Las Vegas, Nevada, February 12, 2003-Ameristar Casinos, Inc. (Nasdaq-NMS: ASCA) today described its key operating strategies and issued its outlook and earnings guidance for 2003.
Key Operating Strategies:
Our core strategies are to develop high quality gaming properties that offer a diverse range of lodging, dining and entertainment options to complement our guests’ experience and enhance overall profitability. The quality of our properties derives from a variety of factors, including their design, size, location, gaming technology and amenities. We also emphasize courteous and efficient service that meets or exceeds the expectations of our guests. Through the implementation of these strategies, we were the market share leader in each market in which we operate during the fourth quarter of 2002. We believe the continued pursuit of these strategies will generate attractive returns on our invested capital.
During 2003, some of the key components of our operating strategies to be implemented include the following:
Leading Slot Technology:
We are an industry leader with respect to the implementation of cashless slot technology at all of our properties. As of February 6, 2003, approximately 45% of our slot machines provide cashless payouts utilizing ticket-in/ticket-out technology. We were the first operator to introduce this technology in Missouri and Iowa. As of February 6, 2003, the slot machines at the St. Charles, Kansas City, Council Bluffs, Vicksburg and Jackpot properties are 88%, 50%, 8%, 28% and 17% ticket capable, respectively. Based on comments made by a gaming equipment manufacturer in the February 2003 issue of Casino Journal, we believe that only approximately 10% of the slot machines in North America have ticketing capabilities. By the end of the first quarter of 2003, we expect approximately 51% of our slot machines to provide ticket-in/ticket-out technology. Our goal is to have approximately two-thirds of our slot machines operating with ticketing capabilities by the end of 2003, subject to the receipt of product regulatory approvals by one of our equipment vendors. We are continuing to upgrade our slot machines and slot systems to facilitate the timely rollout of cashless technologies in order to maintain and enhance our competitive advantages.
We are also an industry leader with respect to the use of new generation multi-coin nickel and penny denomination slot machines at our properties. The implementation of these machines has generated a strong return on investment and has proven to be an extremely successful strategy. In addition, we are currently implementing an aggressive player development strategy to increase our higher denomination play to improve profitability. We continuously evaluate the appropriate mix of our slot product and invest in new slot products as appropriate to promote customer satisfaction and loyalty and generate maximum profitability.
Profitable Use of Promotional Allowances:
We have consistently pursued a strategy of marketing and promoting our properties, including the targeted use of cash coupon offerings, in order to attract and retain valued customers. We believe our promotional allowances as a percentage of gross revenues on a consolidated basis are consistent with or lower than those of our principal competitors. Based on an analysis of our principal competitors’ recently published financial statements, we believe that their level of promotional spending ranges from approximately 11% to 16% of their total revenues on a consolidated basis.1 During 2002, our spending on promotional allowances on a comparable basis was 13.4% of our consolidated total revenues. We adjust the amount of our promotional offerings from time to time based on competitive conditions, such as during periods of construction disruption similar to that currently affecting Ameristar Kansas City, and in order to promote our new and expanded facilities and develop long-term customer loyalty.
This strategy proved highly successful during and following completion of the 2001 expansion projects at Vicksburg and Council Bluffs, as evidenced by the substantial improvement in operating performance at those properties from 2001 to 2002. Adjusted operating income 2 at Council Bluffs and Vicksburg increased by 37.6% and 65.0%, respectively, from 2001 to 2002, and EBITDA 3 at those properties increased by 28.3% and 45.5%, respectively, during the same period. Our strategy has also begun to produce profitable growth at Ameristar St. Charles as reflected by our assumption of the St. Louis market share lead following the opening of our new facility in August 2002 and a steadily improving EBITDA margin 4 since the opening of the property. In January 2003, we led this five-property market with a 31.3% market share, three percentage points ahead of our principal competitor. This competitor has an advantage over us since we do not currently have a hotel at the property and our competitor has 300 hotel rooms. In addition, as previously reported, our EBITDA margin at Ameristar St. Charles during January 2003 was in excess of 28%, even though this property was built with substantial capacity to absorb future growth in the St. Louis market.
We believe similar positive results will be achieved at the Kansas City property later this year following the completion of the renovation of that property.
Providing the Total Entertainment Experience:
In addition to providing the latest gaming technology for an exciting casino experience, our properties offer a wide variety of quality restaurants and entertainment options as an integral part of our casino marketing strategy. Some examples of our non-gaming amenities that have proven successful are our high-tech Amerisports Bars (Council Bluffs and St. Charles), our signature steakhouses (company-wide), and our unique Bottleneck Blues Bars (Vicksburg and St. Charles). In addition, we regularly present nationally known entertainers to perform at our properties, including, for example, Randy Travis, Michael Bolton, Paul Anka, Dionne Warwick, Julio Iglesias, Bob Newhart and Pat Benatar.
