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, 1998
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, 1999, 20,360,000 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, 1999 was approximately $7,979,100,
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 11, 1999 Annual Meeting of Stockholders (which has not been
filed as of the date of this filing) are incorporated by
reference into Part III.
<PAGE>
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 - Cautionary Information Regarding
Forward-Looking Statements" 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" 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
<PAGE>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 (i) emphasize quality
dining, lodging, entertainment and other non-gaming amenities at
affordable prices to complement and enhance its gaming
operations, (ii) promote its properties as entertainment
destinations, (iii) construct facilities appropriate to
individual markets, (iv) emphasize courteous and responsive
service to develop customer loyalty and (v) 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 periodically invests 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 has 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,
<PAGE>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 and 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.
The Company also seeks growth in its business through the
expansion and improvement of its existing properties. Some
restaurant and meeting room enhancements are currently under
construction at The Reserve. In addition, Management in
considering several projects for The Reserve, Ameristar Council
Bluffs and Ameristar Vicksburg, but the Company has not committed
to any of these projects as of the date of this Report.
Management is currently evaluating the operating performance of
each of the Company's properties, 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."
<PAGE>
PROPERTY PROFILES
The following table presents selected statistical and other
information concerning the Company's properties as of March 15,
1999.
<TABLE>
<S> <C> <C> <C> <C> <C>
AMERISTAR AMERISTAR
CACTUS THE VICKSBURG COUNCIL THE
PETES HORSESHU (VICKSBURG, BLUFFS RESERVE
(JACKPOT, (JACKPOT, MS) (COUNCIL
NV) NV) BLUFFS, (Henderson,
IA) NV)
OPENING
DATE 1956 1956 Feb. 1994 Jan. 1996 Feb. 1998
CASINO
SQUARE
FOOTAGE
(APPROX.) 25,000 3,500 35,000 28,500 41,500
SLOT
MACHINES 796 124 1,098 1,098 1,380
TABLE
GAMES 38 8 50 43 26
HOTEL
ROOMS 299 120 150 300(1) 224
NUMBER OF
RESTAURANTS 4/3 1/1 2/4 4/4 4/3
/BARS
RESTAURANT
/BAR
SEATING
CAPACITY 460/80 124/40 544/57 975/93 1,057/105
GUEST
PARKING
SPACES 908 226 1,058 1,441 1,900
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(2); Swimming
Keno; Store; Meeting Pool;
Meeting Service Space; Bingo;
Space; Station Indoor Gift Shop
Swimming Swimming
Pool; Pool &
Gift Spa; Gift
Shop; Shop;
Amusement Amusement
Arcade Arcade
OPERATING Cactus CPI Ameristar Ameristar Ameristar
SUBSIDIARY Pete's, Casino Casino Casino
OR Inc. Vicksburg, Council Las
SUBSIDI- ("CPI") Inc. Bluffs, Vegas,
ARIES ("ACVI") Inc. Inc.
and AC ("ACCBI") ("ACLVI")
Hotel
Corp.(3)
</TABLE>
(1) Includes a full service 160-room Ameristar hotel owned and
operated by the Company and a limited service 140-room Holiday
Inn Suites Hotel owned and operated by a third party under a
ground lease from the Company.
(2) Operated by a third party.
(3) AC Hotel Corp., a wholly owned subsidiary of ACVI, owns the
hotel at Ameristar Vicksburg.
<PAGE>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. Cactus Petes is promoted by the Company 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.
Since 1993, Cactus Petes has annually received a Four Diamond
rating from the AAA, the highest rating currently awarded to any
Nevada hotel. The Horseshu Hotel has a Three Diamond rating from
the AAA. 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.
In January 1997, the Company completed a renovation of its
slot gaming equipment at the Jackpot Properties, including the
introduction of 587 state-of-the-art slot machines in replacement
of older models, the linkage of all slot machines at the Jackpot
Properties to the Company's player tracking system and improved
sensory appeal, including touch screens and enhanced signage,
sounds and colors. In addition, the Company substantially
completed a remodeling of the casino at The Horseshu in late
1997. Management believes that these renovations have promoted
customer satisfaction and have improved the effectiveness of both
targeted marketing and general advertising programs.
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, 1999, 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. Some additional or renovated
facilities have been introduced in Jackpot by the Company's
competitors since early 1995. The Company is not aware of any
additional expansion plans by existing competitors in Jackpot.
At least two casinos with video lottery terminals similar to
slot machines are operated on Native American land in Idaho,
including one with approximately 200 VLT machines near
<PAGE>Pocatello that has been in operation for approximately four
years. Casino gaming began on Native American lands in both
western Washington and northeast Oregon in 1995, and casinos also
operate in Alberta, Canada. See "Item 1. - Business - Cautionary
Information Regarding Forward-Looking Statements - Competition -
The Jackpot Properties."
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 the Ameristar Vicksburg's
operations there 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. 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 Vicksburg Casino has two restaurants, 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). Ameristar Vicksburg also includes the
Delta Point River Restaurant situated on a bluff overlooking the
Vicksburg Casino. This restaurant was closed in January 1998. At
that time, the Company intended to renovate and reopen the
restaurant. However, Management is considering other
alternatives, including leasing the restaurant to a third party.
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. 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.
As part of a long-term plan to enhance Ameristar Vicksburg,
the Company acquired 18 acres across from the main entrance to
the Vicksburg Casino for the future development of additional
improvements. The Company constructed a 150-room hotel on a
portion of this parcel which opened in June 1998. The Delta Point
Inn, a 54-room budget motel that pre-existed the development of
Ameristar Vicksburg, was taken out of service and demolished in
<PAGE>connection with this expansion. The development cost of the
hotel was approximately $10.3 million, including capitalized
construction period interest. Management funded a substantial
portion of these development costs out of draws under a $7.5
million short-term loan facility, with the balance being funded
out of operating cash flow. See "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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 440,000 persons. Approximately 800,000 people live
within Ameristar Vicksburg's 17-county primary market area. The
Vicksburg National Military Park, located within three miles of
Ameristar Vicksburg, draws approximately 900,000 registered
visitors a year. Interstate 20 (which connects Atlanta and
Dallas) passes directly through Vicksburg. According to the
Mississippi Department of Transportation, approximately 7.3
million vehicles drove across the Interstate 20 bridge at
Vicksburg during 1998. As of March 15, 1999, Vicksburg had
approximately 1,802 lodging rooms. The Vicksburg Chamber of
Commerce has estimated that the 1998 average hotel occupancy rate
in Vicksburg was approximately 70%. Gaming revenues in Warren
County, Mississippi for the 52 weeks ended December 19, 1998,
were approximately $202.2 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
1,402 gaming positions or 32.8% of the total number of positions
in Warren County. Based on available data, Ameristar Vicksburg is
currently the market leader in Warren County and generated gaming
revenues in 1997 and 1998 representing approximately 32.9% and
31.5%, 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 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 - Cautionary Information
Regarding Forward-Looking Statements - Competition - Ameristar
Vicksburg." and "Item 3. - Legal Proceedings."
<PAGE>
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 under
consideration by the Company. See "Item 7. - Management's'
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The Council Bluffs Casino is an approximately 40,000 square
foot, two-level riverboat measuring 272 feet long by 98 feet
wide. By building the vessel with only two levels that have high
ceilings and making it 98 feet wide, the casino has the spacious
feel of a land-based facility. Both levels of the riverboat are
connected by escalators and an elevator. 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 within 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. 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.
The Company has leased a portion of the Ameristar Council
Bluffs site to an entity controlled by Iowa-based Kinseth Hotel
Corporation for a 140-room, limited-service Holiday Inn Suites
hotel that opened on March 31, 1997. The Kinseth entity 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, spa and an
exercise room.
<PAGE>
Market. Council Bluffs has a population of approximately
54,300 people. Council Bluffs forms part of the greater Omaha,
Nebraska/Council Bluffs, Iowa metropolitan area, which according
to the 1990 U.S. Census had a population of approximately
640,000. Approximately 1.1 million people live within a 50-mile
radius, and approximately 1.6 million people live within a 100-
mile radius, of Council Bluffs. The median household income of
the greater metropolitan area is approximately $40,000, 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 February 28, 1999, were $297.4 million, an increase of
$25.2 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 Resorts
("Harveys"), which operates a riverboat casino in close proximity
to Ameristar Council Bluffs, and Bluffs Run, a year-round dog
track owned by Iowa West Racing Association that has a gaming
license limited 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 1,200 slot machines, a restaurant, 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.
The average monthly market share of gaming revenues of
Ameristar Council Bluffs was approximately 28.9% during March
1998 through February 1999, approximately 7.3 and 6.1 percentage
points behind Bluffs Run and Harveys, respectively. See also
"Item 1. - Business - Cautionary Information Regarding Forward-
Looking Statements - Competition - 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 1,380 slot machines and approximately 26
table games), 224 hotel rooms, four restaurants (a buffet, a 24-
hour casual dining<PAGE>restaurant, a steak house and an Italian
restaurant), three bars and lounges, a sports book, keno, bingo,
approximately 1,900 surface parking spaces, back-of-house
facilities and a
<PAGE> swimming pool. The Company is currently remodeling the
Italian restaurant, expanding the 24-hour casual dining
restaurant and adding two fast food outlets. Meeting rooms are
also being added. The food and beverage operations and back-of-
house facilities will support future expansion of The Reserve.
The Company's total acquisition and construction budget for
The Reserve, including capitalized construction period interest,
preopening costs, design costs (including those for a
contemplated Phase II addition) and acquisition costs was $135.0
million. The ultimate master plan has been designed for phased
expansions of the gaming areas, additional hotel towers, multi-
level parking, and other amenities such as additional
restaurants. However, the Company currently does not have any
plans for further expansion of The Reserve. See "Item 7. -
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for
additional information concerning the potential expansion of The
Reserve.
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. According to
the 1998 Las Vegas Perspective, the population of Clark County
increased by 6.1% from 1996 to 1997 and the population of
Henderson increased by 12.0% for the same period. In February
1997, the Nevada State Demographer's Office estimated the
population of Clark County, Nevada was 1.1 million, and the
population of Henderson and Boulder City (a community south of
Henderson) was 144,800. The Henderson Building Department reports
that building permits were issued in 1998 for 6,286 new single
and multi-family residential housing units in Henderson.
According to the Nevada Department of Transportation,
approximately 110,000 vehicles per day currently pass through the
junction of Interstate 515 and Lake Mead Drive, the site of The
Reserve. 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. In June 1997, Station Casinos, Inc. opened
Sunset Station, a casino-hotel approximately 3.5 miles north of
The Reserve site along Interstate 515. There are two other large
local-market casino hotels within 11 miles of The Reserve.
Management believes that additional competing casino-hotels will
be developed in Henderson-Green Valley, and plans have been
announced for the development of two casino-hotels within a 3.5
mile radius of The Reserve. 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
<PAGE>area is anticipated over time. See "Item 1. - Business -
Cautionary Information Regarding Forward-Looking Statements -
Competition - The Reserve."
EMPLOYEES
As of March 15, 1999, the Company employed approximately
3,897 full-time employees and 329 part-time 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.
CAUTIONARY INFORMATION REGARDING FORWARD- LOOKING STATEMENTS
COMPETITION
General. The Company competes for customers primarily on
the basis of the location and quality of its properties, the
quality, range and pricing of non-gaming amenities such as
hotels, restaurants and entertainment and the strength of its
marketing and promotional campaigns. Some of the Company's known
or future competitors in various markets have or may have greater
name recognition and financial and marketing resources than the
Company.
In addition, each of the Company's currently operating
properties is located in a jurisdiction that restricts gaming to
certain areas and/or borders a state that prohibits or restricts
gaming operations, which restrictions and prohibitions provide
substantial benefits to the Company's business and its ability to
attract and retain customers. The legalization or expanded
legalization or authorization of gaming within a market area of
one of the Company's properties could have an adverse effect,
which may be material, on the Company's business, financial
condition and results of operations.
The Jackpot Properties. In addition to local casinos, the
Jackpot Properties are subject to existing and potentially
expanded competition from 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. Management believes that
the currently operating casinos in the outer market negatively
impacted the performance of the Jackpot Properties beginning in
1996. Although the Company responded to the increased competition
by renovating its slot equipment at the Jackpot Properties,
remodeling the casino at The Horseshu and increasing marketing
efforts, which steps management believes have demonstrated
initial success, no assurances can be given with respect to the
future competitive effects on the Jackpot Properties of these
casinos.
The 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 the
Company. Notwithstanding a 1992 Idaho constitutional amendment
that prohibits all forms of casino gaming and the Indian Gaming
Regulatory Act of 1988 ("IGRA"), which restricts gaming
operations on Native American land to those allowed under state
law, video lottery terminal ("VLT") casinos, including the one
near Pocatello, are currently being operated on Native American
lands in Idaho. While these VLT casinos may be in violation of
<PAGE>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.
The Shoshone-Paiute Tribes recently signed a compact with the
governor which had a declaratory judgment to determine what forms
of gaming are legal. The compact was not ratified by the
legislature. However, the U.S. attorney has indicated in written
correspondence to the legislature that she will begin pursuing
legal action against the tribes.
Increased competition in Jackpot resulting from the
renovation or expansion of existing casinos or the development of
new casinos, none of which are currently contemplated by any
party to the knowledge of the Company, could also have a material
adverse effect on the Jackpot Properties and the Company.
Ameristar Vicksburg. 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. Due to the
intensity of competition in the Vicksburg market, Ameristar
Vicksburg's business to date has been dependent upon continuous
and aggressive marketing and promotional efforts. Management
believes that competition from the casinos in Shreveport and
Bossier City, Louisiana and Philadelphia, Mississippi has
resulted in a recent shrinkage in the territorial size of the
Vicksburg gaming market.
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. Accordingly, no assurance can be given that additional
competitors will not enter the market. Additional competition in
Vicksburg could have a material adverse effect on Ameristar
Vicksburg and the Company.
In addition, the Company is 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
navigable waterway 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, which 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. 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 development of a casino on
the Big Black River likely would have a material adverse effect
on Ameristar Vicksburg and the Company.
<PAGE>If Mississippi law were amended to permit gaming
in Jackson, the development of one or more casinos there would
materially impact Ameristar Vicksburg and the Company. Management
is not aware of any current proposals that would permit such an
expansion of gaming in Mississippi.
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 and
has been the local market leader in gaming revenues each month
through October 1998, despite operating under a license that
limits its gaming operations to reel-style and video slot
machines that meet the definition of "games of change".
Management believes 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.
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.
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 of the Nebraska Secretary of State that
an insufficient number of petition signatures were obtained.
Although no assurances can be given, management believes it is
unlikely that any further legislative action or voting referendum
that would authorize casino gaming in Nebraska will be acted upon
prior to 2000. The introduction of casino gaming in Nebraska,
especially in the Omaha area, likely would have a material
adverse effect on the Company.
The Reserve. In June 1997, Station Casinos, Inc. opened
Sunset Station, a casino-hotel approximately 3.5 miles north of
The Reserve along Interstate 515. Sunset Station is larger than
The Reserve, and Station Casinos, Inc. has operated casinos aimed
at local Las Vegas residents for many years. Two other large
local-market casino hotels are located within 11 miles of The
Reserve. Plans have also been announced for the development of a
casino-hotel approximately 3.5 miles west of The Reserve, near
the junction of Green Valley Parkway and Lake Mead Drive.
Management is aware of several sites in Henderson-Green
Valley that have been zoned for casino-hotel and believes it is
likely additional casino resorts ultimately will be developed in
Henderson-Green Valley and other portions of the southeastern Las
Vegas metropolitan area. 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 the design is
expected to affect The Reserve. In addition, construction of
Interstate 215 which is currently ongoing, has affected and will
continue to affect traffic flow on Lake Mead Drive.
<PAGE>
SUBSTANTIAL LEVERAGE AND ABILITY TO SATISFY DEBT OBLIGATIONS
The Company has substantial fixed debt service in addition
to operating expenses. Such indebtedness requires substantial
annual debt-service payments, including some principal payments.
