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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

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)

3773 Howard Hughes Parkway
Suite 490 South
Las Vegas, Nevada 89109
(Address of principal executive offices)

(702) 567-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [ ]

As of November 7, 2002, 26,211,914 shares of Common Stock of the registrant were issued and outstanding.

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AMERISTAR CASINOS, INC.
FORM 10-Q

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
(Amounts in Thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS-CONTINUED

LIABILITIES AND STOCKHOLDERS’ EQUITY
(Amounts in Thousands, Except Share Data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME-CONTINUED
(Amounts in Thousands, Except Per Share Data)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
(Amounts in Thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Principles of consolidation and basis of presentation

         The accompanying condensed consolidated financial statements include the accounts of Ameristar Casinos, Inc. and its wholly owned subsidiaries (collectively, the “Company”). Through its subsidiaries, the Company currently owns and operates six casino properties in five markets. The Company’s properties consist of Ameristar Casino St. Charles, located in St. Charles, Missouri serving the St. Louis metropolitan area; Ameristar Casino Hotel Kansas City, located in Kansas City, Missouri; Ameristar Casino Hotel Council Bluffs, located in Council Bluffs, Iowa serving the Omaha, Nebraska/Council Bluffs, Iowa metropolitan area; Ameristar Casino Hotel Vicksburg, located in Vicksburg, Mississippi; and Cactus Petes Resort Casino and The Horseshu Hotel & Casino, located in Jackpot, Nevada at the Idaho border. The Company views each property as an operating segment and all such operating segments have been aggregated into one reporting segment. All significant intercompany transactions have been eliminated.

         The accompanying condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the condensed consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles. However, they do contain all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the Company’s financial position and its results of operations for the interim periods included therein. The interim results reflected in these financial statements are not necessarily indicative of results to be expected for the full fiscal year.

         Certain of the Company’s accounting policies require that the Company apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. The Company’s judgments are based in part on its historical experience, terms of existing contracts, observance of trends in the gaming industry and information available from other outside sources. There is no assurance, however, that actual results will conform to estimates. To provide an understanding of the methodology the Company applies, significant accounting policies and basis of presentation are discussed where appropriate in “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report and in the notes to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2001.

         The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

         Certain reclassifications, having no effect on net income, have been made to the prior periods’ condensed consolidated financial statements to conform to the current periods’ presentation. Costs associated with the Company’s coin coupon offerings were previously recorded as a casino department expense through March 31, 2002. The Company has reclassified these amounts as a reduction of net revenue. These amounts totaled $6.8 million and $15.9 million for the quarter and the nine months ended September 30, 2001, respectively.

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Note 2 – Long-term debt

         The Company’s principal long-term debt is comprised of $364.5 million of senior credit facilities and $380.0 million in aggregate principal amount of 10.75 percent senior subordinated notes due 2009. The senior credit facilities currently consist of a $75 million revolving credit facility, a $75 million revolving credit/term loan facility and term loans A and B (which had $67.7 million, $75.0 million, $30.9 million and $190.9 million outstanding, respectively, and an additional $7.3 million of revolving credit facility borrowing capacity reserved for outstanding letters of credit as of September 30, 2002). Each of these facilities bears interest at a variable rate based on LIBOR or the prime rate plus an applicable margin. The senior credit facilities and the indenture governing the senior subordinated notes require the Company to comply with various financial and other covenants. At September 30, 2002, the Company was in compliance with all covenants.

         The Company expects that it will exceed the senior credit facilities’ limitation on capital expenditures for the new casino and entertainment facility at Ameristar St. Charles in the fourth quarter of 2002 and is currently seeking an amendment to the senior credit facilities to increase this capital expenditure limitation from $180 million to $210 million. While the Company expects to obtain this amendment in the fourth quarter of 2002, there can be no assurance that this will be the case. If the Company is unable to obtain this amendment, it would likely be in default under its senior credit facilities.