In line with this strategy, we began a substantial renovation and enhancement project at Ameristar Kansas City in 2002. As part of this project, we opened three new dining and entertainment venues in early-January 2003: the 206-seat Great Plains Cattle Co. steakhouse, the 207-seat Falcon Diner, a 24-hour casual dining restaurant, and the 124-seat Depot entertainment lounge. We have also constructed an open-seating food court, where we have leased space to three nationally known brands: Burger King, which opened in December 2002, Sbarro, which opened last week, and Cold Stone Creamery, which is expected to open next month. We believe the addition of our new dining and entertainment facilities and the leased outlets will enhance customer demand as the property’s former owner did not emphasize casual dining and locally popular cuisines to the same extent that we do. In their first month of operations, our new venues are performing well and have exceeded our expectations for their start-up.
We are also currently renovating the Kansas City casino and expect to substantially complete this project by the end of the first quarter of 2003. As part of this project, we have opened up large sections of a wall dividing the casino floor, added escalators in the central portions of the casino floor to improve access to the second level, and removed a large portion of the wall that separated the casino from the streetscape to improve visibility into the casino. We are also replacing the carpet and other finishes throughout the casino and relocating and renovating the poker room and high-limit area. Furthermore, we are adding slot machines to the half of the mezzanine level that was previously not being used, bringing the total slot count up to approximately 3,150 machines. These changes will substantially improve the layout and flow and enhance the overall excitement of the casino.
In addition, we currently expect to convert the Hofbrauhaus Brewery into a 330-seat Amerisports Brew Pub featuring state-of-the-art video and audio technology, with construction anticipated to begin in the second quarter. Amerisports will feature two large video walls, another large projection television, a variety of menu items with exhibition cooking and live entertainment. The Brew Pub will retain the existing exhibition brewery where customers can observe the production of Ameristar’s private label beers.
As stated above, based on our successes in Council Bluffs, Vicksburg and St. Charles, we are confident that we will achieve improved results at Ameristar Kansas City through these enhancements once construction is completed.
Material Factors Expected to Affect Performance - We expect the following items to impact our financial results in 2003:
EBITDA margins at Ameristar St. Charles have continued to improve since the opening of the new facility in August 2002. EBITDA margin at Ameristar St. Charles improved to over 28% in January 2003, compared to 19% in September 2002, the first full month of operations after the new facility opened. We expect to achieve improved margins in future periods through increased labor and marketing efficiencies and other operational initiatives. * Business disruption associated with the construction of enhancements to the casino and dining and entertainment facilities at Ameristar Kansas City, as described in more detail above, will continue to negatively impact the operating results at the property over the near term, as it has since we commenced construction of a parking garage in September 2001. We expect that disruption associated with the renovations currently underway in the casino will be substantially eliminated by the end of the first quarter, with casino operations reaching a normalized level in the second quarter. However, we will likely continue to experience some limited disruption during the construction of the Amerisports Brew Pub. * Depreciation expense will increase substantially during the first seven months of 2003 compared to the corresponding period in 2002 due to the increase in the base of depreciable assets following the opening of the new St. Charles facility and the parking garage at Ameristar Kansas City. Depreciation and amortization expense for 2003 is estimated to be approximately $64.5 million, compared to $48.7 million in 2002, which will impact earnings per share by approximately $0.38 per share on a fully diluted basis. * We will incur significantly higher interest expense during the first seven months of 2003 compared to the corresponding period in 2002 primarily due to the completion of construction on the St. Charles facility and the corresponding reduction in capitalized interest. Interest expense for 2003 is expected to be approximately $67.5 million compared to $51.2 million in 2002, which will impact earnings per share by approximately $0.39 on a fully diluted basis. Cash interest payments are expected to be approximately $63 million in 2003, compared to $63.4 million in 2002. * The Company’s effective corporate income tax rate is projected to be approximately 37% in 2003, compared to 36.5% in 2002. Cash payments of federal income tax in 2003 are estimated to be less than $5 million, substantially lower than the expected federal income tax expense for financial reporting purposes due to net operating loss carryforwards from prior years. * We believe the general economic slowdown in the U.S. economy has adversely impacted the Company’s recent operating results. It is difficult to forecast how long the effects of the slowdown will continue. The risk of war or other hostilities could also affect our business in ways we cannot currently anticipate.