The degree to which the Company is leveraged could have important
consequences to the holders of its securities, including the
following: (i) the Company's ability to make scheduled payments
of principal of, or premium (if any) or interest on, or to
refinance, its indebtedness may be impaired, (ii) the Company's
ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may
be impaired, (iii) the Company's flexibility in planning for or
reacting to changes in market conditions may be limited and
(iv) the Company may be vulnerable in the event of a downturn in
its business. See "Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
The Company's principal long-term debt instruments contain,
and future long-term debt instruments may contain, certain
restrictive covenants including, among other things, limitations
on the ability of the Company to incur additional indebtedness,
to create liens and other encumbrances, to make certain payments
and investments, to enter into transactions with affiliates to
sell or otherwise dispose of assets and to merge or consolidate
with another entity. Although the covenants are subject to
various exceptions that are intended to allow the Company to
operate without undue restraint in certain anticipated
circumstances, there can be no assurance that such covenants will
not adversely affect the Company's ability to finance future
operations or capital needs or to engage in other activities that
may be in the interest of the Company. In addition, the
Company's long-term debt requires it to maintain certain
financial ratios and future credit facilities may contain similar
restrictions. The Company's ability to comply with such
provisions will be dependent upon its future performance, which
will be affected by prevailing economic conditions and financial,
business, competitive, regulatory and other factors, many of
which are beyond the Company's control. Accordingly, no
assurance can be given that the Company will maintain a level of
operating cash flow that will permit it to service its
obligations and to satisfy applicable financial covenants. A
breach of any of these covenants or the inability of the Company
to comply with the required financial ratios could result in an
inability to obtain additional borrowings, and thereby limit the
Company's ability to improve or expand its existing properties or
to develop new properties, under existing debt facilities or a
default under one or more of the Company's long-term debt
instruments.
CONSTRUCTION AND DEVELOPMENT RISKS; RISKS OF NEW VENTURES
General Construction and Development Risks. Construction
and expansion projects under consideration for the Company's
properties entail significant risks, including shortages of
materials (including slot machines or other gaming equipment) or
skilled labor, unforeseen construction scheduling, engineering,
environmental or geological problems, work stoppages, weather
interference, floods, fires, other casualty losses, and
unanticipated cost increases. The anticipated costs and
construction periods for construction projects of the Company are
based upon budgets, conceptual design documents and construction
schedule estimates prepared by
<PAGE>the Company in consultation with its architects and
contractors, and no assurance can be given that any project will
be completed on time, if at all, or on budget or that the Company
will be able to fund any budget overrun amounts. Variances in
construction time periods or budgets could be substantial. The
completion date of any construction project of the Company may
differ significantly from initial expectations for construction-
related or other reasons.
In connection with certain construction projects undertaken
by the Company, the Company employs "fast-track" design and
construction methods, which involve the design of future stages
of construction while earlier stages of construction are
underway. Although management believes 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 the Company's
principal credit facility at any time is dependent upon the
amount of EBITDA (as defined) of Ameristar and its principal
subsidiaries during the preceding four full fiscal quarters.
Since the future operating performance of the Company will be
subject to financial, economic, business, competitive, regulatory
and other factors, many of which are beyond the control of the
Company, no assurances can be given with respect to the level of
the Company's future consolidated EBITDA or the resulting
availability of operating cash flow or borrowing capacity of the
Company to undertake or complete future construction projects.
See "Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources."
Risks of Cost Overruns. The cost of any construction
project undertaken by the Company may vary significantly from
initial current expectations, and the Company may have a limited
amount of capital resources to fund cost overruns on any project.
If the Company cannot finance such 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.
General Risks of New Ventures. As a result of operating
risks, including those described in this section, and other risks
associated with a new venture, there can be no assurance that,
once completed, any development project will increase the
Company's operating profits or operating cash flow.
CONTROL BY CURRENT STOCKHOLDER AND EFFECTS OF CHANGE IN CONTROL;
DEPENDENCE ON KEY PERSONNEL
Craig H. Neilsen, the Company's president and chief
executive officer, owns approximately 86.9% of the outstanding
shares of Common Stock of Ameristar. As a result, Mr. Neilsen has
the power to control the management and daily operations of the
Company. The Company is dependent on the continued performance of
Mr. Neilsen and his management team. The loss of the services of
Mr. Neilsen or any other executive officer of the Company may
have a material adverse effect on the Company. In addition, the
death of Mr. Neilsen could result in the need for his estate,
heirs or devisees to sell a substantial number of shares of
<PAGE>the Common Stock to obtain funds to pay inheritance tax
liabilities. Certain changes in control of the Company could
result in the acceleration of the Company's principal long-term
credit facilities.
AVAILABILITY OF OPERATING AND CORPORATE MANAGEMENT PERSONNEL
The Company has experienced and expects to continue to
experience strong competition in hiring and retaining qualified
operating and corporate management personnel. Management believes
that a number of factors have contributed to the Company's
difficulties in attracting and retaining qualified management
personnel, including the recent and continuing proliferation of
gaming facilities throughout the United States, the additional
burdens on the Company's existing management personnel due to the
lack of depth in other positions, the reluctance of the Company
to match or exceed compensation packages offered by some of its
competitors, and the locations of some of the Company's
operations (particularly Jackpot and Vicksburg).
GAMING LICENSING AND REGULATION
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 the Company and its
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. Gaming licenses require periodic renewal currently
every two years in Mississippi, and annually in Iowa.
Substantial fines or forfeiture of assets for violations of
gaming laws or regulations may be levied against Ameristar, such
subsidiaries and the persons involved. The suspension,
revocation or non-renewal of any of the Company's licenses or the
levy on the Company of substantial fines or forfeiture of assets
would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is
subject to substantial gaming taxes and fees imposed by various
governmental authorities, which are subject to increase.
To date, the Company has obtained all governmental licenses,
findings of suitability, registrations, permits and approvals
necessary for the operation of its currently operating gaming
activities. However, gaming licenses and related approvals are
deemed to be privileges under Iowa, Mississippi and Nevada law,
and no assurances can be given that any new licenses, permits and
approvals that may be required in the future will be given or
that existing ones will be maintained or extended. In addition,
changes in law could restrict or prohibit gaming operations of
the Company in any jurisdiction, and certain jurisdictions,
including Iowa, require the periodic reauthorization of gaming
activities. No assurance can be given that gaming operations of
the type conducted by the Company will continue to be authorized
in any jurisdiction. Such a change in law or failure to
reauthorize gaming activities could substantially diminish the
value of the Company's assets in such a jurisdiction and
<PAGE>otherwise have a material adverse effect on the
Company's business, financial condition and results of
operations. See "Item 1. -Business - Government Regulations."
MISSISSIPPI ANTI-GAMING INITIATIVES
In Mississippi, two referenda were proposed in 1998 which,
if approved, would have amended the Mississippi Constitution to
ban gaming in Mississippi and would have required all currently-
legal gaming operations to cease two years thereafter. A
Mississippi State Circuit Court judge ruled that the first of the
proposed referenda was invalid because, among other reasons, if
failed to include required information regarding its anticipated
effect on government revenues. Proponents of the referendum
filed an appeal with the Mississippi Supreme Court, and the
Supreme Court affirmed the Circuit Court ruling on procedural and
other grounds. The second referendum proposal included the same
language on government revenues as the first referendum and was
struck down by another Mississippi State Circuit Court judge on
the same grounds as the first. Any such referendum must be
approved by the Mississippi Secretary of State and signatures of
approximately 98,000 registered voters must be gathered and
certified in order for the proposal to be included on a statewide
ballot for consideration by the voters. The next election for
which the proponents could attempt to place such a proposal on
the ballot would be in November 2000. It is likely at some point
that a revised initiative will be filed which will address
adequately the issues regarding the effect on government revenues
of a prohibition on gaming in Mississippi.
LOSS OF RIVERBOAT AND DOCKSIDE FACILITIES FROM SERVICE
The Company's 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, require that vessels be operated by a minimum
complement of licensed personnel and require a hull inspection at
a United States Coast Guard approved dry docking facility for all
cruising riverboats at five-year intervals. Less stringent
inspection requirements apply to permanently moored dockside
vessels like the Vicksburg Casino. The Council Bluffs Casino is
not scheduled for re-inspection by the United States Coast Guard
until November 2000. The Ameristar Vicksburg site has experienced
some instability that has required periodic maintenance and
improvements. The Company is currently in the process of
reinforcing the cofferdam basin in which the vessel floats and is
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 the Company's operating results and borrowing
capacity under its long-term debt facilities and could result in
the occurrence of an event of a default under one or more credit
facilities or contracts.
<PAGE>
ENVIRONMENTAL RISKS AND REGULATION
As is the case with any owner or operator of real property,
the Company is 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. The
Company does not have environmental liability insurance to cover
most such events, and the environmental liability insurance
coverage it maintains to cover certain events includes
significant limitations and exclusions. In addition, if the
Company discovers any significant environmental contamination
affecting any of its properties, the Company could face material
remediation costs or additional development costs for future
expansion activities. See "Item 2. - Properties."
YEAR 2000 RISKS
The Company uses computers extensively to assist its
employees in providing good service to its guests and to assist
management in monitoring the Company's operations. The Company's
hotel front desks, for example, are highly computerized so as to
expedite check-in and check-out of guests. Similarly, the
Company uses computers in the back-of-the-house to facilitate
purchasing and maintaining inventory records. In the casino,
computers are used to monitor gaming activity and maintain
customer records, such as credit availability and points earned
by members of the Company's slot clubs.
Computers on occasion fail, irrespective of the Year 2000
issue. For this reason, where appropriate, the Company maintains
paper and magnetic back-ups and the Company's employees are
trained in the use of manual procedures. When the front desk
computer fails, for example, the Company's employees continue to
check guests in and out using manual methods.
However, the risks to the Company from the Year 2000 issue
could be substantial. Most of the Company's guest rooms, for
example, are easily accessed only by elevator, and most elevators
incorporate some computer technology. Likewise, the Company's
heating, ventilation, life safety and air conditioning systems
are highly computerized and, of course, critical to the Company's
operations. The Company is also exposed to the risk that one or
more of its vendors or suppliers could experience Year 2000
problems that may impact their ability to provide goods and
services. Although this is not considered as significant a risk
with respect to the suppliers of goods due to the availability of
alternative suppliers, the disruption of certain services, in
particular utilities and financial services, could, depending
upon the extent of the disruption, have a material adverse impact
on the Company's operations. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for additional information on the Company's Year 2000
strategies and costs of achieving Year 2000 readiness.
<PAGE>
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 (i) the Nevada Gaming Control
Act and the regulations promulgated thereunder (collectively,
"Nevada Act"); and (ii) 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, (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any
capacity; (ii) 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, (iii) providing
reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention
of cheating and fraudulent practices; and (v) 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 ("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 which
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.
<PAGE>
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 which 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
<PAGE>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 (i) voting on all matters voted on by
stockholders; (ii) 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 (iii) 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, (i) pays that person any dividend or
interest upon voting securities of Ameristar, (ii) allows that
person to exercise, directly or indirectly, any voting right
conferred through securities held by the person, (iii) pays
remuneration in any form to that person for services rendered or
otherwise, or (iv) 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
<PAGE>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 (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any
voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any
form; or (iv) 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
<PAGE>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 (i) assure the
financial stability of Corporate Licensees and their affiliates;
(ii) preserve the beneficial aspects of conducting business in
the corporate form; and (iii) 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 either monthly, quarterly or annually and are based upon
either (i) a percentage of the gross revenues received; (ii) the
number of gaming devices operated; or (iii) the number of table
games operated. 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
personal unsuitability.
<PAGE>
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 (i) prevent
unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity; (ii)
establish and maintain responsible accounting practices and
procedures; (iii) 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; (iv) prevent cheating and
fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) 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 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 "Risk Factors - Mississippi Anti-Gaming Referendums". As of
March 1, 1999, 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 off 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 has been appealed
by the Mississippi Commission to the Mississippi Supreme Court.
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
<PAGE>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 law 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 and, on August 11, 1997, a Mississippi
lower court ruled that the Mississippi Act also permits race
books on the premises of licensed casinos. The Mississippi
Commission has appealed that decision to the Mississippi Supreme
Court.
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 Gaming
Authorities. 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
which 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 which may be issued in Mississippi.
Gaming licenses are not transferable, are issued for a two-
year period and must be renewed periodically thereafter. ACVI was
granted a renewal of its gaming license by the Mississippi
Commission on December 18, 1997. The gaming license for ACVI must
be renewed in January 2000. 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
or licensed, in which case those persons must pay the costs and
fees associated with such investigation. The Mississippi
Commission may deny an application for a license 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.
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 permits certain
institutional investors to own beneficially up to 10% 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: (i) pays the unsuitable person any dividend or other
distribution upon the voting securities of Ameristar; (ii)
recognizes the exercise, directly or indirectly, of any voting
rights conferred by securities held by the unsuitable person;
(iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and
specific circumstances; or (iv) 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, (i) require holders of
debt securities of Ameristar to file applications, (ii)
investigate such holders, and (iii) require such holders to be
found suitable to own such debt securities or receive
distributions thereon. If the Mississippi Commission
<PAGE>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 (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii)
recognizes any voting right by such unsuitable person in
connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) 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 a current stock ledger in its principal
office in Mississippi and Ameristar must maintain a current list
of stockholders in the principal office of ACVI which must
reflect the record ownership of each outstanding share of any
class of equity security issued by Ameristar. The stockholder
list may thereafter be maintained by adding reports regarding the
ownership of such securities that it receives from Ameristar's
transfer agent. 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. Any representation to
the contrary is unlawful.
<PAGE>
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 all such necessary approvals
required to date.
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 (i) assure the financial
stability of corporate gaming operations and their affiliates;
(ii) preserve the beneficial aspects of conducting business in
the corporate form; and (iii) 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 above 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 Nevada and Iowa and will be required to obtain
the
<PAGE>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 will be conducted. Depending
upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon
(i) a percentage of the gross gaming revenues received by the
casino operation, (ii) the number of slot machines operated by
the casino or (iii) 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.
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 must be 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 1996, 1997 and 1998.
<PAGE>
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"). This contract was
approved by the Iowa Gaming Commission. 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 Council Bluffs Casino expires on March
31, 1999 and has been renewed to March 31, 2000.
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.
Various bills affecting gaming are currently under
consideration in the Iowa legislature. One of these bills would
impose a moratorium on the issuance of any new gaming licenses,
which would positively impact the Company. Other proposed bills
would prohibit existing casinos from expanding their operations,
require the removal or relocation of automatic teller machines at
casino facilities and increase the amounts required to be
reimbursed by casinos to the State of Iowa for law enforcement
activities.
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
<PAGE>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 one million dollars of adjusted gross receipts, ten
percent (10%) on the next two million dollars of adjusted gross
receipts and twenty percent (20%) on adjusted gross receipts over
three million dollars. 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 Company has been advised by the Association 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.
<PAGE>
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 (i) pays interest on the Gem Notes to the unsuitable person,
(ii) pays the unsuitable person remuneration in any form or (iii)
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. 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
<PAGE>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. ACVI has
responded to the FinCEN letter and has implemented various steps
intended to improve compliance with the currency transaction
reporting requirements. ACVI is expected to meet with FinCEN
officials in the near future concerning this matter, which
Management anticipates will be resolved without a material
adverse effect on the Company or its results of operations or
financial condition.
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 which
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.
The United States Congress has passed legislation which
creates a national gaming study commission (the "National Gaming
Commission"). The National Gaming Commission generally has the
duty to conduct a comprehensive legal and factual study of
gambling in the United States and existing federal, state and
local policies and practices with respect to the legalization or
prohibition of gambling activities, to formulate and propose
changes in such policies and practices and to recommend
legislation and administrative actions for such changes. It is
not possible to predict the future impact of these proposals on
the Company and its operations. Any such proposals could have a
material adverse affect on the Company's business.
<PAGE>
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. Changes in
licensed positions must be approved by the applicable Liquor
License Authorities.
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, vessels must be dry-docked for an
inspection of the outside of the hull resulting in a loss of
service that may have an adverse effect on the Company. 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. See "Item 2. - Properties."
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
<PAGE>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
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 seven parcels in Vicksburg
along Washington Street near Interstate 20. These parcels
comprise approximately 43.4 acres, approximately 30 of which are
developable. Of the seven parcels, three have been acquired by
direct purchase and four have been acquired by lease. The Company
has exercised a option to purchase one of the leasehold parcels
for $50,000, which is expected to close in the near future. The
aggregate monthly rent under the remaining leases at March 1,
1999 was approximately $53,000. Each lease provides for the
Company to be responsible for all taxes, insurance premiums,
utilities and other ownership and operating costs associated with
the property during the entire term of the lease. Each lease
includes options for the Company to purchase the applicable
parcels, for an aggregate price which decreases over time from
approximately $5.9 million to approximately $2.0 million. A
substantial portion of the purchase prices may be paid in
installments with interest at stated rates. The Company plans to
exercise the option on one of the other parcels within the next
year.
