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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] 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)
NEVADA 88-0304799
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
3773 HOWARD HUGHES PARKWAY
SUITE 490 SOUTH
LAS VEGAS, NEVADA 89109
(Address of Principal Executive Offices)
Registrant's Telephone Number: (702) 567-7000
Securities registered pursuant to Section 12(b) of the Act:
NONE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 2000, 20,375,264 shares of Common Stock of the
registrant were issued and outstanding. The aggregate market
value of the voting stock of the registrant held by non-
affiliates as of March 15, 2000 was approximately $10,621,000,
based on the Nasdaq-NMS closing price for the registrant's Common
Stock on such date.
Portions of the registrant's definitive Proxy Statement for its
June 16, 2000 Annual Meeting of Stockholders (which has not been
filed as of the date of this filing) are incorporated by
reference into Part III.
This Report contains certain forward-looking statements,
including the plans and objectives of management for the business,
operations and economic performance of the Company. These
forward-looking statements generally can be identified by the context
of the statement or the use of words such as the Company or its
management "believes," "anticipates," "intends," "expects," "plans,"
or words of similar meaning. Similarly, statements that describe the
Company's future operating performance, financial results, 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 the control of the Company.
Accordingly, actual results could differ materially from those
contemplated by the forward-looking statements. In addition to the
other cautionary statements relating to certain forward-looking
statements throughout this Report, attention is directed to "Item 1.
- - Business - Risk Factors" below for discussion of some of the
factors, risks and uncertainties that could affect the outcome of
future results contemplated by forward-looking statements.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Ameristar Casinos, Inc. is a multi-jurisdictional gaming company
that owns and operates casinos and related hotel, food and beverage,
entertainment and other facilities, with five properties in operation
in Nevada, Mississippi and Iowa. All of the Company's principal
operations are conducted through wholly owned subsidiaries. Unless
otherwise indicated, or the context otherwise requires, the term
"Ameristar" or "ACI" refers to Ameristar Casinos, Inc., a Nevada
corporation, and the term the "Company" or "we" refers to Ameristar
and its subsidiaries. The Company's properties are:
THE JACKPOT PROPERTIES - Cactus Petes Resort Casino ("Cactus
Petes") and The Horseshu Hotel & Casino ("The Horseshu"; and
collectively with Cactus Petes, the "Jackpot Properties"), were the
Company's first two casino-hotels and are located on U.S. Highway 93
in Jackpot, Nevada at the Idaho border.
AMERISTAR VICKSBURG - Ameristar Casino Vicksburg is located in
Vicksburg, Mississippi, one-quarter mile north of Interstate 20, the
main east-west thoroughfare connecting Atlanta and Dallas,
approximately 45 miles west of Jackson, Mississippi. Ameristar
Vicksburg includes a permanently moored, dockside casino (the
"Vicksburg Casino") and related land-based facilities, including a
150-room hotel which opened in June 1998 (collectively, "Ameristar
Vicksburg").
AMERISTAR COUNCIL BLUFFS - Ameristar Casino Hotel Council Bluffs
is located near the Nebraska Avenue exit on Interstate 29 in Council
Bluffs, Iowa, across the Missouri River from Omaha, Nebraska.
Ameristar Council Bluffs includes a cruising riverboat casino (the
"Council Bluffs Casino"), an Ameristar hotel and other related land-
based facilities (collectively, "Ameristar Council Bluffs").
THE RESERVE - The Reserve Hotel Casino ("The Reserve"),
featuring an African safari and big game reserve theme that includes
statues of elephants, giraffes and other animals, opened on February
10, 1998 at the junction of Lake Mead Drive and Interstate 515 in
Henderson, Nevada, a suburb of Las Vegas.
BUSINESS AND MARKETING STRATEGIES
The Company's business strategy is to (1) emphasize quality
dining, lodging, entertainment and other non-gaming amenities at
affordable prices to complement and enhance its gaming operations,
(2) promote its properties as entertainment destinations, (3)
construct facilities appropriate to individual markets, (4) emphasize
courteous and responsive service to develop customer loyalty and (5)
utilize marketing programs to promote customer retention. The Company
believes this strategy will continue to distinguish the Company from
its competitors, many of whom outside of Las Vegas have not
emphasized non-gaming amenities in their operations to the same
extent as the Company.
The Company's properties emphasize slot machine play, and the
Company invests on an ongoing basis in new slot equipment to promote
customer satisfaction and loyalty. Historically, slot revenues at
each property have exceeded 65% of total gaming revenue. All of the
Company's properties include table games such as blackjack, craps and
roulette. In addition, Cactus Petes and Ameristar Vicksburg offer
poker, the Jackpot Properties and The Reserve offer keno and sports
book wagering and The Reserve offers bingo. The Company generally
emphasizes competitive minimum and maximum betting limits based on
each market.
The Company's gaming revenues are derived and are expected to
continue to be derived from a broad base of customers, and therefore
the Company does not depend upon high-stakes players. The Company
extends credit to its Nevada and Mississippi gaming customers only in
limited circumstances and limited amounts on a short-term basis and
in accordance with the credit restrictions imposed by gaming
regulatory authorities. The Iowa gaming statutes prohibit the
issuance of casino credit.
The Company's marketing strategy is to develop a loyal customer
base by promoting the quality of the Company's gaming, leisure and
entertainment amenities that emphasize high standards of service and
customer satisfaction. The Company uses players clubs at each
property to identify and retain preferred players and develop
promotions and special events to encourage increased gaming activity
by these customers. Ameristar introduced the first self-comping
players club to the Las Vegas market at The Reserve.
The Company's marketing programs also include a number of
promotions, designed primarily to increase the frequency of customer
visits within local markets particularly tied to gaming activities,
as well as tour and travel promotional packages in certain markets.
The Company uses a variety of advertising media to market its
properties, including print, television, radio, outdoor and internet
advertising and direct mail promotions. The level of marketing and
promotional efforts varies among properties based on competitive and
seasonal factors in each market.
EXPANSION STRATEGY
The Company seeks to expand its operations through a variety of
means, including entering new North American markets created by the
legalization of casino gaming, developing new casinos or buying
existing casinos in established North American casino gaming markets,
expanding through continued growth in its existing facilities, and
selectively pursuing expansion projects through Native American
reservations in North America. Although the Company's preference is
to own and operate each of its gaming properties, the Company also
considers expansion opportunities involving management contracts or
joint ventures.
On October 28, 1999, Ameristar Casino St. Louis, Inc. ("ACSLI"),
a newly formed wholly owned subsidiary of ACI, filed an application
with the Missouri Gaming Commission seeking a gaming license for a
site along the Mississippi River in Lemay, Missouri, a community in
South St. Louis County. In conjunction with this application, ACSLI
has entered into an agreement with the current lessee of the proposed
site for the assignment of the lease. The Company has also recently
obtained a commitment to refinance its Revolving Credit Facility,
increasing its available borrowing capacity to $265 million to fund
a substantial portion of the development costs for this project. The
balance of the financing for this project will be provided primarily
by operating cash flow.
The Company's current plans for the Ameristar Casino St. Louis
at Lemay call for a floating barge located within a basin and
integrated within a larger main frame structure that is adjacent to
the Mississippi River. The Company expects that the project will
consist of a single level building of approximately 215,920
square feet and that the casino will consist of 70,000 square feet of
floating gaming area with 2,000 slot machines, 50 blackjack tables,
two Roulette or big wheel games, eight crap/dice games, one cashier
coin cage with slot and table fills and three change booths with
beverage dispensing counters. The project is expected to include two
casino bars with service stations, including a 50-seat entertainment
lounge, as well as several restaurants, meeting rooms, a Missouri
retail shop and a VIP lounge. The total cost for the development and
construction of the project is expected to be approximately $150 million.
The project also calls for a 150-room hotel adjacent to the casino
to be built by a strtegic partner.
This project is in the preliminary stages and subject to
numerous contingencies, including, for example, the satisfactory
completion of due diligence concerning the proposed site, the
selection of the Company's application for investigation by the
Missouri Gaming Commission, obtaining various other regulatory
permits and approvals and completing financing arrangements for the
project. The project is also subject to various development and
construction risks typical of large-scale development projects of
this type. The Company recently submitted a revised application for a
gaming license to the Missouri Gaming Commission and expects the
Missouri Gaming Commission to take action with respect to its
application during 2000. See "Risk Factors - Our Potential
Development of a Casino in Lemay, Missouri Will Require Significant
Capital Expenditure and We Cannot Predict Whether the Casino Will Be
Successful" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital
Resources."
The Company also seeks growth in its business through the
expansion and improvement of its existing properties. For example,
the Company recently completed restaurant and meeting room
enhancements at The Reserve, expanded the casino, remodeled
restaurants and added parking at Ameristar Vicksburg and added a
third deck to the casino and a parking garage at Ameristar Council
Bluffs. Management considers enhancement projects for each of the
Company's properties on an ongoing basis. In doing so, management
evaluates the operating performance of each property, the anticipated
relative costs and benefits of the projects under consideration, the
availability of cash flow and debt financing to fund capital
expenditures and competitive and other relevant factors.
Management believes that the Company's long-term success in its
current markets and expanding into new markets will depend in part on
the Company's ability to distinguish its operations from those of its
competitors. The Company's strategy of including quality non-gaming
amenities in its facilities, such as lodging, dining and
entertainment, is intended to provide these competitive distinctions.
The scope of non-gaming amenities to be offered at existing
properties and future expansion projects will be determined in part
by competitive factors within a particular market and the nature of
the Company's participation in a particular project. In addition,
management believes the selection of attractive expansion markets and
quality locations within those markets will continue to be important
to the growth of the Company. In selecting expansion opportunities,
the Company seeks a strong demographic market with a favorable
competitive environment and a site in the market with an attractive,
prominent location and ease of access that will support the size and
scope of the Company's development plans.
The timing, cost and scope of any expansion or capital
improvement project of the Company will depend on, among other
factors, the Company's operating cash flow and the resulting ability
of the Company to apply operating cash flow to capital expenditures
and to incur additional indebtedness under the Company's Revolving
Credit Facility or other debt instruments. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
PROPERTY PROFILES
The following table presents selected statistical and other
information concerning the Company's properties as of March 1, 2000.
AMERISTAR AMERISTAR
CACTUS THE VICKSBURG COUNCIL THE
PETES HORSESHU (VICKSBUR BLUFFS RESERVE
(JACKPOT, (JACKPOT, G, MS) (COUNCIL
NV) NV) BLUFFS, (HENDERSON,
IA) NV)
OPENING 1956 1956 Feb. 1994 Jan. 1996 Feb. 1998
DATE
CASINO
SQUARE 25,000 3,500 43,000 42,500 41,500
FOOTAGE
(APPROX.)
SLOT 808 124 1,291 1,446 1,430
MACHINES
TABLE 38 8 50 51 26
GAMES
HOTEL 300 120 150 348(1) 224
ROOMS
NUMBER OF
RESTAURANT 4/3 1/1 3/4 4/4 6/3
S/BARS
RESTAURANT
/BAR 460/80 124/40 564/46 975/93 1,210/110
SEATING
CAPACITY
GUEST
PARKING 908 226 1,730 1,955(4) 1,900
SPACES
OTHER 356-Seat Keno; 364-Seat Kids Quest Sports
AMENITIES Showroom; Swimming Showroom; Children's Book;
Sports Pool; Gift Shop Activity Keno;
Book; General Center Meeting
Keno; Store; (2); Space;
Meeting Service Meeting Swimming
Space; Station Space; Pool;
Swimming Indoor Bingo;
Pool; Swimming Gift
Gift Pool & Shop;
Shop; Spa; Amusement
Amusement Exercise Arcade
Arcade Facility;
Gift Shop;
Amusement
Arcade
OPERATING Cactus CPI Ameristar Ameristar Ameristar
SUBSIDIARY Pete's, Casino Casino Casino
OR Inc. Vicksburg Council Las
SUBSIDIARI ("CPI") , Inc. Bluffs, Vegas,
ES ("ACVI") Inc. Inc.
and AC ("ACCBI") ("ACLVI")
Hotel
Corp. (3)
(1) Includes a full service 160-room Ameristar hotel owned and
operated by the Company and a limited service 188-room Holiday Inn
Suites Hotel owned and operated by a third party under a ground
lease from the Company. In addition, a Hampton Inn adjoining the
Holiday Inn Suites Hotel with approximately 100 rooms is expected
to be completed in the Fall of 2000.
(2) Operated by a third party.
(3) AC Hotel Corp., a wholly owned subsidiary of ACVI, owns the
hotel at Ameristar Vicksburg.
(4) ACCBI opened approximately 1,000 additional parking spaces in
its new parking garage in March 2000 bringing the total number of
guest parking spaces to approximately 3,000.
THE JACKPOT PROPERTIES
The Jackpot Properties, which have been operating since 1956,
have been designed and developed and are marketed to appeal to three
separate markets: budget, quality and luxury. The Company sets its
prices for hotel rooms, food and other non-gaming amenities at levels
that are affordable to its separate customer bases. The Company's
objective is to be perceived by its customers as providing good value
and high quality for the price charged. The Company promotes Cactus
Petes as a destination resort primarily in the northwestern United
States and southwestern Canada. The Jackpot Properties are open 24
hours a day, seven days a week.
Cactus Petes completed a major expansion project in 1991. In
addition, the Company substantially completed a remodeling of the
casino at The Horseshu in late 1997. Since 1993, Cactus Petes has
annually received a Four Diamond rating from the American Automobile
Association. The Horseshu Hotel has a Three Diamond rating from the
American Automobile Association. The food and beverage operations at
the Jackpot Properties include a buffet, a fine dining restaurant, a
24-hour casual dining restaurant, a coffee shop and a snack bar, a
showroom that features nationally known entertainment, and cocktail
lounges with entertainment.
Market. Management believes that approximately 50% of the
customer base of the Jackpot Properties consists of residents of
Idaho who generally frequent the properties on an overnight or
turnaround basis. The balance of the Jackpot Properties' customers
come primarily from Oregon, Washington, Montana, northern California
and the southwestern Canadian provinces. Although many of the
customers from beyond southern Idaho are tourists traveling to other
destinations, a significant portion of these customers come to
Jackpot as a final destination.
Competition. The Company has developed a dominant share of the
market capacity in Jackpot. The Jackpot Properties compete with four
other hotels and motels (three of which also have casinos). As of
March 15, 2000, the Jackpot Properties accounted for approximately
55% of the lodging rooms, 55% of the slot machines and 77% of the
table games in Jackpot. Management believes Cactus Petes offers a
more attractive environment and a broader and higher quality range of
gaming and leisure activities than those of its competitors. The
Company is not aware of any expansion plans by existing or potential
competitors in Jackpot.
At least two casinos with video lottery terminals ("VLT")
similar to slot machines are operated on Native American land in
Idaho, including one with approximately 200 VLT machines near
Pocatello that has been in operation for approximately five years.
Casino gaming began on Native American lands in both western
Washington and northeast Oregon in 1995, and casinos also operate in
Alberta, Canada. In addition, the Shoshone-Bannock Tribes in Southern
Idaho recently signed a Compact with the State of Idaho allowing
gaming on the Tribes' lands in the forms to be determined by a
federal court. The Compact has been ratified by the Idaho House of
Representatives and is now awaiting action in the Idaho Senate. The
Company expects to face increased competition depending on the forms
of gaming permitted on the Tribes' lands. See "Item 1. - Business -
Risk Factors - If We Cannot Compete Successfully with Other Hotel
Casino Operators, Our Future Operations May be Materially Adversely
Affected."
AMERISTAR VICKSBURG
Ameristar Vicksburg, which opened in February 1994, represents
the Company's first expansion project outside of Jackpot. Management
believes Ameristar Vicksburg provides superior and larger facilities
than its current competitors in the Vicksburg area and has
competitive advantages by virtue of its close proximity to Interstate
20. Nonetheless, Vicksburg is a competitive gaming market and
Ameristar Vicksburg's operations to date have been dependent to a
substantial degree upon a continuous casino marketing and promotional
campaign.
The permanently moored, dockside Vicksburg Casino is
approximately 315 feet long and approximately 120 feet wide. Due to
the width of the Vicksburg Casino, the casino, restaurants and
showroom have the spacious feel of a land-based facility. The
Vicksburg Casino has three levels, which are connected by escalators
and elevators. The casino is on the bottom and middle levels and has
wide aisles with an open feel that provides a comfortable and
inviting atmosphere. During 1999, the casino floor was upgraded and
expanded, with 254 new innovative slot machines being added and 232
older slot machines being replaced with newer slot machines. The
Vicksburg Casino has entrances on both the lower and middle levels,
with the lower-level entrance providing access from valet parking and
the middle-level entrance providing access from the self-parking
area. The Vicksburg Casino is open 24 hours a day, seven days a week.
The food and beverage operations at the Vicksburg Casino include
three restaurants (a new upscale steakhouse, which opened in December
1999, a buffet and a 24-hour casual dining restaurant which was
remodeled during 1999), four bars (one of which offers live cabaret-
style entertainment) and a showroom (which is used on an intermittent
basis for entertainment and players club promotions). In addition,
approximately 600 new parking spaces were added during 1999, bringing
the total number of guest parking spaces to over 1,700.
Management believes Ameristar Vicksburg's competitive advantages
include its location, the size and design of the project and the
range and quality of its amenities. The primary locational advantages
of Ameristar Vicksburg are its proximity to Interstate 20 and its
ease of access. As discussed above, the Vicksburg Casino is
significantly wider than typical riverboat casinos. As part of a long-
term plan to enhance Ameristar Vicksburg, the Company acquired 18
acres of raw land across from the main entrance to the Vicksburg
Casino for the future development of additional improvements. The
Company constructed a 150-room hotel, which opened in June 1998, on a
portion of this parcel. In addition, management believes the overall
range and quality of the facilities, food service and entertainment
at Ameristar Vicksburg are superior to those available at its
existing competitors.
Market. The primary market for Ameristar Vicksburg is residents
of the Jackson and Vicksburg, Mississippi and Monroe, Louisiana
areas; tourists coming to Vicksburg primarily to visit the Vicksburg
National Military Park; and other traffic traveling on Interstate 20,
a major east-west thoroughfare that connects Atlanta and Dallas.
Vicksburg, with a population of approximately 30,000 persons, is
located 45 miles west of Jackson, the capital of Mississippi.
According to the 1990 U.S. Census, the Jackson and Vicksburg
metropolitan areas had a total population of approximately 460,000
persons. Approximately 1.5 million people live within a 100-mile
radius of Vicksburg. The Vicksburg National Military Park, located
within three miles of Ameristar Vicksburg, draws over 1,000,000
registered visitors a year. Interstate 20 (which connects Atlanta and
Dallas) passes directly through Vicksburg. According to the
Mississippi Department of Transportation, approximately 8.0 million
vehicles drove across the Interstate 20 bridge at Vicksburg during
1999. As of March 1, 2000, Vicksburg had approximately 1,900 lodging
rooms. The Vicksburg Chamber of Commerce has estimated that the 1999
average hotel occupancy rate in Vicksburg was approximately 65%.
Gaming revenues in Warren County, Mississippi for the 52 weeks ended
December 18, 1999, were approximately $213.4 million.
Competition. Ameristar Vicksburg is subject to competition from
three local competitors, from casinos in Shreveport and Bossier City,
Louisiana, and from a Native American casino in Philadelphia,
Mississippi. Ameristar Vicksburg has approximately 1,600 gaming
positions or 36.7% of the total number of positions in Warren County
(the number of gaming positions increased by approximately 200 during
1999). Based on available data, Ameristar Vicksburg is currently the
market leader in Warren County and generated gaming revenues in 1998
and 1999 representing approximately 31.5% and 33.4%, respectively, of
the total market gaming revenues. Management attributes Ameristar
Vicksburg's leading market share position to the effectiveness of the
Company's marketing and promotional strategy, the property's
proximity to and visibility from Interstate 20, its ease of access,
the size and design of the facility and the range and quality of the
amenities offered.
Several potential gaming sites still exist in Warren County and
Vicksburg and from time to time potential competitors propose the
development of additional casinos in or near Vicksburg. The Company
is currently involved in legal proceedings in which it is alleged
that the Company and certain other parties engaged in conduct to
oppose the development of a casino between Vicksburg and Jackson in
violation of Mississippi's antitrust and gaming regulatory laws.
See "Item 1. - Business - Risk Factors - If We Cannot Compete
Successfully with Other Hotel Casino Operators, Our Future Operations
May be Materially Adversely Affected."- Ameristar Vicksburg." and
"Item 3. - Legal Proceedings."
AMERISTAR COUNCIL BLUFFS
The Company opened Ameristar Council Bluffs in January 1996
under one of three gaming licenses currently issued for Pottawattamie
County, Iowa. On the bank of the Missouri River across from Omaha,
Nebraska, Ameristar Council Bluffs is adjacent to the Nebraska Avenue
exit on Interstate 29 immediately north of the junction of Interstate
29 and Interstate 80. The Company designed Ameristar Council Bluffs
as a destination resort intended to serve as an entertainment
centerpiece of the region. Ameristar Council Bluffs features
architecture reminiscent of a gateway river town in the late 1800s.
The design complements existing characteristics of Council Bluffs
while giving the facility its own distinctive personality. Ameristar
Council Bluffs opened in stages during 1996 and early 1997. The
approximately 50-acre Ameristar Council Bluffs site is large enough
to accommodate future land-based expansion.
In 1999, Ameristar Council Bluffs was awarded the prestigious
Four-Diamond designation from the American Automobile Association.
The facility is the only riverboat property in the nation to carry
this designation.
The Council Bluffs Casino is an approximately 52,000 square foot
three-level riverboat measuring 272 feet long by 98 feet wide with a
casino of approximately 42,500 square feet. The third level addition
to the riverboat was completed in November 1999 which increased the
number of gaming positions by approximately 400. By building the
vessel with high ceilings and making it 98 feet wide, the casino has
the spacious feel of a land-based facility. Escalators and an
elevator connect all levels of the riverboat. The casino is open 24
hours a day, seven days a week and is required to make a two-hour
cruise a minimum of 100 days per year during the "excursion season,"
which is defined as April 1 through October 31. If the riverboat
fails to satisfy this cruising requirement, it will not be allowed to
operate during the balance of the year. However, the Company
believes that the Iowa Racing and Gaming Commission would grant a
release from this requirement should dangerous cruising conditions
preclude the riverboat from making the minimum number of cruises.
Guests enter the riverboat from shore via an enclosed ramp from
the 68,000-square foot Main Street Pavilion and from the newly
completed, fully enclosed parking garage. The Main Street Pavilion is
a self-contained complex featuring an Ameristar hotel, restaurants
and entertainment options for children and adults. The interior of
the Pavilion is designed to replicate a Victorian-era main street.
The main level of the Pavilion includes a buffet, a 24-hour casual
dining restaurant, a steak house and a sports bar cabaret, all of
which are operated by the Company. Rising above the Pavilion is a
five-story, 160-room, full-service Ameristar hotel that offers a
panoramic view of the Missouri River and the Council Bluffs Casino.
The Main Street Pavilion also includes a children's activity center
operated by New Horizon Kids Quest, Inc. and owned by a joint venture
between that company and Ameristar Council Bluffs. A 1,000 space
parking garage, adjacent to the pavilion, was substantially completed
in March 2000 and will be fully operational by the beginning of April
2000.
The Company has leased a portion of the Ameristar Council Bluffs
site to an entity controlled by Iowa-based Kinseth Hotel Corporation
for a 188-room, limited-service Holiday Inn Suites hotel that opened
on March 31, 1997 and was expanded during 1999. The Kinseth Hotel
Corporation developed and operates this hotel. The Holiday Inn Suites
hotel and the Main Street Pavilion are connected by a climate-
controlled walkway that also connects to the indoor pool and spa and
the exercise room. The Company has leased another portion of the
Ameristar Council Bluffs site to Kinseth Hotel Corporation for the
development of an approximately 100-room Hampton Inn hotel. Kinseth
Hotel Corporation will also operate this hotel, which will be
connected to the Holiday Inn Suites Hotel and/or directly to the Main
Street Pavilion by a climate-controlled walkway. The Hampton Inn
hotel is expected to be completed in the Fall of 2000.
Market. Council Bluffs has a population of approximately 54,000
people. Council Bluffs forms part of the greater Omaha,
Nebraska/Council Bluffs, Iowa metropolitan area, which has a
population of approximately 690,000. Approximately 1.0 million people
live within a 50-mile radius, and approximately 1.7 million people
live within a 100-mile radius, of Council Bluffs. The median
household income of the greater metropolitan area is approximately
$42,000, with an unemployment rate of approximately 2.1%. Based on
available data, Council Bluffs is currently the strongest gaming
market in Iowa. Gaming revenues in Pottawattamie County, Iowa for the
12 months ended January 31, 2000, were $329.1 million, an increase of
$32.4 million over the prior 12-month period.
Competition. Three gaming licenses have been issued for
Pottawattamie County, Iowa to Iowa West Racing Association. ACCBI
operates the Council Bluffs Casino pursuant to an operating agreement
with Iowa West Racing Association. The other casinos operating under
these licenses are Harveys Casino Hotel ("Harveys"), which operates a
riverboat casino in close proximity to Ameristar Council Bluffs, and
Bluffs Run Casino ("Bluffs Run"), a year-round dog track and casino
owned by a subsidiary of Harveys Casino Resorts, the parent company
of Harveys, which acquired the property from Iowa West Racing
Association in October 1999. Bluffs Run's gaming license limits the
casino to the operation of reel-style and video slot machines that
meet the definition of "games of chance" under the Iowa statutes.
Bluffs Run, which opened in March 1995, has approximately 1,250 slot
machines, a restaurant, a buffet, and lounge entertainment. The
Company believes that Bluffs Run will continue to provide significant
competition due to its advantage of being the only land-based
facility in the market. Management believes Harveys also provides
serious competition for Ameristar Council Bluffs. The Harveys casino
opened on January 1, 1996, and substantially all the other Harveys
facilities opened in May 1996, except for a restaurant that opened in
May 1997. A third level addition to the Harveys riverboat in early
1998 added approximately 200 more slot machines. In 1999, a 1,600
space parking garage was added along with a car wash and 70
additional slot machines.
The average monthly market share of gaming revenues of Ameristar
Council Bluffs was approximately 30.9% for the twelve month period
from February 1999 through January 2000, approximately 4.0 and 3.2
percentage points behind Bluffs Run and Harveys, respectively. From
the time the third deck of the casino opened on November 22, 1999
through March 19, 2000, Ameristar Council Bluffs' market share was
32.6%, approximately 0.5 and 1.7 percentage points behind Bluffs Run
and Harveys, respectively. See also "Item 1. - Business - Risk
Factors - If We Cannot Compete Successfully with Other Hotel Casino
Operators, Our Future Operations May be Materially Adversely
Affected. - Ameristar Council Bluffs."
THE RESERVE
The Reserve, featuring an African safari and big game reserve
theme that includes statues of elephants, giraffes and other animals,
opened on February 10, 1998, at the southeast corner of the junction
of Lake Mead Drive and Interstate 515 in Henderson, Nevada. The
Company acquired The Reserve under construction on October 9, 1996.
In connection with the acquisition, the Company redesigned The
Reserve to expand and enhance the project.
The Reserve, which is open 24 hours a day, seven days a week,
includes approximately 42,000 square feet of casino space (with
approximately 1,430 slot machines and approximately 26 table games),
224 hotel rooms, six restaurants (a buffet, a 24-hour casual dining
restaurant, a steakhouse, an Italian restaurant and two fast food
outlets), three bars and lounges, a sports book, keno, bingo,
approximately 1,900 surface parking spaces and a swimming pool. In
1999, the Company remodeled the Italian restaurant, expanded the 24-
hour casual dining restaurant and added the two fast food outlets.
