 %
Ameristar Vicksburg                          33.1 %         32.0 %         34.6 %         33.8 %
Ameristar East Chicago                        5.1 %          8.6 %         10.1 %         11.0 %
Jackpot Properties                           20.1 %         22.2 %         20.6 %         24.1 %
Consolidated operating income margin         19.3 %         20.1 %         20.5 %         19.9 %


____________________________________


(1) Operating income margin is operating income (loss) as a percentage of net revenues.


The following table presents detail of our net revenues:

                                Three Months Ended           Nine Months Ended
                                   September 30,               September 30,
                                2012          2011          2012          2011
                                           (In Thousands, Unaudited)
Casino Revenues:
Slots                        $ 275,089     $ 278,153     $ 829,700     $ 837,316
Table games                     28,972        30,505        90,243        94,708
Other                            3,336         3,937        10,517        11,552
Casino revenues                307,397       312,595       930,460       943,576
Non-Casino Revenues:
Food and beverage               35,588        35,805       103,528       104,125
Rooms                           19,788        20,110        58,546        59,028
Other                            7,337         7,538        21,304        21,951
Non-casino revenues             62,713        63,453       183,378       185,104
Less: Promotional Allowances   (72,102 )     (71,541 )    (207,442 )    (210,336 )
Total Net Revenues           $ 298,008     $ 304,507     $ 906,396     $ 918,344

Net Revenues
Consolidated net revenues for the quarter ended September 30, 2012 declined $6.5 million, or 2.1%, from the third quarter of 2011. Third quarter 2012 net revenues decreased on a year-over-year basis at four of our seven gaming locations. During the third quarter of 2012, net revenues declined from the corresponding 2011 period by 8.5% at Ameristar East Chicago, 7.1% at Ameristar Kansas City, 1.6% at our Jackpot properties and 1.2% at Ameristar Vicksburg. The new competition in the Chicagoland and Kansas City markets contributed to the year-over-year quarterly net revenue declines at Ameristar East Chicago and Ameristar Kansas City, respectively. Ameristar East Chicago also experienced low table games hold that impacted net revenues for the third quarter of 2012. Ameristar Black Hawk led our three properties with quarterly year-over-year net revenue improvements with an increase of $2.3 million, or 5.7%. During the three months ended September 30, 2012, consolidated promotional allowances increased $0.6 million, or 0.8%, from the corresponding 2011 period. Consolidated promotional allowances as a percentage of gross gaming revenues increased from 22.9% in the third quarter of 2011 to 23.5% in the third quarter of 2012. At Ameristar East Chicago, a promotional program intended to counter the new competitive environment in the Chicagoland market contributed to the increase in promotional allowances.
For the nine months ended September 30, 2012, consolidated net revenues declined $11.9 million, or 1.3%, from the corresponding 2011 period. During the first nine months of 2012, net revenues decreased from the corresponding 2011 period by 5.7% at Ameristar Kansas City, 5.6% at Ameristar East Chicago and 4.5% at the Jackpot properties. The competitive pressures in the Chicagoland and Kansas City markets, as well as the construction disruption at Cactus Petes, adversely impacted financial results in the first nine months of 2012. The decline in net revenues was partially mitigated by the year-over-year improvements at Ameristar Black Hawk (5.7%), Ameristar Vicksburg (2.3%) and Ameristar Council Bluffs (1.5%). Unseasonably mild winter weather conditions and the extra day due to leap year contributed to the consolidated net revenue improvement at these properties in 2012.
For the nine months ended September 30, 2012, consolidated promotional allowances decreased $2.9 million, or 1.4%, from the same 2011 period. Operating Income
In the third quarter of 2012, we generated operating income of $57.4 million, compared to $61.1 million in the same period in 2011. Third quarter 2012 operating income declined on a year-over-year basis at four of our seven gaming locations, while operating income improved by 13.3% at Ameristar Black Hawk, 9.8% at Ameristar Council Bluffs and 2.2% at Ameristar Vicksburg. The consolidated operating income decline resulted from the factors that affected net revenues discussed above.
For the nine months ended September 30, 2012, our operating income was $185.7 million, compared to $183.1 million for the corresponding 2011 period. Operating and marketing enhancements contributed to our improved consolidated operating income margin, as well as the mild winter weather conditions and the extra day due to leap year mentioned above.