The Vicksburg Casino, the Company's leasehold interests
relating to the Ameristar Vicksburg site and substantially all of
that portion of the Ameristar Vicksburg site owned by the Company
serve as collateral for the Company's obligations under the
Revolving Credit Facility. The hotel at Ameristar Vicksburg and
the underlying property are subject to a deed of trust securing a
loan to fund 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
<PAGE>
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 approximately 0.623 acres of
the Ameristar Council Bluffs site to Kinseth Hotel Corporation
for the development and operation by Kinseth of a 140-room
limited service Holiday Inn Suites Hotel that opened on March 31,
1997. All of the Company's interests in Ameristar Council Bluffs
are subject to collateral security instruments securing the
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 53 acres, of which
approximately 46 acres are developable. The Company currently
owns 33 acres of the site and has options to acquire the
remainder of the site. Each option exercise must be for at least
five acres and a minimum of five acres of the option land must be
acquired each year or the remaining options expire. The Company
exercised an option for five acres of the site in April 1997. A
second five-acre option was exercised in January 1999. The
option exercise prices, which increase at the rate of 8% per
annum from October 1, 1995, are $217,800 per acre for the first
17 acres and $152,460 per acre for each remaining acre, in each
case plus 8% per annum from October 1, 1995 through the date of
exercise. Construction of a contemplated second phase of The
Reserve would also require the Company to acquire additional
land, the area of which has not yet been determined.
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 23 acres of the
site now 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 on the 30
acres of The Reserve site under option or subsequently acquired
by the Company indicated the property does 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 21,200 square feet
of office space in Las Vegas, Nevada for its executive offices,
which the Company occupied in March 1997.
ITEM 3. LEGAL PROCEEDINGS
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-
<PAGE>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.
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, Inc., Riverboat Corporation of Mississippi-Vicksburg,
and Deposit Guaranty National Bank. The matter is pending as
case number 98-0047-B. The complaint was amended on February 27,
1998, to add James F. Belisle, Multi Gaming Management, Inc. and
Multi Gaming Management of Mississippi, Inc. as additional
plaintiffs. The plaintiffs are property owners or have rights to
acquire property 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 plaintiffs
Belisle, Multi Gaming Management, Inc. and Multi Gaming
Management of Mississippi, Inc. 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
allege compensatory damages of $38 million and punitive damages
of $200 million. ACI has answered the complaint and is
vigorously defending this suit.
Mr. Pennebaker has also filed a petition with the
Mississippi Gaming Commission requesting that the Mississippi
Gaming Commission order ACI, Harrah's Vicksburg, Inc., and
Riverboat Corporation of Mississippi-Vicksburg 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. See also "Item 1. - Business - Government
Regulations - Mississippi."
PCL Construction Services, Inc. et al. v. Ameristar Casino
Las Vegas, Inc. This suit was filed in the District Court of
Clark County, Nevada on October 14, 1998 as case number A394783.
The complaint was served on ACLVI on February 4, 1999. An
amended complaint was filed on February 19, 1999 and served on
ACLVI on March 1, 1999. The plaintiffs are PCL Construction
Services, Inc., Tri-Star Theme Builders, Inc. and a joint venture
comprised of these two firms. The joint venture was the
contractor for certain of the interior work at The Reserve
pursuant to a construction contract dated November 14, 1997. The
contract, as amended through change orders, provided for a
guaranteed maximum price
<PAGE>not to exceed $25,482,532, inclusive of fees to the
contractor. The plaintiffs have alleged that ACLVI is obligated
to pay them $5,621,098, plus interest, in excess of the
guaranteed maximum price for additional labor costs they have
invoiced to ACLVI. The complaint does not state a specific
theory for recovery. Settlement negotiations are ongoing, and
ACLVI has answered the complaint. If this case is not resolved
through the current settlement negotiations, ACLVI intends to
vigorously defend this case.
Clothe H. James, et al. v. Ameristar Casinos, Inc.,
Ameristar Casino Vicksburg, Inc., et al. On January 18, 1996,
the plaintiffs commenced a lawsuit against ACI, ACVI, and
Riverboat Corporation of Mississippi, d/b/a Isle of Capri Casino.
The suit was filed in the Circuit Court of the First Judicial
District of Hinds County, Mississippi, as Civil Action No. 251-96-
54CN. The plaintiffs filed an amended complaint on February 6,
1996. The plaintiffs sought $5.0 million in actual damages and
$7.5 million in punitive damages. This case involved alleged
wrongful death and personal injuries to four persons. The
plaintiffs alleged that ACVI and the Isle of Capri Casino each
negligently served alcohol to a visibly intoxicated person who
later crashed his vehicle. Two persons were killed and two
persons were severely injured. In October 1998, the plaintiffs,
ACI and ACVI entered into a confidential settlement agreement
under which ACI and ACVI were released by the plaintiffs from all
further liability in exchange for certain payments from the
Company and its liability insurance carrier. The settlement will
not have a material effect on the Company or its results of
operations or financial condition.
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.
<PAGE>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:
<TABLE>
<S> <C> <C>
High Low
1997
First Quarter $ 7.25 $ 4.88
Second Quarter 6.25 4.63
Third Quarter 7.13 4.75
Fourth Quarter 5.88 4.75
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
</TABLE>
On March 15, 1999, there were 308 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 may restrict or prohibit the
payment of dividends. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
<PAGE>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
<TABLE>
<S> <C> <C> <C> <C> <C>
For For For For For
the the the the the
year year year year year
INCOME STATEMENT ended ended ended ended ended
DATA: 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
(amounts in thousands, except per share data)
REVENUES:
Casino $ 90,882 $ 99,364 $161,338 $173,077 $216,345
Food and beverage 17,494 19,303 24,250 30,672 45,745
Rooms 7,580 7,861 7,641 9,685 14,434
Other 7,822 7,756 7,760 8,275 9,966
-------- -------- -------- -------- --------
123,778 134,284 200,989 221,709 286,490
Less: Promotional
allowances 9,425 10,417 12,524 15,530 22,071
-------- -------- -------- -------- --------
Net revenues 114,353 123,867 188,465 206,179 264,419
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Casino 40,347 44,503 75,685 78,733 105,331
Food and beverage 12,469 11,747 16,773 19,784 31,506
Rooms 2,249 2,404 2,368 3,130 5,791
Other 8,412 8,211 7,054 7,546 8,592
Selling, general and
administrative 28,462 29,197 47,758 51,958 75,147
Depreciation and
amortization 7,062 9,721 14,135 16,358 24,191
Abandonment loss - - - 646 -
Preopening costs 5,408 - 7,379 - 10,611
-------- -------- -------- -------- --------
Total costs and
expenses 104,409 105,783 171,152 178,155 261,169
-------- -------- -------- -------- --------
INCOME FROM
OPERATIONS 9,944 18,084 17,313 28,024 3,250
OTHER INCOME
(EXPENSE):
Interest income 86 205 354 445 378
Interest expense (3,379) (3,958) (8,303) (12,107) (22,699)
Other (5) - (77) (35) (7)
-------- -------- -------- -------- --------
Income (loss) before
income
tax provision
(benefit) 6,646 14,331 9,287 16,327 (19,078)
Income tax provision
(benefit) 2,426 5,236 3,390 5,959 (6,363)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary loss
and cumulative effect
of a change in
accounting principle 4,220 9,095 5,897 10,368 (12,715)
Extraordinary loss on
early retirement of
debt, net of income
tax benefit
of $353 and $387,
respectively - (657) - (673) -
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 4,220 $ 8,438 $ 5,897 $ 9,695 $(12,715)
======== ======== ======== ======== ========
</TABLE>
<PAGE>AMERISTAR CASINOS, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
(CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
For For For For For
the the the the the
year year year year year
INCOME STATEMENT DATA ended Ended ended ended ended
(CONTINUED): 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
(amounts in thousands, except per share data)
EARNINGS PER SHARE:
Income (loss)
before extraordinary
item
Basic and diluted $ 0.21 $ 0.45 $ 0.29 $ 0.51 $ (0.62)
======== ======== ======== ======== ========
Net income (loss)
Basic and diluted $ 0.21 $ 0.42 $ 0.29 $ 0.48 $ (0.62)
======== ======== ======== ======== ========
WEIGHTED AVERAGE
SHARES OUTSTANDING 20,360 20,360 20,360 20,360 20,360
BALANCE SHEET AND as of as of as of as of as of
OTHER DATA: 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- --------
Cash $ 9,169 $ 14,787 $ 10,724 $ 13,031 $ 18,223
Total assets 125,347 202,220 270,052 336,186 350,797
Total notes payable
and long-term debt,
net of current
maturities 45,399 101,869 143,893 193,113 230,399
Stockholders' equity 56,609 65,047 70,944 80,639 67,924
Capital expenditures 33,329 64,783 76,388 76,634 39,492
The Vicksburg Casino and certain other portions of Ameristar
Vicksburg opened in late February 1994. The remaining Ameristar
Vicksburg facilities were completed and opened through May 1994.
The Ameristar Vicksburg hotel opened in June 1998. 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.
No dividends were paid in 1994, 1995, 1996, 1997 and 1998.
<PAGE>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 - Cautionary Information Regarding
Forward-Looking Statements."
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.
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 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 Vicksburg have experienced some seasonality,
with August and the winter months being the slower periods. To
date, operations at Ameristar Council Bluffs have not experienced
any material seasonality, and management does not expect
operations at The Reserve to be subject to any significant
seasonality.
<PAGE>
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.
<PAGE>The following table highlights the consolidated cash
flow information and results of operations of Ameristar's
operating subsidiaries for its principal properties:
</TABLE>
<TABLE>
<S> <C> <C> <C>
Year Ended
December 31,
1996 1997 1998
-------- -------- --------
Consolidated cash flow information:
Cash flow from operations $ 33,177 $ 33,641 $ 23,137
Cash flow used for investing (53,746) (63,417) (53,863)
Cash flow from financing 16,506 32,083 35,918
Net revenues:
Jackpot Properties $ 51,904 $ 54,455 $ 54,719
Ameristar Vicksburg 66,190 63,961 68,458
Ameristar Council Bluffs 70,331 87,763 97,667
The Reserve - - 43,575
Corporate and other 40 - -
-------- -------- --------
Consolidated net revenues $188,465 $206,179 $264,419
======== ======== ========
Adjusted operating income (1):
Jackpot Properties $ 9,124 $ 10,308 $ 9,638
Ameristar Vicksburg 13,827 13,165 13,480
Ameristar Council Bluffs 8,432 14,251 17,448
The Reserve - - (16,092)
Corporate and other (6,691) (9,054) (10,613)
-------- -------- --------
Consolidated operating income $ 24,692 $ 28,670 $ 13,861
======== ======== ========
Adjusted operating income margins (1):
Jackpot Properties 17.6% 18.9% 17.6%
Ameristar Vicksburg 20.9% 20.6% 19.7%
Ameristar Council Bluffs 12.0% 16.2% 17.9%
The Reserve - - (36.9%)
Consolidated operating income margin 13.1% 13.9% 5.2%
EBITDA (2):
Jackpot Properties $ 11,764 $ 13,208 $ 13,163
Ameristar Vicksburg 20,287 19,350 20,150
Ameristar Council Bluffs 13,296 21,090 24,540
The Reserve - - (9,519)
Corporate and other (6,520) (8,621) (10,282)
-------- -------- --------
Consolidated EBITDA $ 38,827 $ 45,027 $ 38,052
======== ======== ========
EBITDA Margins (2):
Jackpot Properties 22.7% 24.3% 24.1%
Ameristar Vicksburg 30.6% 30.3% 29.4%
Ameristar Council Bluffs 18.9% 24.0% 25.1%
The Reserve - - (21.8%)
Consolidated EBITDA margin 20.6% 21.8% 14.4%
</TABLE>
____________________________
(see following page for footnotes)
<PAGE>
(1) Adjusted operating income is income from operations (as
reported) before Ameristar Council Bluffs preopening costs in
1996, 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
flow 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
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 28.2% to $264.4
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 98.8% (94.8% 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), net
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.
<PAGE>
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 $1.2 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 in 1998
in its first year of operations (325 days).
COSTS AND EXPENSES
The operating expense ratio for 1998 increased to 98.8%
(94.8% 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 $70.3
million in operating expenses at The Reserve, operating expenses
were 86.3% of net revenue, which is comparable to 1997.
Casino costs and expenses increased by $26.6 million or
33.8% from $78.7 million in 1997 to $105.3 million in 1998. As a
percentage of casino revenues, casino expenses increased to 48.7%
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
$11.7 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
68.9% in 1998 compared to 64.5% in 1997. This increase is
directly related to the startup operational inefficiencies
experienced in 1998 at The Reserve.
<PAGE>
Rooms expenses increased by $2.7 million from $3.1 million
in 1997 to $5.8 million in 1998. 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 $23.2 million or 44.6% 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 Federal tax rate on income was 36.5%
in 1997 and the tax benefit on losses was 33.3% 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.
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
SUMMARY
The completion of Ameristar Council Bluffs in early 1997
contributed to another year of record growth in Ameristar's
consolidated net revenues and income from operations before
preopening costs.
Consolidated net revenues increased by 9.4% from $188.5
million in 1996 to $206.2 million in 1997. Income from
operations rose 13.5% to $28.0 million in 1997 compared to $24.7
million in 1996 before the $7.4 million charge for preopening
costs associated with the
<PAGE>opening of Ameristar Council Bluffs. Income from
operations after preopening costs was $17.3 million in 1996.
Total operating expenses as a percentage of net revenues
were 86.4% in 1997 versus 90.8% (86.9% before the Ameristar
Council Bluffs preopening costs) in 1996. This improvement was a
result of increased revenues in casino, food and beverage and
rooms due to the completion of Ameristar Council Bluffs combined
with a smaller increase in the expenses for these departments. A
slight decrease in operating expenses at the Jackpot Properties
was offset by a similar increase in operating expenses at
Ameristar Council Bluffs.
On a year-to-year comparable basis (i.e., before preopening
costs in 1996 and an extraordinary charge in 1997), net income
decreased $0.2 million to $10.4 million in 1997 from $10.6
million in 1996. After preopening costs and extraordinary
charge, net income for the year ended December 31, 1997 was $9.7
million versus net income for the year ended December 31, 1996 of
$5.9 million. Earnings per share before preopening costs were
$0.52 for 1996 ($0.29 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
During 1997, Ameristar Council Bluffs was one of the top
riverboat gaming revenue producers in the State of Iowa, while
both Ameristar Vicksburg and the Jackpot Properties remained
market share leaders in their areas.
With a full year of casino operations and most of the non-
gaming operations, Ameristar Council Bluffs had total net
revenues of $87.8 million in 1997 compared to $70.3 million for
1996, an increase of 24.8%. Ameristar Council Bluffs was the
leader in both casino and total revenues among the Company's four
operating casino properties. In addition to the completion of
the Ameristar Council Bluffs facility, management attributes the
increased revenues to a 5.9% increase in the Council Bluffs'
gaming market from 1996 to 1997.
Net revenues for Ameristar Vicksburg were $64.0 million for
the year ended December 31, 1997 compared with $66.2 million for
the prior year, a decrease of 3.4%. Despite this decrease in
revenues, due in part to a decline in the size of the market,
management believes Ameristar Vicksburg was able to maintain 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 net revenues of $54.5
million, a 4.9% increase from the $51.9 million produced in 1996.
Management believes that the increase is primarily the result of
the installation of approximately 587 state-of-the-art slot
machines, the renovation of the casino at The Horseshu, an
enhanced slot player tracking system and an aggressive marketing
strategy. The improvement is also due to harsher weather
conditions during 1996 and below-average table games win
percentages in the second quarter of 1996.
<PAGE>
COSTS AND EXPENSES
The operating expense ratio for 1997 decreased to 86.4% from
86.9% of net revenues in 1996 before preopening due to improved
operating performance during the second year of operations at
Ameristar Council Bluffs. The improvement in this area was
partially offset by increased corporate overhead related to the
Company's relocation of its executive office to Las Vegas and
increased corporate staffing levels.
Casino costs and expenses increased from $75.7 million in
1996 to $78.7 million in 1997. As a percentage of casino
revenues, casino expenses decreased from 46.9% in 1996 to 45.5%
in 1997. The majority of the increase in expense was associated
with Ameristar Council Bluffs, which had higher expenses but also
increased revenue, thus increasing the casino department's
overall profitability. An increase in casino expenses at the
Jackpot Properties was partially offset by a decrease in expenses
at Ameristar Vicksburg.