Meeting rooms were also added. The food and beverage operations and
back-of-house facilities were designed to support the potential
future expansion of The Reserve.
The ultimate master plan for The Reserve has been designed for
phased expansions of the gaming areas, additional hotel towers, multi-
level parking, and other amenities such as additional restaurants as
warranted by market and competitive conditions.
Market. The gaming market in the greater metropolitan Las Vegas
area includes segments for local residents and visitors, and both
segments of this market are subject to intense and dynamic
competition. The Reserve competes primarily for local customers in
the Henderson-Green Valley suburban community. The Company also
markets The Reserve to visitors, including persons driving to and
from Arizona via Interstate 515, persons driving between California
and Lake Mead and other visitors to the Las Vegas area who desire
lodging in Henderson-Green Valley.
The Las Vegas metropolitan area was the fastest growing
metropolitan area, and Henderson was the fastest growing city in the
United States, during the first half of the 1990s, with population
increases of 26% and 57%, respectively. The population of Clark
County increased by 5.0% during 1998 and the population of Henderson
increased by 9.6% for the same period. In 1998 the population of
Clark County, Nevada was 1.2 million, and the population of Henderson
and Boulder City (a community south of Henderson) was 180,000.
According to the Nevada Department of Transportation, approximately
80,000 vehicles per day currently pass through the junction of
Interstate 515 and Lake Mead Drive, the site of The Reserve. In
addition, the Interstate 215 beltway, which will intersect Interstate
515 adjacent to The Reserve, is scheduled for completion in May 2000,
though no assurance can be given of the actual completion date. No
assurance can be given that the Las Vegas metropolitan area and
Henderson-Green Valley will continue to experience population growth
or that growth will continue for any particular period of time or at
the same rates as in the recent past.
Competition. Three large local-market casino hotels are located
within 11 miles of The Reserve. This includes Sunset Station, a
casino-hotel operated by Station Casinos, Inc. located approximately
3.5 miles north of The Reserve along Interstate 515. Sunset Station
is larger than The Reserve and Station Casinos has operated casinos
aimed at local Las Vegas residents for many years. Station Casinos
has also announced plans for the development of a casino-hotel resort
approximately 3.5 miles west of The Reserve, near the junction of
Green Valley Parkway and Lake Mead Drive. Station Casinos expects
this new development to open in the fourth quarter of 2001. In
addition, The Reserve competes to a lesser extent with a number of
small, limited service casinos that currently operate within a five-
mile radius. Additional competition in this area is anticipated over
time. See "Item 1. - Business - Risk Factors - If We Cannot Compete
Successfully with Other Hotel Casino Operators, Our Future Operations
May Be Materially Adversely Affected - The Reserve."
EMPLOYEES
As of March 1, 2000, the Company employed approximately 4,300
employees. None of the Company's current employees is employed
pursuant to collective bargaining or other union arrangements.
Management believes its employee relations are good.
RISK FACTORS
IF WE CANNOT COMPETE SUCCESSFULLY WITH OTHER HOTEL CASINO
OPERATORS, OUR FUTURE OPERATIONS MAY BE MATERIALLY ADVERSELY
AFFECTED.
General. We compete for customers primarily on the basis of (1)
the location and quality of our properties, (2) the quality, range
and pricing of non-gaming amenities such as hotels, restaurants and
entertainment, and (3) the strength of our marketing and promotional
campaigns. Some of our existing competitors have greater name
recognition and financial and marketing resources than we have.
Other companies with greater name recognition and financial and
marketing resources than we have could enter our current markets and
become competitors in the future. The entry into our current markets
of additional competitors could materially adversely affect our
business, financial condition and results of operations.
In addition, four out of our five operating properties are
located in jurisdictions that restrict gaming to certain areas and/or
borders a state that prohibits or restricts gaming operations. These
restrictions and prohibitions provide substantial benefits to our
business and our ability to attract and retain customers. The
legalization or expanded legalization or authorization of gaming
within a market area of one of these properties could have a material
adverse effect on our business, financial condition and results of
operations.
The Jackpot Properties. The Jackpot Properties compete with
three other casinos in the Jackpot area. We could be materially
adversely affected by the renovation or expansion of the existing
casinos, or the development of new casinos, in the Jackpot area. We
do not currently know of any plans by parties operating in the
Jackpot area to expand their existing casinos or by any other parties
to develop new casinos in the Jackpot area.
In addition to local casinos, the Jackpot Properties compete
with casinos in other portions of the Pacific Northwest, including
existing casinos on Native American lands near Pocatello, Idaho and
in western Washington, northeastern Oregon and Alberta, Canada. We
cannot predict the future competitive effects of these casinos on the
Jackpot Properties. Any expansion of casino gaming on Native
American lands in southern Idaho, eastern Oregon or eastern
Washington could have a material adverse effect on the Jackpot
Properties and us.
The Indian Gaming Regulatory Act of 1988 ("IGRA") restricts
gaming operations on Native American land to those allowed under
state law, and the Idaho Constitution prohibits all forms of casino
gaming. However, video lottery terminal ("VLT") casinos, including
one near Pocatello, are currently being operated on Native American
lands in Idaho. While these VLT casinos may be in violation of IGRA,
federal officials have not taken any enforcement action against these
operations. The failure of the federal government to take such
enforcement action could lead to the expansion of casino gaming on
Native American lands in Idaho. This could have a material adverse
effect on the Jackpot Properties and on us.
In addition, the Shoshone-Bannock Tribes in Southern Idaho
recently signed a Compact with the Idaho Governor that allows the
parties to seek a declaratory judgment from federal court to
determine what forms of gaming may be conducted on the Tribes' lands.
The Compact has been ratified by the Idaho House and is now awaiting
action in the Idaho Senate. If the Compact is ratified and a federal
court determines that a broad range of gaming is allowed under IGRA
and the Idaho Constitution, the Jackpot Properties will likely face
increased competition and could be materially adversely affected.
Ameristar Vicksburg. Ameristar Vicksburg competes with three
local competitors, casinos in Shreveport and Bossier City, Louisiana,
and a Native American casino in Philadelphia, Mississippi. Due to
the intensity of competition in the Vicksburg market, the success of
Ameristar Vicksburg's business depends upon continuous and aggressive
marketing and promotional efforts. We believe that competition from
the casinos in Shreveport and Bossier City, Louisiana and
Philadelphia, Mississippi has resulted in a shrinkage in the
territorial size of the Vicksburg gaming market, placing increased
competitive pressures on the casinos operating in Vicksburg. Any
further reduction in the territorial size of the Vicksburg gaming
market could have a material adverse effect on Ameristar Vicksburg
and on us.
Several potential gaming sites still exist in Warren County and
Vicksburg. From time to time, potential competitors propose the
development of additional casinos in or near Vicksburg. We cannot
assure you that additional competitors will not enter the Vicksburg
market, and additional competition in Vicksburg could have a material
adverse effect on our business, financial condition and results of
operations.
In addition, we are aware of potential sites on the Big Black
River near Interstate 20 between Jackson and Vicksburg, which, if
developed, would provide a significant competitive advantage over
Ameristar Vicksburg and other gaming operations in Warren County due
to their closer proximity to Jackson. However, there currently is no
exit off Interstate 20 in the vicinity of these sites, the area
surrounding these sites is undeveloped and lacks any infrastructure
and these sites may not meet the requirements of Mississippi law for
the development of a casino. In December 1996, the Mississippi
Gaming Commission rejected an application for the development of a
casino at one of these sites by ruling the site to be unsuitable for
a casino. This denial was appealed by an adjoining landowner and the
license applicant. In December 1997, a Mississippi circuit court
issued an order reversing the decision of the Mississippi Gaming
Commission and remanded the application to the Mississippi Gaming
Commission for further proceedings. The Mississippi Gaming
Commission has appealed this court order to the Mississippi Supreme
Court, and we expect the Supreme Court will issue a decision later in
2000. The development of a casino on the Big Black River likely
would have a material adverse effect on Ameristar Vicksburg and us.
In addition, we are involved in two lawsuits in which it is
alleged that we and certain other parties engaged in conduct to
oppose the gaming license application for the Big Black River site in
violation of Mississippi's antitrust and gaming regulatory laws. One
of these lawsuits has been tried in a Mississippi state court in Pike
County and resulted in a verdict against us and other defendants in
the amount of $3,792,000, of which our pro rata portion is
$1,685,333. We have appealed this case to the Mississippi Supreme
Court. A second law suit containing similar allegations and claims
was filed by other plaintiffs in state court in Pike County,
Mississippi in December 1999. We and the other defendants have
removed this case to the federal court in Jackson. The plaintiffs
are attempting to have the case remanded by the federal court back to
the Pike County state court, which we and the other defendants are
resisting. We believe that our conduct was a proper exercise of our
legal rights, and we are continuing to vigorously defend these
lawsuits.
If Mississippi law was amended to permit gaming in Hinds County,
the development of one or more casinos there would materially
adversely affect us. We are not aware of any current proposals that
would permit an expansion of gaming into Hinds County.
Ameristar Council Bluffs. Ameristar Council Bluffs currently
competes in Council Bluffs with two other casinos. One of these
casinos, at the Bluffs Run dog racing track, has a significant
competitive advantage as a land-based facility. Bluffs Run was the
local market leader in gaming revenues for the year ended December
31, 1999 even though its license limits its gaming operations to reel-
style and video slot machines that meet the definition of "games of
chance". We believe that the other competitor in Council Bluffs, a
riverboat casino operated by Harveys Casino Resorts, also provides
and will continue to provide serious competition for Ameristar
Council Bluffs. Bluffs Run was recently acquired by Harveys Casino
Resorts. This consolidation could lead to increased competitive
pressures for Ameristar Council Bluffs.
In September 1998, the Iowa Racing and Gaming Commission passed
a regulation limiting the number of gaming licenses in the State of
Iowa to those currently issued. Unless legislative action is taken
to overrule or modify that regulation, there will be no more licenses
granted in the State of Iowa. However, we cannot assure you that
this regulation will not be overruled by the Iowa legislature or
modified by the Iowa Racing and Gaming Commission. The development
of any new casinos in the Council Bluffs area could have a material
adverse effect on Ameristar Council Bluffs and on us.
A ballot initiative was proposed in 1996 that would have
authorized slot machines and casino gaming at certain locations in
Nebraska, including Omaha, which is across the Missouri River from
Council Bluffs. This initiative was not placed on the ballot due to
the determination by the Nebraska Secretary of State that an
insufficient number of petition signatures had been obtained. We
believe that it is unlikely that any further legislative action or
voting referendum that would authorize casino gaming in Nebraska will
be acted upon prior to 2001. However, we cannot assure you that
casino gaming will not become permitted in Nebraska at some time in
the near future, including before 2001. The introduction of casino
gaming in Nebraska, especially in the Omaha area, would likely have a
material adverse effect on Ameristar Council Bluffs and on us.
The Reserve. Three large local-market casino hotels are located
within 11 miles of The Reserve. This includes Sunset Station, a
casino-hotel operated by Station Casinos, Inc. located approximately
3.5 miles north of The Reserve along Interstate 515. Sunset Station
is larger than The Reserve, and Station Casinos has operated casinos
aimed at local Las Vegas residents for many years. Station Casinos
has also announced plans for the development of a casino-hotel resort
approximately 3.5 miles west of The Reserve, near the junction of
Green Valley Parkway and Lake Mead Drive. Station Casinos expects
this new development to open in the fourth quarter of 2001.
We are aware of several other sites in Henderson-Green Valley
that have been zoned for casino-hotels. Additional casino resorts
may be developed in Henderson-Green Valley and other portions of the
southeastern Las Vegas metropolitan area. The development of
additional casino-hotels in Henderson-Green Valley and other portions
of the southeastern Las Vegas metropolitan area, including the
completion of the project announced by Station Casinos, will place
additional competitive pressures on The Reserve and could have a
material adverse effect on The Reserve and on us. Other than Station
Casinos' announcement described above, to date, no meaningful
announcements have been made related to any future casino development
in the immediate market in which The Reserve operates.
Interstate 215 is expected to be extended from the west to
intersect Interstate 515 adjacent to The Reserve. This interchange
is currently in the design stages, and we expect that the design will
have some adverse effects on The Reserve that may not be overcome by
the benefits of the improved roadways. In addition, construction of
Interstate 215, which is currently ongoing, has adversely affected
and will continue to adversely affect traffic flow on Lake Mead
Drive.
OUR SUBSTANTIAL LEVERAGE MAY AFFECT OUR ABILITY TO SATISFY
DEBT OBLIGATIONS AND MAY CONSTRAIN OUR ABILITY TO OPERATE
OUR BUSINESS.
We are highly leveraged and have substantial fixed debt service
in addition to our operating expenses. The degree to which we are
leveraged could have important adverse consequences to the holders of
our securities. These effects include, without limitation:
Impaired ability to make scheduled payments of principal or
interest on our indebtedness, to refinance our indebtedness or to pay
premiums (if any) required in connection with our indebtedness;
Impaired ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions or other
purposes;
Limited flexibility in planning for or reacting to changes in
market conditions; and
Increased vulnerability to any downturn in the general market or
in our operations specifically.
Our principal long-term debt instruments contain restrictive
covenants. These include limitations on our ability to:
incur additional indebtedness;
create liens and other encumbrances;
make certain payments and investments;
enter into transactions with affiliates; and
sell or otherwise dispose of assets or merge or consolidate with
another entity.
Although the covenants are subject to various exceptions that
are intended to allow us to operate without undue restraint in
certain anticipated circumstances, we cannot assure you that these
covenants will not adversely affect our ability to finance future
operations or capital needs or to engage in other activities that may
be in our best interest. In addition, our long-term debt requires us
to maintain certain financial ratios. Our ability to comply with
these provisions will depend upon our future performance, which will
be affected by prevailing economic conditions and financial,
business, competitive, regulatory and other factors. Many of these
factors are beyond our control. Accordingly, we cannot assure you
that we will maintain a level of operating cash flow that will permit
us to service our obligations and to satisfy applicable financial
covenants. A breach of any of these covenants or our inability to
comply with the required financial ratios could result in us being
required to repay outstanding principal and/or an inability to obtain
additional borrowings under existing debt facilities. It could also
result in a default under one or more of our long-term debt
instruments. This would severely limit our ability to improve or
expand our existing properties or to develop new properties. Any
long-term debt instruments or credit facilities that we enter into in
the future will likely contain restrictions similar to those
described above.
MANY FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL, COULD
ADVERSELY AFFECT OUR ABILITY TO SUCCESSFULLY COMPLETE OUR
CONSTRUCTION AND DEVELOPMENT PROJECTS AS PLANNED.
General Construction Risks - Delays and Cost Overruns.
Construction and expansion projects under consideration for our
properties entail significant risks. These risks include:
shortages of materials (including slot machines or other gaming
equipment);
shortages of skilled labor or work stoppages;
unforeseen construction scheduling, engineering, environmental
or geological problems;
weather interference;
floods, fires or other casualty losses; and
unanticipated cost increases.
Our anticipated costs and construction periods for construction
projects are based upon budgets, conceptual design documents and
construction schedule estimates prepared by us in consultation with
our architects and contractors. The cost of any construction project
undertaken by us may vary significantly from initial current
expectations, and we may have a limited amount of capital resources
to fund cost overruns on any project. If we cannot finance cost
overruns on a timely basis, the completion of one or more projects
may be delayed until adequate cash flow from operations or other
financing is available. The completion date of any of our
construction projects could also differ significantly from initial
expectations for construction-related or other reasons. We cannot
assure you that any project will be completed, if at all, on time or
within established budgets. Significant delays or cost overruns on
our construction projects could have a material adverse effect on our
business, financial condition and results of operations.
We employ "fast-track" design and construction methods in some
of our construction and development projects. This involves the
design of future stages of construction while earlier stages of
construction are underway. Although we believe that the use of fast-
track design and construction methods can reduce the overall
construction time, these methods may not always result in such
reductions, may involve additional construction costs than otherwise
would be incurred and may increase the risk of disputes with
contractors.
Construction Dependent upon Available Financing and Operations.
The availability of funds under our principal credit facility at any
time is dependent upon the amount of our consolidated EBITDA (as
defined) during the preceding four full fiscal quarters. Our future
operating performance will be subject to financial, economic,
business, competitive, regulatory and other factors, many of which
are beyond our control. Accordingly, we cannot assure you that our
future consolidated EBITDA and the resulting availability of
operating cash flow or borrowing capacity will be sufficient to allow
us to undertake or complete future construction projects.
As a result of operating risks, including those described in
this section, and other risks associated with a new venture, we
cannot assure you that, once completed, any development project will
increase our operating profits or operating cash flow.
OUR POTENTIAL DEVELOPMENT OF A CASINO IN LEMAY, MISSOURI WILL REQUIRE
SIGNIFICANT CAPITAL EXPENDITURE AND WE CANNOT PREDICT WHETHER THE
CASINO WILL BE SUCCESSFUL.
The Ameristar Casino St. Louis at Lemay is currently in the
initial planning stages and remains subject to numerous
contingencies. These contingencies include, for example, the
satisfactory completion of due diligence concerning the proposed
site, the selection of our application for investigation by the
Missouri Gaming Commission, obtaining various other regulatory
permits and approvals and completing financing arrangements for the
project. We have already devoted substantial resources to this
project and expect to devote significant additional resources during
the planning and construction stages of this project. However, we
cannot assure you when or if our application for investigation will
be selected by the Missouri Gaming Commission or that we will
otherwise be able to complete the development of the Ameristar Casino
St. Louis at Lemay. If we do complete this project, we cannot assure
you that we will be able operate the property profitably or that we
will be able to obtain any return on our investment in the project.
OUR MAJORITY STOCKHOLDER'S OWNERSHIP RESULTS IN LIMITED
LIQUIDITY IN THE MARKET FOR OUR COMMON STOCK.
Craig H. Neilsen, our president and chief executive officer,
owns approximately 86.9% of our outstanding shares of Common Stock.
As a result, Mr. Neilsen controls our management and daily operations
and his substantial ownership results in limited liquidity in the
market for our Common Stock.
A CHANGE IN CONTROL COULD RESULT IN THE ACCELERATION OF
CERTAIN OF OUR DEBT OBLIGATIONS.
Certain changes in control could result in the acceleration of
our principal long-term credit facilities. This acceleration could
be triggered in the event of Mr. Neilsen's death if his estate, heirs
or devisees must sell a substantial number of shares of our Common
Stock to obtain funds to pay inheritance tax liabilities. We cannot
assure you that we would be able to repay any indebtedness that is
accelerated as a result of a change in control, and this would likely
materially adversely affect our financial condition.
IF OUR KEY PERSONNEL LEAVES US, OUR BUSINESS WILL BE
SIGNIFICANTLY ADVERSELY AFFECTED.
We depend on the continued performance of Mr. Neilsen and his
management team. The loss of the services of Mr. Neilsen or any of
our other executive officers could have a material adverse effect on
our business.
THE MARKET FOR QUALIFIED OPERATING AND CORPORATE MANAGEMENT
PERSONNEL IS SUBJECT TO INTENSE COMPETITION.
We have experienced and expect to continue to experience strong
competition in hiring and retaining qualified operating and corporate
management personnel. We believe that a number of factors have
contributed to our difficulties in attracting and retaining qualified
management personnel, including:
the recent proliferation and expansion of gaming facilities
throughout the United States;
the additional burdens on our existing management personnel due
to the lack of depth in other positions; and
our reluctance to match or exceed compensation packages offered
by some of our competitors.
Recruiting and retaining qualified management personnel is
particularly difficult in Vicksburg and Jackpot due to local market
conditions. If we are unable to successfully recruit and retain
qualified management personnel at our properties and at our corporate
level, our results of operations could be materially adversely
affected.
RESTRICTIONS AND LIMITATIONS IMPOSED BY GAMING REGULATORY
AUTHORITIES ADVERSELY AFFECT OUR BUSINESS.
The ownership and operation of casino gaming facilities are
subject to extensive state and local regulation. The States of Iowa,
Mississippi and Nevada and the applicable local authorities require
various licenses, findings of suitability, registrations, permits and
approvals to be held by us and our subsidiaries. The Iowa Racing and
Gaming Commission, the Mississippi Gaming Commission and the Nevada
Gaming Commission may, among other things, limit, condition, suspend,
revoke or not renew a license or approval to own the stock of any of
Ameristar's Iowa, Mississippi or Nevada subsidiaries, respectively,
for any cause deemed reasonable by such licensing authority. Our
gaming license in Mississippi must be renewed every three years and
our gaming license in Iowa must be renewed every year. If we violate
gaming laws or regulations, substantial fines could be levied against
us, our subsidiaries and the persons involved, and we could be forced
to forfeit portions of our assets. The suspension, revocation or non-
renewal of any of our licenses or the levy on us of substantial fines
or forfeiture of assets would have a material adverse effect on our
business, financial condition and results of operations. We are also
subject to substantial gaming taxes and fees imposed by various
governmental authorities, which are subject to increase.
To date, we have obtained all governmental licenses, findings of
suitability, registrations, permits and approvals necessary for the
operation of our currently operating gaming activities. However,
gaming licenses and related approvals are deemed to be privileges
under Iowa, Mississippi and Nevada law. We cannot assure you that
our existing licenses, permits and approvals will be maintained or
extended. We also cannot assure you that any new licenses, permits
and approvals that may be required in the future will be granted to
us.
Changes in law could restrict or prohibit our gaming operations
in any jurisdiction. In addition, certain jurisdictions, including
Iowa, require the periodic reauthorization of gaming activities.
This reauthorization of gaming activities in Iowa will next occur in
2002. We cannot assure you that gaming operations of the type we
conduct will continue to be authorized in any jurisdiction. A change
in law restricting or prohibiting our gaming operations or the
failure to reauthorize gaming activities in the jurisdiction in which
we operate could substantially diminish the value of our assets in
those jurisdictions. This could have a material adverse effect on
our business, financial condition and results of operations.
THE ADOPTION OF CERTAIN ANTI-GAMING INITIATIVES IN
MISSISSIPPI WOULD SUBSTANTIALLY DIMINISH THE VALUE OF
AMERISTAR VICKSBURG AND WOULD HAVE A MATERIAL ADVERSE EFFECT
ON US.
In 1998, two referenda were proposed seeking to amend the
Mississippi Constitution to ban gaming in Mississippi. Neither of
these initiatives were placed on the ballot for public election based
on procedural defects. However, it is likely that at some point a
revised initiative will be filed that does not suffer procedural
defects and therefore is placed on the ballot. The adoption by
Mississippi voters of any proposal to ban or significantly limit
gaming in Mississippi would substantially diminish the value of
Ameristar Vicksburg and would have a material adverse effect on our
business, financial condition and results of operations.
THE LOSS OF OUR RIVERBOAT AND DOCKSIDE FACILITIES FROM
SERVICE COULD MATERIALLY ADVERSELY EFFECT US.
Our riverboat and dockside facilities in Mississippi and Iowa
could be lost from service due to casualty, mechanical failure,
extended or extraordinary maintenance, floods or other severe weather
conditions. Cruises of the Council Bluffs Casino are subject to risks
generally incident to the movement of vessels on inland waterways,
including risks of casualty due to river turbulence and severe
weather conditions. In addition, United States Coast Guard
regulations set limits on the operation of vessels and require that
vessels be operated by a minimum complement of licensed personnel.
The United States Coast Guard also requires all US flagged
passenger vessels operating exclusively in fresh water to conduct a
thorough dry-dock inspection of underwater machinery, valves and hull
every five years. Less stringent inspection requirements apply to
permanently moored dockside vessels like the Vicksburg Casino. The
Ameristar Council Bluffs riverboat is due for its dry-dock inspection
in November 2000, but we have been accepted into a United States
Coast Guard program that would allow us to obtain a 30-month
extension of the dry-dock requirement. To obtain this extension, the
Ameristar Council Bluffs riverboat must undergo a thorough underwater
inspection in the fall of 2000 after the cruising season. However,
if we do not obtain this extension, the Council Bluffs Casino would
be out of service for a substantial period of time for its dry-dock
inspection. This would have a material adverse effect on Ameristar
Council Bluffs and on our business, financial condition and results
of operations. We cannot assure you that we will actually obtain an
extension of the dry-dock requirement or that similar extensions will
be obtained in the future.
The Ameristar Vicksburg site has experienced some instability
that has required periodic maintenance and improvements. Although we
have recently completed the process of reinforcing the cofferdam
basin in which the vessel floats, further reinforcements may be
necessary. We are also monitoring the site to evaluate what further
steps, if any, may be necessary to stabilize the site to permit
operations to continue. A site failure would require Ameristar
Vicksburg to limit or cease operations. The loss of a riverboat or
dockside facility from service for any period of time likely would
adversely affect our operating results and borrowing capacity under
our long-term debt facilities. It could also result in the
occurrence of an event of a default under one or more of our credit
facilities or contracts.
WE COULD FACE SEVERE PENALTIES AND MATERIAL REMEDIATION
COSTS IF WE FAIL TO COMPLY WITH APPLICABLE ENVIRONMENTAL
REGULATIONS.
As is the case with any owner or operator of real property, we
are subject to a variety of federal, state and local governmental
regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. Failure to comply with environmental
laws could result in the imposition of severe penalties or
restrictions on operations by government agencies or courts of law,
which could adversely affect operations. We do not have environmental
liability insurance to cover most such events, and the environmental
liability insurance coverage we maintain to cover certain events
includes significant limitations and exclusions. In addition, if we
discover any significant environmental contamination affecting any of
our properties, we could face material remediation costs or
additional development costs for future expansion activities.
SYSTEMS FAILURES RESULTING FROM THE YEAR 2000 ISSUE COULD MATERIALLY
ADVERSELY AFFECT OUR OPERATIONS.
In the past, many computer software programs were written using
two digits rather than four to define the applicable year. As a
result, date-sensitive computer software may recognize a date using
"00" as the year 1900 rather than the year 2000. This is generally
referred to as the "Year 2000 issue." If this situation occurs, the
potential exists for computer system failures or miscalculations by
computer programs, which could disrupt operations. Prior to the
rollover to the Year 2000, we evaluated all of our computer systems,
including our front- and back-of-the-house computer operations, our
back-of-the-house accounting systems and our financial software
programs, and upgraded these systems as necessary to ensure that,
according to the applicable vendors, all of our computer systems were
Year 2000 compliant. We also made appropriate inquiries of third
parties with whom we do significant business, such as vendors and
suppliers, as to their Year 2000 readiness. Although we have not
experienced any significant Year 2000 problems to date, it is still
possible for Year 2000-related problems to occur. In the event that
we or any of our third party vendors or service providers suffer
system failures due to the Year 2000 issue, our operations could be
substantially adversely affected.
GOVERNMENT REGULATIONS
The ownership and operation of casino gaming facilities are
subject to extensive state and local regulations. The Company is
required to obtain and maintain gaming licenses in each of the
jurisdictions in which the Company conducts gaming. The limitation,
conditioning or suspension of gaming licenses could (and the
revocation or non-renewal of gaming licenses, or the failure to
reauthorize gaming in certain jurisdictions, would) materially
adversely affect the operations of the Company in that jurisdiction.
In addition, changes in law that restrict or prohibit gaming
operations of the Company in any jurisdiction could have a material
adverse effect on the Company.