For the nine months ended September 30, 2012, corporate expense decreased to $51.5 million from $54.1 million for the same period in 2011. The decrease is primarily attributable to the impact of $7.0 million of non-operational professional fees on prior-year operating income, as partially offset by $1.5 million spent in 2012 relating to our Springfield and Lake Charles development projects.
Interest Expense
The following table summarizes information related to interest on our long-term debt:

                                          Three Months Ended               Nine Months Ended
                                             September 30,                   September 30,
                                         2012            2011            2012            2011
                                                   (Dollars in Thousands, Unaudited)
Interest cost                        $    29,964     $    27,458     $    86,142     $    79,829
Less: Capitalized interest                  (312 )          (144 )          (784 )          (296 )
Interest expense, net                $    29,652     $    27,314     $    85,358     $    79,533
Cash paid for interest, net of
amounts capitalized                  $     9,019     $    11,027     $    59,001     $    56,342
Weighted-average total debt
outstanding                          $ 1,924,321     $ 1,975,252     $ 1,929,052     $ 1,824,565
Weighted-average interest rate               6.1 %           5.4 %           5.9 %           5.8 %

For the quarter ended September 30, 2012, consolidated interest expense, net of amounts capitalized, increased $2.3 million, or 8.6%, from the 2011 third quarter. Year to date, consolidated interest expense, net of amounts capitalized, increased $5.8 million, or 7.3%, from the first nine months of 2011. The increase is due primarily to the repurchase of shares from the Estate and the Debt Refinancing completed in the second quarter of 2011, as well as the April 2012 issuance of the Additional 2021 Notes. Income Taxes
Our effective income tax rate was 41.9% for the quarter ended September 30, 2012, compared to 41.4% for the corresponding 2011 period. For the nine months ended September 30, 2012 and 2011, the effective income tax rates were 25.8% and 41.8%, respectively. The decrease in the effective income tax rate for the nine-month period was primarily attributable to a $15.7 million cumulative reduction in the income tax provision as a result of certain income tax elections made in the first quarter of 2012. Excluding the impact of these income tax elections made in the first quarter of 2012, our effective tax rate for the nine months ended September 30, 2012 would have been 43.8%. Excluding the impact of the debt refinancing costs, non-operational professional fees and a change to the state income tax rate in Indiana, our effective tax rate for the nine months ended September 30, 2011 would have been 42.2%. For the remainder of 2012, we expect our quarterly effective income tax rate to be in a range of 40% to 42%.
Net Income
For the three months ended September 30, 2012, we had consolidated net income of $16.1 million, compared to $18.9 million for the quarter ended September 30, 2011. For the nine months ended September 30, 2012, we reported net income of $75.1 million, compared to a net loss of $0.6 million for the nine months ended September 30, 2011. The nine month year-over-year improvement in net income was mostly attributable to efficient revenue flow-through, the $15.7 million cumulative reduction in the income tax provision mentioned above and the absence of the pre-tax loss on early retirement of debt of $85.3 million and non-operational professional fees in the current periods that were incurred in the first nine months of 2011. Diluted earnings per share for the three and nine months ended September 30, 2012 was $0.48 and $2.22, respectively, compared to diluted earnings per share of $0.56 and diluted loss per share of $0.01, respectively, for the corresponding prior-year periods. Diluted earnings per share for the first nine months of 2012 benefited from the reduction in the number of shares outstanding due to the repurchase of shares from the Estate that took place in the second quarter of 2011.


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