The Company's food and beverage costs and expenses increased
$3.0 million in 1997 mostly as a result of the opening of the
steak house at Ameristar Council Bluffs in March 1997. The
Company's food and beverage expense-to-revenue ratio decreased
from 69.2% in 1996 to 64.5% in 1997. This decrease is directly
related to the improved performance of the Ameristar Council
Bluffs restaurant operations in 1997 compared to the startup
operational inefficiencies experienced in 1996.
Rooms expenses increased by $0.7 million from $2.4 million
in 1996 to $3.1 million in 1997. The increase was the result of
12 months of operations at the Ameristar Council Bluffs hotel in
1997 compared to two months in 1996, partially offset by the
demolition of the 54-room budget hotel at Ameristar Vicksburg
that was taken out of service in April 1997 for construction of
the new hotel.
Selling, general and administrative costs and expenses
(including utilities and maintenance and business development
costs) increased $4.2 million or 8.8% from 1996 to 1997. Most of
the increase was a result of higher property taxes at Ameristar
Council Bluffs and legal expenses related to the arbitration of a
contract dispute relating to the construction of Ameristar
Council Bluffs partially offset by reduced marketing expenses.
Expenses were also higher at the corporate level as additional
staffing and overhead expenses were incurred due to the growth
and relocation of the Corporate offices.
Depreciation expense increased $2.2 million or 15.7% from
1996 to 1997 as the Company's depreciable base increased with the
opening in stages of Ameristar Council Bluffs throughout 1996 and
early 1997.
No preopening costs were expensed during 1997.
Interest expense, net of capitalized interest of $2.3
million in 1996 and $4.7 million in 1997, increased $3.8 million
or 45.8% from 1996. This increase primarily reflects the
additional debt outstanding to finance the Company's expansion
and higher interest rates on those borrowings. In addition, as
Ameristar Council Bluffs' facilities were completed during
<PAGE>1996, the capitalization of interest on funds borrowed to
construct the project was discontinued and subsequent interest
costs were reflected as an expense on the income statement rather
than as an additional cost of the project on the balance sheet.
Interest was capitalized on borrowings to construct The Reserve
and the Ameristar Vicksburg hotel during 1997.
The Company's average borrowing rate was 9.9% in 1997
compared to 8.9% in 1996. The borrowing rate increased due to the
issuance of $100 million in Senior Subordinated Notes. (See "-
Liquidity and Capital Resources.")
The Company's effective Federal tax rate on income was 36.5%
in both 1996 and 1997 versus the Federal statutory rate of 35%,
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 flow from operations was $23.1 million
for the year ended December 31, 1998, as compared to $33.6
million for the year ended December 31, 1997. The Company had
unrestricted cash of approximately $18.2 million as of December
31, 1998 compared to $13.0 million at December 31, 1997. This
increase in cash resulted from a net increase in borrowings of
$35.9 million during the year and the $23.1 million of cash flow
from operations, partially offset by capital expenditures related
to The Reserve and the Ameristar Vicksburg hotel and other
capital improvement projects. The Company's current assets
increased by approximately $8.5 million from December 31, 1997 to
December 31, 1998. This was primarily the result of an increase
in cash on hand, inventories, deferred taxes and prepaid expenses
offset by decreases in receivables. 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 flow used for investing activities
decreased $9.5 million from $63.4 million in 1997 to $53.9
million in 1998. This was primarily a result of completing The
Reserve and Ameristar Vicksburg hotel construction in the first
half of 1998 and making final payments on construction payables
related to these projects.
Cash flow from financing activities increased from $32.1
million in 1997 to $35.9 million in 1998 as a result of
additional borrowings to complete The Reserve and Ameristar
Vicksburg hotel construction.
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
<PAGE>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 in a private placement to certain initial purchasers for
resale to qualified institutional buyers pursuant to the
exemption provided by Rule 144A of the Securities and Exchange
Commission. In December 1997, the Company completed the exchange
of the initial series of the Senior Subordinated Notes, which
were restricted securities, for a series of substantially
identical Senior Subordinated Notes that are not restricted
securities. 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 $800,000 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 during 1997 and 1998 of
$53.5 million to fund a portion of the capital expenditures for
the development of The Reserve. At December 31, 1998, the
outstanding principal balance of the Revolving Credit Facility
was $90.0 million.
Until Phase I of The Reserve was completed in February 1998,
draws under the Revolving Credit Facility could only be used to
fund construction of The Reserve and certain other specified
expenditures. 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. 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: 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. 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, 1998, the total funded debt
of the Borrowers was 5.498 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 Revolving Credit Facility, as amended, requires the
Borrowers to maintain a gross fixed charge coverage ratio of 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
<PAGE>below) will be included only to the extent actually paid in
the applicable period. 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. The amended Revolving Credit Facility also requires the
Borrowers to maintain a tangible net worth of at least
$56,000,000, plus 90% of net income (without any reduction for
net losses) as of the end of each quarter beginning September 30,
1998 plus 90% of the net proceeds of certain future equity
offerings. As of March 31, June 30, September 30 and December 31,
1998, the Company has been in non-compliance with the tangible
net worth requirement. In each instance of non-compliance, the
Company has obtained a waiver of the violation from the lenders.
As of December 31, 1998, the Company's tangible net worth was
$2.8 million less than required by this covenant. The waiver for
this violation also amended the Revolving Credit Facility minimum
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.
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, 1998,
the Borrowers have taken LIBOR draws totaling $90.0 million with
an average interest rate of approximately 9.25 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. As of December 31, 1998, the Company had
paid approximately $10,000 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.
<PAGE>
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, 1998, the Company was in
compliance with these covenants, except as indicated above.
The Borrowers paid various fees and other loan costs upon
the closing of the Revolving Credit Facility that are being
amortized over the term of the Revolving Credit Facility. In
addition, commencing in July 1998, the Borrowers are required to
pay quarterly commitment fees at an annual rate of 0.50% or
0.375% of the unused portion of the Revolving Credit Facility.
The Company's prior credit facility was terminated early in
connection with entering into the Revolving Credit Facility. As
a result, the Company incurred a $1.1 million pre-tax non-cash
extraordinary charge ($673,000 or $0.03 per share on an after-tax
basis) during 1997 to reflect the accelerated write-off of
unamortized deferred financing costs.
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 (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
<PAGE>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 matured on July 1, 1998 but was
amended to mature on December 31, 1999 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, 1998, the outstanding
balance on the loan was $7.5 million.
On June 20, 1997 and 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, 1998, the Company had other indebtedness in
an aggregate principal amount of $18.6 million.
<PAGE>
No assurance can be given that the Company will be able to
satisfy, when necessary, the financial covenants under the
Revolving Credit Facility, the Senior Subordinated Notes or other
debt instruments for purposes of incurring additional debt,
including additional draws under the Revolving Credit Facility.
In addition, a failure to satisfy the financial covenants under
the Revolving Credit Facility could either require the Company to
reduce the outstanding balance of the Revolving Credit Facility,
which requirements could adversely affect or exceed the Company's
liquidity, or result in an event of default under one or more
debt instruments. Adverse changes in the Company's operations or
operating cash flow may affect the ability of the Company to
satisfy these financial covenants.
Capital expenditures for the year ended December 31, 1998
were approximately $39.2 million, including approximately $23.2
million relating to development of The Reserve, $6.6 million
relating to the development of the Ameristar Vicksburg hotel and
approximately $9.4 million for normal capital improvement
projects at the Jackpot Properties, Ameristar Vicksburg and
Ameristar Council Bluffs. The Company funded these capital
expenditures primarily from net cash provided by operating
activities and borrowings.
The Company intends to make minimum capital expenditures of
approximately $10.6 million in 1999. Management believes that
the above-described minimum 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 is currently considering several potential
capital expenditure projects at Ameristar Council Bluffs and
Ameristar Vicksburg and is presently remodeling certain dining
and meeting room areas at The Reserve. In evaluating these
projects, management intends to consider the operating
performance of each of the Company's properties, the anticipated
relative costs and benefits of the various projects, and
competitive and other relevant factors, including the
availability of operating cash flow and debt financing to fund
capital expenditures.
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. Material increases in operating cash flow
are anticipated to be primarily dependent upon the operating
performance of The Reserve. No assurances can be given with
respect to the amount of operating cash flow of the Company for
any future period, whether the Company will proceed with any of
the capital expenditure projects currently under consideration,
or the timing, cost or scope of any project undertaken by the
Company. At the present time, the Company does not anticipate
undertaking capital expenditure projects during 1999 that could
not be funded out of amounts anticipated to be available through
anticipated internally generated cash flow and the Company's
borrowing capacity under the Revolving Credit Facility.
<PAGE>
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 READINESS DISCLOSURE
BACKGROUND
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.
RISK FACTORS
The Company is in many ways involved in a low-technology
business. Casino employees, for example, do not require computers
to deal blackjack or spin a roulette wheel. Likewise, a chef
does not require computers to prepare a meal and a maid does not
require a computer to clean and prepare a guest room. Slot
machines are a type of computer, but there is no date embodied in
their basic operation of choosing a random sequence and
determining the appropriate payout.
Nevertheless, the Company does use computers extensively to
assist its employees in providing good service to its guests and
to assist management in monitoring the Company's operations. The
Company's hotel front desks, for example, are highly computerized
so as to expedite check-in and check-out of guests. Similarly,
the Company uses computers in the back-of-the-house to facilitate
purchasing and maintaining inventory records. In the casino,
computers are used to monitor gaming activity and maintain
customer records, such as credit availability and points earned
by members of the Company's players clubs.
Computers on occasion fail, irrespective of the Year 2000
issue. For this reason, where appropriate, the Company maintains
paper and magnetic back-ups and the Company's employees are
trained in the use of manual procedures. When the front desk
computer fails, for example, the Company's employees continue to
check guests in and out using manual methods.
This is not to imply that there is no risk to the Company
from the Year 2000 issue. The risks could be substantial. Most
of the Company's guest rooms, for example, are easily accessed
only by elevator, and most elevators incorporate some computer
technology. Likewise, the Company's heating, ventilation, life
safety and air conditioning systems are highly computerized and,
of course, critical to the Company's operations. The Company is
<PAGE>also exposed to the risk that one or more of its vendors or
suppliers could experience Year 2000 problems that may impact
their ability to provide goods and services. Although this is
not considered as significant a risk with respect to the
suppliers of goods due to the availability of alternative
suppliers, the disruption of certain services, in particular
utilities and financial services, could, depending upon the
extent of the disruption, have a material adverse impact on the
Company's operations.
STRATEGY
The Company has evaluated its front- and back-of-the-house
computer operations. Most of the casino and hotel systems are
already Year 2000 compliant according to the vendors. Those that
are not will be upgraded with Year 2000 compliant systems within
the next six months. The back-of-the house accounting systems
have been evaluated and at least the payroll system and possibly
all financial software programs will be upgraded within the next
six months. Where important to the Company's business, inquiries
are also being made of third parties with whom the Company does
significant business, such as vendors and suppliers, as to their
Year 2000 readiness.
The Company used Year 2000 compliance as one of its criteria
in choosing the computer systems for The Reserve. Some of these
same systems have been or will be installed at the Company's
other properties.
The Company has not developed a comprehensive contingency
plan, although as previously mentioned a number of its critical
hotel and casino systems are currently backed up by manual
procedures that have been utilized during times of system
malfunctions. The Company will continue to assess the need for a
comprehensive contingency plan as implementation of its
corrective action plan continues.
COSTS
It is difficult to calculate the cost to the Company of
ensuring that its systems are Year 2000 compliant, in part
because there are many different solutions to various Year 2000
situations. In the case of the Company's elevators, for example,
the Company has requested that the third parties with whom it
contracts for its elevator maintenance inspect each elevator
system, as part of its normal maintenance, for any Year 2000
issues.
The Company has estimated that total hardware and software
for the back-of-the house accounting system could cost
approximately $750,000 on a companywide basis. The overall costs
of addressing the Year 2000 issue have not been and are not
expected to be material to the Company's financial condition or
results of operations.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Except for the Revolving Credit Facility, under which
$90.0 million was outstanding at December 31, 1998, and certain
other long-term debt outstanding at December 31, 1998 in the
aggregate amount of $5.5 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,
1998, the average interest rate applicable to the Revolving
Credit Facility and the other Variable Rate Debt was 9.25%. An
increase of one percentage point in the average interest rate
applicable to the Variable Rate Debt outstanding at December 31,
1998, would increase the Company's annual interest costs by
approximately $955,000. The Company has entered into an interest
rate collar agreement with WFB to manage the effects of
fluctuations in the interest rate applicable to 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.
<PAGE>
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,
1997 and 1998.
Consolidated Statements of Income for the years
ended December 31, 1996, 1997 and 1998.
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1997 and
1998.
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1997 and 1998.
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.
<PAGE>
(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 Filed electronically
Agreement, dated as of herewith
September 9, 1998, among ACI,
CPI, ACVI, ACCBI, ACLVI, the
lenders named therein and
WFB, as Swingline Lender and
Agent Bank.
4.2(c) Interest Rate Collar Filed electronically
Agreement dated August 10, herewith
1998, between ACI and WFB.
4.3(a) Indenture, dated as of Incorporated by reference
July 15, 1997, among ACI, to Exhibit 4.2 to the
ACLVI, ACVI, A.C. Food July 1997 8-K.
Services, 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) Registration Rights Incorporated by reference
Agreement, dated as of to Exhibit 4.3 to the
July 15, 1997, among ACI, July 1997 8-K.
ACCBI, ACFSI, ACHC, ACLVI,
ACVI, CPI, Bear, Stearns &
Co. Inc., BT Securities
Corporation and First Chicago
Capital Markets, Inc.
4.3(c) 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 10.8(e)-(h)
See Exhibits 10.8(e)-(h) 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").
*10.2 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
(the "September 1996 10-
Q").
*10.4 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.
*10.5 Housing Agreement, dated Incorporated by reference
November 15, 1993 between CPI to Exhibit 10.17 to the
and Craig H. Neilsen. 1994 10-K.
10.6 Plan of Reorganization, dated Incorporated by reference
November 15, 1993, between to Exhibit 2.1 to the
ACI and Craig H. Neilsen in 1994 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.
10.7 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.
10.8(a) Merger Agreement, dated as of Incorporated by reference
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.
10.8(b) First Amendment to Merger Incorporated by reference
Agreement, dated July 2, to Exhibit 10.5 to the
1996, among Gem, ACI, ACLVI, June 1996 10-Q.
Rebeil and Magliarditi.
10.8(c) Second Amendment to Merger Incorporated by reference
Agreement, dated as of to Exhibits 10.3 and 99.1
September 27, 1996, among to ACI's Current Report
Gem, ACI, ACLVI, Rebeil and on Form 8-K filed on
Magliarditi, together with a October 24, 1996 (the
list describing omitted "October 1996 8-K").
schedules and exhibits
thereto.
10.8(d) Settlement Agreement, dated Incorporated by reference
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.
10.8(e) Promissory Note, dated as of Incorporated by reference
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.
10.8(f) Promissory Note, dated as of Incorporated by reference
June 1, 1997, made by ACI to Exhibit 10.8(l) to the
payable to the order of Form S-4.
Magliarditi in the original
principal amount of $417,854.
10.8(g) Non-Negotiable Promissory Incorporated by reference
Note, dated as of June 1, to Exhibit 10.8(m) to the
1997, made by ACI payable to Form S-4.
the order of Rebeil in the
original principal amount of
$14,540,820.
10.8(h) Non-Negotiable Promissory Incorporated by reference
Note, dated as of June 1, to Exhibit 10.8(n) to the
1997, made by ACI payable to Form S-4.
the order of Magliarditi in
the original principal amount
of $459,180.
10.9(a) Lease, dated September 8, Incorporated by reference
1992, between Magnolia Hotel to Exhibit 10.2 to the
Company and ACVI as the Form S-1.
assignee of Craig H. Neilsen.
10.9(b) First Amendment to Agreement, Incorporated by reference
dated July 14, 1993, between to Exhibit 10.2(b) to the
Magnolia Hotel Company and 1995 10-K.
ACVI as the assignee of Craig
H. Neilsen.
10.9(c) Second Amendment to Lease Incorporated by reference
Agreement, dated June 1, to Exhibit 10.2(c) to the
1995, between Magnolia Hotel 1995 10-K.