NEVADA. The ownership and operation of casino gaming facilities
in Nevada are subject to (1) the Nevada Gaming Control Act and
the regulations promulgated thereunder (collectively, "Nevada Act");
and (2) various local regulations. The Company's operations are
subject to the licensing and regulatory control of the Nevada Gaming
Commission ("Nevada Commission"), the Nevada State Gaming Control
Board ("Nevada Board"), and, in the case of the Jackpot Properties,
the Liquor Board of Elko County. The Company's operations at The
Reserve are subject to the licensing and regulatory control of the
City of Henderson. The Nevada Commission, the Nevada Board, the City
of Henderson and the Liquor Board of Elko County are collectively
referred to in this section as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy which
are concerned with, among other things, (1) the prevention of
unsavory or unsuitable persons from having a direct or indirect
involvement with gaming at any time or in any capacity; (2) the
establishment and maintenance of effective controls over the
financial practices of licensees, including the establishment of
minimum procedures for internal fiscal affairs and the safeguarding
of assets and revenues, (3) providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming
Authorities; (4) the prevention of cheating and fraudulent practices;
and (5) providing a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming
operations.
CPI, which operates the Jackpot Properties, and ACLVI, which
operates The Reserve, are required to be licensed by the Nevada
Gaming Authorities. The gaming licenses require the periodic payment
of fees and taxes and are not transferable. Ameristar is registered
by the Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and has been found suitable to own the
stock of CPI and ACLVI, which are corporate licensees (each a
"Corporate Licensee") under the terms of the Nevada Act. As a
Registered Corporation, Ameristar is required periodically to submit
detailed financial and operating reports to the Nevada Commission and
furnish any other information that the Nevada Commission may require.
No person may become a stockholder of, or receive any percentage of
profits from, a Corporate Licensee without first obtaining licenses
and approvals from the Nevada Gaming Authorities. The Company, CPI
and ACLVI have obtained from the Nevada Gaming Authorities the
various registrations, findings of suitability, approvals, permits
and licenses currently required in order to engage in gaming
activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who
has a material relationship to, or material involvement with, CPI,
ACLVI or Ameristar in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming
licensee. Officers, directors and certain key employees of CPI and
ACLVI must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of Ameristar who
are actively and directly involved in gaming activities of CPI or
ACLVI may be required to be reviewed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an
application for licensing for any cause that they deem reasonable. A
finding of suitability is comparable to licensing, and both require
submission of detailed personal and financial information followed by
a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities,
and in addition to their authority to deny an application for a
finding of suitability or licensure, the Nevada Gaming Authorities
have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable to
continue having a relationship with CPI, ACLVI or Ameristar, the
companies involved would have to sever all relationships with such
person. In addition, the Nevada Commission may require CPI, ACLVI or
Ameristar to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial review
in Nevada.
CPI, ACLVI and Ameristar are required to submit detailed
financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and
similar financing transactions by Ameristar, CPI and ACLVI must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by CPI or
ACLVI, the gaming licenses it holds or has applied for could be
limited, denied, conditioned, suspended or revoked, subject to
compliance with certain statutory and regulatory procedures. In
addition, CPI, ACLVI, Ameristar and the persons involved could be
subject to substantial fines for each separate violation of the
Nevada Act at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate
CPI's or ACLVI's gaming properties and, under certain circumstances,
earnings generated during the supervisor's appointment (except for
the reasonable rental value of the premises) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any
gaming license or the appointment of a supervisor could (and denial
or revocation of any gaming license would) materially adversely
affect Ameristar's gaming operations.
Any beneficial holder of Ameristar's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a
beneficial holder of Ameristar's voting securities determined if the
Nevada Commission has reason to believe that such ownership would
otherwise be inconsistent with the declared policy of the State of
Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires beneficial
ownership of more than 5% of a Registered Corporation's voting
securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of a
Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Board mails the written notice requiring such
filing. Under certain circumstances, an "institutional investor", as
defined in the Nevada Act, which acquires more than 10%, but not more
than 15%, of a Registered Corporation's voting securities may apply
to the Nevada Commission for a waiver of such finding of suitability
if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course
of business as an institutional investor and not for the purpose of
causing, directly or indirectly, the election of a majority of the
members of the board of directors of the Registered Corporation, any
change in the Registered Corporation's corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or
any of its gaming affiliates, or any other action which the Nevada
Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only.
Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include (1) voting on
all matters voted on by stockholders; (2) making financial and other
inquiries of management of the type normally made by securities
analysts for informational purposes and not to cause a change in its
management, policies or operations; and (3) such other activities as
the Nevada Commission may determine to be consistent with such
investment intent. If the beneficial holder of voting securities who
must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs
of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do so
by the Nevada Commission or the Chairman of the Nevada Board, may be
found unsuitable. The same restrictions apply to a record owner if
the record owner, after request, fails to identify the beneficial
owner. Any stockholder found unsuitable and who holds, directly or
indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal
offense. Ameristar is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with Ameristar, CPI or ACLVI, Ameristar,
(1) pays that person any dividend or interest upon voting securities
of Ameristar, (2) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by the
person, (3) pays remuneration in any form to that person for services
rendered or otherwise, or (4) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities
including, if necessary, the immediate purchase of said voting
securities by Ameristar, for cash at fair market value. Additionally,
the Liquor Board of Elko County and the City of Henderson have the
authority to approve all persons owning or controlling the stock of
any corporation controlling a gaming license within their
jurisdictions.
The Nevada Commission may, at its discretion, require the holder
of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the debt
security of a Registered Corporation if it has reason to believe that
such holder's acquisition of such ownership would otherwise be
inconsistent with the declared policy of the State of Nevada. If the
Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation
can be sanctioned, including the loss of its approvals, if without
the prior approval of the Nevada Commission, it (1) pays to the
unsuitable person any dividend, interest, or any distribution
whatsoever; (2) recognizes any voting right by such unsuitable person
in connection with such securities; (3) pays the unsuitable person
remuneration in any form; or (4) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction.
Ameristar is required to maintain a current stock ledger in
Nevada, which may be examined by the Nevada Gaming Authorities at any
time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity
of the beneficial owner to the Nevada Gaming Authorities. A failure
to make such disclosure may be grounds for finding the record holder
unsuitable. Ameristar is also required to render maximum assistance
in determining the identity of the beneficial owner. The Nevada
Commission has the power to require Ameristar stock certificates to
bear a legend indicating that the securities are subject to the
Nevada Act. However, to date, the Nevada Commission has not imposed
such a requirement on Ameristar.
Ameristar may not make a public offering of its securities
without the prior approval of the Nevada Commission if the securities
or the proceeds therefrom are intended to be used to construct,
acquire or finance gaming facilities in Nevada, or to retire or
extend obligations incurred for such purposes. In addition,
restrictions on the transfer of an equity security issued by a
Corporate Licensee, and agreements not to encumber such securities
(collectively, "Stock Restrictions") are ineffective without the
prior approval of the Nevada Commission. Any such approvals do not
constitute a finding, recommendation or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful. The Company has obtained
all such approvals required to date.
Changes in control of Ameristar through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or
any act or conduct by a person whereby he obtains control, may not
occur without the prior approval of the Nevada Commission. Entities
seeking to acquire control of a Registered Corporation must satisfy
the Nevada Board and Nevada Commission in a variety of stringent
standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship
or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to
the transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities
and corporate defense tactics affecting Nevada Corporate Licensee
gaming licensees, and Registered Corporations that are affiliated
with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these
business practices upon Nevada's gaming industry and to further
Nevada's policy to (1) assure the financial stability of Corporate
Licensees and their affiliates; (2) preserve the beneficial aspects
of conducting business in the corporate form; and (3) promote a
neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price
thereof and before a corporate acquisition opposed by management can
be consummated. The Nevada Act also requires prior approval of a plan
of recapitalization proposed by the Registered Corporation's Board of
Directors in response to a tender offer made directly to the
Registered Corporation's stockholders for the purposes of acquiring
control of the Registered Corporation.
License fees and taxes, computed in various ways depending on
the type of gaming or activity involved, are payable to the State of
Nevada and to the counties and cities in which the Nevada licensee's
respective operations are conducted. Depending upon the particular
fee or tax involved, these fees and taxes are payable monthly,
quarterly or annually and are based upon either (1) a percentage of
the gross revenues received; (2) the number of gaming devices
operated; or (3) the number of table games operated. The license fee
payable to the State of Nevada is based upon "gaming receipts"
(generally defined as gross receipts less payouts to customers as
winnings) and equals 3% of gaming receipts of $50,000 or less per
month, 4% of gaming receipts over $50,000 and less than $134,000 per
month, and 6.25% of gaming receipts over $134,000 per month A casino
entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving
of food and refreshments, or the selling of merchandise.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such
persons (collectively, "Licensees"), and who proposes to become
involved in a gaming venture outside of Nevada is required to deposit
with the Nevada Board, and thereafter maintain, a revolving fund in
the amount of $10,000 to pay the expenses of investigation of the
Nevada Board of their participation in such foreign gaming. The
revolving fund is subject to increase or decrease at the discretion
of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards
of honesty and integrity required of Nevada gaming operations, engage
in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees, or
employs, contracts with or associates with a person in the foreign
operation who has been denied a license or finding of suitability in
Nevada on the ground of unsuitability.
MISSISSIPPI. The ownership and operation of casino facilities
in Mississippi are subject to extensive state and local regulation,
but primarily the licensing and regulatory control of the Mississippi
Gaming Commission (the "Mississippi Commission") and the Mississippi
State Tax Commission.
The Mississippi Gaming Control Act (the "Mississippi Act"),
which legalized dockside casino gaming in Mississippi, is similar to
the Nevada Gaming Control Act. The Mississippi Commission has adopted
regulations which are also similar in many respects to the Nevada
gaming regulations.
The laws, regulations and supervisory procedures of Mississippi
and the Mississippi Commission seek to (1) prevent unsavory or
unsuitable persons from having any direct or indirect involvement
with gaming at any time or in any capacity; (2) establish and
maintain responsible accounting practices and procedures; (3)
maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record
keeping and making periodic reports to the Mississippi Commission;
(4) prevent cheating and fraudulent practices; (5) provide a source
of state and local revenues through taxation and licensing fees; and
(6) ensure that gaming licensees, to the extent practicable, employ
Mississippi residents. The regulations are subject to amendment and
interpretation by the Mississippi Commission. Changes in Mississippi
law or regulations may limit or otherwise materially effect the types
of gaming that may be conducted and could have an adverse effect on
the Company and the Company's Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at
the discretion of the 14 eligible counties that border either the
Mississippi Gulf Coast or the Mississippi River, but only if the
voters in such counties have not voted to prohibit gaming in that
county. Certain amendments to the Mississippi Constitution have been
proposed for adoption through the initiative and referendum process
which, if a sufficient number of signatures are gathered to place the
matter on the ballot and if adopted by the voters of the state, would
prohibit gaming in Mississippi. See "Item 1. Risk Factors - The
Adoption of Certain Anti-Gaming Initiatives in Mississippi Would
Substantially Diminish the Value of Ameristar Vicksburg and Would
Have a Material Adverse Effect on Us." As of March 1, 2000, dockside
gaming was permissible in nine of the 14 eligible counties in the
State and gaming operations had commenced in Adams, Coahoma, Hancock,
Harrison, Tunica, Warren and Washington counties. Under Mississippi
law, gaming vessels must be located on the Mississippi River or on
navigable waters in eligible counties along the Mississippi River, or
in the waters of the State of Mississippi lying south of the State in
eligible counties along the Mississippi Gulf Coast. In December 1996,
the Mississippi Commission rejected an application for the
development of a casino on a site on the Big Black River in Warren
County near Interstate 20 between Jackson and Vicksburg, which was
appealed by an adjoining landowner and the license applicant. In
December 1997, a Mississippi circuit court issued an order reversing
the decision of the Mississippi Commission and remanded the
application to the Mississippi Commission for further proceedings.
The decision of the court was appealed by the Mississippi Commission
to the Mississippi Supreme Court and an oral argument was heard by
the Supreme Court on March 6, 2000. It is expected that the Supreme
Court will issue its decision in 2000. The Mississippi Commission has
also adopted a regulation that prohibits gaming on the Big Black
River; however, the Mississippi Commission has taken the position
that the Mississippi Commission may be prohibited from applying the
regulation to the existing applicant which appealed the initial
siting decision. In addition, the Company is involved in legal
proceedings in which it is alleged that the Company and certain other
parties engaged in conduct to oppose this application in violation of
Mississippi's antitrust and gaming regulatory laws. See "Item 3. -
Legal Proceedings."
The Mississippi Act permits unlimited stakes gaming on
permanently moored vessels on a 24-hour basis and does not restrict
the percentage of space which may be utilized for gaming. The
Mississippi Act permits substantially all traditional casino games
and gaming devices.
Ameristar, and each subsidiary of Ameristar that operates a
casino in Mississippi (a "Gaming Subsidiary"), is subject to the
licensing and regulatory control of the Mississippi Commission.
Ameristar is registered as a publicly traded holding company of ACVI
under the Mississippi Act. Ameristar is required periodically to
submit detailed financial and operating reports to the Mississippi
Commission and furnish any other information that the Mississippi
Commission may require. If Ameristar is unable to continue to satisfy
the registration requirements of the Mississippi Act, Ameristar and
its Gaming Subsidiaries cannot own or operate gaming facilities in
Mississippi. Each Gaming Subsidiary must obtain a gaming license from
the Mississippi Commission to operate casinos in Mississippi. A
gaming license is issued by the Mississippi Commission subject to
certain conditions, including continued compliance with all
applicable state laws and regulations and physical inspection of the
casinos prior to opening. There are no limitations on the number of
gaming licenses that may be issued in Mississippi.
Gaming licenses are not transferable, are issued for a three-
year period (and may by continued for two additional three year
periods) and must be renewed periodically thereafter. ACVI was
granted a renewal of its gaming license by the Mississippi Commission
on December 18, 1999. No person may become a stockholder of or
receive any percentage of profits from a gaming licensee subsidiary
of a holding company without first obtaining licenses and approvals
from the Mississippi Commission. Ameristar has obtained such
approvals in connection with ACVI's gaming license.
Certain officers and employees of Ameristar and the officers,
directors and certain key employees of each Gaming Subsidiary must be
found suitable or be licensed by the Mississippi Commission. The
Company believes it has obtained or applied for all necessary
findings of suitability with respect to such persons associated with
Ameristar or ACVI, although the Mississippi Commission, in its
discretion, may require additional persons to file applications for
findings of suitability. Employees associated with gaming must obtain
work permits that are subject to immediate suspension under certain
circumstances. In addition, any person having a material relationship
or involvement with the Company may be required to be found suitable,
in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Commission may deny an
application for a finding of suitability for any cause that it deems
reasonable. Changes in certain licensed positions must be reported to
the Mississippi Commission. In addition to its authority to deny an
application for a license, the Mississippi Commission has
jurisdiction to disapprove a change in a licensed position. The
Mississippi Commission has the power to require any Gaming Subsidiary
or Ameristar to suspend or dismiss officers, directors and other key
employees or sever relationships with other persons who refuse to
file appropriate applications or whom the authorities find unsuitable
to act in such capacities.
Employees associated with gaming must obtain work permits that
are subject to immediate suspension. The Mississippi Commission will
refuse to issue a work permit to a person convicted of a felony and
it may refuse to issue a work permit to a gaming employee if the
employee has committed various misdemeanors or knowingly violated the
Mississippi Act or for any reasonable cause.
At any time, the Mississippi Commission has the power to
investigate and require the finding of suitability of any record or
beneficial stockholder of Ameristar. Mississippi law requires any
person who acquires more than 5% of Ameristar's common stock to
report the acquisition to the Mississippi Commission, and such person
may be required to be found suitable. Also, any person who becomes a
beneficial owner of more than 10% of Ameristar's common stock, as
reported to the Securities and Exchange Commission, must apply for a
finding of suitability by the Mississippi Commission and must pay the
costs and fees that the Mississippi Commission incurs in conducting
the investigation. The Mississippi Commission has generally exercised
its discretion to require a finding of suitability of any beneficial
owner of more than 5% of a public company's common stock. However,
the Mississippi Commission has adopted a policy that may permit
certain institutional investors to own beneficially up to 15% of a
public company's common stock without a finding of suitability. If a
stockholder who must be found suitable is a corporation, partnership
or trust, it must submit detailed business and financial information
including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of
suitability or a license within thirty (30) days after being ordered
to do so by the Mississippi Commission may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after
request, fails to identify the beneficial owner. Management believes
that compliance by Ameristar with the licensing procedures and
regulatory requirements of the Mississippi Commission will not affect
the marketability of its securities. Any person found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the
securities of Ameristar beyond such time as the Mississippi
Commission prescribes, may be guilty of a misdemeanor. Ameristar is
subject to disciplinary action if, after receiving notice that a
person is unsuitable to be a stockholder or to have any other
relationship with Ameristar or its Gaming Subsidiaries, Ameristar:
(1) pays the unsuitable person any dividend or other distribution
upon the voting securities of Ameristar; (2) recognizes the exercise,
directly or indirectly, of any voting rights conferred by securities
held by the unsuitable person; (3) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except
in certain limited and specific circumstances; or (4) fails to pursue
all lawful efforts to require the unsuitable person to divest himself
of the securities, including, if necessary, the immediate purchase of
the securities for cash at a fair market value.
Ameristar may be required to disclose to the Mississippi
Commission, upon request, the identities of debt security holders. In
addition, the Mississippi Commission under the Mississippi Act may,
in its discretion, (1) require holders of debt securities of
Ameristar to file applications, (2) investigate such holders, and (3)
require such holders to be found suitable to own such debt securities
or receive distributions thereon. If the Mississippi Commission
determines that a person is unsuitable to own such security, then the
issuer may be sanctioned, including the loss of its approvals, if
without the prior approval of the Mississippi Commission, it (1) pays
to the unsuitable person any dividend, interest, or any distribution
whatsoever; (2) recognizes any voting right by such unsuitable person
in connection with such securities; (3) pays the unsuitable person
remuneration in any form; or (4) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction. Although the Mississippi
Commission generally does not require the individual holders of
obligations such as notes to be investigated and found suitable, the
Mississippi Commission retains the discretion to do so for any
reason, including but not limited to, a default, or where the holder
of the debt instrument exercises a material influence over the gaming
operations of the entity in question. Any holder of debt securities
required to apply for a finding of suitability must pay all
investigative fees and costs of the Mississippi Commission in
connection with such an investigation.
ACVI must maintain in its principal office in Mississippi a
current stock ledger with respect to its equity securities and
Ameristar must maintain in the principal office of ACVI a current
list of stockholders, which must reflect the record ownership of each
outstanding share of any class of equity security issued by
Ameristar. The ledger and stockholder lists must be available for
inspection by the Mississippi Commission at any time. If any
securities of Ameristar are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity
of the beneficial owner to the Mississippi Commission. A failure to
make such disclosure may be grounds for finding the record holder
unsuitable. Ameristar must also render maximum assistance in
determining the identity of the beneficial owner.
The Mississippi Act requires that the certificates representing
securities of a publicly traded corporation that has a Gaming
Subsidiary bear a legend to the general effect that such securities
are subject to the Mississippi Act and the regulations of the
Mississippi Commission. Ameristar has received an exemption from this
legend requirement from the Mississippi Commission. The Mississippi
Commission has the power to impose additional restrictions on the
holders of Ameristar's securities at any time.
Substantially all loans, leases, sales of securities and similar
financing transactions by a Gaming Subsidiary must be reported to or
approved by the Mississippi Commission. A Gaming Subsidiary may not
make a public offering of its securities but may pledge or mortgage
casino facilities. Ameristar may not make an issuance or a public
offering of its securities without the prior approval of the
Mississippi Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of
gaming facilities in Mississippi or to retire or extend obligations
incurred for one or more such purposes. Such approval, if given, does
not constitute a recommendation or approval of the investment merits
of the securities subject to the offering. Ameristar has received a
waiver of the prior approval requirement for its securities
offerings, subject to certain conditions.
Under the regulations of the Mississippi Commission, a Gaming
Subsidiary may not guarantee a security issued by an affiliated
company pursuant to a public offering, or pledge its assets to secure
payment or performance of the obligations evidenced by the security
issued by the affiliated company, without the prior approval of the
Mississippi Commission. The pledge of the stock of a Gaming
Subsidiary and the foreclosure of such a pledge is ineffective
without the prior approval of the Mississippi Commission. Moreover,
restrictions on the transfer of an equity security issued by a Gaming
Subsidiary and agreements not to encumber such securities (the "Stock
Restrictions") are ineffective without the prior approval of the
Mississippi Commission. The Company has obtained approvals from the
Mississippi commission for such guarantees, pledges and restrictions,
subject to certain restrictions.
Changes in control of Ameristar through merger, consolidation,
acquisition of assets, management or consulting agreements or any
form of takeover, and certain recapitalizations and stock repurchases
by Ameristar, cannot occur without the prior approval of the
Mississippi Commission. Entities seeking to acquire control of a
registered corporation must satisfy the Mississippi Commission in a
variety of stringent standards prior to assuming control of such
registered corporation. The Mississippi Commission may also require
controlling stockholders, officers, directors and other persons
having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities
and other corporate defense tactics that affect corporate gaming
licensees in Mississippi and corporations whose stock is publicly
traded that are affiliated with those licensees, may be injurious to
stable and productive corporate gaming. The Mississippi Commission
has established a regulatory scheme to ameliorate the potentially
adverse effects of these business practices upon Mississippi's gaming
industry and to further Mississippi's policy to (1) assure the
financial stability of corporate gaming operations and their
affiliates; (2) preserve the beneficial aspects of conducting
business in the corporate form; and (3) promote a neutral environment
for the orderly governance of corporate affairs. Approvals are, in
certain circumstances, required from the Mississippi Commission
before Ameristar may make exceptional repurchases of voting
securities in excess of the current market price of its common stock
(commonly called "greenmail") or before a corporate acquisition
opposed by management may be consummated. Mississippi's gaming
regulations will also require prior approval by the Mississippi
Commission if Ameristar adopts a plan of recapitalization proposed by
its Board of Directors opposing a tender offer made directly to the
stockholders for the purpose of acquiring control of Ameristar.
Neither Ameristar nor any subsidiary may engage in gaming
activities in Mississippi while also conducting gaming operations
outside of Mississippi without approval of the Mississippi Commission
or a waiver of such approval. The Mississippi Commission may require
determinations that, among others, there are means for the
Mississippi Commission to have access to information concerning the
out-of-state gaming operations of the Company and its affiliates.
Ameristar has previously obtained a waiver of foreign gaming approval
from the Mississippi Commission for operations in other states in
which Ameristar conducts gaming operations and will be required to
obtain the approval or a waiver of such approval from the Mississippi
Commission prior to engaging in any additional future gaming
operations outside of Mississippi.
If the Mississippi Commission decides that a Gaming Subsidiary
violated a gaming law or regulation, the Mississippi Commission could
limit, condition, suspend or revoke the license of the Gaming
Subsidiary. In addition, a Gaming Subsidiary, Ameristar and the
persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi
Commission could seek to appoint a supervisor to operate the casino
facilities. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could (and revocation of
any gaming license would) materially adversely affect Ameristar's and
the Gaming Subsidiary's gaming operations.
License fees and taxes, computed in various ways depending on
the type of gaming involved, are payable to the State of Mississippi
and to the counties and cities in which a Gaming Subsidiary's
respective operations are conducted. Depending upon the particular
fee or tax involved, these fees and taxes are payable either monthly,
quarterly or annually and are based upon (1) a percentage of the
gross gaming revenues received by the casino operation, (2) the
number of slot machines operated by the casino or (3) the number of
table games operated by the casino. The license fee payable to the
State of Mississippi is based upon "gaming receipts" (generally
defined as gross receipts less payouts to customers as winnings) and
equals 4% of gaming receipts of $50,000 or less per month, 6% of
gaming receipts over $50,000 and less than $134,000 per month, and 8%
of gaming receipts over $134,000 per month. The foregoing license
fees are allowed as a credit against the Company's Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
City of Vicksburg equals approximately 4% of the gaming receipts.
The Mississippi Commission's regulations require as a condition
of licensure or license renewal that an existing licensed gaming
establishment's plan include a 500-car parking facility in close
proximity to the casino complex and infrastructure facilities which
amount to at least 25% of the casino cost. The Company believes that
ACVI is in compliance with this requirement with the opening of a 150-
room hotel at Ameristar Vicksburg in June 1998. The Mississippi
Commission recently adopted a regulation that requires any new
licensee to spend 100% of its casino cost on land-based
infrastructure facilities, but this increase does not apply to
operators that were already licensed at the time the regulation was
adopted such as Ameristar Vicksburg.
Both the City of Vicksburg and the Alcoholic Beverage Control
Division of the Mississippi Tax Commission (the "ABC") license,
control and regulate the sale of alcoholic beverages by ACVI. ACVI is
in an area designated as a special resort, which allows ACVI to serve
alcoholic beverages on a 24-hour basis. The ABC has the full power to
limit, condition, suspend or revoke any license for the serving of
alcoholic beverages or to place a licensee on probation with or
without conditions. Any disciplinary action could, and revocation
would, have a material adverse effect upon ACVI's operations. ACVI's
key officers and managers must be investigated by the ABC in
connection with AVCI's liquor permits and changes in key positions
must be approved by the ABC.
IOWA. The Company's Council Bluffs operations are conducted by
ACCBI and are subject to Chapter 99F of the Iowa Code and the
regulations promulgated thereunder. The Company's gaming operations
are subject to the licensing and regulatory control of the Iowa
Racing and Gaming Commission (the "Iowa Gaming Commission").
Under Iowa law, wagering on a "gambling game" is legal, when
conducted by a licensee on an "excursion gambling boat." An
"excursion gambling boat" is a self-propelled excursion boat.
"Gambling game" means any game of chance authorized by the Iowa
Gaming Commission. The excursion season is from April 1st through
October 31st of each calendar year. The vessel must operate at least
one excursion each day for 100 days during the excursion season to
operate during the off season. Each excursion must consist of a
minimum of two hours. The Council Bluffs Casino satisfied the
requirements of Iowa law for the conduct of off-season operations
during each of 1997, 1998 and 1999.
The legislation permitting riverboat gaming in Iowa authorizes
the granting of licenses to "qualified sponsoring organizations." A
"qualified sponsoring organization" is defined as a person or
association that can show to the satisfaction of the Iowa Gaming
Commission that the person or association is eligible for exemption
from federal income taxation under sec. 501(c)(3), (4), (5), (6),
(7), (8), (10) or (19) of the Internal Revenue Code (hereinafter "not-
for-profit corporation"). The not-for-profit corporation is permitted
to enter into operating agreements with persons qualified to conduct
riverboat gaming operations. Such operators must be approved and
licensed by the Iowa Gaming Commission. On January 27, 1995, the Iowa
Gaming Commission authorized the issuance of a license to conduct
gambling games on an excursion gambling boat to the Iowa West Racing
Association, a not-for-profit corporation organized for the purpose
of facilitating riverboat gaming in Council Bluffs, Iowa (the
"Association"). The Association entered into an agreement with ACCBI
authorizing ACCBI to operate riverboat gaming operations in Council
Bluffs under the Association's gaming license (the "Operator's
Contract"). The Iowa Gaming Commission approved this contract. The
term of the Operator's Contract runs until December 31, 2002, with
two five-year renewal options. The current license awarded by the
Iowa Gaming Commission for the Ameristar Council Bluffs Casino
expires on March 31, 2001.
Under Iowa law, a license to conduct gambling games may be
issued in a county only if the county electorate has approved such
gambling games. Although the electorate of Pottawattamie County,
which includes the City of Council Bluffs, approved by referendum the
gambling games conducted by ACCBI, a reauthorization referendum must
be submitted to the electorate in the general election to be held in
2002 and each eight years thereafter. Each such referendum requires
the vote of a majority of the persons voting thereon. If any such
reauthorization referendum is defeated, Iowa law provides that any
previously issued gaming license will remain valid and subject to
periodic renewal for a total of nine years from the date of original
issuance, subject to earlier revocation as discussed below. The
original issuance date of the gaming license for Ameristar Council
Bluffs was January 27, 1995.