         As of September 30, 2002, the Company had exhausted its borrowing capacity under the senior credit facilities. In October 2002, the Company borrowed $14 million on a secured basis from a commercial bank to finance equipment purchases for the recently opened St. Charles facility. The Company is currently seeking an additional $75 million of financing under Term Loan B of the senior credit facilities, as permitted by the governing credit agreement, in order to provide additional liquidity for the Company’s operations and to finance various capital improvements at its properties.

         The Company seeks to manage interest rate risk associated with variable rate borrowings through balancing fixed-rate and variable-rate borrowings and the use of derivative financial instruments. Derivative financial instruments are recognized as assets or liabilities, with changes in fair value affecting net income or comprehensive income. Under an interest rate swap agreement entered into in April 2001, the interest rate on $100 million of LIBOR-based borrowings under the senior credit facilities is fixed at 5.07 percent plus the applicable margin. As of September 30, 2002, the liability associated with the swap agreement was $4.9 million, $1.9 million higher than it was at December 31, 2001. This resulted in an increase of $1.2 million (net of tax) to previously-recorded accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets.

         Under an interest rate collar agreement, $50.0 million of LIBOR-based borrowings under the revolving credit/term loan facility and term loan A of the senior credit facilities have a LIBOR floor rate of 5.39 percent and a LIBOR ceiling rate of 6.75 percent, plus the applicable margin. The collar agreement terminates on June 30, 2003. At September 30, 2002, the value of the collar agreement ($1.4 million) was recorded as a liability in other long-term liabilities in the accompanying condensed consolidated balance sheets. During the three and nine months ended September 30, 2002, the Company reduced interest expense by $0.2 million and $0.5 million, respectively, as the result of a decrease in the liability associated with the collar agreement.

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Note 3 — Earnings per share

         The weighted average number of shares of common stock and common stock equivalents used in the computation of basic and diluted earnings per share is set forth in the table below. All outstanding stock options with an exercise price lower than the market price as of the last day of each period presented have been included in the calculation of diluted earnings per share.

Note 4 — Commitments and contingencies

         Self-Funded Employee Health Care Insurance Program. The Company’s employee-related health care benefits program is self-funded up to a maximum amount per claim. Claims in excess of this maximum are insured through a stop-loss insurance policy. Accruals are based on claims filed and estimates of claims incurred but not reported. At December 31, 2001 and September 30, 2002, the Company’s estimated liabilities for unpaid and incurred but not reported claims totaled $2.3 million and $2.7 million, respectively, and are included in accrued liabilities in the accompanying condensed consolidated balance sheets. While the total cost of claims incurred depends on future developments, in management’s opinion, recorded reserves are adequate to cover future claims payments.

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Note 5 — Comprehensive income

         Comprehensive income includes all changes in stockholders’ equity from non-owner sources during each period presented. Comprehensive income includes changes in the fair value of the interest rate swap agreement described in Note 2 above.

Note 6 — Excess of purchase price over fair market value of net assets acquired

         In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” The primary impact on the Company is that the excess of purchase price over fair market value of the net assets acquired in connection with the acquisition of the Missouri properties in December 2000 (“goodwill”) is no longer being amortized as of January 1, 2002. Instead, goodwill must be reviewed at least annually for impairment and more frequently if events or circumstances indicate a possible impairment. The Company completed a review of goodwill and determined that no impairment existed as of January 1, 2002. The Company will perform an annual review of goodwill impairment as of January 1 of each year and will review goodwill sooner if events or circumstances indicate a possible impairment.

         During the three and nine months ended September 30, 2002, the Company did not record any goodwill amortization expense, compared to $0.8 million and $1.7 million for the corresponding periods in 2001. The balance of goodwill is continuing to be reduced through 2016 by annual tax benefits of $1.2 million resulting from differences in the values assigned to certain purchased assets for financial reporting and tax purposes.

         The unaudited pro-forma data for the three and nine months ended September 30, 2001 set forth below summarizes the Company’s net income and earnings per share as if SFAS No. 142 were effective on January 1, 2001. Actual results for the three and nine months ended September 2002 are shown for comparative purposes:

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         In December 2000, the Company acquired proprietary marketing information valued at $6.0 million as part of the purchase of the Missouri properties. This asset is being amortized over two years and as of September 30, 2002, accumulated amortization relating to this asset was $5.2 million. During the three and nine months ended September 30, 2002, the Company recognized $0.7 and $2.2 million, respectively, in amortization expense relating to this asset. The Company anticipates recognizing $0.8 million in amortization expense associated with this asset for the three months ending December 31, 2002, at which time the asset will be fully amortized.