Company and ACVI.
10.10(a)Lease, dated September 18, Incorporated by reference
1992, between R.R. Morrison, to Exhibit 10.3 to the
Jr. and ACVI as the assignee Form S-1.
of Craig H. Neilsen.
10.10(b)First Amendment to Lease Incorporated by reference
Agreement, dated June 1, to Exhibit 10.3 to the
1995, between R.R. Morrison & 1995 10-K.
Son, Inc. and ACVI.
10.11(a)Lease, dated December 11, Incorporated by reference
1992, between Martha Ker to Exhibit 10.4 to the
Brady Lum et. Al. and ACVI as Form S-1.
the assignee of Craig H.
Neilsen.
10.11(b)First Amendment to Lease Incorporated by reference
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.
10.12 Settlement, Use and Incorporated by reference
Management Agreement and DNR to Exhibits 10.12 and
Permit, dated May 15, 1995, 99.1 to ACI's Annual
between the State of Iowa Report on Form 10-K for
acting through the Iowa the year ended
Department of Natural December 31, 1996 (the
Resources and ACCBI as the "1996 10-K").
assignee of Koch Fuels, Inc.
10.13 Option Agreement, dated July Incorporated by reference
11, 1995, between Levy Realty to the Exhibit 10.13 to
Trust and ACLVI as the the 1996 10-K.
successor to Gem.
21.1 Subsidiaries of ACI. Incorporated by reference
to Exhibit 21.1 to the
Form S-4.
23.1 Consent of Arthur Andersen Filed electronically
LLP. herewith.
27.1 Financial Data Schedule Filed electronically
herewith.
99.1 Agreement to furnish 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.
(b) Reports on Form 8-K
None.
<PAGE>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, 1999 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,
President, Chairman of
/s/ Craig H. Neilsen the Board and CEO March 29, 1999
(principal executive
officer)
/s/ Thomas M. Steinbauer Thomas M. Steinbauer,
Senior Vice President of
Finance and
Administration
(principal financial March 29, 1999
officer and principal
accounting officer) and
Director
/s/ Paul I. Corddry Paul I. Corddry, March 29, 1999
Director
/s/ Larry A. Hodges Larry A. Hodges, March 29, 1999
Director
/s/ Warren E. McCain Warren E. McCain, March 29, 1999
McCain Director
<PAGE>On this 29th of March 1999, 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/Donna Vido
Witness
/s/Cheryl L. Atchison
Witness
STATE OF NEVADA )
):ss.
COUNTY OF CLARK )
I, Joyce M. King, 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 as if he had
personally executed the same both in his individual capacity and
in 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 1999.
/s/Joyce M. King
Notary Public
My Commission Expires: July 23, 2002
Residing at: Las Vegas, NV
<PAGE>
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, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998.
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 generally accepted
auditing standards. 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, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 10, 1999
(except with respect to matter discussed in
Note 5, as to which the date is March 31, 1999)
<PAGE>
<TABLE>
AMERISTAR CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in Thousands)
<S> <C> <C>
December 31,
1997 1998
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 13,031 $ 18,223
Restricted cash 153 119
Accounts receivable, net 2,051 1,476
Income tax refund receivable 2,103 2,815
Inventories 2,300 3,614
Prepaid expenses 4,125 4,794
Deferred income taxes 2,724 3,906
-------- --------
Total current assets 26,487 34,947
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Buildings and improvements 171,942 260,716
Building under capitalized lease 800 800
Furniture, fixtures and equipment 54,024 91,329
Furniture, fixtures and equipment
under capitalized leases 7,531 3,907
-------- --------
234,297 356,752
Less: Accumulated depreciation and
amortization 68,951 92,708
-------- --------
165,346 264,044
Land 26,309 26,485
Land under capitalized leases 4,865 4,865
Construction in progress 85,648 2,426
-------- --------
282,168 297,820
-------- --------
PREOPENING COSTS 6,820 -
-------- --------
EXCESS OF PURCHASE PRICE OVER FAIR
MARKET VALUE OF NET ASSETS ACQUIRED 15,408 15,046
-------- --------
DEPOSITS AND OTHER ASSETS 5,303 3,924
-------- --------
$336,186 $351,737
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
<TABLE>
AMERISTAR CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Share Data)
<S> <C> <C>
December 31,
1997 1998
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 4,772 $ 6,324
Construction contracts payable 19,391 913
Accrued liabilities 21,549 26,359
Current obligations under
capitalized leases 875 2,398
Current maturities of notes payable
and long-term debt 5,635 9,924
-------- --------
Total current liabilities 52,222 45,918
-------- --------
OBLIGATIONS UNDER CAPITALIZED
LEASES, net of current
maturities 9,600 13,196
-------- --------
NOTES PAYABLE AND LONG-TERM
DEBT, net of current maturities 183,513 217,203
-------- --------
DEFERRED INCOME TAXES 10,212 7,496
-------- --------
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, 1997
and 1998 204 204
Additional paid-in capital 43,043 43,043
Retained earnings 37,392 24,677
-------- --------
80,639 67,924
-------- --------
$336,186 $351,737
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
<TABLE>
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
REVENUES:
Casino $161,338 $173,077 $216,345
Food and beverage 24,250 30,672 45,745
Rooms 7,641 9,685 14,434
Other 7,760 8,275 9,966
-------- -------- --------
200,989 221,709 286,490
Less: Promotional
allowances 12,524 15,530 22,071
-------- -------- --------
Net revenues 188,465 206,179 264,419
-------- -------- --------
OPERATING EXPENSES:
Casino 75,685 78,733 105,331
Food and beverage 16,773 19,784 31,506
Rooms 2,368 3,130 5,791
Other 7,054 7,546 8,592
Selling, general and
administrative 47,758 51,958 75,147
Depreciation and
amortization 14,135 16,358 24,191
Abandonment loss - 646 -
Preopening costs 7,379 - 10,611
-------- -------- --------
Total operating expenses 171,152 178,155 261,169
-------- -------- --------
Income from operations 17,313 28,024 3,250
OTHER INCOME (EXPENSE):
Interest income 354 445 378
Interest expense (8,303) (12,107) (22,699)
Other (77) (35) (7)
-------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION
(BENEFIT) 9,287 16,327 (19,078)
Income tax provision
(benefit) 3,390 5,959 (6,363)
-------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS 5,897 10,368 (12,715)
EXTRAORDINARY LOSS ON EARLY
RETIREMENT OF DEBT, net of
income tax benefit of $0,
$387 and $0, respectively - (673) -
-------- -------- --------
NET INCOME (LOSS) $ 5,897 $ 9,695 $(12,715)
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
(Amounts in Thousands, Except Per Share Data)
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
EARNINGS (LOSS) PER SHARE:
Income (loss) before
extraordinary loss
Basic and diluted $ 0.29 $ 0.51 $ (0.62)
Net income (loss)
Basic and diluted $ 0.29 $ 0.48 $ (0.62)
WEIGHTED AVERAGE
SHARES OUTSTANDING 20,360 20,360 20,360
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Number of Shares)
<S> <C> <C> <C> <C> <C>
Capital Stock Additional
No. of Paid-In Retained
Shares Balance Capital Earnings Total
---------- -------- -------- -------- --------
Balance,
December 31, 1995 20,360,000 $ 204 $ 43,043 $ 21,800 $ 65,047
Net income - - - 5,897 5,897
---------- -------- -------- -------- --------
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
========== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<S> <C> <C> <C>
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years ended December 31,
1996 1997 1998
-------- -------- --------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 5,897 $ 9,695 $(12,715)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and
amortization 14,135 16,358 24,191
Change in deferred income taxes (181) 2,964 (3,898)
Net (gain) loss on
disposition of assets (56) 505 11
Amortization of debt
issuance costs 229 424 661
Preopening costs 7,379 - 10,611
Extraordinary loss on
early retirement of debt - 1,060 -
Changes in current assets
and liabilities:
Restricted cash (162) 265 34
Accounts receivable, net (94) (643) 575
Income tax receivable - (2,103) (712)
Inventories (112) 85 (1,314)
Prepaid expenses (468) (374) (669)
Accounts payable 3,524 (2,531) 1,552
Accrued liabilities 3,037 7,985 4,810
Income taxes payable 49 (49) -
-------- -------- --------
Total adjustments 27,280 23,946 35,852
-------- -------- --------
Net cash provided by operating
activities 33,177 33,641 23,137
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (43,087) (72,932) (32,312)
Increase (decrease) in
construction contracts payable (4,791) 14,055 (18,478)
Proceeds from sale of assets 56 126 -
Increase in deposits and
other assets (5,924) (4,666) (3,073)
-------- -------- --------
Net cash used in investing
activities (53,746) (63,417) (53,863)
-------- -------- --------
</TABLE>
<PAGE>
<TABLE>
AMERISTAR CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Amounts in Thousands)
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
long-term debt $ 44,628 $150,786 $ 42,606
Debt issuance costs - (4,439) -
Minority interest income - (16) -
Restricted security deposit 11,511 - -
Principal payments of long-
term debt and capitalized
leases (39,633) (114,248) (6,688)
-------- -------- --------
Net cash provided by financing
activities 16,506 32,083 35,918
-------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (4,063) 2,307 5,192
CASH AND CASH EQUIVALENTS --
BEGINNING OF YEAR 14,787 10,724 13,031
-------- -------- --------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 10,724 $ 13,031 $ 18,223
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
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.
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, which opened February
10, 1998.
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.
<PAGE>
Accounts receivable
Gaming receivables are included as part of the Company's
accounts receivable balance. An allowance of $464,000 and
$304,000 at December 31, 1997 and 1998, 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 $2,313,000, $4,654,000 and $1,434,000 was capitalized
for the years ended December 31, 1996, 1997 and 1998,
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. The excess of the purchase price
over fair market value of net assets acquired related to the Gem
Gaming, Inc. acquisition (see Note 10) is being amortized over a
39-year period that commenced with the opening of The Reserve.
<PAGE>
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:
<TABLE>
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
(Amounts in Thousands)
Food and beverage $ 9,560 $ 12,283 $ 20,399
Room 732 708 1,024
Other 469 644 958
-------- -------- --------
$ 10,761 $ 13,635 $ 22,381
======== ======== ========
</TABLE>
Advertising
The Company expenses advertising costs the first time the
advertising takes place. Advertising expense included in
selling, general and administrative expenses was approximately
$6,144,000, $5,453,000, and $9,966,000 for the years ended
December 31, 1996, 1997 and 1998, 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. These costs are capitalized as incurred. Upon
commencement of operations, the Company expenses all such
preopening costs. The Accounting Standard Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 "Reporting the Costs of Start-up
Activities." The provisions of SOP 98-5 are effective for fiscal
years beginning after December 15, 1998 and require that the
costs associated with start-up activities (including
<PAGE>preopening costs of casinos) be expensed as incurred.
Management estimates that this SOP will have no impact on the
Company's results of operations or financial position.
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, 1996, 1997 and
1998 as the outstanding stock options were antidilutive.
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:
<TABLE>
<S> <C> <C>
December 31,
1997 1998
-------- --------
(Amounts in Thousands)
Compensation and related
benefits $ 5,488 $ 7,164
Taxes other than
income taxes 4,625 5,649
Progressive slot
machine jackpot 959 1,753
Interest 6,129 6,013
Deposits and other
accruals 4,348 5,780
-------- --------
$ 21,549 $ 26,359
======== ========
</TABLE>
<PAGE>
NOTE 3 - FEDERAL INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
(Amounts in Thousands)
Current $ 3,571 $ 2,371 $ (5,312)
Deferred (181) 3,588 (1,051)
-------- -------- --------
Provision (benefit) on
income before
extraordinary item 3,390 5,959 (6,363)
Tax benefit of extraordinary item - (387)
-------- -------- --------
$ 3,390 $ 5,572 $ (6,363)
======== ======== ========
</TABLE>
The reconciliation of income tax at the Federal statutory
rates to income tax expense is as follows:
<TABLE>
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
Federal statutory rate 35% 35% 34%
Nondeductible expenses 2% 2% (1%)
-------- -------- --------
37% 37% 33%
======== ======== ========
</TABLE>
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:
<PAGE>
<TABLE>
<S> <C> <C>
December 31,
1997 1998
-------- --------
(Amounts in Thousands)
Deferred tax assets:
Preopening costs $ 2,212 $ 4,290
Accrued book expenses not
currently deductible 1,674 2,769
Alternative minimum tax credit (1) 2,409 4,716
Project development costs 1,118 1,118
Net operating loss carry forward(2) - 540
Book loss in excess of tax loss 202 202
Asset reserves 161 105
Other 161 212
-------- --------
Total deferred tax assets 7,937 13,952
-------- --------
Deferred tax liabilities:
Tax depreciation in excess of
book depreciation (13,598) (15,277)
Book capitalized interest
in excess of tax (451) (451)
Other (1,376) (1,814)
-------- --------
Total deferred tax liabilities (15,425) (17,542)
-------- --------
Net deferred tax liability $ (7,488) $ (3,590)
======== ========
</TABLE>
_____________
(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,
1998, $1,587,000 of an unused operating loss
carryforward that may be applied against
future taxable income and that expires in the
year 2018.
NOTE 4 - SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company made cash payments for interest, net of amounts
capitalized, of $7,930,000, $8,223,000 and $22,515,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
The Company made cash payments for Federal income taxes of
$2,900,000, $4,760,000, and $350,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
The Company acquired assets through capitalized leases of
$0, $2,998,000 and $7,180,000 during the years ended December 31,
1996, 1997 and 1998, respectively.
The Company acquired assets through the issuance of notes
payable of $3,173,000, $704,000 and $0 during the years ended
December 31, 1996, 1997 and 1998, respectively.
<PAGE>
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.
The Company assumed a note payable of $311,000 and
recognized a minority interest of $271,000 in connection with the
purchase of certain aviation-related assets in 1996. These
assets were returned to Gem Gaming as part of the merger
settlement (See Note 10).
The following reflects the noncash components of the
Company's acquisition of Gem Gaming, Inc. (amounts in thousands):
<TABLE>
<S> <C>
Purchase price - Notes
payable to former
stockholders of Gem
Gaming, Inc. (net of
discount) $ 33,650
--------
Fair value of net assets
acquired:
Prepaid expenses 146
Property and equipment 29,546
Preopening costs 1,873
Accounts payable (12)
Construction contracts payable (2,289)
Accrued liabilities (133)
Long-term debt (11,400)
Capitalized lease (1,340)
Deferred tax liability (1,784)
--------
14,607
--------
Excess of purchase price
over fair market value of
net assets acquired $ 19,043
========
</TABLE>
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):
<TABLE>
<S> <C>
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)
========
</TABLE>
<PAGE>
NOTE 5 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<TABLE>
<S> <C> <C>
December 31,
1997 1998
-------- --------
(Amounts in Thousands)
Revolving Credit Facility (see
below) $ 54,550 $ 90,000
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) 28,650 26,650
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
December 31, 1999. 1,856 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 3.8 percent and 4.2
percent for the years ended
December 31, 1997 and 1998,
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. 1,335 1,292
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 January 1999. 1,431 877
<PAGE>
Other 1,326 855
-------- --------
189,148 227,127
Less: Current maturities 5,635 9,924
-------- --------
$183,513 $217,203
======== ========
</TABLE>
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, 1998, the Company had drawn $90.0 million
on the Revolving Credit Facility. These borrowings were used to
repay the 1995 Revolving Credit Facility and to fund the
development of The Reserve. 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. 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, 1998, the
total funded debt of the Company was 5.498 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 of 1.25
to 1.0 until September 30, 1999, and 1.50 to 1.0 thereafter. 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
<PAGE>the preceding year and prohibits the Company from incurring
any additional secured indebtedness without the approval of the
lenders. The amended Revolving Credit Facility also requires 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. As of March 31, June 30, September 30 and
December 31, 1998, the Company has been in non-compliance with
the tangible net worth requirement. In each instance of non-
compliance, the Company has obtained a waiver of the violation
from the lenders. As of December 31, 1998, the Company's
tangible net worth was $2.8 million less than required by this
covenant. The waiver for this violation was obtained on March
31, 1999 and also amended the Revolving Credit Facility's minimum
tangible net worth requirement to $50.0 million as of that date.
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, 1998,
the Company has taken LIBOR draws totaling $90.0 million with an
average interest rate of approximately 9.25 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. 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, 1998, the Company was in compliance
with these covenants, except as indicated above.