Substantially all of ACCBI's material transactions are subject
to review and approval by the Iowa Gaming Commission. All contracts
or business arrangements, verbal or written, with any related party
or in which the term exceeds three years or the total value of the
contract exceeds $50,000 must be submitted in advance to the Iowa
Gaming Commission for approval. Additionally, contracts negotiated
between ACCBI and a related party must be accompanied by economic and
qualitative justification.
ACCBI is required to notify the Iowa Gaming Commission of the
identity of each director, corporate officer and owner, partner,
joint venturer, trustee or any other person who has a beneficial
interest of five percent (5%) or more, direct or indirect, in ACCBI.
The Iowa Gaming Commission may require ACCBI to submit background
information on such persons. The Iowa Gaming Commission may request
ACCBI to provide a list of persons holding beneficial ownership
interests in ACCBI of less than five percent (5%). For purposes of
these rules, "beneficial interest" includes all direct and indirect
forms of ownership or control, voting power or investment power held
through any contract, lien, lease, partnership, stockholding,
syndication, joint venture, understanding, relationship, present or
reversionary right, title or interest, or otherwise. The Iowa Gaming
Commission may suspend or revoke the license of a licensee in which a
director, corporate officer or holder of a beneficial interest
includes or involves any person or entity which is found to be
ineligible as a result of want of character, moral fitness, financial
responsibility, professional responsibility or due to failure to meet
other criteria employed by the Iowa Gaming Commission.
ACCBI must submit detailed financial, operating and other
reports to the Iowa Gaming Commission. ACCBI must file monthly gaming
reports indicating adjusted gross receipts received from gambling
games and the total number and amount of money received from
admissions. Additionally ACCBI must file annual financial statements
covering all financial activities related to its operations for each
fiscal year. ACCBI must also keep detailed records regarding its
equity structure and owners.
Iowa has a graduated wagering tax equal to five percent (5%) of
the first $1.0 million of annual adjusted gross receipts, ten percent
(10%) on the next $2.0 million of annual adjusted gross receipts and
twenty percent (20%) on annual adjusted gross receipts over $3.0
million. In addition, the state charges other fees on a per customer
basis. Additionally, ACCBI pays to the City of Council Bluffs a fee
equal to $0.50 per passenger.
Under the Operator's Contract, ACCBI also pays the Association
an admissions fee of $1.50 per passenger. ACCBI has interpreted the
Operator's Contract to mean that a person may leave and re-enter
Council Bluffs Casino (for example, to visit the restaurants at
Ameristar Council Bluffs) without ACCBI being obligated to pay an
additional admissions fee to the Association. ACCBI received a letter
from the Association in August 1996 in which the Association asserted
that an additional fee is due each time a person enters the Council
Bluffs Casino, including re-entries. The Association has advised the
Company that the board of directors of the Association discussed a
proposal to settle this dispute at an October 1997 meeting but
declined to take any action either to approve the proposed settlement
or to pursue the previously threatened claim. Accordingly, the
Association has advised ACCBI that it does not currently intend to
pursue this claim, but the Association has not formally waived or
released the claim.
If the Iowa Gaming Commission decides that a gaming law or
regulation has been violated, the Iowa Gaming Commission has the
power to assess fines, revoke or suspend licenses or to take any
other action as may be reasonable or appropriate to enforce the
gaming rules and regulations.
REGULATORY REQUIREMENTS APPLICABLE TO OWNERS OF CERTAIN NOTES.
A record or beneficial owner of the promissory notes issued by the
Company in connection with the acquisition of The Reserve (the "Gem
Notes") could be required by one or more gaming regulatory
authorities to be found suitable, and such owner would be required to
apply for a finding of suitability within 30 days after request of
such gaming authority or within such other time period prescribed by
such gaming authority. If such a record or beneficial owner is
required to be found suitable and is not found suitable by such
gaming regulatory authority, such owner may be required by law to
dispose of the Gem Notes. If any gaming regulatory authority
determines that a person is unsuitable to own the Gem Notes, then the
Company may be subject to sanctions, including the loss of its
regulatory approvals, if, without the prior approval of the
applicable gaming regulatory authorities, it (1) pays interest on the
Gem Notes to the unsuitable person, (2) pays the unsuitable person
remuneration in any form or (3) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction. In denying applications for
findings of suitability for certain purposes in early 1997 submitted
by the persons to whom the Gem Notes were issued, the Nevada
Commission did not find either of them to be unsuitable to hold any
debt obligations of Ameristar, and, as of the date of this report, no
gaming regulatory authority has required either of such persons to
apply for a finding of suitability to own the Gem Notes. However, one
or more gaming regulatory authorities could require a holder of the
Gem Notes to submit such an application in the future.
These regulatory requirements are applicable with respect to
other debt securities issued by the Company, including the Company's
Senior Subordinated Notes. However, unlike the Gem Notes, the Senior
Subordinated Notes include provisions requiring a holder who is found
to be unsuitable to dispose of its Senior Subordinated Notes. In
certain circumstances, the Company is permitted to redeem Senior
Subordinated Notes of an unsuitable holder.
OTHER JURISDICTIONS. The Company expects to be subject to
similar rigorous regulatory standards in each jurisdiction in which
it seeks to conduct gaming operations, including in Missouri where
the Company is currently seeking a license to develop a casino in
Lemay. See "Item 1. Business - Expansion Strategy." There can be no
assurance that regulations adopted or taxes imposed by other
jurisdictions will permit profitable operations by the Company.
FEDERAL REGULATION OF SLOT MACHINES. The Company is required to
make annual filings with the U.S. Attorney General in connection with
the sale, distribution or operation of slot machines. All requisite
filings for the most recent year and the current year have been made.
CURRENCY TRANSACTION REPORTING REQUIREMENTS. Pursuant to a 1985
agreement between the State of Nevada and the United States
Department of the Treasury (the "Treasury"), the Nevada Commission
and the Nevada Board have authority to enforce their own cash
transaction reporting laws applicable to casinos, which substantially
parallel the Federal Bank Secrecy Act. Under the Money Laundering
Suppression Act of 1994, which was passed by Congress, the Secretary
of the Treasury retained the ability to permit states, including
Nevada, to continue to enforce their own cash transaction reporting
laws applicable to casinos. The Nevada Act and related regulations
require most gaming licensees to file reports with respect to various
gaming-related and other cash transactions if such transactions
aggregate more than $10,000 in a 24-hour period. Casinos are required
to monitor receipts and disbursements of currency in excess of
$10,000 and report them to the Treasury. Although it is not possible
to quantify the full impact of these requirements on the Company's
business, the changes are believed to have had some adverse effect on
results of operations since inception.
On November 28, 1994, the Treasury enacted amendments (effective
December 1, 1994) to the federal regulations under the Bank Secrecy
Act. The amendments require casinos subject to the Bank Secrecy Act
to implement written programs no later than June 1, 1995 to assure
and monitor compliance with the Bank Secrecy Act. Such programs must
include "know your customer" and suspicious transaction reporting
components. Although Nevada casinos are exempt from Title 31, the
Nevada Commission has adopted regulations under the Nevada Act that
parallel in several respects the amendments to the Bank Secrecy Act.
In June 1998, ACVI received a letter from the Financial Crimes
Enforcement Network ("FinCEN") of the Department of Treasury
identifying 26 alleged currency transaction reporting failures or
errors that were discovered in an audit by the Internal Revenue
Service covering an approximately 13-month period following the
opening of Ameristar Vicksburg. In early 2000, the Company settled
this matter with FinCEN by agreeing to pay a civil monetary penalty.
In addition to paying the civil penalty, ACVI has implemented various
steps intended to improve compliance with the currency transaction
reporting requirements.
POTENTIAL CHANGES IN TAX AND REGULATORY REQUIREMENTS. From time
to time, federal and state legislators and officials have proposed
changes in tax law, or in the administration of such laws, affecting
the gaming industry. Recent proposals have included a federal gaming
tax and increases in state or local gaming taxes. They have also
included limitations on the federal income tax deductibility of the
cost of furnishing complimentary promotional items to customers, as
well as various measures that would require withholding on amounts
won by customers or on negotiated discounts provided to customers on
amounts owed to gaming companies. It is not possible to determine
with certainty the likelihood of possible changes in tax law or in
the administration of such law. Such changes, if adopted, could have
a materially adverse effect on the Company's financial results.
A National Gambling Impact Study Commission (the "National
Commission") has been established by the United States Congress to
conduct a comprehensive study of the social and economic impact of
gaming in the United States. On April 28, 1999, the National
Commission issued a final report of its findings and conclusions,
together with recommendations for legislature and administrative
actions. Below are some of those recommendations:
Legal gaming should be restrictive to those at least 21 years of
age;
Betting on college and amateur sports should be banned;
The introduction of casino-style gambling at pari-mutual racing
facilities for the primary purpose of saving the pari-mutual facility
should be prohibited;
The types of gaming activities allowed by Indian tribes within a
given state should not be inconsistent with the gaming activities
allowed to other persons in that state; and
State, local and tribal governments should recognize that casino
gaming provides economic development, particularly for economically
depressed areas. The National Commission differentiated casino gaming
from stand-alone slot machines (i.e. in convenience stores), Internet
gaming and lotteries which the commission stated do not provide the
same economic development.
Any additional regulation of the gaming industry which may result the
National Commission's report may have an adverse effect on the gaming
industry, including Ameristar.
NON-GAMING REGULATIONS. The sale of alcoholic beverages by the
Company is subject to the licensing, control and regulation in
Jackpot by the Liquor Board of Elko County, in Henderson by the City
of Henderson, in Vicksburg by both the City of Vicksburg and the
Alcoholic Beverage Control Division of the Mississippi State Tax
Commission, and in Council Bluffs by the Alcoholic Beverage Division
of the Iowa Department of Commerce (collectively, the "Liquor License
Authorities"). In Mississippi, Ameristar Vicksburg has been
designated as a special resort area, which allows ACVI to serve
alcoholic beverages on a 24-hour basis. In Nevada, the applicable
liquor laws allow 24-hour service of alcoholic beverages without any
additional permits. In Iowa, the applicable liquor laws allow the
sale of liquor during legal hours which are Monday through Saturday
from 6 a.m. to 2 a.m. and Sunday from 8 a.m. to 2 a.m. All licenses
are revocable and not transferable. The Liquor License Authorities
have the full power to limit, condition, suspend or revoke any such
license or to place a liquor licensee on probation with or without
conditions. Any such disciplinary action could (and revocation would)
have a material adverse effect upon the operations of the Company's
business.
Certain officers and managers of ACVI and ACLVI must be
investigated by the applicable Liquor License Authorities in
connection with ACVI's and ACLVI's liquor permits. The applicable
Liquor License Authorities must approve any changes in licensed
positions.
All cruising vessels operated by the Company must comply with
U.S. Coast Guard requirements as to safety and must hold a
Certificate of Inspection. These requirements set limits on the
operation of the vessel and require that each vessel be operated by a
minimum complement of licensed personnel. Loss of the vessel's
Inspection Certificate would preclude its use as a riverboat. Every
five years, US flagged passenger vessels operating exclusively in
fresh water must conduct a thorough dry-dock inspection of underwater
machinery, valves and hull. The Ameristar Council Bluffs riverboat is
due for its dry-dock inspection in November 2000. This dry-dock
inspection could result in a loss of service that may have a material
adverse effect on the Company. The Company has been accepted into a
United States Coast Guard program that would allow it to obtain a 30-
month extension of the dry-dock requirement. To obtain this
extension, the Ameristar Council Bluffs riverboat must undergo a
thorough underwater inspection in the fall of 2000 after the cruising
season. The Company expects that its underwater inspection will
satisfy the United States Coast Guard requirement and expects to
obtain an extension of the dry-dock interval, but there can be no
assurance that such an extension will actually be obtained or that
future extensions will be obtained. Currently, Ameristar Council
Bluffs is the only property that operates a cruising vessel subject
to these requirements. Less stringent rules apply to permanently
moored vessels.
In order to comply with the federal Merchant Marine Act of 1936,
as amended, and the federal Shipping Act of 1916, as amended, and
applicable regulations thereunder, the Company's Bylaws contain
provisions designed to prevent persons who are not citizens of the
United States from holding, in the aggregate, more than 24.9% of the
Company's outstanding common stock.
All shipboard employees of the Company employed on U.S. Coast
Guard-approved vessels, even those who have nothing to do with the
actual operations of the vessel, such as dealers, waiters and
security personnel, may be subject to the Jones Act, which, among
other things, exempts those employees from state limits on workers'
compensation awards.
The Company is also required to comply with various
environmental regulations.
ITEM 2. PROPERTIES
JACKPOT. Cactus Petes is located on a 35-acre site and The
Horseshu is located on a 30-acre site. The Cactus Petes and The
Horseshu sites are across from each other on U.S. Highway 93. The
Company also owns 204 housing units in Jackpot, including 90 units in
two apartment complexes developed as United States Department of
Agriculture Rural Economic and Community Development Services Multi-
Family Housing Program ("USDA") projects. These housing units
support the primary operations of the Jackpot Properties. The
Jackpot Properties are subject to deeds of trust securing the
Company's obligations under its Revolving Credit Facility, and the
USDA housing projects are subject to mortgage loans in favor of the
USDA.
The Company owns a gas station adjacent to Highway 93 in
Jackpot, which it operates under a franchise from Chevron.
Management believes that this facility is in material compliance with
applicable environmental and other regulatory requirements. The
Company has previously operated two other gas stations at the Jackpot
Properties, one of which was abandoned prior to the adoption of
modern environmental abandonment standards. Although management
believes that all tanks for this gas station were removed in the mid-
1970s, the Company has not conducted tests for the presence of any
environmental contamination from this gas station. Management
believes that the likelihood of a material unfavorable outcome with
respect to potential environmental liabilities relating to this
former gas station is remote.
VICKSBURG. In connection with the development of Ameristar
Vicksburg, the Company has acquired eight parcels in Vicksburg along
Washington Street near Interstate 20. These parcels comprise
approximately 48 acres, approximately 34 of which are developable.
The Company owns six of the parcels and leases the remaining two. The
Company plans to exercise the option for one of the leasehold parcels
within the next year. The Vicksburg Casino and substantially all of
the Company's leasehold and fee interests comprising the Ameristar
Vicksburg site serve as collateral for the Company's obligations
under its Revolving Credit Facility and other indebtedness. The
hotel at Ameristar Vicksburg and the underlying property are subject
to a deed of trust securing the loan that funded a portion of the
hotel construction costs.
In addition, the Company has developed a 20-acre mobile home
park with 30 single- and 20 double-wide mobile homes. This mobile
home park is located seven miles from Ameristar Vicksburg and sites
are available for rent by employees and other persons. The mobile
home park rental rates are competitive with the local market.
COUNCIL BLUFFS. Ameristar Council Bluffs is on an approximately
50-acre site along the bank of the Missouri River and adjacent to the
Nebraska Avenue exit on Interstate 29 immediately north of the
junction of Interstates 29 and 80. The Company owns approximately 27
acres of this site and has rights to use the remaining portion of the
site that is owned by the State of Iowa for a 50-year term. The
Company has leased 0.623 acres of the Ameristar Council Bluffs site
to Kinseth Hotel Corporation for the development and operation by
Kinseth of a 188-room limited service Holiday Inn Suites Hotel that
opened on March 31, 1997 and was expanded during 1999. The Company
has also leased 0.426 acres of the Ameristar Council Bluffs site to
Kinseth Hotel Corporation for the development and operation of an
approximately 100-room Hampton Inn hotel, which is expect to be
completed in the Fall of 2000. All of the Company's interests in
Ameristar Council Bluffs serve as collateral for the Company's
obligations under its Revolving Credit Facility and other
indebtedness.
THE RESERVE. The Reserve is at the southeastern corner of the
junction of Lake Mead Drive and Interstate 515 in Henderson, Nevada
on a site containing approximately 33 acres, substantially all of
which is developable. The Reserve site was previously used for
surface waste disposal activities for approximately 50 years. Prior
to 1994, the site had large areas of debris, rubble and some stained
soils resulting from these waste activities. Site studies revealed
asbestos, lead and pesticide concentrations in the surface soils.
Following a surface remediation program by a third party in 1994, the
Nevada Division of Environmental Protection approved a closure of the
remediation and indicated that no further work was required.
A 1995 Phase I environmental assessment on the site owned by the
Company showed that some rubble remained on portions of the property,
but that all hazardous material had been removed. A 1997 Phase I
environmental assessment indicated that the property did not appear
to have been adversely impacted since the completion of the 1994
remediation program. Phase I environmental assessments involve the
conduct of limited procedures and may not identify the existence or
extent of actual environmental conditions.
OTHER. The Company leases approximately 29,400 square feet of
office space in various locations, including for its executive
offices in Las Vegas, Nevada.
ITEM 3. LEGAL PROCEEDINGS
E. L. Pennebaker, Jr., et. al. v. ACI, et. al. On February 23,
1998, E. L. Pennebaker, Jr. filed a complaint in the Circuit Court of
Pike County, Mississippi against ACI, Harrah's Vicksburg Corporation
("HVC"), Riverboat Corporation of Mississippi-Vicksburg ("RCMV"), and
Deposit Guaranty National Bank ("DGNB"). The matter is pending as
case number 98-0047-B (the "Pennebaker case"). The complaint was
amended in February 1998 to add James F. Belisle, Multi Gaming
Management, Inc. and Multi Gaming Management of Mississippi, Inc. as
additional plaintiffs. The complaint was further amended in March
1999 to modify the specific claims alleged by the plaintiffs. The
plaintiffs are property owners or claim to have contract rights in a
proposed casino/racetrack development along the Big Black River in
Warren County, Mississippi. They allege they would have profited if
the Mississippi Gaming Commission had found suitable for a casino a
location along that river that was controlled by Horseshoe Gaming,
Inc. or its affiliates. The plaintiffs further allege that the
defendants entered into an agreement to hinder trade and restrain
competition in the gaming industry in violation of the antitrust laws
and the gaming laws of Mississippi. Specifically, the plaintiffs
allege the defendants conducted an aggressive campaign in opposition
to the application of Horseshoe Gaming, Inc. for a gaming site on the
Big Black River. The plaintiffs also allege that the defendants
tortiuously interfered with the plaintiffs' business relations. The
plaintiffs allege compensatory damages of $38 million and punitive
damages of $200 million.
The trial in this case was held in October 1999, following which
the jury rendered joint and several verdicts in favor of the
plaintiffs against ACI, HVC and DGNB on the conspiracy count and
against ACI and HVC on the restraint of trade and tortious
interference counts. RCMV settled with the plaintiffs prior to
trial, and the damage amounts have been reduced by the settlement
amount paid by RCMV. The net damages awarded to the plaintiffs total
$3,792,000, of which ACI's pro rata portion is $1,685,333. These
damages are compensatory only as the court did not allow the jury to
consider an award of punitive damages. Judgment was entered on
November 8, 1999, and ACI has appealed the case to the Mississippi
Supreme Court and otherwise intends to vigorously defend against the
plaintiffs' claims. Post-judgment interest on the damages will
accrue at the rate of 8 percent per annum, and if an appeal is
unsuccessful, the plaintiffs would also be entitled to a premium of
15% of the damages amount.
Mr. Pennebaker has also filed a petition with the Mississippi
Gaming Commission requesting that the Mississippi Gaming Commission
order ACI, HVC and RCMV to stop opposing the approval and
construction of a casino on the Big Black River and for such other
corrective and punitive action that the Mississippi Gaming Commission
might find appropriate. ACI has been advised that no action is
required by it in connection with this petition unless requested by
the Mississippi Gaming Commission.
Walter H. Gibbes, Jr. and Margaret S. Dozier v. ACI et al. On
November 22, 1999, Mr. Gibbes and Ms. Dozier filed a complaint in the
Circuit Court of Pike County, Mississippi against ACI, HVC, Isle of
Capri Casinos, Inc. (the parent company of RCMV; "ICC") and DGNB.
The matter is pending as cause no. 99-0157-B. ACI believes that the
plaintiffs were partners with Mr. Pennebaker in a partnership that
held an option to a real estate parcel along the Big Black River that
is adjacent to the parcel that was the subject of the Horseshoe
Gaming, Inc. application. The allegations in the complaint are
substantially the same as those in the complaint in the case
previously brought by the plaintiffs in the Pennebaker case. The
plaintiffs seek $4,567,500 in actual damages and an unspecified
amount of punitive damages.
The defendants have removed this case to the United States
District Court for the Southern District of Mississippi on diversity
jurisdiction and federal question grounds. The case is now pending
in federal court as cause no. 3:99cv911WS. The plaintiffs have filed
a motion to remand the case back to the Pike County circuit court,
which has not yet been ruled on by the federal court. ACI intends to
continue to vigorously defend against this cause of action.
Bryan K. and Dawn H. Hafen v. Steven W. Rebeil, et al. This
lawsuit was filed in the Clark County District Court as case number
A347722. A named defendant in the amended complaint, filed on
January 29, 1996, action is Gem Gaming, Inc. ("Gem"). ACLVI is the
successor-in-interest by merger to Gem. The case arises out of the
purchase of land in Mesquite, Nevada by Steven W. Rebeil, a former
Gem stockholder, pursuant to which a jointly owned corporation was to
develop real property contributed by the plaintiffs as a hotel-
casino. The plaintiffs allege that Gem's former stockholders and
their controlled entities (including Gem) engaged in a conspiracy to
defraud the plaintiffs in connection with the plaintiff's
contribution of the land and its subsequent sale to a third party.
The plaintiffs allege violations of Nevada's racketeering statutes,
fraud and unjust enrichment. The plaintiffs do not allege any
improper conduct by Gem following its acquisition by The Company.
The complaint seeks an unspecified amount of damages, although the
plaintiffs have otherwise claimed total compensatory damages of
approximately $10 million. Gem's former stockholders are
contractually required to indemnify ACLVI against the claims in the
Hafen litigation. This case was resolved by settlement in late 1999.
ACLVI did not contribute any amount to the settlement, but the
Company did agree as part of the settlement to take certain actions
to facilitate the settlement between the plaintiffs and the other
defendants. The plaintiffs have acknowledged in the settlement
documents that the Company did not commit any wrongdoing against the
plaintiffs and that ACLVI was named in the suit only because it is
the successor by merger to Gem.
Other Legal Proceedings and Claims. From time to time, the
Company is a party to litigation which arises in the ordinary course
of business. Except for the matters described or referred to above,
the Company is not currently a party to any litigation that
management believes would be likely to have a material adverse effect
on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Ameristar's Common Stock is traded on the Nasdaq National Market
System ("Nasdaq-NMS") under the symbol "ASCA." The following table
sets forth, for the fiscal quarter indicated, the high and low sale
prices for the Common Stock, as reported by Nasdaq:
High Low
1998
First Quarter $ 6.50 $ 4.88
Second Quarter 5.75 5.00
Third Quarter 5.13 2.63
Fourth Quarter 3.25 1.88
1999
First Quarter $ 3.63 $ 2.13
Second Quarter 3.88 2.31
Third Quarter 4.44 3.00
Fourth Quarter 4.31 3.25
On March 15, 2000, there were 285 holders of record of
Ameristar's Common Stock.
No dividends on Ameristar's Common Stock have been declared
during the last two fiscal years. The Company intends to retain all
earnings for use in the development of its business and does not
anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's Revolving Credit Facility and Senior
Subordinated Notes obligate the Company to comply with certain
financial covenants that place limitations on the payment of
dividends. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from the audited financial
statements of the Company and should be read in conjunction with
those statements, certain of which are included in this Report.
AMERISTAR CASINOS, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
For the year ended December 31,
INCOME STATEMENT DATA: 1995 1996 1997 1998 1999
(amounts in thousands, except per share data)
REVENUES:
Casino $ 99,364 $161,377 $173,019 $216,319 $247,416
Food and beverage 19,303 24,250 30,672 45,853 49,142
Rooms 7,861 7,641 9,685 14,201 17,257
Other 7,756 7,760 8,275 10,401 11,089
134,284 200,989 221,709 286,774 324,904
Less: Promotional 10,417 12,524 15,530 22,092 24,618
allowances
Net revenues 123,867 188,465 206,179 264,682 300,286
COSTS AND EXPENSES:
Casino 44,503 75,685 78,733 103,387 114,357
Food and beverage 11,747 16,773 19,784 31,698 33,207
Rooms 2,404 2,368 3,130 5,809 6,372
Other 8,211 7,054 7,546 10,044 10,203
Selling, general and 29,197 47,758 51,958 75,604 86,142
administrative
Depreciation and 9,721 14,135 16,358 24,191 24,460
amortization
Abandonment loss - - 646 - -
Preopening costs - 7,379 - 10,611 -
Total costs and 105,783 171,152 178,155 261,344 274,741
expenses
INCOME FROM OPERATIONS 18,084 17,313 28,024 3,338 25,545
OTHER INCOME
(EXPENSE):
Interest income 205 354 445 296 300
Interest expense (3,958) (8,303) (12,107) (22,699) (24,449)
Other - (77) (35) (13) (851)
Income (loss) before
income tax provision 14,331 9,287 16,327 (19,078) 545
(benefit)
Income tax provision 5,236 3,390 5,959 (6,363) 340
(benefit)
Income (loss) before 9,095 5,897 10,368 (12,715) 205
extraordinary loss
Extraordinary loss on (657) - (673) - -
early retirement of
debt, net of income
tax benefit of $353
and $387, respectively
NET INCOME (LOSS) $ 8,438 $ 5,897 $ 9,695 $(12,715) $ 205
AMERISTAR CASINOS, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
(CONTINUED)
For the year ended December 31,
INCOME STATEMENT DATA: 1995 1996 1997 1998 1999
(amounts in thousands, except per share data)
EARNINGS PER SHARE:
Income (loss) before
extraordinary item
Basic and diluted $ 0.45 $ 0.29 $ 0.51 $(0.62) $ 0.01
Net income (loss)
Basic and diluted 0.42 0.29 0.48 (0.62) 0.01
WEIGHTED AVERAGE
SHARES OUTSTANDING 20,360 20,360 20,360 20,360 20,362
December 31,
BALANCE SHEET AND OTHER 1995 1996 1997 1998 1999
DATA:
Cash $ 14,787 $ 10,724 $ 13,310 $ 18,209 $ 15,531
Total assets 202,220 270,052 336,186 351,773 378,645
Total notes payable,
long-term debt and 101,869 143,893 193,113 230,399 242,890
capital lease
obligations, net of
current maturities
Stockholders' equity 65,047 70,944 80,639 67,924 68,169
Capital expenditures 63,559 43,087 72,932 32,312 57,590
Certain revenues and expenses were reclassified beginning in 1998 to
be consistent with classifications used in 1999. The selected
financial data for periods prior to 1998 have not been reclassified,
but the reclassifications are deemed not to be material to the
presentation,
The Council Bluffs Casino opened in mid-January 1996. Portions of
the land-based facilities at Ameristar Council Bluffs opened in June,
November and December 1996. Ameristar Council Bluffs' remaining land-
based facilities opened in February and March 1997. The Reserve
opened February 10, 1998. The Ameristar Vicksburg hotel opened in
June 1998. Casino expansions at Ameristar Council Bluffs and
Ameristar Vicksburg were completed on November 22, 1999 and December
29, 1999, respectively.
No dividends were paid in 1995, 1996, 1997, 1998 and 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto
included in this Report. The information in this section and in this
Report generally includes forward-looking statements. See "Item 1. -
Business - Risk Factors."
