2007 Annual Report - Ameristar Casinos, Inc.

Customer Rewards ProgramsOur customer rewards programs allow customers to earn certain point-based cash rewards or complimentarygoods and services based on the volume of the customers’ gaming activity. Customers can accumulate reward pointsover time that they may redeem at their discretion under the terms of the programs. The reward credit balance isforfeited if a customer does not earn any reward credits over any subsequent 12-month period. As a result of theability of the customer to bank the reward points, we accrue the expense of reward points, after giving effect toestimated forfeitures, as they are earned. At December 31, 2007 and 2006, $7.4 million and $7.7 million,respectively, were accrued under the programs. The value of these point-based cash rewards or complimentarygoods and services are netted against revenue as a promotional allowance.Cash CouponsOur former, current and future gaming customers may be awarded, on a discretionary basis, cash coupons based,in part, on their play volume. The coupons are provided on a discretionary basis to induce future play, areredeemable within a short time period (generally seven days) and are redeemable only on a return visit. There is noability to renew or extend the offer. We recognize a reduction in revenue as a promotional allowance for thesecoupons when the coupons are redeemed.Self-Insurance ReservesWe are self-insured for various levels of general liability, workers’ compensation and employee medicalcoverage. Insurance claims and reserves include accruals of estimated settlements for known claims, as well asaccrued estimates of incurred but not reported claims. At December 31, 2007 and 2006, our estimated liabilities forunpaid and incurred but not reported claims totaled $12.1 million and $10.4 million, respectively. We utilizeactuaries who consider historical loss experience and certain unusual claims in estimating these liabilities, basedupon statistical data provided by the independent third party administrators of the various programs. We believe theuse of this method to account for these liabilities provides a consistent and effective way to measure these highlyjudgmental accruals; however, changes in health care costs, accident or illness frequency and severity and otherfactors can materially affect the estimates for these liabilities.Accounting for Share-Based CompensationIn December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment,” which requires all share-based payments to employees, including grants of employee stockoptions, to be recognized in the financial statements based on their fair values. These fair values are calculated byusing the Black-Scholes-Merton option pricing formula, which requires estimates for expected volatility, expecteddividends, the risk-free interest rate and the term of the option. SFAS No. 123(R) revised SFAS No. 123 andsuperseded APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Effective January 1, 2006, weadopted the provisions of SFAS No. 123(R) using the modified prospective application transition method. Underthis transition method, the future compensation cost related to all equity instruments granted prior to but not yetvested as of adoption is recognized based on the grant-date fair value, which is estimated in accordance with theoriginal provisions of SFAS No. 123. The grant-date fair value of the awards is generally recognized as expenseover the service period. Under the provisions of SFAS No. 123(R), we are required to include an estimate of thenumber of awards that will be forfeited and update that number based on actual forfeitures. Previously, we hadrecognized the impact of forfeitures as they occurred. With respect to the determination of the pool of windfall taxbenefits, we elected to use the transition election of FASB Staff Position No. FAS 123(R)-3 (the “short-cut method”)as of the adoption of SFAS No. 123(R).For the years ended December 31, 2007 and 2006, we recorded stock-based compensation expense of $12.0million and $7.9 million, respectively, as a component of selling, general and administrative expenses in theconsolidated statements of income. No such expense was recorded in 2005. As of December 31, 2007, there wasapproximately $30.5 million of total unrecognized compensation cost related to unvested share-based compensationarrangements granted under the Company’s stock incentive plans. This unrecognized compensation cost is expectedto be recognized over a weighted-average period of 3.4 years.51