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, 1998, the
<PAGE>Company had paid approximately $10,000 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, 1998, the Company
was in compliance with these covenants.
The Senior Subordinated Notes were issued by ACI, and all of
ACI's current subsidiaries (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. 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, and the loan matured in July 1998, but was amended
to extend the maturity to December 31, 1999. 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, 1998, the balance on this
loan was $7.5 million.
On December 28, 1995, ACCBI entered into a preferred ship
mortgage with General Electric Credit Corp. ("GECC"). Borrowings
totaled $11,511,000 and occurred on December 29, 1995. GECC
required the Company to maintain a cash security deposit (the
<PAGE>"Security Deposit") in the full amount of the borrowing
until certain conditions precedent were fulfilled, including
having the casino at Ameristar Council Bluffs fully operational
and open to the general public for gaming operations and
satisfying all licensing requirements within 30 days of the
borrowing date. The Security Deposit was released by GECC on
January 19, 1996. This borrowing was secured by the Council
Bluffs casino. The loan's principal was to be repaid over four
years. Principal payments of approximately $320,000 per month
for the first 12 months and approximately $213,000 per month for
the remaining 36 months were required. The Company had the right
to prepay the entire borrowing at a premium ranging from one
percent to two percent during the first 18 months of the loan.
Thereafter until maturity, the Company had the right to prepay
the loan without premium. ACI had entered into an unconditional
guaranty of prompt payment and performance with respect to this
borrowing. This borrowing was repaid in July 1997.
Proceeds from an equipment loan entered into with WFB on
December 12, 1995 for $7,137,000 were used to finance slot
machines, surveillance equipment and property signage at ACCBI.
The loan is being amortized over four years with monthly
principal payments of approximately $149,000. The interest rate
is equivalent to that charged on the Revolving Credit Facility.
This borrowing was repaid in July 1997 with proceeds from the
Senior Subordinated Notes offering.
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.
In connection with the merger of Gem Gaming, Inc. into
ACLVI, the Company acquired a one-half interest in an aircraft
owned by Gem Air, Inc., an affiliate of Gem Gaming, Inc. In
addition, the Company and Gem Air, Inc. formed NVAGAIR to hold
certain other aviation-related assets. NVAGAIR or the Company,
as a result of these transactions, assumed certain aviation-
related notes payable. These borrowings were removed from the
Company's obligations as part of the Gem Settlement. (See Notes
4 and 10)
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, 1998 are as follows (amounts in
thousands):
<PAGE>
<TABLE>
<S> <C>
1999 $ 9,924
2000 2,350
2001 2,045
2002 8,045
2003 88,046
Thereafter 116,717
--------
$227,127
========
</TABLE>
NOTE 6 - LEASES
The Company has entered into capitalized lease agreements
for a restaurant, including associated furniture, fixtures and
equipment, and 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 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. Assuming the Company defers
the exercise of its purchase option under each lease to the
expiration of the purchase option, the Company will pay $50,000
in 1999, approximately $1,500,000 in 2004 and approximately
$480,000 in 2024 to purchase all of the parcels. If the Company
were to accelerate its exercise of the purchase options to the
earliest possible dates, the Company would pay approximately
$6,086,000 in 1999.
The Company generally may terminate each lease upon the
payment of termination penalties, the maximum aggregate amount of
which is $328,000. 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.
Quarterly payments are required totaling approximately $42,000
per year through October 1998.
ACI had entered into two three-year capitalized lease
agreements for computer equipment on behalf of ACCBI. Monthly
payments were required totaling approximately $197,000 per year
through November 1998. ACCBI had entered into a five-year
capitalized
<PAGE>lease agreement for telephone systems and related
equipment. This equipment was purchased at the time of the
Company's debt refinancing in July 1997.
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 $260,000 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.
Future minimum lease payments required under capitalized
leases for the five years subsequent to December 31, 1998 are as
follows (amounts in thousands):
<TABLE>
<S> <C>
1999 $ 3,603
2000 4,512
2001 3,329
2002 2,433
2003 753
Thereafter 11,199
--------
25,829
Less: Amount representing interest 10,235
--------
Present value of minimum
lease payments $ 15,594
========
</TABLE>
ACCBI, as lessor, has leased a portion of the Ameristar
Council Bluffs site to an independent hospitality company, which
operates a 140-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 and with a new expiration
<PAGE>date in January 2000. The Company recorded rental expense
of approximately $360,000 and $533,000 under these leases in the
years ended December 31, 1997, and 1998, 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 $373,000, $570,000 and $485,000 for the fiscal
years ended December 31, 1996, 1997, and 1998, 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. The amount of the Company's
contribution is determined by the Trust Committee. The plan also
requires contributions from eligible employees and their
dependents. The Company's contribution expense for the plan was
approximately $2,258,000, $3,834,000 and $4,950,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
Stock Option Plans
The Company has adopted a Management Stock Option Incentive
Plan ("Option Plan") which provides 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 are eligible to receive options under the Option Plan,
except that only employees may receive incentive stock options.
The maximum number of shares available for issuance under the
Option Plan is 1,600,000. No person eligible to receive options
under the Option Plan may receive options for the purchase of
more than an aggregate of 200,000 shares. The 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 Plan 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 Plan are not transferable other than by
will or the laws of descent and distribution.
<PAGE>
In December 1998, certain stock options 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:
<TABLE>
<S> <C> <C> <C>
Years ended December 31,
1996 1997 1998
-------- -------- --------
(Amounts in Thousands, Except Per Share Data)
Net income (loss): As reported $ 5,897 $ 9,695 $(12,715)
Pro forma 5,708 9,491 (13,002)
Earnings (loss)
per share: As reported $ 0.29 $ 0.48 $ (0.62)
Pro forma 0.28 0.47 (0.64)
</TABLE>
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 1996, 1997 and 1998,
respectively: risk-free interest rates of 6.4, 6.2, and 4.5
percent; expected volatility of 63, 63 and 58 percent. The
expected lives of the options are 5 years for 1996, 1997 and
1998. No dividends are expected to be paid.
<PAGE>
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:
<TABLE>
<S> <C> <C> <C> <C> <C>
1996 1997 1998
----------------- ---------------- --------------
Wtd. avg. Wtd. avg. Wtd. avg.
Shares ex. price Shares ex. price Shares ex. price
------- --------- ------- --------- ------- ---------
Options outstanding,
beginning of year 548,000 $6.15 566,000 $ 6.25 594,500 $ 6.12
Granted 70,000 7.31 150,000 5.32 833,610 2.69
Exercised - - -
Canceled (52,000) 6.67 (121,500) 9.57 (288,000) 6.22
------- -------- ---------
Options outstanding,
end of year 566,000 6.25 594,500 6.12 1,140,110 2.68
======= ======== =========
Options available
for grant 534,000 1,013,500 467,890
Options exercisable,
end of year 154,800 6.24 233,800 6.25 184,300 2.75
Weighted average
fair value
of options granted $ 4.34 $ 3.14 $ 1.18
</TABLE>
At December 31, 1998, 1,132,110 of the 1,140,110 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 9.1 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 7.2 years. The remaining 2,000 options have
an outstanding exercise price of $16.00, with a remaining
contractual life of 5.2 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.
On October 14, 1998, a general contractor for certain
interior construction at The Reserve filed a complaint against
ACLVI in the District Court of Clark County, Nevada. The
construction contract, as amended through change orders, provided
for a guaranteed maximum price not to exceed $25,482,532,
inclusive of fees to the contractor. The contractor alleged that
ACLVI is obligated to pay it $5,621,098, plus interest, in excess
of the guaranteed
<PAGE>maximum price for additional labor costs invoiced to ACLVI.
The complaint does not state a specific theory for recovery.
Settlement negotiations are ongoing, and ACLVI has answered the
complaint. If this case is not resolved through the current
settlement negotiations, ACLVI intends to vigorously defend this
case.
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. ACVI has
responded to the FinCEN letter and has implemented various steps
intended to improve compliance with the currency transaction
reporting requirements. ACVI is expected to meet with FinCEN
officials in the near future concerning this matter, which
Management anticipates will be resolved without a material
adverse effect on the Company or its results of operations or
financial condition.
On February 17, 1998, ACI received a petition that E. L.
Pennebaker, Jr. had filed with the Mississippi Gaming Commission.
In that petition Mr. Pennebaker requests that the Mississippi
Gaming Commission order ACI, Harrah's Vicksburg, Inc., and
Riverboat Corporation of Mississippi-Vicksburg 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. The bases
for the petition are nearly identical to those alleged in the
lawsuit filed by Mr. Pennebaker, which lawsuit is discussed
below.
On February 23, 1998, E. L. Pennebaker, Jr. filed a
complaint in the Circuit Court of Pike County, Mississippi
against ACI, Harrah's Vicksburg, Inc., Riverboat Corporation of
Mississippi-Vicksburg, and Deposit Guaranty National Bank. The
complaint was amended on February 27, 1998, to add James F.
Belisle, Multi Gaming Management, Inc. and Multi Gaming
Management of Mississippi, Inc. as additional plaintiffs. The
plaintiffs are property owners or have rights to acquire property
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 plaintiffs Belisle, Multi Gaming
Management, Inc. and Multi Gaming Management of Mississippi, Inc.
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 the Mississippi Code. 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 allege compensatory damages of
$38.0 million and punitive damages of $200.0 million. ACI has
answered the complaint and is defending the suit, in part, on the
basis that its conduct alleged by the plaintiffs is
constitutionally protected under the First Amendment.
In September 1996, the Company received from the general
contractor of the Main Street Pavilion and the hotel for its
property in Council Bluffs, Iowa, a demand for arbitration
regarding amounts due under the contract. The demand did not
contain a plea for a specific
<PAGE>amount of damages, and instead requested an award for extra
or changed work, delayed, disrupted and accelerated work,
together with inefficiencies and impacts experienced on the
project, along with unpaid retainage and certain other costs.
Based on a statement of damages filed in the arbitration,
management estimated that the general contractor's claims were
for an amount of approximately $4.6 million, which includes
certain amounts due to subcontractors that have already been paid
by ACCBI. ACCBI submitted a counterclaim in the arbitration for
cost overruns in excess of the guaranteed maximum price that
ACCBI has had to pay, liquidated damages for delay and certain
other costs. ACCBI submitted a statement of damages in the
arbitration proceeding seeking $7.1 million from the general
contractor. As of December 31, 1996, $1,515,000 in cost overruns
had been paid by the Company. In addition, at December 31, 1996,
$2,154,000 of the Company's construction payables represented
disputed general contractor claims. On November 13, 1997, the
three-member arbitrator panel for the American Arbitration
Association increased the guaranteed maximum price under the
construction contract by approximately $690,000 to approximately
$33.0 million and required the general contractor to pay to ACCBI
approximately $825,000, plus interest, to compensate for cost
overruns previously paid by ACCBI as settlement of the
arbitration. As a result of this settlement, the Company was
relieved of any liability for the $2,154,000 in disputed claims.
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 $46,000, $43,000 and $33,000
for the years ended December 31, 1996, 1997 and 1998,
respectively. The Company also leases office space from the
Lynwood Shopping Center which is controlled by the principal
stockholder and President of the Company. Total payments to the
Lynwood Shopping Center were $88,000, $31,000 and $23,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. 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.
Under the amended Merger Agreement, all of the outstanding
shares of Gem common stock were cancelled at the merger closing
and were converted into the right for the former
<PAGE>stockholders of Gem (the "Gem Stockholders") to receive
cash, subject to reduction, equal to the amount of the net
proceeds (after payment of underwriter's discounts and
commissions and certain other offering expenses) in excess of
$4.0 million from an underwritten public offering of 7.5 million
shares of the Company's Common Stock (the "Post-Merger
Offering"). If the Post-Merger Offering is not concluded in
whole or in part prior to June 1, 1997, the Company will deliver
to the Gem Stockholders promissory notes (the "Gem Notes") in an
aggregate principal amount equal to (i) the average 10-day
closing price of the Common Stock as of June 1, 1997, (ii)
multiplied by 7.5 million (iii) minus $4.0 million and (iv) minus
one-half of any offering expenses. The Gem Notes would be
unsecured, would mature on June 1, 2000, and would accrue
interest at the rate of eight percent per annum. Interest would
be payable on a monthly basis.
To reflect the obligation to the Gem Stockholders upon the
closing of the merger, the Company recorded notes payable at
$35,375,000, the amount at which they would have been issued
based on the Company's stock price on the closing date of the
merger, less a discount of $1,725,000 to reflect imputed interest
over the noninterest-bearing term of the obligation. As of
December 31, 1996, approximately $605,000 of the discount had
been amortized to interest expense. The amount recorded as notes
payable exceeds the fair market value of the net assets acquired
by the Company in the merger. The excess of purchase price over
fair market value of net assets acquired, recorded as a long-term
asset on the Company's consolidated balance sheet, will be
amortized over the estimated 39-year depreciable life beginning
in the period in which the acquired property commences
operations.
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. Pursuant
to the Gem Settlement Agreement, the Company has also reconveyed
to Gem Air, Inc. ("Gem Air"), an affiliate of one of the Gem
Stockholders, the Company's interests in certain aviation-related
assets acquired in July 1996. Gem Air has assumed certain
liabilities of the Company related to these assets and an
aircraft operating agreement and a sublease relating to these
assets (the "Gem Aviation Agreements") have been terminated.
In lieu of the merger consideration provided for in the
Merger Agreement, the Gem Settlement Agreement provides that the
Company will pay to the Gem Stockholders $32.7 million in
installments, plus interest. Upon the effectiveness of the Gem
Settlement Agreement, the Company made a payment of $4.0 million
to the Gem Stockholders and issued the Gem Notes for the balance
of the cash consideration ($28.7 million). Pursuant to the Gem
Settlement Agreement, The Company has also reconveyed to Gem Air,
Inc. ("Gem Air"), an
<PAGE>affiliate of one of the Gem Stockholders, the Company's
interests in certain aviation-related assets acquired in July
1996. Gem Air has assumed certain liabilities of the Company
related to these assets and an aircraft operating agreement and a
sublease relating to these assets (the "Gem Aviation Agreements")
have been terminated.
The Gem Settlement Agreement includes mutual general
releases of the parties to the arbitration proceeding and certain
of their respective related parties with respect to all
obligations arising out of, based upon or relating to the Merger
Agreement and the Gem Aviation Agreements, except for certain
excluded claims. Among the excluded claims under the Gem
Settlement Agreement are claims against the Gem Stockholders with
respect to Excluded Liabilities (as defined in the Merger
Agreement) and certain indemnification obligations of the Gem
Stockholders under the Merger Agreement with respect to claims
asserted by third parties against the Company.
The following unaudited supplemental pro forma information
shows estimated net income and earnings per share as though the
merger had occurred at the beginning of 1996. The pro forma
amounts reflect the Company's actual results combined with Gem's
actual results for the period presented, adjusted to reflect
additional interest expense as if the Gem Notes had been issued
at the beginning of the period, and the associated income tax
benefit at the federal statutory rate of 35 percent. No pro
forma revenues are disclosed because Gem had no operations prior
to the merger.
Year ended
December 31, 1996
-----------------
Pro forma net income
before extraordinary
items (in thousands) $ 3,756
=======
Pro forma net income (in
thousands) $ 3,756
=======
Pro forma earnings per share $ 0.18
=======
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First
Amendment") is made and entered into as of the 9th day of
September, 1998, by and among AMERISTAR CASINOS, INC., a
Nevada corporation ("ACI"), CACTUS PETE'S, INC., a Nevada
corporation ("CPI"), AMERISTAR CASINO VICKSBURG, INC., a
Mississippi corporation ("ACVI"), AMERISTAR CASINO COUNCIL
BLUFFS, INC., an Iowa corporation ("ACCBI") and AMERISTAR
CASINO LAS VEGAS, INC., a Nevada corporation ("ACLVI" and
together with ACI, CPI, ACVI and ACCBI, collectively
referred to as the "Borrowers") and WELLS FARGO BANK,
National Association, U.S. BANK NATIONAL ASSOCIATION, FIRST
AMERICAN NATIONAL BANK, operating as, and successor in
interest by merger to, DEPOSIT GUARANTY NATIONAL BANK, THE
FIRST NATIONAL BANK OF CHICAGO, BANKERS TRUST COMPANY, FIRST
NATIONAL BANK OF COMMERCE, TRUSTMARK NATIONAL BANK, IMPERIAL
BANK, NORWEST BANK OF NEBRASKA, N.A. and FORT WAYNE NATIONAL
BANK, as Lenders, and WELLS FARGO BANK, National
Association, as Swingline Lender and as the administrative
and collateral agent for the Lenders and Swingline Lender
(herein in such capacity called the "Agent Bank" and,
together with the Lenders and Swingline Lender, collectively
referred to as the "Banks").