OVERVIEW
Ameristar Casinos, Inc. ("Ameristar" or "ACI") owns and operates
five casino-hotels in four markets through its wholly owned
subsidiaries. Ameristar and its subsidiaries are collectively
referred to herein as the "Company." The Company's properties
consist of the following:
Cactus Petes Resort Casino and The Horseshu Hotel & Casino
(collectively, the "Jackpot Properties"), two casino-hotels that
have been operating in Jackpot, Nevada at the Idaho border since
1956.
Ameristar Casino Vicksburg ("Ameristar Vicksburg"), located
in Vicksburg, Mississippi, a riverboat-themed dockside casino
and related land-based facilities, including a hotel which
opened in June 1998. The remainder of Ameristar Vicksburg
opened in February and May 1994. On December 29, 1999, Ameristar
Vicksburg completed its casino expansion with 8,000 square feet
of additional gaming space becoming fully operational.
Additional parking facilities also became operational on
December 29, 1999.
Ameristar Casino Hotel Council Bluffs ("Ameristar Council
Bluffs"), a riverboat casino and related land-based hotel and
other facilities in Council Bluffs, Iowa across the Missouri
River from Omaha, Nebraska. The casino opened on January 19,
1996, portions of the land-based Main Street Pavilion opened on
June 17, 1996, the hotel opened on November 1, 1996, and the
remainder of Ameristar Council Bluffs opened in early 1997. The
third deck of the riverboat opened on November 22, 1999 and a
new parking garage will be fully operational by the beginning of
April 2000.
The Reserve Hotel Casino ("The Reserve"), in Henderson,
Nevada at the intersection of Interstate 515 and Lake Mead
Drive, which opened on February 10, 1998. The Company acquired
The Reserve on October 9, 1996 through a merger of the initial
developer of the property into a subsidiary of Ameristar.
Certain of the Company's operations are seasonal in nature. In
particular, in Jackpot, the months of March through October are the
strongest. As a result, the second and third calendar quarters
typically produce a disproportionate amount of the income from
operations of the Jackpot Properties. In addition, adverse weather
conditions may adversely affect the business of the Jackpot
Properties, and operations during the winter months typically vary
from year to year based on the severity of the winter weather
conditions in the northwestern United States. To date, operations in
Council Bluffs have experienced some seasonality, with the winter
months being the slower periods. To date, operations at both
Ameristar Vicksburg and The Reserve have not experienced any material
seasonality.
The Company's quarterly and annual operating results may be
affected by competitive pressures, the timing of the commencement of
new gaming operations, the amount of preopening costs incurred by the
Company, construction at existing facilities and general weather
conditions. Consequently, the Company's operating results for any
quarter or year are not necessarily comparable and may not be
indicative of results to be expected for future periods.
The following table highlights the consolidated cash flow
information and results of operations of Ameristar's operating
subsidiaries for its principal properties
Year Ended December 31,
1997 1998 1999
Consolidated cash flow information:
Cash flows from operations $ 33,641 $ 23,123 $ 34,287
Cash flows used in investing (63,417) (53,863) (50,048)
Cash flows from financing 32,083 35,918 13,083
Net revenues:
Jackpot Properties $ 54,455 $ 54,671 $ 58,294
Ameristar Vicksburg 63,961 68,538 76,930
Ameristar Council Bluffs 87,763 97,672 112,047
The Reserve - 43,578 52,832
Corporate and other - 223 183
Consolidated net revenues $206,179 $264,682 $300,286
Adjusted operating income (1):
Jackpot Properties $ 10,308 $ 9,638 $ 10,619
Ameristar Vicksburg 13,165 13,562 15,392
Ameristar Council Bluffs 14,251 17,230 20,714
The Reserve - (16,092) (7,089)
Corporate and other (9,054) (10,389) (14,091)
Consolidated operating income $ 28,670 $ 13,949 $ 25,545
Adjusted operating income margins (1):
Jackpot Properties 18.9% 17.6% 18.2%
Ameristar Vicksburg 20.6% 19.8% 20.0%
Ameristar Council Bluffs 16.2% 17.6% 18.5%
The Reserve - (36.9%) (13.4%)
Consolidated operating income margin 13.9% 5.3% 8.5%
EBITDA (2):
Jackpot Properties $ 13,208 $ 13,163 $ 13,743
Ameristar Vicksburg 19,350 20,231 21,092
Ameristar Council Bluffs 21,090 24,322 28,430
The Reserve - (9,519) 426
Corporate and other (8,621) (10,057) (13,686)
Consolidated EBITDA $ 45,027 $ 38,140 $ 50,005
EBITDA Margins (2):
Jackpot Properties 24.3% 24.1% 23.6%
Ameristar Vicksburg 30.3% 29.5% 27.4%
Ameristar Council Bluffs 24.0% 24.9% 25.4%
The Reserve - (21.8%) 0.8%
Consolidated EBITDA margin 21.8% 14.4% 16.7%
____________________________
(see following page for footnotes)
(1) Adjusted operating income is income from operations (as
reported) before an abandonment loss at Ameristar Vicksburg in
1997 related to the demolition of an existing budget motel for the
construction of a hotel and The Reserve preopening costs in 1998.
(2) EBITDA consists of income from operations plus depreciation
and amortization. EBITDA Margin is EBITDA as a percentage of net
revenues. EBITDA information is presented solely as a
supplemental disclosure because management believes that it is a
widely used measure of operating performance in the gaming
industry and for companies with a significant amount of
depreciation and amortization. EBITDA should not be construed as
an alternative to income from operations (as determined in
accordance with generally accepted accounting principles) as an
indicator of the Company's operating performance, or as an
alternative to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a
measure of liquidity. The Company has significant uses of cash
flows, including capital expenditures and debt principal
repayments that are not reflected in EBITDA. It should also be
noted that not all gaming companies that report EBITDA information
calculate EBITDA in the same manner as the Company.
RESULTS OF OPERATIONS
RECENT OPERATING PERFORMANCE TRENDS
As discussed above, the Company completed significant expansions
of the casinos at Ameristar Council Bluffs and Ameristar Vicksburg in
late 1999. Parking improvements at both of these properties have
also been developed and are substantially complete, including
approximately 1,000 new covered parking spaces at Ameristar Council
Bluffs. Ameristar Vicksburg has also made some restaurant
improvements. In addition, a number of new generation slot machines
have been installed at the Company's properties and some new
marketing programs have been introduced aimed at increasing revenues
and profitability. The initial operating results from these
developments have been positive, and the Company expects to announce
record levels of consolidated net revenues and EBITDA for the first
quarter of 2000. An improvement in operating performance is being
experienced at each of the Company's operating properties.
Although no assurances can be given, the Company expects that
this trend will continue through the end of 2000 as a result of these
developments. In addition, the Company expects to continue to make
improvements at its existing properties and to purchase new slot
products.
YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998
SUMMARY
Strong improvements in operations at The Reserve and the
continued growth at Ameristar Council Bluffs and Ameristar Vicksburg
brought a year of record growth in Ameristar's consolidated net
revenues and a significant increase in income from operations over
the prior year.
Consolidated net revenues increased by 13.5% to $300.3 million
in 1999 compared to $264.7 million in 1998. The increase was due to
increases in revenues at each of the properties. Consolidated income
from operations increased 83.1% to $25.5 million in 1999 compared to
an adjusted income from operations of $13.9 million in 1998 (before
the $10.6 million charge for preopening costs associated with the
opening of The Reserve). The increase was due to improved operating
results at all of the properties, with The Reserve generating the
greatest improvement. Consolidated income from operations after
preopening costs was $3.3 million in 1998.
Total operating expenses as a percentage of net revenues were
91.5% in 1999 versus 98.7% (94.7% before The Reserve's preopening
costs) in 1998. The improvement in this margin is primarily a result
of the improved operating performance at The Reserve, partially
offset by an increase in corporate overhead related to increased
corporate staffing levels and the greater centralization of certain
management functions.
Net income in 1999 was $0.2 million compared to a net loss of
$12.7 million in 1998, an increase of $12.9 million. If 1998 net
income were adjusted for preopening costs and their related tax
benefit, the loss for the year ended December 31, 1998 would have
been $5.7 million. Earnings per share were $0.01 for 1999 compared to
a 1998 loss per share of $0.62, or $0.28 adjusted to exclude
preopening costs.
REVENUES
Ameristar Council Bluffs had total net revenues of $112.0
million for the year ended December 31, 1999 compared to $97.7
million in 1998, an increase of 14.7%. The increase is attributed to
the popularity of, and the resulting increased revenues from, the
enhanced slot product placed in service during the fourth quarter of
1998 and the first quarter of 1999, the completion of the third level
casino expansion in the fourth quarter of 1999, which increased the
number of gaming positions by approximately 400, as well as continued
growth in the gaming market.
Net revenues for Ameristar Vicksburg were $76.9 million for the
year ended December 31, 1999 compared with $68.5 million for the
prior year, an increase of 12.2%. This increase in revenues in 1999
compared to 1998 is due primarily to an increase in slot revenue and
an increase in hotel revenue from a full year of operating the new
hotel facility. The hotel contributed $2.8 million in net revenues
for 1999 compared to $1.3 million for 1998 when it was opened for a
partial year beginning in June 1998. Management believes Ameristar
Vicksburg will continue to experience growth due to its superior
hotel, casino and restaurant facilities relative to the competing
properties in the Vicksburg market.
The Jackpot Properties produced net revenues of $58.3 million
for the year ended December 31, 1999 compared to $54.7 million in the
prior year, an increase of 6.6%. The improvement was due primarily
to an increase in casino revenues resulting from a higher hold
percentage on table games and upgrades to the slot product.
The Reserve produced net revenues of $52.8 million for the year
ended December 31, 1999 compared to revenues of $43.6 million in the
325 days in 1998 following its opening, an increase of 21.2%. In
addition to the additional days open in 1999, the increase in revenue
was attributable to increased direct-mail marketing and other
marketing programs. As a result of these programs, The Reserve
generated improved play from both slot machines and table games and
increased its hotel occupancy rate. The Company is continuing to seek
further operating improvement for additional revenue enhancement.
COSTS AND EXPENSES
The operating expense ratio for 1999 improved to 91.5% of net
revenues compared to 98.7% of net revenues in 1998 (94.7% before The
Reserve preopening costs). The improvement in this ratio is primarily
the result of the improved operating performance at The Reserve,
partially offset by an increase in corporate overhead related to
increased corporate staffing levels and development costs, and the
greater centralization of certain management functions.
Casino costs and expenses for the year ended December 31, 1999
increased by $11.0 million or 10.6% to $114.4 million from $103.4
million in 1998. As a percentage of casino revenues, casino expenses
decreased to 46.2% in 1999 compared to 47.8% in 1998. The decrease
was due primarily to the improved performance of The Reserve casino
operations compared to the startup operational inefficiencies
experienced in the prior year, partially offset by a slight increase
in casino expenses at Ameristar Council Bluffs relating to increases
in employee compensation and benefits.
The Company's food and beverage costs and expenses increased
$1.5 million to $33.2 million in 1999 compared to $31.7 million in
1998 primarily due to increased revenue. The Company's food and
beverage expense-to-revenue ratio decreased to 67.5% in 1999 compared
to 69.1% in 1998. This improvement is primarily related to the
improved operational efficiencies experienced during 1999 at The
Reserve.
Rooms expenses increased by $0.6 million to $6.4 million in 1999
from $5.8 million in 1998. The increase was primarily due to
increases in costs resulting from a full year of operations of the
hotels in Vicksburg and at The Reserve, compared to a partial year of
operations at both properties in 1998.
Selling, general and administrative costs and expenses
(including utilities and maintenance and business development costs)
increased $10.5 million or 13.9% from 1998 to 1999. The increase was
due primarily to an increase in corporate overhead related to
increased corporate staffing levels and future business development
costs and increases in marketing costs and employee compensation at
Ameristar Council Bluffs, Ameristar Vicksburg and the Jackpot
Properties, partially offset by a decrease in such costs at The
Reserve.
Depreciation expense increased $0.3 million or 1.1% from 1998 to
1999 as the Company's depreciable base increased by including The
Reserve and the Ameristar Vicksburg hotel for the entire year,
partially offset by certain five-year assets in Vicksburg that are
now fully depreciated and are no longer included in depreciation
expense in 1999.
Interest expense, net of capitalized interest of $1.4 million in
1998 and $0.6 million in 1999, increased $1.8 million or 7.7% from
1998 to 1999. This increase primarily reflects the additional debt
incurred to finance the Company's various expansion projects (such as
adding a third level to the casino at Ameristar Council Bluffs,
completing restaurant and meeting room enhancements at The Reserve,
and completing an expansion to the casino, remodeling restaurants and
completing other site improvements at Ameristar Vicksburg) and higher
interest rates on those borrowings. With the opening of The Reserve
in February 1998 and the Ameristar Vicksburg Hotel in June 1998, the
capitalization of interest on funds borrowed to construct these
projects was discontinued. Interest was capitalized on borrowings
for construction related to Ameristar Vicksburg and Ameristar Council
Bluffs improvements during 1999.
The Company's average borrowing rate was 9.84% in 1999 compared
to 10.25% in 1998. The borrowing rate decreased due to the favorable
effect of lower interest rates during the first half of 1999 (See "-
Liquidity and Capital Resources").
The Company's effective tax rate on income was 62.4% in 1999 and
the tax benefit on losses was 33.4% in 1998 versus the Federal
statutory rate of 34% and 35%, respectively. The differences from
the statutory rates are due to the effects of certain expenses
incurred by the Company which are not deductible for Federal income
tax purposes. The total of these expenses did not vary significantly
between periods, however the lower absolute level of income before
taxes in 1999 caused a greater impact to the effective tax rate for
1999.
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997
SUMMARY
The completion of The Reserve in early 1998 brought another year
of record growth in Ameristar's consolidated net revenues and
presented challenges in operations.
Consolidated net revenues increased by 28.4% to $264.7 million
in 1998 compared to $206.2 million in 1997. Income from operations
was $13.9 million in 1998 before the $10.6 million charge for
preopening costs associated with the opening of The Reserve. This is
a decline of $14.8 million or 51.7% from income from operations in
1997 before the abandonment loss and is due to an operating loss of
$16.1 million before preopening costs at The Reserve. Income from
operations after preopening costs was $3.3 million in 1998.
Total operating expenses as a percentage of net revenues were
86.4% in 1997 versus 98.7% (94.7% before The Reserve preopening
costs) in 1998. The decline in this margin is primarily a result of
operating inefficiencies associated with the opening of The Reserve
and lower than expected revenues in the intensely competitive
"locals" market in which it operates.
On a year-to-year comparable basis (i.e., before an
extraordinary charge in 1997 and preopening costs in 1998), adjusted
income decreased $16.0 million to a loss of $5.6 million in 1998
compared to net income of $10.4 million in 1997. After the
extraordinary charge and preopening costs, net loss for the year
ended December 31, 1998 was $12.7 million versus net income for the
year ended December 31, 1997 of $9.7 million. Loss per share before
preopening costs was $0.28 for 1998 ($0.62 after preopening costs).
Earnings per share were $0.48 for 1997 after an extraordinary charge
of $0.03 per share for the refinancing of the Company's credit line.
REVENUES
Ameristar Council Bluffs had total net revenues of $97.7 million
in 1998 compared to $87.8 million in 1997, an increase of 11.3%.
This represents growth in the market share of Ameristar Council
Bluffs and in the Council Bluffs gaming market in general.
Net revenues for Ameristar Vicksburg were $68.5 million for the
year ended December 31, 1998 compared with $64.0 million for the
prior year, an increase of 7.0%. This increase in revenues in 1998
compared to 1997 is due to an increase in casino revenue of $3.4
million and a $1.1 million increase in hotel revenue due to the new
hotel facility. Management believes Ameristar Vicksburg maintained
and will continue to hold its leading position in the Vicksburg
market through effective promotional strategies and by continuing to
provide customers with superior service and quality gaming and non-
gaming products.
The Jackpot Properties produced stable net revenues of $54.7
million and $54.5 million for the years ended December 31, 1998 and
1997, respectively. A 2.0% increase in casino revenue in 1998 was
offset by minimal decreases in food and beverage, rooms and other
revenues.
The Reserve produced net revenues of $43.6 million from its
opening on February 10, 1998 to December 31, 1998.
COSTS AND EXPENSES
The operating expense ratio for 1998 increased to 98.7% (94.7%
before preopening) compared to 86.4% of net revenues in 1997. The
increase in this ratio is primarily a result of the initial operating
performance of The Reserve. Excluding the $34.6 million of revenues
and $70.3 million in operating expenses at The Reserve, operating
expenses were 86.4% of net revenue, which is comparable to 1997.
Casino costs and expenses increased by $24.7 million or 31.3%
from $78.7 million in 1997 to $103.4 million in 1998. As a
percentage of casino revenues, casino expenses increased to 47.8% in
1998 compared to 45.5% in 1997. The majority of the increase in
expense ($19.4 million) was associated with the opening of The
Reserve and an increase of $4.6 million in expenses at Ameristar
Council Bluffs associated with additional gaming revenue of $8.4
million.
The Company's food and beverage costs and expenses increased
$11.9 million in 1998 compared to 1997 primarily due to the opening
of The Reserve and partially offset by improvements in this area at
the Jackpot Properties and Ameristar Vicksburg. The Company's food
and beverage expense-to-revenue ratio increased to 69.1% in 1998
compared to 64.5% in 1997. This increase is directly related to the
startup operational inefficiencies experienced in 1998 at The
Reserve.
Rooms expenses increased by $2.7 million to $5.8 million in 1998
from $3.1 million in 1997. The increase was the result of seven
months of operations of the new hotel in Vicksburg and almost 11
months of operations at The Reserve.
Selling, general and administrative costs and expenses
(including utilities and maintenance and business development costs)
increased $23.6 million or 45.5% from 1997 to 1998. Most of the
increase was a result of the opening of The Reserve and additional
expenses associated with salaries, marketing and professional fees at
the corporate level.
Depreciation expense increased $7.8 million or 47.9% from 1997
to 1998 as the Company's depreciable base increased with the opening
of The Reserve and the Ameristar Vicksburg hotel.
Preopening costs of $10.6 million were expensed during 1998
related to the opening of The Reserve.
Interest expense, net of capitalized interest of $4.7 million in
1997 and $1.4 million in 1998, increased $10.6 million or 87.5% from
1997. This increase primarily reflects the additional debt
outstanding to finance the Company's expansion and higher interest
rates on those borrowings. With the opening of The Reserve in
February 1998 and the Ameristar Vicksburg Hotel in June 1998, the
capitalization of interest on funds borrowed to construct these
projects was discontinued. Subsequent interest costs were reflected
as an expense on the statement of operations rather than as an
additional cost of the projects on the balance sheet. Interest was
capitalized on borrowings to construct The Reserve and the Ameristar
Vicksburg hotel during 1997 and 1998 until the projects commenced
operations.
The Company's average borrowing rate was 10.25% in 1998 compared
to 9.9% in 1997. The borrowing rate increased due to the issuance of
$100 million in Senior Subordinated Notes in mid-1997 and an increase
in LIBOR (See "- Liquidity and Capital Resources").
The Company's effective tax rate on income was 36.5% in 1997 and
the tax benefit on losses was 33.4% in 1998 versus the Federal
statutory rate of 35%. The differences from the statutory rates are
due to the effects of certain expenses incurred by the Company which
are not deductible for Federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations increased $11.2 million
to $34.3 million for the year ended December 31, 1999, as compared to
$23.1 million for the year ended December 31, 1998. The increase was
due primarily to the increase in net income from improved operations
at all of the Company's properties. The Company had unrestricted
cash of approximately $15.5 million as of December 31, 1999 compared
to $18.2 million at December 31, 1998, a decrease of $2.7 million.
This decrease in cash was due primarily to net capital expenditures
of $50.0 million exceeding proceeds from net borrowings and capital
leases of $13.0 million and cash flow from operations of $34.3
million during the year. The Company's current assets decreased by
approximately $2.2 million from December 31, 1998 to December 31,
1999. This was primarily the result of decreases in cash and income
taxes receivable, partially offset by increases in accounts
receivable and prepaid expenses. The Company historically has funded
its daily operations through net cash provided by operating
activities and its significant capital expenditures primarily through
bank debt and other debt financing.
The Company's cash flows used for investing activities decreased
$3.8 million to $50.0 million in 1999 from $53.9 million in 1998. In
1998, the Company made capital expenditures primarily on the
completion of The Reserve and the hotel at Ameristar Vicksburg. In
1999, the Company made capital expenditures primarily for slot
machines, the third deck of the riverboat and parking garage at
Ameristar Council Bluffs, and a new restaurant, casino expansion,
additional parking and coffer dam repair at Ameristar Vicksburg. Cash
flows from financing activities decreased $22.8 million from $35.9
million in 1998 to $13.1 million in 1999 as a result of a reduced
amount of borrowings required to fund capital expenditure projects.
Capital expenditures for the year ended December 31, 1999 were
approximately $57.6 million, consisting of approximately $26.9
million at Ameristar Council Bluffs including adding a third deck
onto the casino and erecting a 1,000 space parking garage, $16.6
million at Ameristar Vicksburg including expanding the casino,
remodeling restaurants and other site improvements, $10.3 million at
The Reserve, including remodeling certain dining and meeting room
areas and the purchase of additional land and approximately $3.0
million for normal capital improvement and maintenance projects at
the Jackpot Properties. The Company funded these capital
expenditures primarily from net cash provided by operating activities
and borrowings.
The Company intends to make capital expenditures of at least
approximately $17.0 million in 2000, including the completion of the
parking garage at Ameristar Council Bluffs. Management believes that
these capital expenditure requirements will be funded out of draws
under the Revolving Credit Facility, cash on hand, operating cash
flow and purchase money and lease financing related to the
acquisition of furniture, fixtures and equipment (including gaming
equipment).
Management considers enhancement projects for each of the
Company's properties on an ongoing basis. In doing so, management
evaluates the operating performance of each property, the anticipated
relative costs and benefits of the projects under consideration, the
availability of cash flow and debt financing to fund capital
expenditures and competitive and other relevant factors. Management
is currently considering several additional capital expenditure
projects at the Company's properties and expects to undertake
additional property improvements in 2000.
On July 15, 1997, the Company refinanced its long-term debt
through a new $125 million revolving bank credit facility with Wells
Fargo Bank, N.A. ("WFB") and a syndicate of banks (the "Revolving
Credit Facility") and the sale of $100 million aggregate principal
amount of 10-1/2% Senior Subordinated Notes due 2004 (the "Senior
Subordinated Notes").
The Revolving Credit Facility was entered into on July 8, 1997,
pursuant to a Credit Agreement among Ameristar and its principal
subsidiaries (the "Borrowers"), a syndicate of bank lenders and WFB
as Agent Bank, Arranger and Swingline Lender. The Borrowers do not
include AC Hotel Corp., which owns the hotel at Ameristar Vicksburg,
and a purchasing subsidiary. The Borrowers made an initial draw of
$114.5 million under the Revolving Credit Facility on July 15, 1997,
which was used to repay $94.5 million in borrowings outstanding under
a prior bank credit facility and a $20.0 million short-term loan from
WFB. The Senior Subordinated Notes were issued by Ameristar at par,
and the net proceeds from the sale of the Senior Subordinated Notes
were used to repay $82.4 million in borrowings and interest under the
Revolving Credit Facility, $13.1 million in other indebtedness and
$0.8 million in loan fees for the Revolving Credit Facility.
Following the application of the net proceeds from the sale of the
Senior Subordinated Notes, the Company made additional draws under
the Revolving Credit Facility to fund a portion of the capital
expenditures for the development of The Reserve and other capital
expenditure projects. At December 31, 1999, the outstanding
principal balance of the Revolving Credit Facility was
$107.0 million.
Following the completion of Phase I of The Reserve, the
Revolving Credit Facility proceeds may be used only for working
capital purposes of the Borrowers and funding ongoing capital
expenditures for existing facilities.
The Borrowers and the lenders amended the Revolving Credit
Facility effective June 30, 1998 and March 31, 1999. Under the
amended Revolving Credit Facility, borrowings under the Revolving
Credit Facility may not exceed 2.75 times the Borrowers' rolling four
quarter EBITDA, and the Borrowers' total funded debt may not exceed
the Borrowers' rolling four-quarter EBITDA multiplied by a factor as
follows: 4.75 commencing December 31, 1999; 4.5 commencing March 31,
2000; and 4.0 commencing September 30, 2000. For purposes of the
Revolving Credit Facility, the Borrowers' EBITDA is generally defined
as net income before interest expense, income taxes, depreciation and
amortization, preopening costs and certain extraordinary and non-cash
items. As of December 31, 1999, the total funded debt of the
Borrowers was 4.38 times the Borrowers' rolling four-quarter EBITDA.
The maximum amount available under the Revolving Credit Facility
reduces semi-annually commencing July 1, 1999 on a sliding scale
(ranging from $2.5 million to $10.0 million in reductions) with a
final reduction of $75.0 million at maturity on June 30, 2003. The
maximum amount available under the Revolving Credit Facility as of
December 31, 1999 was $120.0 million.
The Revolving Credit Facility, as amended, requires the
Borrowers to maintain a gross fixed charge coverage ratio (as
defined) of at least 1.25 to 1.0 until September 30, 1999 and 1.50 to
1.0 thereafter. For purposes of these covenants, principal payments
on the Gem Notes (as defined below) will be included only to the
extent actually paid in the applicable period. As of December 31,
1999, the Company's fixed charge coverage ratio was 1.65. The
Revolving Credit Facility prohibits Ameristar from making any
dividend or other distribution on its capital stock during any period
in which the Borrowers' rolling four-quarter ratio of total funded
debt to EBITDA is greater than 2.0 to 1.0.
The amended Revolving Credit Facility also limits the Borrower's
aggregate capital expenditures in each year to an amount equal to 5%
of their consolidated net revenue for the preceding year and
prohibits the Borrowers from incurring any additional secured
indebtedness without the approval of the lenders. However, the
lenders under the Revolving Credit Facility have waived the maximum
capital expenditure limitation under the Revolving Credit Facility
specifically for certain projects at Ameristar Council Bluffs,
Ameristar Vicksburg and The Reserve. The waiver permits fiscal 1999
and 2000 capital expenditure projects to exceed the 5% limit by
approximately $43.3 million in total.
The amended Revolving Credit Facility requires the Borrowers to
maintain a tangible net worth of at least $50.0 million, plus 90% of
net income (without any reduction for net losses) as of the end of
each quarter beginning March 31, 1999 plus 90% of the net proceeds of
certain future equity offerings. As of December 31, 1999, the
Company's tangible net worth was $3.8 million more than required by
this covenant.
Under the terms of the Revolving Credit Facility, concurrent
with each loan draw, the Borrowers may select the interest rate based
on either the London Interbank Offering Rate ("LIBOR") or WFB's prime
interest rate. The maximum number of outstanding draws at any time
using LIBOR is five, with a minimum draw amount of $5.0 million per
draw. A LIBOR draw can be for a one-, two-, three- or six-month term
with interest accruing monthly and due at the end of the term, but in
no event less frequently than quarterly. The interest rate is fixed
throughout the term of a LIBOR-based draw and, as amended, ranges
from LIBOR plus 1.5 percentage points to LIBOR plus 4.0 percentage
points. On a prime interest rate draw, the interest rate is variable
and, as amended, ranges from a minimum of prime plus 0.25 percentage
points to a maximum of prime plus 2.75 percentage points with
interest payable monthly in arrears. As of December 31, 1999, the
Borrowers have taken LIBOR draws totaling $107.0 million with an
average interest rate of approximately 9.94 percent per annum. The
applicable margins for both LIBOR draws and prime interest rate draws
adjust semiannually based on the ratio of the Company's consolidated
total debt to consolidated cash flows, as measured by an EBITDA
formula.