Note 7 – Opening of the new St. Charles facility and associated preopening expenses

         The Company opened its new casino and entertainment facility at Ameristar St. Charles on August 6, 2002. From January 1, 2001 to September 30, 2002, the Company invested approximately $210 million in connection with the development of the new facility. In addition, the Company capitalized $31.5 million in interest associated with this project during the same period, which reduced interest expense accordingly.

         In accordance with American Institute of Certified Public Accountants’ Statement of Position No. 98-5, “Reporting on the Costs of Start-up Activities,” preopening expenses incurred prior to the opening of a new facility must be expensed immediately. During the three and nine months ended September 30, 2002, the Company incurred $4.9 million and $6.4 million, respectively, of preopening expenses associated with the opening of the new facility. These expenses included, without limitation, payroll and related benefits, contract labor, advertising and general supplies.

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Note 8 – Impairment loss on assets held for sale

         In August 2002, the Company entered into an agreement to sell various assets that were not being utilized after the new Ameristar St. Charles facility opened, including the existing casino barge, for $6.6 million (net of expenses), in a transaction that closed in September 2002. The Company also began to solicit bids on 918 slot machines that were not being used by Ameristar St. Charles. In accordance with SFAS No. 144, “Accounting for the Impairment on Disposal of Long-Lived Assets,” during the quarter ended June 30, 2002, the Company recorded a $4.1 million impairment loss associated with these assets held for sale based on their estimated realizable values.

         During the third quarter of 2002, the Company decided to sell 2,289 slot machines that were not being used at its various properties as part of the Company’s ongoing strategy to provide patrons with the latest-technology gaming equipment. As a result, the Company recorded $1.1 million in impairment loss on these assets based on their estimated realizable values, third-party offer prices or actual sales proceeds.

Note 9 – Recently issued accounting standards

         In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The key provision of SFAS 145 affecting the Company rescinds the existing rule on gains or losses from the extinguishment of debt. In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Company will adopt SFAS Nos. 145 and 146 effective January 1, 2003. Management does not believe the adoption of these accounting standards will have a material impact on the Company’s financial position or results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

         We develop, own and operate casinos and related hotel, food and beverage, entertainment and other facilities, with six properties in operation in Missouri, Iowa, Mississippi and Nevada. Our properties consist of Ameristar Casino St. Charles, located in St. Charles, Missouri serving the St. Louis metropolitan area; Ameristar Casino Hotel Kansas City, located in Kansas City, Missouri; Ameristar Casino Hotel Council Bluffs, located in Council Bluffs, Iowa serving the Omaha, Nebraska/Council Bluffs metropolitan area; Ameristar Casino Hotel Vicksburg, located in Vicksburg, Mississippi; and Cactus Petes Resort Casino and The Horseshu Hotel & Casino, located in Jackpot, Nevada at the Idaho border. We acquired the Missouri properties in late December 2000. We sold The Reserve Hotel Casino in Henderson (metropolitan Las Vegas), Nevada in late January 2001. We opened a new casino and entertainment facility at Ameristar Casino St. Charles on August 6, 2002, which replaced the previous facility.

         Our operations experience some seasonality, with the winter months being the slower periods. Our quarterly and annual operating results may be affected by general economic conditions in the markets in which we operate, competitive conditions, the timing of the commencement of new gaming operations by us or our competitors, the amount of preopening costs, charges associated with debt refinancing and property acquisition and disposition transactions, construction at our existing facilities, legislative or regulatory changes in the markets in which we operate (including without limitation changes in gaming tax rates), general weather conditions and other factors. Consequently, our operating results for any quarter or year may not be indicative of results to be expected for future periods.

Results of Operations

         The following table highlights our consolidated results of operations and certain other financial information for our properties:

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AMERISTAR CASINOS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
(Amounts in Thousands)
(Unaudited)