R_E_C_I_T_A_L_S:
WHEREAS:
A. Borrowers and Banks (Fort Wayne National Bank
having acquired its respective Syndication Interest from
Wells Fargo Bank, National Association by Assignment,
Assumption and Consent Agreement dated as of October 6,
1997) entered into a Credit Agreement dated as of July 8,
1997 (the "Existing Credit Agreement") for the purpose of
establishing a reducing revolving line of credit in favor of
Borrowers, to be funded by Lenders up to the maximum
principal amount of One Hundred Twenty-Five Million Dollars
($125,000,000.00), including a Swingline Facility to be
funded by Swingline Lender up to the maximum amount of Five
Million Dollars ($5,000,000.00) at any time outstanding.
B. For the purpose of this First Amendment, all
capitalized words and terms not otherwise defined herein
shall have the respective meanings and be construed herein
as provided in Section 1.01 of the Existing Credit Agreement
and
<PAGE>shall be deemed to incorporate that provision as a
part hereof, in the same manner and with the same effect as
if the same were fully set forth herein.
C. Borrowers and Banks have agreed to the waiver
and amendments to the Existing Credit Agreement on the terms
and subject to the conditions and provisions set forth in
this First Amendment.
NOW, THEREFORE, in consideration of the foregoing
and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto do agree to the waiver, amendments and modifications
to the Existing Credit Agreement as specifically hereinafter
provided as follows:
1. Definitions. As of the First Amendment
Effective Date, Section 1.01 of the Existing Credit
Agreement entitled "Definitions" shall be and is hereby
amended to include the following definitions. Those terms
which are currently defined by Section 1.01 of the Existing
Credit Agreement and which are also defined below shall be
superseded and restated by the applicable definition set
forth below:
"Applicable Margin" means for any Base Rate Loan
or LIBOR Loan the applicable per annum percentage amount to
be added to the Base Rate or the LIBO Rate, as the case may
be, as set forth in the table below based on the Leverage
Ratio of the Borrower Consolidation as of each Fiscal
Quarter end, commencing with the end of the Fiscal Quarter
ending June 30, 1998, together with the immediately
preceding three (3) Fiscal Quarters on a four (4) Fiscal
Quarter basis, any change in the applicable percentage
amount by reason thereof to be effective as of the 1st day
of the third month immediately following each such Fiscal
Quarter end:
LIBO
Leverage Ratio Base Rate Rate
Margin Margin
Greater than 5.00 to 1.00 2.75% 4.00%
Greater than 4.00 to 1.00 2.25% 3.5%
but less than or equal to
5.00 to 1.00
Greater than 3.00 to 1.00 1.75% 3.00%
but less than or equal
to 4.00 to 1.00
Greater than 2.0 to 1.0 but 1.25% 2.50%
less than or equal to
3.0 to 1.0
Greater than 1.00 to 1.0 but 0.75% 2.00%
less than or equal
to 2.0 to 1.00
Less than or equal 0.25% 1.50%
to 1.00 to 1.00
<PAGE>
"Availability Limit" shall mean: (i) for the period
commencing on the Closing Date and until June 30, 1998, three and
onequarter (3.25) times (x) EBITDA of the Borrower Consolidation
determined as of the end of each Fiscal Quarter together with the
immediately preceding three (3) Fiscal Quarters on a four (4) Fiscal
Quarter basis as set forth on an Availability Limit Certificate and
received by Agent Bank on each Availability Determination Date,
and (ii) for the period commencing on July 1, 1998 and
continuing until the Maturity Date, two and three-quarters (2.75)
times (x) EBITDA of the Borrower Consolidation determined as of the
end of each Fiscal Quarter together with the immediately preceding three
(3) Fiscal Quarters on a four (4) Fiscal Quarter basis as
set forth on an Availability Limit Certificate and received by
Agent Bank on each Availability Determination Date.
"Credit Agreement" shall mean the Existing Credit Agreement
as amended by the First Amendment, together with all Schedules,
Exhibits and other attachments thereto, as it may be further
amended, modified, extended, renewed or restated from time to time.
"Existing Credit Agreement" shall have the meaning set forth
in Recital Paragraph A of the Second Amendment.
"First Amendment" shall mean the First Amendment to Credit
Agreement.
"First Amendment Effective Date" shall mean June 30, 1998.
2. Modification of Applicable Margin Matrix. As of the
First Amendment Effective Date, the definition of Applicable Margin
shall be modified as set forth in the definition of Applicable Margin
contained in the First Amendment.
3. Reduction of Availability Limit. As of July 1, 1998,
the Availability Limit shall be reduced from 3.25 times (x) EBITDA
to 2.75 times (x) EBITDA as set forth in the definition of Availability
Limit contained in the First Amendment.
<PAGE>
4. Restatement of Capital Expenditures Covenant. As of
the First Amendment Effective Date, Section 6.01 entitled
"Minimum Capital Expenditures", shall be and is hereby fully amended
and restated in its entirety as follows:
"Section 6.01. Capital Expenditures.
During each Fiscal Year, commencing with the
Fiscal Year commencing January 1, 1998,
Borrowers shall make or cause to be made,
Capital Expenditures to the Collateral Properties
in a minimum aggregate amount equal to or greater
than two percent (2%) of net revenues but in no
event greater than a maximum aggregate amount
equal to three percent (3%) of net revenues,
exclusive of all amounts approved by Lenders as
of the First Amendment Effective Date for Capital
Expenditures to be made during the 1998 Fiscal Year,
derived from the Collateral Properties by the
Borrower Consolidation during the immediately
preceding Fiscal Year. Commencing with the 1999
Fiscal Year and continuing until the Maturity Date,
Borrowers shall make or cause to be made,
Capital Expenditures to the Collateral Properties
in a minimum aggregate amount equal to or greater
than two percent (2%) of net revenues, but in no
event greater than a maximum aggregate amount equal
to five percent (5%) of net revenues, derived
from the Collateral Properties by the Borrower
Consolidation during the immediately preceding Fiscal
Year."
5. One-Time Waiver of Minimum Tangible Net Worth
Violation. Banks shall and do hereby waive the violation of the
minimum Tangible Net Worth covenant set forth in Section
6.02 of the Existing Credit Agreement, which violation occurred
as of the Fiscal Quarter ended March 31, 1998. Borrowers acknowledge
that the Banks are entitled to require strict compliance with
Section 6.02 of the Credit Agreement (as well as all other provisions
of the Loan Documents) with respect to all other periods and at all times.
<PAGE>
6. Restatement of Minimum Tangible Net Worth Covenant.
As of the First Amendment Effective Date, Section 6.02 of the Existing
Credit Agreement entitled "Minimum Tangible Net Worth" shall be and is
hereby fully amended and restated in its entirety as follows:
"Section 6.02. Minimum Tangible Net Worth. As
of the Fiscal Quarter ended June 30, 1998, and as of each
Fiscal Quarter thereafter occurring until Bank Facility
Termination, the Borrower Consolidation shall maintain
as of the last day of each Fiscal Quarter a Tangible Net Worth
equal to or greater than the sum of (a) Fifty-Six Million
Dollars ($56,000,000.00), plus (b) ninety percent (90%) of
Net Income after taxes realized as of each Fiscal Quarter end
occurring on and after September 30, 1998 (without reduction
for any net losses), plus (c) ninety percent (90%) of the
proceeds received in Cash or Cash Equivalents (net of reasonable
expenses) of any and all additional Equity Offerings made after
the Closing Date, other than proceeds of any Equity Offerings
that are required to be paid to Rebeil or Magliarditi pursuant
to the terms of the Gem Merger Agreement."
7. Restatement of Leverage Ratio Covenant. As of
the First Amendment Effective Date, Section 6.03 of the Existing
Credit Agreement entitled "Leverage Ratio" shall be and is hereby fully
amended and restated in its entirety as follows:
"Section 6.03. Leverage Ratio. Commencing as of the
first Fiscal Quarter ending subsequent to the Closing Date
and continuing as of each Fiscal Quarter end until Bank
Facilities Termination, the Borrower Consolidation shall
maintain a Leverage Ratio no greater than the ratios described
hereinbelow to be calculated as of the end of each Fiscal Quarter
in accordance with the following schedule:
<PAGE>
Fiscal Quarter End Leverage Ratio
------------------ --------------
As of the Closing Date
through the Fiscal Quarter
ending March 31, 1998 5.00 to 1.00
As of the Fiscal Quarter
ending June 30, 1998 5.25 to 1.00
As of the Fiscal Quarter
ending September 30,1998
through the Fiscal Quarter
ending March 31, 1999 5.50 to 1.00
As of the Fiscal Quarter
ending June 30, 1999
through the Fiscal Quarter
ending September 30, 1999 5.25 to 1.00
As of the Fiscal Quarter
ending December 31, 1999 4.75 to 1.00
As of the Fiscal Quarter
ending March 31, 2000
through the Fiscal Quarter
ending June 30, 2000 4.50 to 1.00
As of the Fiscal Quarter
ending September 30, 2000
through the end of each
Fiscal Quarter until the
occurrence of the Maturity
Date 4.00 to 1.00"
<PAGE>
8. Restatement of Gross Fixed Charge Coverage Ratio
Covenant. As of the First Amendment Effective Date, Section 6.04
entitled "Gross Fixed Charge Coverage Ratio" shall be and is hereby
fully amended and restated in its entirety as follows:
"Section 6.04. Gross Fixed Charge Coverage Ratio.
Commencing as of the first Fiscal Quarter ending
subsequent to the Closing Date and continuing as of each
Fiscal Quarter end until Bank Facilities Termination,
the Borrower Consolidation shall maintain a Gross Fixed
Charge Coverage Ratio no less than the ratios described
herein below to be calculated as of the end of each Fiscal
Quarter in accordance with the following schedule:
As of the Closing Date
through the Fiscal Quarter
ending March 31, 1998 1.50 to 1.00
As of the Fiscal Quarter
ending June 30,1998
through the Fiscal Quarter
ending September 30, 1999 1.25 to 1.00
As of the Fiscal Quarter
ending December 31, 1999
through the end of each
Fiscal Quarter until the
occurrence of the Maturity Date 1.50 to 1.00"
9. Addition of Section 6.15 entitled "No Additional
Secured Indebtedness". As of the First Amendment Effective Date,
Section 6.16 shall be added to the Credit Agreement as follows:
<PAGE>
"Section 6.16. No Additional Secured Indebtedness.
Notwithstanding herein contained or contained in Section
6.08(c) of the Credit Agreement to the contrary, on and after
the First Amendment Effective Date, Borrower shall not incur
any additional Indebtedness secured by any Lien
encumbering all or any portion of the Collateral, exclusive,
however, of secured purchase money Indebtedness permitted
under Section 6.08(c) of the Credit Agreement which was
incurred and outstanding as of the First Amendment Effective Date."
10. Conditions Precedent to Effectiveness of First
Amendment. The First Amendment shall become effective as of the date hereof
upon receipt by Agent Bank of the following documents and payments,
in each case in a form and substance reasonably satisfactory to Agent Bank,
and the occurrence of each other condition precedent set forth below:
a. Due execution by Borrowers and Banks of twelve (12)
duplicate originals of this First Amendment;
b. Corporate resolutions or other evidence of requisite
authority of Borrowers to execute the First Amendment;
c. Reimbursement to Agent Bank by Borrowers for all
reasonable fees and out-of pocket expenses incurred by Agent Bank in
connection with the First Amendment, including, but not limited to,
reasonable attorneys' fees of Henderson & Morgan, LLC; and
d. Such other documents, instruments or conditions
as may be reasonably required by Lenders.
11. Representations of Borrowers. Borrowers hereby represent
to the Banks that as of the date hereof: <PAGE>
a. the representations and warranties contained in
Article IV of the Existing Credit Agreement and contained in each of the
other Loan Documents (other than representations and warranties which
expressly speak only as of a different date, which shall be true and correct
in all material respects as of such date) are true and correct on and as of
the date hereof in all material respects as though such representations and
warranties had been made on and as of the date hereof, except to the extent
that such representations and warranties are not true and correct as a result
of a change which is permitted by the Credit Agreement or by any other Loan
Document or which has been otherwise consented to by Agent Bank;
b. Since the date of the most recent financial
statements referred to in Section 5.08 of the Existing Credit Agreement,
no Material Adverse Change has occurred and no event or circumstance which
could reasonably be expected to result in a Material Adverse Change or
Material Adverse Effect has occurred;
c. no event has occurred and is continuing which
constitutes a Default or Event of Default under the terms of the Credit
Agreement; and
d. The execution, delivery and performance of this
First Amendment has been duly authorized by all necessary action of
Borrowers and this First Amendment constitutes a valid, binding and
enforceable obligation of Borrowers.
12. Incorporation by Reference. This First Amendment
shall be and is hereby incorporated in and forms a part of the Existing
Credit Agreement.
13. Governing Law. This First Amendment shall be governed by
the internal laws of the State of Nevada without reference to conflicts of
laws principles.
14. Counterparts. This First Amendment may be executed in
any number of separate counterparts with the same effect as if the
signatures hereto and hereby were upon the same instrument. All such
counterparts shall together constitute one and the same document.
<PAGE>
15. Continuance of Terms and Provisions. All of the terms
and provisions of the Existing Credit Agreement shall remain unchanged
except as specifically modified herein.
IN WITNESS WHEREOF, the parties hereto have executed
this First Amendment as of the day and year first above written.
BORROWERS:
AMERISTAR CASINOS, INC.,
a Nevada corporation
By /s/Thomas Steinbauer
Thomas Steinbauer,
Senior Vice President
CACTUS PETE'S, INC.,
a Nevada corporation
By /s/Thomas Steinbauer,
Thomas Steinbauer,
Vice President
AMERISTAR CASINO VICKSBURG,
INC., a Mississippi
corporation
By /s/Thomas Steinbauer
Thomas Steinbauer,
Vice President
AMERISTAR CASINO COUNCIL
BLUFFS, INC., an Iowa
Corporation
By /s/Thomas Steinbauer
Thomas Steinbauer,
Vice President
AMERISTAR CASINO LAS VEGAS,
INC., a Nevada corporation
By /s/Thomas Steinbauer
Thomas Steinbauer,
Vice President
BANKS:
WELLS FARGO BANK,
National Association,
Agent Bank, Lender and
Swingline Lender
By /s/Casey Potter
Casey Potter,
Vice President
U.S. BANK,
Lender
By /s/Jack W. Prescott
Jack W. Prescott
Vice President
FIRST AMERICAN NATIONAL BANK,
operating as, and successor in
interest by merger to,
DEPOSIT GUARANTY NATIONAL BANK,
Lender
By /s/Larry C. Ratzlaff
Larry C. Ratzlaff
Senior Vice President
THE FIRST NATIONAL BANK OF
CHICAGO,
Lender
By /s/Mark A. Isley
Mark A. Isley,
First Vice President
BANKERS TRUST COMPANY, Lender
By /s/Patricia Hogan
Patricia Hogan,
Principal
FIRST NATIONAL BANK OF COMMERCE,
Lender
By /s/Louis Ballero
Louis Ballero,
Senior Vice President
TRUSTMARK NATIONAL BANK,
Lender
By /s/Johnny Ray
Johnny Ray,
Vice President
IMPERIAL BANK,
Lender
By /s/Steven K. Johnson
Steven K. Johnson,
Senior Vice President
NORWEST BANK OF NEBRASKA, N.A.,
Lender
By /s/Michael V. Hinrichs
Michael V. Hinrichs,
Vice President
FORT WAYNE NATIONAL BANK
By /s/Mark A. Minnick
Mark A. Minnick,
Senior Vice President
INTEREST RATE COLLAR AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of the
10th day of August, 1998, by and between AMERISTAR
CASINOS, INC. ("Collar Purchaser"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Collar Seller").
WHEREAS, Collar Purchaser desires to protect
against fluctuations in interest rates and has requested
that Collar Seller make payments to Collar Purchaser in
the event that the Floating Rate exceeds the Cap Rate.
WHEREAS, In exchange for Collar Purchaser's payment
of an amount equal to the Collar Fee and agreement to pay
Collar Seller in the event that the Floating Rate
declines below the Floor Rate, Collar Seller is willing to
make such payments on the terms set forth herein.