The Company has entered into an interest rate collar agreement
with WFB to manage interest expense, which is subject to fluctuation
due to the variable-rate nature of the debt under the Company's
Revolving Credit Facility. Under the agreement, which covers $50.0
million of the borrowings on the Revolving Credit Facility, the
Company has a LIBOR floor rate of 5.39 percent and a LIBOR ceiling
rate of 6.75 percent, plus the applicable margin. In 1998, the
Company paid approximately $49,000 in additional interest as a result
of this agreement. The Company did not incur any additional interest
in connection with this agreement in 1999. The agreement terminates
on June 30, 2003 to coincide with the maturity of the Revolving
Credit Facility.
The Revolving Credit Facility is secured by liens on
substantially all of the real and personal property of the Borrowers.
The Revolving Credit Facility prohibits any future secondary liens on
these properties without the prior written approval of the lenders.
Certain changes in control of Ameristar may constitute a default
under the Revolving Credit Facility. The Revolving Credit Facility
binds the Borrowers to a number of additional affirmative and
negative covenants, including promises to maintain certain financial
ratios and tests within defined parameters. As of December 31, 1999,
the Company was in compliance with these covenants, as amended.
The Senior Subordinated Notes were issued under an Indenture
dated July 15, 1997 (the "Indenture"). In addition to Ameristar and
the trustee, all of Ameristar's subsidiaries other than Ameristar
Casino St. Louis, Inc. (the "Guarantors") are parties to the
Indenture for the purpose of guaranteeing (the "Guarantees") payments
on the Senior Subordinated Notes.
The Senior Subordinated Notes will mature on August 1, 2004.
Interest is payable semiannually on February 1 and August 1,
commencing February 1, 1998, at the per annum rate of 10.5%. The
Senior Subordinated Notes and the Guarantees are not secured and are
subordinate to all existing and future Senior Indebtedness (as
defined), which includes the Revolving Credit Facility.
Ameristar may redeem the Senior Subordinated Notes, in whole or
in part, at any time on or after August 1, 2001, at redemption prices
that decline over time from 105.25% to 101.75%. Senior Subordinated
Notes may also be redeemed if the holder or beneficial owner thereof
is required to be licensed, qualified or found suitable under
applicable Gaming Laws (as defined) and is not so licensed, qualified
or found suitable. Ameristar may also be required to redeem a
portion of the Senior Subordinated Notes in the event of certain
asset sales or the loss of a material gaming license, and each holder
of the Senior Subordinated Notes will have the right to require
Ameristar to redeem such holder's Senior Subordinated Notes upon a
Change of Control (as defined) of Ameristar. The Senior Subordinated
Notes are not subject to any mandatory redemption or sinking fund
obligations.
The Indenture includes covenants that restrict the ability of
Ameristar and the Restricted Subsidiaries (as defined and which
includes all Guarantors) from incurring future Indebtedness (as
defined); provided, however, that Ameristar or any Guarantor may
incur Indebtedness if the incurrence thereof would not result in the
Consolidated Coverage Ratio (as defined) being greater than 2.0 to
1.0 on a rolling four-quarter basis. The Indenture also permits
Ameristar or a Restricted Subsidiary to incur Indebtedness without
regard to the Consolidated Coverage Ratio test in certain
circumstances, including borrowings of up to $140 million under the
Revolving Credit Facility, as amended or replaced from time to time,
up to $15.0 million in recourse furniture, fixtures and equipment
financings, up to $7.5 million in borrowings for the construction of
the hotel at Ameristar Vicksburg and up to $5.0 million of other
Indebtedness.
The Indenture also includes certain covenants that, among other
things, limit the ability of Ameristar and its Restricted
Subsidiaries to pay dividends or other distributions (excluding
dividends and distributions from a Restricted Subsidiary to Ameristar
or a Guarantor), make investments, repurchase subordinated
obligations or capital stock, create certain liens (except those
securing Senior Indebtedness), enter into certain transactions with
affiliates, sell assets, issue or sell subsidiary stock, create or
permit restrictions on distributions from subsidiaries or enter into
certain mergers and consolidations.
The Company constructed a 150-room hotel at Ameristar Vicksburg,
which cost approximately $10.3 million, including capitalized
construction period interest and preopening costs. The Company has
obtained a nonrecourse loan facility for $7.5 million with a private
lender for the purpose of funding a portion of the construction
costs, with the balance provided out of operating cash flow. The
loan was to originally mature on July 1, 1998 but was amended to
mature on June 30, 2000 and requires periodic interest payments at
the rate of 15% per annum. The Company is required to pay a non-usage
fee at the rate of 3% per annum on the undrawn loan balance, and
draws are subject to the satisfaction of various conditions typically
applicable to construction loans. As of December 31, 1999, the
outstanding balance on the loan was approximately $7.5 million. The
Company is currently seeking another lender to refinance this loan
facility.
On June 20, 1997, as part of the consideration for the
acquisition of The Reserve, Ameristar issued unsecured subordinated
promissory notes to the former stockholders of Gem Gaming, Inc., the
original developer of The Reserve, in an aggregate principal amount
of $28.7 million (the "Gem Notes"). The per annum interest rate on
the Gem Notes is 8%, subject to increases up to a maximum of 18% per
annum, following one or more failures to make payments under the Gem
Notes by scheduled dates. Any interest not paid when scheduled will
thereafter accrue interest as principal. The Gem Notes require
annual principal reduction payments ranging from $2.0 million to $3.0
million commencing in November 1998. The Gem Notes mature on
December 31, 2004 and may be prepaid in whole or in part without
penalty at any time. The Gem Notes are not subject to acceleration
or other collection efforts upon failure to make a scheduled payment
prior to maturity, and the only remedy for such a failure to make a
scheduled payment is an increase in interest rate as described above.
The Gem Notes are subordinate to the Revolving Credit Facility, the
Senior Subordinated Notes and other long-term indebtedness of
Ameristar specified by Ameristar up to a maximum of $250 million.
At December 31, 1999, the Company had other indebtedness,
including obligations under capitalized leases, in an aggregate
principal amount of $15.8 million.
Because the amount of borrowings permitted to be drawn at any
time under the Revolving Credit Facility is determined in part by the
Company's rolling four-quarter EBITDA (as defined), the Company's
anticipated borrowings under the Revolving Credit Facility to fund a
portion of any capital expenditure project will be dependent upon the
level of the Company's aggregate operating cash flow. At the present
time, the Company does not anticipate undertaking capital expenditure
projects during 2000 that could not be funded out of amounts
anticipated to be available through internally generated cash flow
and the Company's borrowing capacity under the Revolving Credit
Facility.
On October 28, 1999, Ameristar Casino St. Louis, Inc., a newly
formed wholly owned subsidiary of ACI, filed an application with the
Missouri Gaming Commission seeking a gaming license for a site along
the Mississippi River in Lemay, Missouri, a community in South St.
Louis County. If awarded the license, the Company's current plans
call for it to spend approximately $150 million to construct the
first phase of the new casino property. The Company has recently
obtained a commitment to refinance its Revolving Credit Facility,
increasing its available borrowing capacity to $265.0 million to fund
a substantial portion of the development costs for this project. The
balance of the financing for this project will be provided primarily
by operating cash flow.
Ameristar has not declared any dividends on its Common Stock
during the last two fiscal years, and the Company intends for the
foreseeable future to retain all earnings for use in the development
of its business instead of paying cash dividends. In addition, as
described above, the Revolving Credit Facility obligates the Company
to comply with certain financial covenants that may restrict or
prohibit the payment of dividends.
YEAR 2000
In the past, many computer software programs were written using
two digits rather than four to define the applicable year. As a
result, date-sensitive computer software may recognize a date using
"00" as the year 1900 rather than the year 2000. This is generally
referred to as the "Year 2000 issue." If this situation were to
occur, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
Prior to the rollover to the Year 2000, the Company evaluated
all of its computer systems, including its front- and back-of-the-
house computer operations, its back-of-the-house accounting systems
and its financial software programs, and upgraded these systems as
necessary to ensure that, according to the applicable vendors, all of
the Company's computer systems were Year 2000 compliant. The Company
also made appropriate inquiries of third parties with whom the
Company does significant business, such as vendors and suppliers, as
to their Year 2000 readiness.
To date, the Company has not experienced any significant Year
2000 problems with its mission-critical systems, including those
relating to providing service to its guests and monitoring
operations, or those of any third parties on which the Company
depends. Although the Company has not experienced any significant
year 2000 problems to date, it is still possible for Year 2000-
related problems to occur and management therefore plans to continue
to monitor the situation closely. Although it is difficult to
calculate the costs the Company incurred in connection with the Year
2000 issue, management believes that these costs have not been and
are not expected to be material to the Company's financial condition
or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Except for the Revolving Credit Facility, under which
$107.0 million was outstanding at December 31, 1999, and certain
other long-term debt outstanding at December 31, 1999 in the
aggregate amount of $6.8 million (collectively, the "Variable Rate
Debt"), all of the Company's other long-term debt bears interest at
fixed rates. The Variable Rate Debt bears interest equal to the WFB
prime interest rate or LIBOR in effect from time to time, in each
case plus an applicable margin determined by the ratio of the
Company's consolidated total debt to consolidated cash flows, as
measured by an EBITDA formula. At December 31, 1999, the average
interest rate applicable to the Variable Rate Debt was 9.84%. An
increase of one percentage point in the average interest rate
applicable to the Variable Rate Debt outstanding at December 31,
1999, would increase the Company's annual interest costs by
approximately $1.1 million. The Company has entered into an interest
rate collar agreement with WFB to manage the effects of fluctuations
in the interest rate applicable to up to $50.0 million in LIBOR draws
under the Revolving Credit Facility.
Although the Company manages its short-term cash assets with a
view to maximizing return with minimal risk, the Company does not
invest in market rate sensitive instruments for trading or other
purposes, including so-called derivative securities, and the Company
is not exposed to foreign currency exchange risks or commodity price
risks in its portfolio transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The Report of the Company's Independent Public Accountants
appears at page F-1 hereof, and the Consolidated Financial Statements
and Notes to Consolidated Financial Statements of the Company appear
at pages F-2 through F-29 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required by this Item is set forth under the
captions "Item 1 - Election of Directors - Information Concerning the
Nominees" and "- Directors and Executive Officers" in the Company's
definitive Proxy Statement to be filed with the Securities and
Exchange Commission and is incorporated herein by this reference as
if set forth in full.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the
caption "Executive Compensation" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission and
is incorporated herein by this reference as if set forth in full.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this Item is set forth under the
caption "Item 1 - Election of Directors - Security Ownership of
Certain Beneficial Owners and Management" in the Company's definitive
Proxy Statement to be filed with the Securities and Exchange
Commission and is incorporated herein by this reference as if set
forth in full.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
The information required by this Item is set forth under the
caption "Certain Transactions" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission and
is incorporated herein by this reference as if set forth in full.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
The following are filed as part of this Report:
(a)1. Financial Statements
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1998
and 1999.
Consolidated Statements of Operations for the years
ended December 31, 1997, 1998 and 1999.
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1998 and 1999.
Notes to Consolidated Financial Statements.
(a)2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under related instructions or
are inapplicable and therefore have been omitted.
(a)3. Exhibits
The following exhibits listed are filed or incorporated by
reference as part of this Report. Certain of the listed exhibits are
incorporated by reference to previously filed reports of the
registrant under the Securities Exchange Act of 1934, as amended,
including Forms 10-K, 10-Q and 8-K. These reports have been filed
with the Securities and Exchange Commission under file number 0-
22494.
EXHIBI
T DESCRIPTION OF EXHIBIT METHOD OF FILING
NUMBER
3.1 Articles of Incorporation of Incorporated by reference
Ameristar Casinos, Inc. to Exhibit 3.1 to
("ACI"). Registration Statement on
Form S-1 filed by ACI
under the Securities Act
of 1933, as amended (File
No. 33-68936) (the "Form S-
1").
3.2 Bylaws of ACI. Incorporated by reference
to Exhibit 3.2 to ACI's
Annual Report on Form 10-K
for the year ended
December 31, 1995 (the
"1995 10-K").
4.1 Specimen Common Stock Incorporated by reference
Certificate to Exhibit 4 to Amendment
No. 2 to the Form S-1.
4.2(a) Credit Agreement, dated as of Incorporated by reference
July 8, 1997, among ACI, to Exhibits 4.1 and 99.1
Cactus Pete's, Inc. ("CPI"), to the Current Report on
Ameristar Casino Vicksburg, Form 8-K of ACI filed on
Inc. ("ACVI"), Ameristar July 30, 1997 (the "July
Casino Council Bluffs, Inc. 1997 8-K").
("ACCBI") and Ameristar
Casino Las Vegas, Inc.
("ACLVI"), as Borrowers, the
Lenders named therein, and
Wells Fargo Bank, National
Association ("WFB") as
Arranger, Agent Bank and
Swingline Lender, together
with a list describing
omitted schedules and
exhibits thereto.
4.2(b) First Amendment to Credit Incorporated by reference
Agreement, dated as of to Exhibit 4.2(b) to ACI's
September 9, 1998, among ACI, Annual Report on Form 10-K
CPI, ACVI, ACCBI, ACLVI, the for the year ended
lenders named therein and December 31, 1998 (the
WFB, as Swingline Lender and "1998 10-K").
Agent Bank.
4.2(c) Interest Rate Collar Incorporated by reference
Agreement, dated August 10, to Exhibit 4.2(b) to the
1998, between ACI and WFB. 1998 10-K.
4.3(a) Indenture, dated as of July Incorporated by reference
15, 1997, among ACI, ACLVI, to Exhibit 4.2 to the July
ACVI, A.C. Food Services, 1997 8-K.
Inc. ("ACFSI"), AC Hotel
Corp. ("ACHC"), ACCBI and
First Trust National
Association, including the
forms of Notes and Subsidiary
Guarantees issued thereunder.
4.3(b) Supplemental Indenture, dated Incorporated by reference
as of October 24, 1997, among to Exhibit 4.1(c) to
ACI, CPI, ACLVI, ACVI, ACFSI, Amendment No. 1 to
ACHC, ACCBI and First Trust Registration Statement on
National Association. Form S-4 filed by ACI,
CPI, ACVI, ACCBI, ACLVI,
ACFSI and ACHC under the
Securities Act of 1933, as
amended (File No. 333-
34381) (the "Form S-4").
4.4 Other Long-Term Debt. See Exhibits 10.9(e)-(j)
See Exhibits 10.9(e)-(j) and and 99.1.
99.1.
*10.1 Employment Agreement, dated Incorporated by reference
(a) November 15, 1993, between to Exhibit 10.1(a) to
ACI and Thomas M. Steinbauer. ACI's Annual Report on
Form 10-K for the year
ended December 31, 1994
(the "1994 10-K").
*10.1 Employment Agreement, dated Incorporated by reference
(b) as of August 23, 1999, to Exhibit 10.1 to ACI's
between Ameristar Casinos, Quarterly Report on Form
Inc. and Gordon R. Kanofsky 10-Q for the quarter ended
September 30, 1999.
*10.2 Ameristar Casinos, Inc. 1993 Incorporated by reference
Non-Employee Director Stock to Exhibit 10.2 to ACI's
Option Plan, as amended and Quarterly Report on Form
restated. 10-Q for the quarter ended
June 30, 1994.
*10.3 Ameristar Casinos, Inc. Incorporated by reference
Management Stock Option to Exhibit 10.3 to ACI's
Incentive Plan, as amended Quarterly Report on Form
and restated. 10-Q for the quarter ended
September 30, 1996.
*10.4 1999 Stock Incentive Plan of Incorporated by reference
Ameristar Casinos, Inc. to Exhibit 10.6 to ACI's
Quarterly Report on Form
10-Q for the quarter ended
June 30, 1999.
*10.5 Form of Indemnification Incorporated by reference
Agreement between ACI and to Exhibit 10.33 to
each of its directors and Amendment No. 2 to the
officers. Form S-1.
*10.6 Housing Agreement, dated Incorporated by reference
November 15, 1993 between CPI to Exhibit 10.17 to the
and Craig H. Neilsen. 1994 10-K.
10.7 Plan of Reorganization, dated Incorporated by reference
November 15, 1993, between to Exhibit 2.1 to the 1994
ACI and Craig H. Neilsen in 10-K.
his individual capacity and
as trustee of the
testamentary trust created
under the last will and
testament of Ray Neilsen
dated October 9, 1963.
10.8 Excursion Boat Sponsorship Incorporated by reference
and Operations Agreement, to Exhibit 10.15 to the
dated September 15, 1994, 1995 10-K.
between Iowa West Racing
Association and ACCBI.
10.9 Merger Agreement, dated as of Incorporated by reference
(a) May 31, 1996, among Gem to Exhibits 10.1 and 99.1
Gaming, Inc. ("Gem"), ACI, to ACI's Quarterly Report
ACLVI, Steven W. Rebeil on Form 10-Q for the
("Rebeil") and Dominic J. quarter ended June 30,
Magliarditi ("Magliarditi"), 1996 (the "June 1996 10-
together with a list Q").
describing omitted schedules
and exhibits thereto.
10.9 First Amendment to Merger Incorporated by reference
(b) Agreement, dated July 2, to Exhibit 10.5 to the
1996, among Gem, ACI, ACLVI, June 1996 10-Q.
Rebeil and Magliarditi.
10.9 Second Amendment to Merger Incorporated by reference
(c) Agreement, dated as of to Exhibits 10.1 and 99.1
September 27, 1996, among to the Current Report on
Gem, ACI, ACLVI, Rebeil and Form 8-K of ACI filed on
Magliarditi, together with a October 24, 1996.
list describing omitted
schedules and exhibits
thereto.
10.9 Settlement Agreement, dated Incorporated by reference
(d) as of May 3, 1997, among ACI, to Exhibit 10.1 to ACI's
ACLVI, Rebeil, Magliarditi, Quarterly Report on Form
Gem Air, Inc. and NVAGAIR. 10-Q for the quarter ended
March 31, 1997.
10.9 Promissory Note, dated as of Incorporated by reference
(e) June 1, 1997, made by ACI to Exhibit 10.8(k) to the
payable to the order of Form S-4.
Rebeil in the original
principal amount of
$13,232,146.
10.9 Promissory Note, dated as of Incorporated by reference
(f) June 1, 1997, made by ACI to Exhibit 10.8(k) to the
payable to the order of Form S-4.
Magliarditi in the original
principal amount of $417,854.
10.9 Non-Negotiable Promissory Filed electronically
(g) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Magliarditi in the
original principal amount of
$179,080.
10.9 Non-Negotiable Promissory Filed electronically
(h) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Magliarditi in the
original principal amount of
$280,100.
10.9 Non-Negotiable Promissory Filed electronically
(i) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Rebeil in the original
principal amount of
$5,670,920.
10.9 Non-Negotiable Promissory Filed electronically
(j) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Rebeil in the original
principal amount of $8,869,900.
10.10 Lease, dated December 11, Incorporated by reference
(a) 1992, between Martha Ker to Exhibit 10.4 to the
Brady Lum et. al. And ACVI as Form S-4.
the assignee of Craig H.
Neilsen.
10.10 First Amendment to Lease Incorporated by reference
(b) Agreement, dated June 1, to Exhibit 10.4(b) to the
1995, between Lawrence O. 1995 10-K.
Branyan, Jr., as trustee of
the Brady-Lum Family Trust
dated May 15, 1993 and ACVI.
10.11 Settlement, Use and Incorporated by reference
Management Agreement and DNR to Exhibits 10.12 and 99.1
Permit, dated May 15, 1995, to ACI's Annual Report on
between the State of Iowa Form 10-K for the year
acting through the Iowa ended December 31, 1996.
Department of Natural
Resources and ACCBI as the
assignee of Koch Fuels, Inc.
10.12**Asset Purchase and Sale Filed electronically
Agreement, dated as of herewith.
February 15, 2000, between
Futuresouth, Inc., Southboat
Lemay, Inc., Southboat
Limited Partnership and
Ameristar Casino St. Louis,
Inc.
21.1 Subsidiaries of ACI. Filed electronically
herewith.
23.1 Consent of Arthur Andersen Filed electronically
LLP. herewith.
27.1 Financial Data Schedule Filed electronically
herewith.
99.1 Agreement to furnish the Filed electronically
Securities and Exchange herewith.
Commission certain
instruments defining the
rights of holders of certain
long-term debt.
_________________________________
* Denotes a management contract or compensatory plan or arrangement.
** Portions of this Exhibit have been deleted pursuant to the
Company's request for confidential treatment pursuant to Rule 24b-2
promulgated under the Securities Exchange Act.
(B) REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
March 29, 2000 By: /s/ Craig H. Neilsen
Craig H. Neilsen
President, Chairman of the
Board and CEO
Pursuant to the requirements of the Securities Exchanges Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE NAME AND TITLE DATE
Craig H. Neilsen,
/s/ Craig H. Neilsen President, Chairman of March 29, 2000
the Board and CEO
(principal executive
officer)
Thomas M. Steinbauer,
Senior Vice President of
/s/ Thomas M. Steinbauer Finance and March 29, 2000
Administration (principal
financial officer and
principal accounting
officer) and Director
/s/ Paul I. Corddry Paul I. Corddry, Director March 29, 2000
/s/ Larry A. Hodges Larry A. Hodges, Director March 29, 2000
/s/ Warren E. McCain Warren E. McCain, Director March 29, 2000
On this 29th of March, 2000, Craig H. Neilsen directed Chris
Hinton, in his presence as well as our own, to sign the foregoing
document as "Craig H. Neilsen." Upon viewing the signatures as
signed by Chris Hinton and in our presence, Craig H. Neilsen
declared to us that he adopted them as his own signatures.
/s/Karen Ahmad
Witness
/s/Susan Viccairelli
Witness
STATE OF NEVADA )
):ss.
COUNTY OF CLARK )
I, Margene M. Otten, Notary Public in and for said county
and state, do hereby certify that Craig H. Neilsen personally
appeared before me and is known or identified to me to be the
President and Chief Executive Officer of Ameristar Casinos, Inc.,
the corporation that executed the within instrument or the person
who executed the instrument on behalf of said corporation. Craig
H. Neilsen, who being unable due to physical incapacity to sign
his name or offer his mark, did direct Chris Hinton, in his
presence, as well as my own, to sign his name to the foregoing
document. Craig H. Neilsen, after viewing his name as signed by
Chris Hinton, thereupon adopted the signatures as his own by
acknowledging to me his intention to so adopt them as if he had
personally executed the same both in his individual capacity and
on behalf of said corporation, and further acknowledged to me
that such corporation executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal this 29th day of March, 2000.
/s/Margene M. Otten
Notary Public
My Commission Expires: July 23, 2002
Residing at: Las Vegas, NV
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Ameristar Casinos, Inc.:
We have audited the accompanying consolidated balance sheets of
Ameristar Casinos, Inc. (a Nevada corporation) and subsidiaries
as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Ameristar Casinos, Inc. and subsidiaries as of
December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
As explained in Note 1 of the notes to the consolidated financial
statements, effective January 1, 1999, Ameristar Casinos, Inc.
changed its method of accounting for start-up activities in
accordance with the American Institute of Certified Public
Accountants' Statement of Position 98-5, "Reporting on the Costs
of Start-up Activities."
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 18, 2000
(except with respect to the matter discussed in
Note 12, as to which the date is March 1, 2000)
AMERISTAR CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
December 31,
1998 1999
CURRENT ASSETS:
Cash and cash equivalents $18,209 $15,531
Restricted cash 118 142
Accounts receivable, net 1,490 2,080
Income tax refund receivable 2,815 1,450
Inventories 3,037 3,268
Prepaid expenses 4,569 5,162
Deferred income taxes 3,906 3,717
Total current assets 34,144 31,350
PROPERTY AND EQUIPMENT, at cost:
Buildings and improvements 260,720 284,518
Building under capitalized
lease 800 800
Furniture, fixtures and
equipment 91,325 100,615
Furniture, fixtures and equipment
under capitalized leases 3,907 4,060
356,752 389,993
Less: Accumulated depreciation and
amortization 92,708 108,949
264,044 281,044
Land 26,485 27,949
Land under capitalized leases 4,865 4,865
Construction in progress 2,426 14,759
297,820 328,617
EXCESS OF PURCHASE PRICE OVER FAIR
MARKET VALUE OF NET ASSETS ACQUIRED 15,046 14,651
DEPOSITS AND OTHER ASSETS 4,763 4,027
$351,773 $378,645
The accompanying notes are an integral part of these consolidated
balance sheets.
AMERISTAR CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Share Data)
December 31,
1998 1999
CURRENT LIABILITIES:
Accounts payable $ 6,339 $ 9,204
Construction contracts payable 897 6,341
Accrued liabilities 26,395 29,539
Current obligations under
capitalized leases 2,398 2,413
Current maturities of notes payable
and long-term debt 9,924 10,615
Total current liabilities 45,953 58,112
OBLIGATIONS UNDER CAPITALIZED LEASES,
net of current maturities 13,196 11,037
NOTES PAYABLE AND LONG-TERM DEBT,
net of current maturities 217,203 231,853
DEFERRED INCOME TAXES 7,497 9,474
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par
value: Authorized -
30,000,000 shares; Issued -
None - -
Common stock, $.01 par value:
Authorized - 30,000,000 shares;
Issued and outstanding -
20,360,000 shares at December 31,
1998 and 20,375,264 shares at
December 31, 1999 204 204
Additional paid-in capital 43,043 43,083
Retained earnings 24,677 24,882
67,924 68,169
$351,773 $378,645
The accompanying notes are an integral part of these consolidated
balance sheets.
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
Years ended December 31,
1997 1998 1999
REVENUES:
Casino $173,077 $216,319 $247,416
Food and beverage 30,672 45,853 49,142
Rooms 9,685 14,201 17,257
Other 8,275 10,401 11,089
221,709 286,774 324,904
Less: Promotional
allowances 15,530 22,092 24,618
Net revenues 206,179 264,682 300,286
OPERATING EXPENSES:
Casino 78,733 103,387 114,357
Food and beverage 19,784 31,698 33,207
Rooms 3,130 5,809 6,372
Other 7,546 10,044 10,203
Selling, general and
administrative 51,958 75,604 86,142
Depreciation and
amortization 16,358 24,191 24,460
Abandonment loss 646 - -
Preopening costs - 10,611 -
Total operating expenses 178,155 261,344 274,741
Income from operations 28,024 3,338 25,545
OTHER INCOME (EXPENSE):
Interest income 445 296 300
Interest expense (12,107) (22,699) (24,449)
Other (35) (13) (851)
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) 16,327 (19,078) 545
Income tax provision
(benefit) 5,959 (6,363) 340
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS 10,368 (12,715) 205
EXTRAORDINARY LOSS ON EARLY
RETIREMENT OF DEBT, net of
income tax benefit of $387, $0
and $0, respectively (673) - -
NET INCOME (LOSS) $ 9,695 $(12,715) $ 205
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
(Amounts in Thousands, Except Per Share Data)
Years ended December 31,
1997 1998 1999
EARNINGS (LOSS) PER
SHARE:
Income (loss) before
extraordinary loss
Basic and diluted $ 0.51 $(0.62) $ 0.01
Net income (loss)
Basic and diluted $ 0.48 $(0.62) $ 0.01
WEIGHTED AVERAGE
SHARES OUTSTANDING 20,360 20,360 20,362
The accompanying notes are an integral part of these consolidated
financial statements.
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Number of Shares)
Capital Stock Additional
No. of Paid-In Retained
Shares Balance Capital Earnings Total
Balance,
December 31, 1996 20,360,000 $ 204 $43,043 $27,697 $70,944
Net income - - - 9,695 9,695
Balance,
December 31, 1997 20,360,000 204 43,043 37,392 80,639
Net loss - - - (12,715) (12,715)
Balance,
December 31, 1998 20,360,000 204 43,043 24,677 67,924
Net income - - - 205 205
Issuance of shares
upon exercise of
stock options 15,264 - 40 - 40
Balance,
December 31, 1999 20,375,264 $ 204 $43,083 $24,882 $68,169
The accompanying notes are an integral part of these consolidated
financial statements.
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years ended December 31,
1997 1998 1999
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $9,695 $(12,715) $ 205
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 16,358 24,191 24,460
Change in deferred income
taxes 2,964 (3,898) 2,166
Net loss on disposition
of assets 505 11 852
Amortization of debt
issuance costs 424 661 668
Preopening costs - 10,611 -
Extraordinary loss on
early retirement of debt 1,060 - -
Changes in current assets
and liabilities:
Restricted cash 265 34 (24)
Accounts receivable, net (643) 561 (590)
Income taxes, net (2,152) (712) 1,365
Inventories 85 (1,314) (231)
Prepaid expenses (374) (669) (593)
Accounts payable (2,531) 1,552 2,865
Accrued liabilities 7,985 4,810 3,144
Total adjustments 23,946 35,838 34,082
Net cash provided by operating
activities 33,641 23,123 34,287
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (72,932) (32,312) (57,590)
Increase (decrease) in
construction contracts
payable 14,055 (18,478) 5,444
Proceeds from sale of assets 126 - 2,029
Decrease (increase) in
deposits and other assets (4,666) (3,073) 69
Net cash used in investing
activities (63,417) (53,863) (50,048)
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Amounts in Thousands)
Years ended December 31,
1997 1998 1999
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
long-term debt $150,786 $42,606 $19,047
Debt issuance costs (4,439) - -
Minority interest income (16) - -
Principal payments of long-
term debt and capitalized
leases (114,248) (6,688) (6,004)
Proceeds from exercise of
stock options - - 40
Net cash provided by financing
activities 32,083 35,918 13,083
NET INCREASE (DECREASE) IN
CASH
AND CASH EQUIVALENTS 2,307 5,178 (2,678)
CASH AND CASH EQUIVALENTS --
BEGINNING OF YEAR 10,724 13,031 18,209
CASH AND CASH EQUIVALENTS --
END OF YEAR $13,031 $18,209 $15,531
The accompanying notes are an integral part of these consolidated
financial statements.
AMERISTAR CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and basis of presentation
The consolidated financial statements of Ameristar Casinos,
Inc. ("ACI" or the "Company"), a Nevada corporation, include the
accounts of the Company and its wholly-owned subsidiaries, Cactus
Petes, Inc. ("CPI"), Ameristar Casino Vicksburg, Inc. ("ACVI"),
Ameristar Casino Council Bluffs, Inc. ("ACCBI") and Ameristar
Casino Las Vegas, Inc. ("ACLVI"). ACI also operates A.C. Food
Services, Inc., a purchasing subsidiary. ACVI has a wholly owned
subsidiary, AC Hotel Corp., created for the purpose of
constructing and operating a hotel in Vicksburg, Mississippi. The
Company has also formed Ameristar Casino St. Louis, Inc., a
Missouri corporation and a wholly owned subsidiary ("ACSLI"), for
the purpose of potentially developing a new casino in the South
St. Louis County, Missouri area.
CPI owns and operates two casino-hotels in Jackpot, Nevada -
Cactus Petes Resort Casino and The Horseshu Hotel and Casino.
ACVI owns and operates Ameristar Vicksburg, a riverboat-themed
dockside casino, and related land-based facilities in Vicksburg,
Mississippi. ACCBI owns and operates Ameristar Council Bluffs, a
riverboat casino and associated hotel and other land-based
facilities in Council Bluffs, Iowa. ACLVI owns and operates The
Reserve Hotel Casino ("The Reserve") in the Henderson-Green
Valley suburban area of Las Vegas, Nevada.
The gaming licenses granted to ACVI and ACCBI must be
periodically renewed by the respective state gaming authorities
to continue gaming operations. In addition, ACCBI's gaming
operations are subject to a county-wide reauthorizing referendum
every eight years, commencing in 2002.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material intercompany accounts and transactions have been
eliminated from the accompanying consolidated financial
statements.
Cash and cash equivalents
The Company considers all highly liquid investments with
maturities of three months or less when purchased to be cash
equivalents. Cash equivalents are carried at cost, which
approximates market, due to the short-term maturities of these
instruments.
Accounts receivable
Gaming receivables are included as part of the Company's
accounts receivable balance. An allowance of $304,000 and
$731,000 at December 31, 1998 and 1999, respectively, has been
applied to reduce receivables to amounts anticipated to be
collected.
Inventories
Inventories are stated at the lower of cost or market. Cost
is determined principally on the weighted average basis.
Interest rate collar agreement
The Company uses an interest rate collar agreement to assist
in managing interest incurred on its long-term debt. The
difference between amounts received and amounts paid under such
agreement, as well as any costs or fees, is recorded as a
reduction of, or addition to, interest expense as incurred over
the life of the collar agreement.
Depreciation and capitalization
Property and equipment is recorded at cost, including
interest charged on funds borrowed to finance construction.
Interest of $4,654,000, $1,434,000 and $561,000 was capitalized
for the years ended December 31, 1997, 1998 and 1999,
respectively. Depreciation is provided on both the straight-line
and accelerated methods in amounts sufficient to relate the cost
of depreciable assets to operations. Amortization of building
and furniture, fixtures and equipment under capitalized leases is
provided over the shorter of the estimated useful life of the
asset or the term of the associated lease (including lease
renewal or purchase options the Company expects to exercise).
Depreciation and amortization is provided over the following
estimated useful lives:
Buildings and improvements 5 to 40 years
Building under capitalized lease 39 years
Furniture, fixtures and equipment 3 to 15 years
Furniture, fixtures
and equipment under
capitalized leases 3 to 5 years
Betterments, renewals and repairs that extend the life of an
asset are capitalized. Ordinary maintenance and repairs are
charged to expense as incurred.
Excess of purchase price over fair market value of net assets
acquired
The excess of purchase price over fair market value of net
assets acquired resulting from the Gem Gaming merger (see note
10) is being amortized over its estimated useful life of 39 years
using the straight line method.
Dividends
The Company intends to retain future earnings for use in the
development of its business and does not anticipate paying any
cash dividends in the foreseeable future.
Gaming revenues and promotional allowances
In accordance with industry practice, the Company recognizes
as gaming revenues the net win from gaming activities, which is
the difference between gaming wins and losses. Gross revenues
include the retail value of complimentary food, beverage and
lodging services furnished to customers. The retail value of
these promotional allowances is deducted to compute net revenues.
The estimated departmental costs of providing such promotional
allowances are included in casino costs and expenses and consist
of the following:
Years ended December 31,
1997 1998 1999
(Amounts in Thousands)
Food and beverage $12,283 $20,399 $20,189
Room 708 1,024 1,336
Other 644 958 1,382
$13,635 $22,381 $22,907
Advertising
The Company expenses advertising costs the first time the
advertising takes place. Advertising expense included in
selling, general and administrative expenses was approximately
$5,453,000, $9,966,000, and $10,690,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Business development expenses
Business development expenses are general costs incurred in
connection with identifying, evaluating and pursuing
opportunities to expand into existing or emerging gaming
jurisdictions. Such costs include, among others, legal fees,
land option payments and fees for applications filed with
regulatory agencies and are expensed as incurred.
Preopening costs
Preopening costs primarily represent direct personnel and
other operating costs incurred prior to the opening of new
facilities. The Company changed its method for accounting for
preopening costs effective January 1, 1999 in accordance with the
provisions of American Institute of Certified Public Accountants
issued Statement of Position No. 98-5 "Reporting on the Costs of
Start-up Activities." Prior to 1999, the Company capitalized
preopening costs and expensed such costs upon the commencement of
operations. The adoption of SOP 98-5 did not have a material
impact on the Company's operations in 1999 since the Company was
not developing any new facilities.
Federal income taxes
Income taxes are recorded in accordance with the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition
of deferred income tax assets and liabilities for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.
Earnings Per Share
In 1997, the Company adopted SFAS No. 128 - Earnings Per
Share. SFAS 128 replaces previously reported earnings per share
with "basic" earnings per share and "diluted" 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 for all potentially dilutive
securities such as stock options. Basic and diluted earnings per
share are equal for the years ended December 31, 1997 and 1998 as
the outstanding stock options were antidilutive. Basic and
diluted earnings per share are equal in 1999 because the dilution
was not significant enough to reduce basic earnings per share as
reported.
Reclassifications
Certain reclassifications, having no effect on net income,
have been made to the prior periods' consolidated financial
statements to conform with the current year presentation.
NOTE 2 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
1998 1999
(Amounts in Thousands)
Compensation and related
benefits $ 7,164 $8,059
Taxes other than
income taxes 5,649 5,822
Progressive slot machine
jackpots 1,753 1,436
Interest 6,013 6,320
Deposits and other
accruals 5,816 7,902
$26,395 $29,539
NOTE 3 - FEDERAL INCOME TAXES
The components of the income tax provision are as follows:
Years ended December 31,
1997 1998 1999
(Amounts in Thousands)
Current $2,371 $(5,312) $(1,250)
Deferred 3,588 (1,051) 1,540
Provision (benefit) on income
before extraordinary item 5,959 (6,363) 340
Tax benefit of extraordinary item (387) - -
$5,572 $(6,363) $ 340
The reconciliation of income tax at the Federal statutory
rates to income tax expense is as follows:
Years ended December 31,
1997 1998 1999
Federal statutory rate 35.0% (34.0)% 34.0%
Nondeductible political and
lobbying costs 0.3 0.2 11.0
Nondeductible meals and
entertainment 0.3 0.1 4.2
Other nondeductible expenses 0.9 0.3 13.2
36.5% (33.4)% 62.4%
Under SFAS No. 109, deferred income taxes reflect the net
tax effects of temporary differences between the carrying amount
of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components
of the Company's net deferred tax liability consisted of the
following:
December 31,
1998 1999
(Amounts in Thousands)
Deferred tax assets:
Preopening costs $ 4,290 $ 3,019
Accrued book expenses not
currently deductible 2,769 2,757
Alternative minimum tax credit 1 4,716 2,882
Project development costs 1,118 841
Net operating loss carry forward 2 3,745 10,433
Other 519 615
Total deferred tax assets 17,157 20,547
Deferred tax liabilities:
Tax depreciation in excess of
book depreciation (18,482) (22,697)
Book capitalized interest in
excess of tax (451) (444)
Other (1,814) (3,163)
Total deferred tax liabilities (20,747) (26,304)
Net deferred tax liability $(3,590) $(5,757)
_____________
1 The excess of the alternative minimum tax
over regular Federal income tax is a tax
credit which can be carried forward
indefinitely to reduce future Federal income
tax liabilities.
2 The Company has available at December 31,
1999, $30,686,000 of an unused operating loss
carryforward that may be applied against
future taxable income. Of the total
$11,016,000 of the unused operating loss
carryforward will expire in the year 2018 and
$19,670,000 will expire in the year 2019.
NOTE 4 - SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company made cash payments for interest, net of amounts
capitalized, of $8,223,000, $22,515,000 and $23,474,000 for the
years ended December 31, 1997, 1998, and 1999, respectively.
The Company made cash payments for Federal income taxes of
$4,760,000, $350,000, and $200,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
The Company acquired assets through capitalized leases of
$2,998,000, $7,180,000, and $153,000 during the years ended
December 31, 1997, 1998 and 1999, respectively.
The Company acquired assets through the issuance of notes
payable of $704,000, $0, and $0 during the years ended
December 31, 1997, 1998 and 1999, respectively.
The Company retired the balance of $94,500,000 under the
1995 Revolving Credit Facility by entering into a new Revolving
Credit Facility (see Note 5) during the year ended December 31,
1997.
Adjustments to the excess of purchase price over fair market
value of net assets acquired as of December 31, 1997 due to the
Gem Settlement Agreement (see Note 10) are as follows (amounts in
thousands):
Reduction in value of Gem
Notes $(2,725)
Deferred taxes on land
purchase (1,784)
Dissolution of NVAGAIR
subsidiary 418
Return of aviation asset 271
Miscellaneous receivables 185
Total change in excess
purchase price $(3,635)
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
December 31,
1998 1999
(Amounts in Thousands)
Revolving Credit Facility (see
below) $90,000 $107,000
10.5 percent Senior Subordinated
Notes, interest only payable
semiannually, principal due
August 1, 2004 100,000 100,000
Notes payable issued to former
stockholders of Gem Gaming, Inc.
with interest at 8 percent,
interest payable quarterly
beginning July 1997 through
October 1998 and then monthly
thereafter, periodic principal
payments beginning November 1998,
due December 31, 2004 (See Note
10) 26,650 25,650
Note payable to lender, with
interest at 15 percent, secured
by a deed of trust on the hotel
at ACVI, interest payable in
periodic payments, principal due
June 30, 2000. 7,453 7,453
Mortgages payable to United States
Department of Agriculture Rural
Economic and Community
Development Services Multi-
Housing Program with variable
interest (effective rate of
approximately 4.2 percent and 4.0
percent for the years ended
December 31, 1998 and 1999,
respectively), collateralized by
a first deed of trust on certain
apartment units and land, due in
variable monthly payments of not
less than $4,725, including
interest, through November 2016
and October 2033. 1,292 1,248
Note payable to financing company,
with interest at 10.75 percent,
collateralized by certain
equipment, due in monthly
principal and interest payments
of $53,177 through June 2000. 877 309
Other 855 808
227,127 242,468
Less: Current maturities 9,924 10,615
$ 217,203 $231,853
On July 5, 1995, the Company, as borrower, and its principal
operating subsidiaries, as guarantors, entered into a Revolving
Credit Facility (the "1995 Revolving Credit Facility") with Wells
Fargo Bank, N.A. ("WFB") and a syndicate of banks.
On July 8, 1997, the Company, as borrower, and its principal
operating subsidiaries, as guarantors, entered into a new $125
million Revolving Credit Facility (the "Revolving Credit
Facility") with WFB and a syndicate of banks. As a result of the
retirement of the 1995 Revolving Credit Facility, the Company
incurred an extraordinary pre-tax loss (related primarily to the
write-off of unamortized loan costs) of $1,060,000.
As of December 31, 1999, the Company had drawn $107.0
million on the Revolving Credit Facility. These borrowings were
used to repay the 1995 Revolving Credit Facility, to fund the
development of The Reserve and to fund certain other capital
expenditures. The proceeds from the Senior Subordinated Notes
offering were used to repay a portion of the Revolving Credit
Facility and fees to Revolving Credit Facility lenders.
Originally, the Company could not borrow under the Revolving
Credit Facility in excess of 3.25 times its rolling four-quarter
EBITDA (earnings before interest, taxes, depreciation and
amortization). The Company was also limited to borrowing no more
than 5.0 times EBITDA in total debt as adjusted per the Revolving
Credit Facility.
The Company and the lenders amended the Revolving Credit
Facility effective June 30, 1998 and March 31, 1999. Under the
amended Revolving Credit Facility, borrowings under the Revolving
Credit Facility may not exceed 2.75 times the Company's rolling
four-quarter EBITDA (earnings before interest, taxes,
depreciation and amortization), and the Company's total funded
debt may not exceed the Company's rolling four-quarter EBITDA
multiplied by a factor as follows: 5.25 commencing June 30, 1998;
5.5 commencing September 30, 1998; 5.25 commencing June 30, 1999;
4.75 commencing December 31, 1999; 4.5 commencing March 31, 2000;
and 4.0 commencing September 30, 2000. As of December 31, 1999,
the total funded debt of the Company was 4.38 times the Company's
rolling four-quarter EBITDA. The maximum amount available under
the Revolving Credit Facility reduces semiannually commencing
July 1, 1999 on a sliding scale (ranging from $2.5 million to
$10.0 million in reductions) with a final reduction of $75.0
million at maturity on June 30, 2003.
The Revolving Credit Facility, as amended, requires the
Company to maintain a gross fixed charge coverage ratio (as
defined) of 1.25 to 1.0 until September 30, 1999, and 1.50 to 1.0
thereafter. As of December 31, 1999, the Company's fixed charge
coverage ratio was 1.65. The amended Revolving Credit Facility
also limits the Company's aggregate capital expenditures in each
year to an amount equal to 5 percent of its consolidated net
revenue for the preceding year and prohibits the Company from
incurring any additional secured indebtedness without the
approval of the lenders. Until March 31, 1999, the amended
Revolving Credit Facility also required the Company to maintain a
tangible net worth of at least $56,000,000, plus 90 percent of
net income (without any reduction for net losses) as of the end
of each quarter beginning September 30, 1998, plus 90 percent of
the net proceeds of certain future equity offerings. The
Revolving Credit Facility was further amended in 1999 to reduce
the minimum tangible net worth requirement commencing March 31,
1999 to $50.0 million, plus 90% of net income (without any
reduction for net losses) as of the end of each quarter beginning
March 31, 1999, plus 90% of the net proceeds of certain future
equity offerings. As of December 31, 1999, the Company's tangible
net worth plus 90% of net income was $3.8 million more than
required by this covenant.
Under the terms of the Revolving Credit Facility, concurrent
with each loan draw, the Company may select the interest rate
based on either the London Interbank Offering Rate ("LIBOR") or
WFB's prime interest rate. The maximum number of outstanding
draws at any time using LIBOR is five, with a minimum draw amount
of $5.0 million per draw. A LIBOR draw can be for a one-, two-,
three- or six-month term with interest accruing monthly and due
at the end of the term, but in no event less frequently than
quarterly. The interest rate is fixed throughout the term of a
LIBOR-based draw and, as amended, ranges from LIBOR plus 1.5
percentage points to LIBOR plus 4.0 percentage points. On a
prime interest rate draw, the interest rate is variable and, as
amended, ranges from a minimum of prime plus 0.25 percentage
points to a maximum of prime plus 2.75 percentage points with
interest payable monthly in arrears. As of December 31, 1999,
the Company has taken LIBOR draws totaling $107.0 million with an
average interest rate of approximately 9.95 percent per annum.
The applicable margins for both LIBOR draws and prime interest
rate draws adjust semiannually based on the ratio of the
Company's consolidated total debt to consolidated cash flows, as
measured by an EBITDA formula.
The Revolving Credit Facility is secured by liens on
substantially all of the real and personal property of the
Company and its subsidiaries. The Revolving Credit Facility
prohibits any secondary liens on these properties without the
prior written approval of the lenders. Certain changes in
control of the Company may constitute a default under the
Revolving Credit Facility. The Revolving Credit Facility also
requires the Company to expend a maximum of 5 percent of the
consolidated net revenues for the preceding year on capital
maintenance annually. However, the lenders under the Revolving
Credit Facility have waived the maximum capital expenditure
limitation under the Revolving Credit Facility specifically for
certain projects at Ameristar Council Bluffs, Ameristar Vicksburg
and The Reserve. The waiver permits fiscal 1999 and 2000 capital
expenditure projects of approximately $43.3 million in addition
to expenditures limited to 5% of net revenues.
The Revolving Credit Facility binds the Company to a number
of other affirmative and negative covenants. These include
promises to maintain certain financial ratios within defined
parameters, not to engage in new businesses without lender
approval and to make certain reports to the lenders. As of
December 31, 1999, the Company was in compliance with these
covenants.
The Company has entered into an interest rate collar
agreement with WFB to manage interest expense, which is subject
to fluctuation due to the variable-rate nature of the debt under
the Company's Revolving Credit Facility. Under the agreement,
which covers $50.0 million of the borrowings on the Revolving
Credit Facility, the Company has a LIBOR floor rate of 5.39
percent and a LIBOR ceiling rate of 6.75 percent, plus the
applicable margin. As of December 31, 1999, the Company had paid
approximately $49,000 in additional interest as a result of this
agreement. The agreement terminates on June 30, 2003 to coincide
with the maturity of the Revolving Credit Facility.
On July 15, 1997, the Company completed an offering of
$100 million in principal amount of 10 1/2% Senior Subordinated
Notes due 2004 (the "Senior Subordinated Notes"). The Senior
Subordinated Notes have a coupon rate of 10.5 percent and were
sold at par. Interest is due semiannually on February 1 and
August 1 of each year, and the maturity date is August 1, 2004.
Proceeds of the offering were used to retire and refinance
existing debt. The Senior Subordinated Notes are not secured and
are subordinate to all existing and future Senior Indebtedness
(as defined), which includes the Revolving Credit Facility.
The indenture governing the Company's Senior Subordinated
Notes (the "Indenture") contains certain customary financial and
other covenants, which among other things, govern the ability of
the Company and its subsidiaries to incur indebtedness (except as
specifically allowed) unless, after giving effect thereto, a 2.0
to 1.0 pro forma Consolidated Coverage Ratio (as defined in the
Indenture) has been met. As of December 31, 1999, the Company
was in compliance with these covenants.
The Senior Subordinated Notes were issued by ACI, and all of
ACI's current subsidiaries other than ACSLI (the "Guarantors")
have jointly and severally, and fully and unconditionally,
guaranteed the Senior Subordinated Notes. Each of the Guarantors
is a wholly owned subsidiary of ACI, and the Guarantors
constitute all of ACI's direct and indirect subsidiaries except
for ACSLI, which is in the development stage and has no
operations and no material assets or liabilities. ACI is a
holding company with no operations or material assets independent
of those of the Guarantors, other than its investment in the
Guarantors, and the aggregate assets, liabilities, earnings and
equity of the Guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the Company on a
consolidated basis. Separate financial statements and certain
other disclosures concerning the Guarantors are not presented
because, in the opinion of management, such information is not
material to investors. Other than customary restrictions imposed
by applicable corporate statutes, there are no restrictions on
the ability of the Guarantors to transfer funds to ACI in the
form of cash dividends, loans or advances.
In August 1997, AC Hotel Corp. entered into a loan agreement
providing for borrowings of up to $7.5 million for the purpose of
funding a portion of the construction costs of a 150-room hotel
at Ameristar Vicksburg. This nonrecourse loan from a private
lender is secured by a deed of trust on the hotel and the
underlying land senior in priority to the liens securing the
Revolving Credit Facility. Borrowings under this loan bear
interest at 15 percent per annum, payable in periodic
installments. The loan was originally due to mature in July 1998,
but has been amended to extend the maturity to June 30, 2000.
The Company is required to pay a non-usage fee at the rate of 3
percent per annum on the undrawn loan balance, and draws are
subject to the satisfaction of various conditions typically
applicable to construction loans. As of December 31, 1999, the
balance on this loan was approximately $7.5 million.
The mortgages payable to United States Department of
Agriculture Rural Economic and Community Development Services
Multi-Housing Program provide long-term financing for low income
housing facilities constructed by the Company. Monthly principal
and interest payments are determined by a formula based upon
demographics of the tenants. Interest rates on the mortgages may
vary from 1.0 percent to 11.88 percent. Provisions of the loan
agreements require that rents received be used to fund operating
and maintenance expenses, debt service and reserve accounts.
The book value of the Company's long-term debt approximates
fair value due to the predominantly variable-rate nature of the
obligations. Also, fixed rate obligations are at rates that
approximate the Company's incremental borrowing rate for debt
with similar terms and remaining maturities.
Maturities of the Company's borrowings for the next five
years as of December 31, 1999 are as follows (amounts in
thousands):
2000 $10,615
2001 6,545
2002 20,545
2003 88,046
2004 115,696
Thereafter 1,021
$242,468
NOTE 6 - LEASES
The Company has entered into capitalized lease agreements
for land on which Ameristar Vicksburg is situated. Such leases
contained initial terms for rental payments covering the period
of project development and were converted to the primary lease
terms (as defined below) upon the opening of the project.
Ameristar Vicksburg opened on February 27, 1994, at which
time the primary terms of the leases for four parcels of land
became effective. The primary terms of the leases, expiring from
5 to 30 years from the opening date, require total payments of
approximately $655,000 per year. Each lease contains a purchase
option exercisable at various times during the term of the lease
generally in varying amounts based on the time of exercise. The
purchase options lapse in conjunction with the expiration dates
of the primary terms of the corresponding leases. The Company
exercised an option to purchase one of the leasehold parcels for
$50,000 which closed in December 1999 and exercised options for
two of the leasehold parcels for approximately $4.6 million which
closed in March 2000. The monthly rent under the remaining lease
at March 1, 2000 is approximately $11,000. Assuming the Company
defers the exercise of its purchase option under the remaining
lease to the expiration of the purchase option, the Company will
pay approximately $1.5 million in 2004. If the Company were to
accelerate its exercise of the purchase option to the earliest
possible date, the Company would pay approximately $1.3 million
in 2000. The Company plans to exercise the option for this lease
within the next year. The Company entered into a lease for
another parcel, which became effective January 1, 2000. The
initial term of the lease is 3 years and the lease includes
renewal options for an additional 24 years. The initial term of
the lease requires quarterly payments of approximately $20,000.
The lease contains a purchase option exercisable at various times
during the term of the lease that ranges from approximately $1.3
million in 2000 to approximately $1.9 million in 2020.
The Company generally may terminate each lease upon the
payment of termination penalties. In addition, if the leases
were terminated, the Company may be required to restore certain
parcels to their condition prior to the lease commencement date,
including the removal of the cofferdam and other improvements
lying below the water. However, the Company has no plans to
abandon the site.
ACVI has entered into a seven-year capitalized lease for
restaurant equipment, due in monthly payments totaling
approximately $118,000 per year, through April 2001. ACVI also
entered into a five-year capitalized lease for a computer system
that was amended in October 1999. Monthly payments are required
totaling approximately $84,000 per year through September 2002.
CPI has entered into a four-year equipment lease for the
financing of slot equipment at the facility. Monthly principal
payments of $44,000 plus interest are required through May 2001
with a balloon payment in June 2001.
ACLVI has entered into a ten-year capitalized lease
agreement for signage at The Reserve, with monthly payments
totaling approximately $210,000 per year through December 2006.
ACLVI has entered into a four-year equipment lease for the
financing of slot equipment at the facility. Monthly principal
payments of $111,000 plus interest are required through January
2002 with a balloon payment in February 2002. ACVI also entered
into a five-year capitalized lease for a telephone system.
Monthly payments are required totaling approximately $123,000 per
year through February 2003.
Future minimum lease payments required under capitalized
leases for the five years subsequent to December 31, 1999 are as
follows (amounts in thousands):
2000 $3,486
2001 4,694
2002 2,438
2003 756
2004 735
Thereafter 10,484
22,593
Less: Amount representing 9,144
interest
Present value of minimum $ 13,449
lease payments
ACCBI, as lessor, has leased a portion of the Ameristar
Council Bluffs site to an independent hospitality company, which
operates a 188-room hotel on the property. The lease is for a
period of 50 years beginning March 1, 1996. The lease requires
the hospitality company to pay ACCBI base rent of $5,000 per
month and percentage rent equal to 5 percent of the hotel's gross
sales in excess of $2.0 million per year.
ACI has leased office space located in Las Vegas, Nevada to
serve as its corporate offices. The office space is leased under
two operating lease agreements. The agreements require aggregate
monthly payments of approximately $52,500, plus the Company's
share of certain common area maintenance expenses. Payments
under the leases are subject to annual escalation clauses
corresponding to increases in the cost of living. The first
lease agreement, covering approximately 90 percent of the office
space leased by the Company, contains two three-year renewal
options. The initial term of the first lease is through December
2001. The second lease agreement, covering approximately 10
percent of the office space leased by the Company, contains two
two-year renewal options. The initial term of the second lease
was through January 1998 and the first two-year option was
exercised with a new expiration date in January 2000. The
Company recorded rental expense of approximately $533,000 and
$552,000 under these leases in the years ended December 31, 1998,
and 1999, respectively.