NOW THEREFORE, in consideration of their mutual
covenants, Collar Seller and Collar Purchaser agree as
follows:
1. Definitions. The capitalized terms "Cap Amount",
"Cap Rate", "Collar Fee", "Collar Fee Payment Date", "Collar
Interest Settlement Payment Dates", "Effective Date",
"Floating Rate", "Floating Rate Maturity", "Floor Amount",
"Floor Rate", "Reset Dates" "Termination Date" and "Trade
Date" shall each be as specified in the Collar
Confirmation. All other capitalized terms shall have the
meanings set forth below or as otherwise set forth in this
Agreement:
(a) "Business Day" means a day (other than
Saturday, Sunday or holiday) on which Collar Seller is open and
conducting its customary banking transactions in the State
of California.
(b) "Business Day Convention" means, for
purposes of determining each Calculation Period, that
convention specified in the Collar Confirmation for
adjusting any relevant date if it would otherwise fall
on a day that is not a Business Day, so that:
(i) if "following" is specified, that
date will be the first following day
that is a Business Day;
(ii) if "modified following" is
specified, that date will be the first
following day that is a Business Day
unless that day falls in the next
calendar month, in which case that
date will be the first preceding day
that is a Business Day; and
(iii) if "preceding" is specified,
that date will be the first preceding
day that is a Business Day.
(c) "Calculation Period" means, subject to
Business Day Convention, each consecutive period
designated in the Collar Confirmation, the first of which
will commence on, <PAGE>and include the Effective Date and
extend to, but exclude the first Reset Date. Each
subsequent Calculation Period, will commence on, and
include the Reset Date and extend to, but exclude the
next Reset Date. The final Calculation Period will
end on, but exclude, the Completion Date.
(d) "Collar Confirmation" means a
document, substantially in the form of Exhibit A
hereto, with the information required in each blank space
completed.
(e) "Completion Date" shall mean the Termination
Date unless an Early Termination Date has occurred, in which
case the Completion Date shall be the Early Termination
Date.
(f) "Day Count Convention" means that the
calculation of each Cap Interest Settlement and Floor
Interest Settlement will be based on the actual number
of days in the Calculation Period divided by a 360-day
year.
(g) "Early Termination Date" means the date, if
any, prior to the Termination Date upon which this
Agreement is terminated pursuant to Paragraph 4(a) below.
(h) "LIBOR" means, with respect to each
Calculation Period, the rate for deposits in U.S. Dollars
for a period equal to the Floating Rate Maturity, which
appears on Telerate Page 3750 as of 11:00 AM, London Time,
on the day that is two Business Days prior to the Reset
Date (or the Effective Date in the case of the initial
Period). If such rate does not appear on Telerate Page
3750, the rate for that Reset Date will be the
arithmetic mean of the rates quoted by major Banks in London,
selected by Cap Seller, for a period equal to the Floating
Rate Maturity, as of 11:00 AM, London Time, on the day
that is two Business Days prior to the Reset Date.
(i) Telerate Page 3750 means the display
designated as Page 3750 on the Dow Jones Telerate Service
(or such other page as may replace Page 3750 on that service or
such other service as may be nominated by the British
Bankers Association as the information vendor for the purpose of
displaying British Bankers Association Interest Settlement
Rates for U.S. Dollar Deposits).
2. Collar Fee.
(a) As a condition precedent to its acquiring
any rights hereunder, Collar Purchase shall pay Collar
Seller the Collar Fee in cleared funds, no later than 3:00
p.m., California time, on the Collar Fee Payment Date.
(b) In order to establish the Cap Rate and perform
its obligations under this Agreement, Collar Seller may "hedge"
in the financial markets or otherwise make arrangements to
permit it to carry out its obligations under the terms of
this Agreement. Such actions may impose various costs and
risks on Collar Seller beyond those which it would
otherwise incur. Collar Purchaser acknowledges that the
Collar Fee is nonrefundable and reasonable compensation
for such additional risks and costs, regardless of whether
Collar Seller in fact "hedges" in the financial markets.
<PAGE>
3. Payment of Interest Settlements.
(a) At least five Business Days prior to the
end of each Calculation Period, Collar Seller will send
Collar Purchaser a written notice ("Settlement Notice")
specifying:
(i) the amount of interest which
would have accrued on the Cap Amount
during the Calculation Period at a rate
per annum equal
to the Floating Rate;
(ii) the amount of interest
which would have accrued on the Cap
Amount during the Calculation Period
at a rate per annum equal to the Cap
Rate; and
(iii) the excess, if any, of
the amount computed pursuant to
Paragraph 3(a)(i) over the amount
computed pursuant to Paragraph 3(a)(ii)
above ("Cap Interest Settlement").
(b) In addition, the Settlement Notice will
also include:
(i) the amount of interest
which would have accrued on the Floor
Amount during the Calculation Period at
a rate per annum equal to the Floor
Rate;
(ii) the amount of interest which
would have accrued on the Floor Amount
during the Calculation Period at a rate
per annum equal to the Floating Rate;
and
(iii) the excess, if any, of
the amount computed pursuant to
Paragraph 3(b)(i) over the amount
computed pursuant to Paragraph 3(b)(ii)
above ("Floor Interest Settlement").
(c) All calculations under Paragraphs 3(a) and
(b) above will be made on the basis of the
Day Count Convention.
(d) On each Collar Interest Settlement Payment
Date, Collar Seller will pay Collar Purchaser
the amount, if any, of the Cap Interest
Settlement that may be due by, at Collar Seller's
option, crediting Collar Purchaser's demand
deposit account with Collar Seller,
or by check payable to Collar Purchaser and sent to
Collar Purchaser at the address set forth below,
or by wiring funds to designated Collar Purchaser
account.
(e) On each Collar Interest Settlement Date, Collar
Purchaser will pay Collar Seller the amount (if any)
of the Floor Interest Settlement that may be due to
Collar Seller by, at Collar Seller's option,
Collar Seller's debiting Collar Purchaser's demand
deposit account with Collar Seller, or by wiring funds
to Collar Seller.
<PAGE>
4. Early Termination.
(a) This Agreement shall expire on the Termination Date
and neither party may terminate this Agreement
prior thereto; provided, however that in the event of
a default by Collar Purchaser or Collar Seller in the
performance of any of its obligations hereunder,
unless such default is cured within five Business
Days following the defaulting party's receipt of
written notice thereof, the non-defaulting party
may terminate this Agreement.
(b) In the event of an early termination of this
Agreement pursuant to Paragraph 4(a) above, the
defaulting party shall promptly pay, on demand,
the non-defaulting party an amount equal to the
Termination Amount which the defaulting party
acknowledges to be a reasonable estimate of the
costs and loss of compensation incurred by the
non-defaulting party as a result of the default
and resulting early termination of this Agreement.
(c) "Termination Amount" means the amount in
U.S. Dollars equal to the sum of (i) the
arithmetic mean of the respective one-time all-in
fees (including documentation costs) communicated
to the non-defaulting party on the earliest
practicable Business Day following the Early
Termination Date by each of three leading commercial
banks or investment banking firms in San Francisco,
Los Angeles or New York selected in good faith by
the non-defaulting party as the fee that it would
charge to assume, as of the Early Termination Date
all of the rights and obligations of the defaulting
party under this Agreement, and (ii) the
aggregate amount of all amounts then due and owing
the non-defaulting party by the defaulting party
on the Early Termination Date; provided, however,
that if one or more such entities fail so to
communicate such a fee, the non-defaulting party
is not required to seek another such entity to obtain
a quote and the Termination Amount shall be determined
on the basis of the fee or fees so communicated to the
non-defaulting party by the other entities.
5. Limitations of Liability. In no event shall either
party hereto be liable to the other for loss of profit or indirect,
special, consequential, punitive or exemplary damages, arising out of any
default under this Agreement.
6. Notices. All notices and other communications
required or permitted to be given hereunder shall be in
writing and shall be deemed served when personally
delivered or, if mailed, upon the first to occur of
receipt or the expiration of seventy-two hours after
deposit in the United States Postal Service, certified
mail, or if sent by overnight courier service, upon the
first to occur of receipt or 3:00 p.m. (local time at place
of delivery) the next Business Day, addressed to Collar
Purchaser or Collar Seller at their respective addresses
set forth in the Collar Confirmation.
7. Successors; Assigns. This Agreement shall be
binding on and inure to the benefit of the successors and assigns
of the parties; provided, however, that Collar Purchaser
shall not, without the prior written consent of Collar
Seller, assign (whether by operation of law or
otherwise) its rights and obligations under this
Agreement or any interest herein and any such attempted
assignment shall be void and without force or effect.
<PAGE>
8. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California, without giving effect to any choice of law
doctrine.
9. No Third Party Beneficiary. This Agreement and
the payments to be made by the parties hereunder are solely for
the benefit of the parties hereto for the purposes stated
herein and no other person or entity shall have any rights
hereunder or be a beneficiary of either party's obligations
under this Agreement.
10. Counterparts. This Agreement may be executed in
any number of counterparts and by each party hereto on
separate counterparts, each of which when executed and
delivered shall constitute an original, but all the
counterparts shall together constitute but one and the same
instrument.
11. Amendments; Waivers. Any amendment or waiver of
any right under any provision of this Agreement shall be in
writing and, in the case of an amendment, signed by both parties
hereto, or in the case of a waiver, signed by the party
waiving such right. No failure or delay by either party
hereto in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Trade Date; Interest Agreement Not Credit
Commitment. This Agreement shall be effective at, and as of, 12:01
a.m., California time, on the Trade Date. Nothing in this
Agreement shall be construed to (i) mean that Collar Seller
is committed to make a loan or extend any other credit to
Collar Purchaser, or (ii) amend or modify any
contract, instrument or document executed in connection
with any loan or other credit extended to Collar Purchaser
by Collar Seller.
13. Costs, Expenses and Attorneys' Fees. In the
event of any dispute or litigation between the
parties hereto, the prevailing party shall be entitled
to recover from the other party, immediately upon demand,
all costs and expenses, including reasonable attorneys'
fees, incurred by the prevailing party in connection with
the enforcement of its rights and/or the collection
of any amounts which become due to it under this
Agreement, and the prosecution or defense of any action in
any way related to this Agreement, including any of the
foregoing incurred in connection with any bankruptcy
proceeding relating to such other party.
14. Security. All obligations of the Collar
Purchaser to the Collar Seller under this Agreement are
secured by the collateral provided in that certain Credit Agreement
dated July 8, 1998 in the amount of $125,000,000 as
evidenced in the several Security Agreements dated July 8,
1998 provided thereto.
<PAGE>IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and year first written
above.
Collar Seller: Collar Purchaser:
WELLS FARGO BANK, AMERISTAR CASINOS, INC.
NATIONAL ASSOCIATION
By:/s/Oliver Perin By:/s/Thomas Steinbauer
Name: Oliver Perin Name: Thomas Steinbauer
Title: Vice President Title: Senior Vice President/
Chief Financial Officer
<PAGE>
August 10,1998
Ameristar Casinos, Inc.
3773 Howard Hughes Parkway, Suite 490S
Las Vegas, Nevada 89109
ATTENTION: Thomas Steinbauer
(702) 567-7030
VIA FAX: (702) 369-8860
Dear Thomas,
The purpose of this letter agreement ("Collar Confirmation") is
to confirm the terms and conditions of the Collar Transaction entered
into between Wells Fargo Bank, N.A. ("Collar Seller") and Ameristar
Casinos, Inc. ("Collar Purchaser"). This Collar Confirmation is
effective at, and as of, 12:01 a.m., California time, on the Trade Date
specified below.
This confirmation supplements, forms part of, and is subject to
that Interest Rate Collar Agreement between Collar Seller and Collar
Purchaser dated August 10, 1998. In the absence of any other such
agreement, this communication itself constitutes a binding agreement
setting forth the essential terms of the Collar Transaction.
The terms of the Collar Transaction to which this Collar
Confirmation relates are as follows:
Collar Purchaser: Ameristar Casinos, Inc.
Collar Seller: Wells Fargo Bank, N.A.
Trade Date: August 10,1998
Effective Date: August 12,1998
Termination Date: June 30, 2003
Cap Amount: $50,000,000
Floor Amount: $50,000,000
Collar Fee: $0
Collar Fee Payment Date: not applicable
<PAGE>
Floating Rate: LIBOR
Cap Rate: 6.75%
Floating Rate Maturity: 3 months
Reset Date: The last day of each March, June, September,
and December, subject to adjustment in
accordance with the designated Business Day
Convention. The first reset date is August
12, 1998.
Floor Rate: 5.39%
Day Count Convention: Actual/360 days
Business Day Convention: modified following
Calculation Period: From the last day of each March, June,
September, and December, beginning with
August 12, 1998, up to the last day of the
following three month period, continuing
until the Termination Date, subject to
adjustment in accordance with the designated
Business Day Convention.
Collar Interest Settlement
Payment Dates: The last day of each March, June, September,
and December, beginning with September 30,
1998, continuing up to and including the
Termination Date, subject to adjustment
in accordance with the designated Business
Day convention.
Account Details:
Payments to Collar Seller: Made via Debit to DDA #4159-550797
Payments to Collar Purchaser: Made via credit to DDA #4159-550797
Security: All obligations of the Collar Purchaser to the
Collar Seller under this Agreement are secured
by the collateral provided in that certain
Credit Agreement dated July 8, 1998 in the
amount of $125,000,000 as evidenced in
the several Security Agreements dated July 8,
1998 provided thereto.
Addresses for Notices:
Collar Purchaser: Ameristar Casinos, Inc.
3773 Howard Hughes Parkway, Suite 490S
Las Vegas, Nevada 89109
Attention: Thomas Steinbauer
(702) 567-7030
<PAGE>
FAX: (702) 369-8860
Collar Seller: Wells Fargo Bank, National Association
420 Montgomery Street, 6th Floor
MAC: 0101-063
San Francisco, CA 94163
Attention: Oliver Perin
(415) 394-4011
FAX: (415) 956-9581
Please confirm that the foregoing correctly sets forth the terms
of our agreement by signing this facsimile and sending it as a return
acknowledgment to Kelly Johnson's attention (FAX:(415) 956-9581. Collar
agreement documents will follow via overnight delivery. If you have any
questions, please call me at (415) 394-4011.
Sincerely,
CONFIRMED BY: /s/ Thomas Steinbauer
NAME: Thomas Steinbauer
TITLE: Vice President and Chief Financial Officer
DATE: August 10, 1998
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report in this 1998 Annual Report on Form 10-K,
into the Company's previously filed Registration Statements on
Form S-8 (File Nos. 33-83378, 333-34313.)
Arthur Andersen LLP
Las Vegas, Nevada
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This data should be reviewed in conjunction with the financial statements
included in this filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,223
<SECURITIES> 0
<RECEIVABLES> 1,476
<ALLOWANCES> 0
<INVENTORY> 3,614
<CURRENT-ASSETS> 34,947
<PP&E> 390,528
<DEPRECIATION> 92,708
<TOTAL-ASSETS> 351,737
<CURRENT-LIABILITIES> 45,918
<BONDS> 100,000
0
0
<COMMON> 204
<OTHER-SE> 67,720
<TOTAL-LIABILITY-AND-EQUITY> 351,737
<SALES> 264,419
<TOTAL-REVENUES> 264,419
<CGS> 0
<TOTAL-COSTS> 261,169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,699
<INCOME-PRETAX> (19,078)
<INCOME-TAX> (6,363)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,715)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
EXHIBIT 99.1
SUPPLEMENTAL AGREEMENT OF AMERISTAR CASINOS, INC.
Ameristar Casinos, Inc. ("ACI") hereby agrees to furnish
supplementally to the Securities and Exchange Commission a copy
of any of the following instruments defining the rights of
holders of long-term debt issued by ACI or its subsidiaries:
Promissory Note, dated November 22, 1976, from Cactus
Pete's, Inc. ("CPI") to United States of America and related
Credit Agreement.
Promissory Note, dated October 7, 1983, from CPI to United
States of America and related Credit Agreements.
Credit Agreement, dated June 27, 1996, between ACCBI and PDS
Financial Corporation ("PDS"); Promissory Note from ACCBI to
PDS; related Security Agreement; and Guaranty from ACI to
PDS.
Premium Finance Agreement, Disclosure Statement and Security
Agreement, dated June 24, 1997, between ACI and A.I. Credit
Corp.