NOTE 7 - BENEFIT PLANS
401(k) plan
The Company instituted a defined contribution 401(k) plan in
March 1996 which covers all employees who meet certain age and
length of service requirements and allows an employer
contribution up to 50 percent of the first four percent of each
participating employee's compensation. Plan participants can
elect to defer before-tax compensation through payroll
deductions. These deferrals are regulated under Section 401(k)
of the Internal Revenue Code. The Company's matching
contribution were $570,000, $485,000 and $585,000 for the fiscal
years ended December 31, 1997, 1998, and 1999, respectively.
Insurance plan
The Company has a qualified employee insurance benefit trust
covering all employees on a regular basis who work an average of
32 hours or more per week on a regular basis. The Trust
Committee determines amount of the Company's contribution. The
plan also requires contributions from eligible employees and
their dependents. The Company's contribution expense for the
plan was approximately $3,834,000, $4,950,000 and $6,958,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.
Stock Option Plans
On June 11, 1999, the Company's stockholders approved the
Ameristar Casinos, Inc. 1999 Stock Incentive Plan (the "1999
Stock Incentive Plan"), which had previously been adopted by the
Board of Directors subject to stockholder approval. The 1999
Stock Incentive Plan provides for the grant of options to
purchase Common Stock intended to qualify as incentive stock
options or non-qualified options and also provides for grants of
"restricted stock." All officers, directors, employees,
consultants, advisors, independent contractors and agents are
eligible to receive options and/or restricted stock under the
1999 Stock Incentive Plan, except that only employees may receive
incentive stock options. The maximum number of shares available
for issuance under the 1999 Stock Incentive Plan is 2,600,000;
provided, however, that no award of a stock option or restricted
stock may be made at any time if, after giving effect to such
award, (1) the total number of shares of stock issued upon the
exercise of options under the 1999 Stock Incentive Plan and the
Company's existing Management Stock Option Incentive Plan, as
amended and restated through September 4, 1996 (the "Management
Option Plan" and together with the 1999 Stock Incentive Plan, the
"Stock Incentive Plans"), plus (2) the total number of shares of
stock issuable upon exercise of all outstanding options of the
Company under the Stock Incentive Plans, plus (3) the total
number of shares of stock underlying awards of restricted stock
under the 1999 Stock Incentive Plan (whether or not the
applicable restrictions have lapsed) would exceed 2,600,000
shares. No person eligible to receive options under the 1999
Stock Incentive Plan may receive options for the purchase of more
than 200,000 shares in any calendar year. The 1999 Stock
Incentive Plan is administered by the Board of Directors or, in
its discretion, by a Committee of the Board of Directors.
Upon the approval of the 1999 Stock Incentive Plan by the
Company's stockholders, the issuance of options under the
Company's existing Management Stock Option Incentive Plan (the
"Management Option Plan" and together with the 1999 Stock
Incentive Plan, the "Stock Incentive Plans") was terminated. The
Management Option Plan provided for the grant of options to
purchase Common Stock intended to qualify as incentive stock
options or non-qualified options. All officers, directors,
employees, consultants, advisors, independent contractors and
agents were eligible to receive options under the Management
Option Plan, except that only employees were eligible to receive
incentive stock options. At the time the Management Option Plan
was terminated, 1,262,700 options remained outstanding
thereunder. The maximum number of shares available for issuance
under the Management Option Plan was 1,600,000, and no person was
eligible to receive options under the Management Option Plan for
the purchase of more than an aggregate of 200,000 shares. The
Management Option Plan is administered by the Board of Directors
or, in its discretion, by a Committee of the Board of Directors.
The exercise price of incentive stock options granted under
the Option Plans must be at least equal to the fair market value
of the shares on the date of grant (110 percent of fair market
value in the case of participants who own shares possessing more
than 10 percent of the combined voting power of the Company) and
may not have a term in excess of 10 years from the date of grant
(five years in the case of participants who are more than 10
percent stockholders). With certain limited exceptions, options
granted under the Option Plans are not transferable other than by
will or the laws of descent and distribution.
In December 1998, certain stock options granted under the
Management Option Plan were amended to reduce the per share
exercise prices to $2.64 (the market price on the date of
amendment) from initial exercise prices ranging from $2.78 to
$6.13. Other than the exercise price, the option terms remained
the same with respect to the vesting date and the remaining
contractual life.
The Company previously maintained a Non-Employee Director
Stock Option Plan ("Director Plan") which provided for the grant
of non-qualified options to purchase Common Stock to the non-
employee members of the Company's Board of Directors. The
issuance of new stock options under the Director Plan was
terminated in June 1997. The Director Plan is administered by
the Board of Directors. Under the Director Plan, each non-
employee director was automatically granted an initial option to
purchase 1,000 shares of Common Stock and automatically granted
an option to purchase an additional 1,000 shares of Common Stock
on each anniversary of such date if he remained a non-employee
director on that anniversary date. Options granted under the
Director Plan have an exercise price equal to the fair market
value of the shares on the date of grant and have a term of 10
years from the date of grant. Options granted under the Director
Plan become exercisable one year from the date of grant and are
not transferable other than by will or the laws of descent and
distribution. Options exercisable for 8,000 shares of Common
Stock remain outstanding under the Director Plan.
The Company accounts for its stock option plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," under which no compensation cost has been
recognized. Had compensation cost for these plans been
determined consistent with SFAS No. 123, "Accounting for Stock-
Based Compensation," the Company's net income (loss) and earnings
(loss) per share would have been reduced to the following pro
forma amounts:
Years ended December 31,
1997 1998 1999
(Amounts in Thousands, Except Per Share Data)
Net income (loss): As reported $ 9,695 $(12,715) $ 205
Pro forma 9,491 (13,002) (246)
Earnings (loss) per
share: As reported $ 0.48 $ (0.62) $ 0.01
Pro forma 0.47 (0.64) (0.01)
The fair value of each option granted (or repriced during
the period for which SFAS 123 is effective) is estimated on the
date of grant (or repricing) using the Black-Scholes option
pricing model with the following weighted-average assumptions
used for grants (or repricings) in 1997, 1998 and 1999,
respectively: risk-free interest rates of 6.2, 4.5, and 5.8
percent; expected volatility of 63, 58 and 58 percent. The
expected lives of the options are 5 years for 1997, 1998 and
1999. No dividends are expected to be paid.
Because the SFAS No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative
of that to be expected in future years.
Summarized information for the stock option plans is as
follows:
1997 1998 1999
Wtd. avg. Wtd. avg. Wtd.avg.
Shares ex. price Shares ex. price Shares ex. price
Options outstanding,
beginning of year 566,000 $ 6.25 594,500 $ 6.12 1,140,110 $ 2.68
Granted 150,000 5.32 833,610 2.69 579,170 3.52
Exercised - - (15,264) 2.64
Canceled (121,500) 9.57 (288,000) 6.22 (262,506) 2.86
Options outstanding,
end of year 594,500 6.12 1,140,110 2.68 1,441,510 2.99
Options available
for grant 1,013,500 467,890 1,158,490
Options exercisable,
end of year 233,800 6.25 184,300 2.75 382,184 2.78
Weighted average
fair value
of options granted $ 3.14 $ 1.18 $ 1.94
At December 31, 1999, 932,840 of the 1,441,510 options
outstanding have an exercise price of $2.64, with a weighted
average exercise price of $2.64 and a weighted average remaining
contractual life of 7.9 years. 500,670 options outstanding have
exercise prices between $2.75 and $4.14, with a weighted average
exercise price of $3.54 and a weighted average remaining
contractual life of 9.5 years. 6,000 options outstanding have
exercise prices between $5.13 and $6.50, with a weighted average
exercise price of $5.88 and a weighted average remaining
contractual life of 6.2 years. The remaining 2,000 options have
an outstanding exercise price of $16.00, with a remaining
contractual life of 4.2 years.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is engaged in several legal actions arising in
the ordinary course of business. With respect to these legal
actions, the Company believes that it has adequate legal
defenses, insurance coverage or indemnification protection and
believes that the ultimate outcome(s) will not have a material
adverse impact on the Company's financial position.
In June 1998, ACVI received a letter from the Financial
Crimes Enforcement Network ("FinCEN") of the Department of
Treasury identifying 26 alleged currency transaction reporting
failures or errors that were discovered in an audit by the
Internal Revenue Service covering an approximately 13-month
period following the opening of Ameristar Vicksburg. In early
2000, the Company settled this matter with FinCEN by agreeing to
pay a civil monetary penalty. In addition to paying the civil
penalty, ACVI has implemented various steps intended to improve
compliance with the currency transaction reporting requirements.
E. L. Pennebaker, Jr., et. al. v. ACI, et. al. On February
23, 1998, E. L. Pennebaker, Jr. filed a complaint in the Circuit
Court of Pike County, Mississippi against ACI, Harrah's Vicksburg
Corporation ("HVC"), Riverboat Corporation of Mississippi-
Vicksburg ("RCMV"), and Deposit Guaranty National Bank ("DGNB").
The matter is pending as case number 98-0047-B (the "Pennebaker
case"). The complaint was amended in February 1998 to add James
F. Belisle, Multi Gaming Management, Inc. and Multi Gaming
Management of Mississippi, Inc. as additional plaintiffs. The
complaint was further amended in March 1999 to modify the
specific claims alleged by the plaintiffs. The plaintiffs are
property owners or claim to have contract rights in a proposed
casino/racetrack development along the Big Black River in Warren
County, Mississippi. They allege they would have profited if the
Mississippi Gaming Commission had found suitable for a casino a
location along that river that was controlled by Horseshoe
Gaming, Inc. or its affiliates. The plaintiffs further allege
that the defendants entered into an agreement to hinder trade and
restrain competition in the gaming industry in violation of the
antitrust laws and the gaming laws of Mississippi. Specifically,
the plaintiffs allege the defendants conducted an aggressive
campaign in opposition to the application of Horseshoe Gaming,
Inc. for a gaming site on the Big Black River. The plaintiffs
also allege that the defendants tortiously interfered with the
plaintiffs' business relations. The plaintiffs allege
compensatory damages of $38 million and punitive damages of $200
million.
The trial in this case was held in October 1999, following
which the jury rendered joint and several verdicts in favor of
the plaintiffs against ACI, HVC and DGNB on the conspiracy count
and against ACI and HVC on the restraint of trade and tortious
interference counts. RCMV settled with the plaintiffs prior to
trial, and the damage amounts have been reduced by the settlement
amount paid by RCMV. The net damages awarded to the plaintiffs
total $3,792,000, of which ACI's pro rata portion is $1,685,333.
These damages are compensatory only as the court did not allow
the jury to consider an award of punitive damages. Judgment was
entered on November 8, 1999, and ACI has appealed the case to the
Mississippi Supreme Court and otherwise intends to vigorously
defend against the plaintiffs' claims. Post-judgment interest on
the damages will accrue at the rate of 8 percent per annum, and
if an appeal is unsuccessful, the plaintiffs would also be
entitled to a premium of 15% of the damages amount.
Mr. Pennebaker has also filed a petition with the
Mississippi Gaming Commission requesting that the Mississippi
Gaming Commission order ACI, HVC and RCMV to stop opposing the
approval and construction of a casino on the Big Black River and
for such other corrective and punitive action that the
Mississippi Gaming Commission might find appropriate. ACI has
been advised that no action is required by it in connection with
this petition unless requested by the Mississippi Gaming
Commission.
Walter H. Gibbes, Jr. and Margaret S. Dozier v. ACI et al.
On November 22, 1999, Mr. Gibbes and Ms. Dozier filed a complaint
in the Circuit Court of Pike County, Mississippi against ACI,
HVC, Isle of Capri Casinos, Inc. (the parent company of RCMV;
"ICC") and DGNB. The matter is pending as cause no. 99-0157-B.
ACI believes that the plaintiffs were partners with Mr.
Pennebaker in a partnership that held an option to a real estate
parcel along the Big Black River that is adjacent to the parcel
that was the subject of the Horseshoe Gaming, Inc. application.
The allegations in the complaint are substantially the same as
those in the complaint in the case previously brought by the
plaintiffs in the Pennebaker case. The plaintiffs seek
$4,567,500 in actual damages and an unspecified amount of
punitive damages.
The defendants have removed this case to the United States
District Court for the Southern District of Mississippi on
diversity jurisdiction and federal question grounds. The case is
now pending in federal court as cause no. 3:99cv911WS. The
plaintiffs have filed a motion to remand the case back to the
Pike County circuit court, which has not yet been ruled on by the
federal court. ACI intends to continue to vigorously defend
against this cause of action.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company engages Neilsen and Company to provide certain
construction and professional services, office space and other
equipment and facilities. Neilsen and Company is controlled by
the principal stockholder and President of the Company. Total
payments to Neilsen and Company were $43,000, $33,000 and $44,000
for the years ended December 31, 1997, 1998 and 1999,
respectively. The Company also leases office space from the
Lynwood Shopping Center which until recently was controlled by
the principal stockholder and President of the Company. Total
payments to the Lynwood Shopping Center were $31,000, $23,000 and
$7,000 for the years ended December 31, 1997, 1998 and 1999,
respectively. In September 1999, the Lynwood Shopping Center was
sold to an unrelated party. In management's opinion, at the time
the above described transactions were entered into, they were in
the best interest of the Company and on terms as fair to the
Company as could have been obtained from unaffiliated parties.
NOTE 10 - GEM GAMING, INC. MERGER
On October 9, 1996, Gem Gaming, Inc. ("Gem"), a Nevada
Corporation, was merged with and into ACLVI, pursuant to a merger
agreement entered into on May 31, 1996, as amended in July and
October, 1996 (the "Merger Agreement"). Gem was originally
established to develop The Reserve. Activities relating to The
Reserve have been included in the consolidated financial
statements of the Company since October 9, 1996. The merger of
Gem into ACLVI was recorded using the purchase method of
accounting.
In connection with the closing of the Merger Agreement, the
Company originally issued notes payable to the former
stockholders of Gem (the "Gem Stockholders") in the principal
amount of $35,375,000. Due to certain disputes between the Gem
Stockholders and the Company surrounding the Merger Agreement, an
arbitration proceeding brought by the Company was settled by
mutual agreement (the "Gem Settlement Agreement") in June 1997.
The Gem Settlement Agreement provides that the Company will pay
to the Gem Stockholders $32.7 million in installments, plus
interest, in lieu of the consideration provided for in the Merger
Agreement. The Company made an initial payment of $4.0 million
to the Gem Stockholders and issued unsecured subordinated
promissory notes for the balance of $28.7 million (the "Gem
Notes" - See Note 5). The Gem Notes are subordinate to the
Revolving Credit Facility, the Senior Subordinated Notes and
other long-term indebtedness of ACI specified by ACI up to a
maximum of $250 million.
NOTE 11 - OTHER INFORMATION
On October 28, 1999, ACSLI, a newly formed wholly owned
subsidiary of ACI, filed an application with the Missouri Gaming
Commission seeking a gaming license for a site along the
Mississippi River in Lemay, Missouri, a community in South St.
Louis County. In conjunction with this application, ACSLI has
entered into an agreement with the current lessee of the proposed
site for the assignment of the lease. The Company has also
recently obtained a commitment to refinance its Revolving Credit
Facility, increasing its available borrowing capacity to $265
million to fund a substantial portion of the development costs
for this project. The balance of the financing for this project
will be provided primarily by operating cash flow.
The Company's current plans for the Ameristar Casino St.
Louis at Lemay call for a floating barge located within a basin
and integrated within a larger main frame structure that is
adjacent to the Mississippi River. The Company expects that
the project will consist of a single level building of
approximately 215,920 square feet and that the casino will
consist of 70,000 square feet of floating gaming area with 2,000
slot machines, 50 blackjack tables, two Roulette or big wheel
games, eight crap/dice games, one cashier coin cage with slot and
table fills and three change booths with beverage dispensing
counters. The project is expected to include two casino bars
with service stations, including a 50-seat entertainment lounge,
as well as several restaurants, meeting rooms, a Missouri retail
shop and a VIP lounge. The total cost for development and
construction of the project is expected to be approximately $150
million. The project also calls for a 150-room hotel adjacent to
the casino to be built by a strategic partner.
This project is in the preliminary stages and subject to
numerous contingencies, including, for example, the satisfactory
completion of due diligence concerning the proposed site, the
selection of the Company's application for investigation by the
Missouri Gaming Commission, obtaining various other regulatory
permits and approvals and completing financing arrangements for
the project. The project is also subject to various development
and construction risks typical of large-scale development
projects of this type. Accordingly, there can be no assurances
concerning the success of the Company's efforts to obtain a
gaming license and to pursue the development of this project. The
Company recently submitted a revised application for a gaming
license to the Missouri Gaming Commission and expects the
Missouri Gaming Commission to take action with respect to its
application during 2000.
NOTE 12 - SUBSEQUENT EVENTS
In June 1998, ACVI received a letter from the Financial
Crimes Enforcement Network ("FinCEN") of the Department of
Treasury identifying 26 alleged currency transaction reporting
failures or errors that were discovered in an audit by the
Internal Revenue Service covering an approximately 13-month
period following the opening of Ameristar Vicksburg. In early
2000, the Company settled this matter with FinCEN by agreeing to
pay a civil monetary penalty. In addition to paying the civil
penalty, ACVI has implemented various steps intended to improve
compliance with the currency transaction reporting requirements.
The Company entered into a lease for 4.3 acres of land
adjacent to the Ameristar Vicksburg Casino site, which became
effective January 1, 2000. The initial term of the lease is 3
years and the lease includes renewal options for an additional 24
years. The initial term of the lease requires quarterly payments
of approximately $20,000. The lease contains a purchase option
exercisable at various times during the term of the lease that
ranges from approximately $1.3 million in 2000 to approximately
$1.9 million in 2020.
On March 1, 2000, ACVI exercised its purchase option on one
of the parcels of the Ameristar Vicksburg site that had
previously been under lease. The purchase price for the parcel
was $4,579,725.85 and was paid for by ACVI entering into two
promissory notes in favor of the Seller of the parcels, one in
the principal amount of $250,000 and the second in the principal
amount of $4,329,725.85. The $250,000 promissory note bears
interest at the rate of 10.0% per annum, with principal and
interest payable in 12 equal monthly installments. The
$4,329,725.85 promissory note bears interest at the rate of 10.0%
per annum, with principal and interest payable in equal monthly
installments through February 1, 2024.
EXHIBIT DESCRIPTION OF EXHIBIT METHOD OF FILING
NUMBER
3.1 Articles of Incorporation of Incorporated by reference
Ameristar Casinos, Inc. to Exhibit 3.1 to
("ACI"). Registration Statement on
Form S-1 filed by ACI
under the Securities Act
of 1933, as amended (File
No. 33-68936) (the "Form S-
1").
3.2 Bylaws of ACI. Incorporated by reference
to Exhibit 3.2 to ACI's
Annual Report on Form 10-K
for the year ended
December 31, 1995 (the
"1995 10-K").
4.1 Specimen Common Stock Incorporated by reference
Certificate to Exhibit 4 to Amendment
No. 2 to the Form S-1.
4.2(a) Credit Agreement, dated as of Incorporated by reference
July 8, 1997, among ACI, to Exhibits 4.1 and 99.1
Cactus Pete's, Inc. ("CPI"), to the Current Report on
Ameristar Casino Vicksburg, Form 8-K of ACI filed on
Inc. ("ACVI"), Ameristar July 30, 1997 (the "July
Casino Council Bluffs, Inc. 1997 8-K").
("ACCBI") and Ameristar
Casino Las Vegas, Inc.
("ACLVI"), as Borrowers, the
Lenders named therein, and
Wells Fargo Bank, National
Association ("WFB") as
Arranger, Agent Bank and
Swingline Lender, together
with a list describing
omitted schedules and
exhibits thereto.
4.2(b) First Amendment to Credit Incorporated by reference
Agreement, dated as of to Exhibit 4.2(b) to ACI's
September 9, 1998, among ACI, Annual Report on Form 10-K
CPI, ACVI, ACCBI, ACLVI, the for the year ended
lenders named therein and December 31, 1998 (the
WFB, as Swingline Lender and "1998 10-K").
Agent Bank.
4.2(c) Interest Rate Collar Incorporated by reference
Agreement, dated August 10, to Exhibit 4.2(b) to the
1998, between ACI and WFB. 1998 10-K.
4.3(a) Indenture, dated as of July Incorporated by reference
15, 1997, among ACI, ACLVI, to Exhibit 4.2 to the July
ACVI, A.C. Food Services, 1997 8-K.
Inc. ("ACFSI"), AC Hotel
Corp. ("ACHC"), ACCBI and
First Trust National
Association, including the
forms of Notes and Subsidiary
Guarantees issued thereunder.
4.3(b) Supplemental Indenture, dated Incorporated by reference
as of October 24, 1997, among to Exhibit 4.1(c) to
ACI, CPI, ACLVI, ACVI, ACFSI, Amendment No. 1 to
ACHC, ACCBI and First Trust Registration Statement on
National Association. Form S-4 filed by ACI,
CPI, ACVI, ACCBI, ACLVI,
ACFSI and ACHC under the
Securities Act of 1933, as
amended (File No. 333-
34381) (the "Form S-4").
4.4 Other Long-Term Debt. See Exhibits 10.9(e)-(j)
See Exhibits 10.9(e)-(j) and and 99.1.
99.1.
*10.1 Employment Agreement, dated Incorporated by reference
(a) November 15, 1993, between to Exhibit 10.1(a) to
ACI and Thomas M. Steinbauer. ACI's Annual Report on
Form 10-K for the year
ended December 31, 1994
(the "1994 10-K").
*10.1 Employment Agreement, dated Incorporated by reference
(b) as of August 23, 1999, to Exhibit 10.1 to ACI's
between Ameristar Casinos, Quarterly Report on Form
Inc. and Gordon R. Kanofsky 10-Q for the quarter ended
September 30, 1999.
*10.2 Ameristar Casinos, Inc. 1993 Incorporated by reference
Non-Employee Director Stock to Exhibit 10.2 to ACI's
Option Plan, as amended and Quarterly Report on Form
restated. 10-Q for the quarter ended
June 30, 1994.
*10.3 Ameristar Casinos, Inc. Incorporated by reference
Management Stock Option to Exhibit 10.3 to ACI's
Incentive Plan, as amended Quarterly Report on Form
and restated. 10-Q for the quarter ended
September 30, 1996.
*10.4 1999 Stock Incentive Plan of Incorporated by reference
Ameristar Casinos, Inc. to Exhibit 10.6 to ACI's
Quarterly Report on Form
10-Q for the quarter ended
June 30, 1999.
*10.5 Form of Indemnification Incorporated by reference
Agreement between ACI and to Exhibit 10.33 to
each of its directors and Amendment No. 2 to the
officers. Form S-1.
*10.6 Housing Agreement, dated Incorporated by reference
November 15, 1993 between CPI to Exhibit 10.17 to the
and Craig H. Neilsen. 1994 10-K.
10.7 Plan of Reorganization, dated Incorporated by reference
November 15, 1993, between to Exhibit 2.1 to the 1994
ACI and Craig H. Neilsen in 10-K.
his individual capacity and
as trustee of the
testamentary trust created
under the last will and
testament of Ray Neilsen
dated October 9, 1963.
10.8 Excursion Boat Sponsorship Incorporated by reference
and Operations Agreement, to Exhibit 10.15 to the
dated September 15, 1994, 1995 10-K.
between Iowa West Racing
Association and ACCBI.
10.9 Merger Agreement, dated as of Incorporated by reference
(a) May 31, 1996, among Gem to Exhibits 10.1 and 99.1
Gaming, Inc. ("Gem"), ACI, to ACI's Quarterly Report
ACLVI, Steven W. Rebeil on Form 10-Q for the
("Rebeil") and Dominic J. quarter ended June 30,
Magliarditi ("Magliarditi"), 1996 (the "June 1996 10-
together with a list Q").
describing omitted schedules
and exhibits thereto.
10.9 First Amendment to Merger Incorporated by reference
(b) Agreement, dated July 2, to Exhibit 10.5 to the
1996, among Gem, ACI, ACLVI, June 1996 10-Q.
Rebeil and Magliarditi.
10.9 Second Amendment to Merger Incorporated by reference
(c) Agreement, dated as of to Exhibits 10.1 and 99.1
September 27, 1996, among to the Current Report on
Gem, ACI, ACLVI, Rebeil and Form 8-K of ACI filed on
Magliarditi, together with a October 24, 1996.
list describing omitted
schedules and exhibits
thereto.
10.9 Settlement Agreement, dated Incorporated by reference
(d) as of May 3, 1997, among ACI, to Exhibit 10.1 to ACI's
ACLVI, Rebeil, Magliarditi, Quarterly Report on Form
Gem Air, Inc. and NVAGAIR. 10-Q for the quarter ended
March 31, 1997.
10.9 Promissory Note, dated as of Incorporated by reference
(e) June 1, 1997, made by ACI to Exhibit 10.8(k) to the
payable to the order of Form S-4.
Rebeil in the original
principal amount of
$13,232,146.
10.9 Promissory Note, dated as of Incorporated by reference
(f) June 1, 1997, made by ACI to Exhibit 10.8(k) to the
payable to the order of Form S-4.
Magliarditi in the original
principal amount of $417,854.
10.9 Non-Negotiable Promissory Filed electronically
(g) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Magliarditi in the
original principal amount of
$179,080.
10.9 Non-Negotiable Promissory Filed electronically
(h) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Magliarditi in the
original principal amount of
$280,100.
10.9 Non-Negotiable Promissory Filed electronically
(i) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Rebeil in the original
principal amount of
$5,670,920.
10.9 Non-Negotiable Promissory Filed electronically
(j) Note, dated as of November herewith.
11, 1999, made by ACI payable
to Rebeil in the original
principal amount of $8,869,900.
10.10 Lease, dated December 11, Incorporated by reference
(a) 1992, between Martha Ker to Exhibit 10.4 to the
Brady Lum et. al. and ACVI as Form S-4.
the assignee of Craig H.
Neilsen.
10.10 First Amendment to Lease Incorporated by reference
(b) Agreement, dated June 1, to Exhibit 10.4(b) to the
1995, between Lawrence O. 1995 10-K.
Branyan, Jr., as trustee of
the Brady-Lum Family Trust
dated May 15, 1993 and ACVI.
10.11 Settlement, Use and Incorporated by reference
Management Agreement and DNR to Exhibits 10.12 and 99.1
Permit, dated May 15, 1995, to ACI's Annual Report on
between the State of Iowa Form 10-K for the year
acting through the Iowa ended December 31, 1996.
Department of Natural
Resources and ACCBI as the
assignee of Koch Fuels, Inc.
10.12**Asset Purchase and Sale Filed electronically
Agreement, dated as of herewith.
February 15, 2000, between
Futuresouth, Inc., Southboat
Lemay, Inc., Southboat
Limited Partnership and
Ameristar Casino St. Louis,
Inc.
21.1 Subsidiaries of ACI. Filed electronically
herewith.
23.1 Consent of Arthur Andersen Filed electronically
LLP. herewith.
27.1 Financial Data Schedule Filed electronically
herewith.
99.1 Agreement to furnish the Filed electronically
Securities and Exchange herewith.
Commission certain
instruments defining the
rights of holders of certain
long-term debt.
_________________________________
* Denotes a management contract or compensatory plan or
arrangement.
** Portions of this Exhibit have been deleted pursuant to the
Company's request for confidential treatment pursuant to Rule 24b-
2 promulgated under the Securities Exchange Act.