**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

### **Washington, D.C., 20549**

 

**FORM 10-Q**

 

| **ý** | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934  For the quarterly period ended September 30, 2004.** |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                             |
|       | **or**                                                                                                                                           |
|       |                                                                                                                                             |
| o          | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                    |

 

**CommissionFile Number 1-11853**

 

**ARGOSY GAMING COMPANY**

 (Exact name of Registrant as Specified in itsCharter)

 

| State of Incorporation:**Delaware** | I.R.S. Employer Identification No.: **37-1304247** |
|-------------------------------------|----------------------------------------------------|

 

**219 PiasaStreetAlton, Illinois 62002 (618) 474-7500**

(Address,including zip code, and telephone number, includingarea code, of Registrant’s principal executive offices)

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ýNo o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ýNo o

 

**APPLICABLEONLY TO CORPORATE ISSUERS:**

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock as of the latest practicable date:29,491,749 shares of Common Stock, $.01 par value per share, as of October 27,2004.

 

 

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**Item 1. Financial Statements**

 

**ARGOSY GAMING COMPANY**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(In Thousands, Except Share and Per Share Data)

 
| ** **                                                                                                                                                                 | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **Current assets:**                                                                                                                                                        | ** ** | ** **              | ** ** | ** **             | ** ** |
| Cash and cash equivalents                                                                                                                                                  |       | $                       | 63,829     |                   | $          | 67,205 |   |
| Accounts receivable, net                                                                                                                                                   |       | 3,693                   |       | 4,292                  |       |
| Income taxes receivable                                                                                                                                                    |       | —                  |       | 1,015                  |       |
| Deferred income taxes                                                                                                                                                      |       | 12,001                  |       | 13,295                 |       |
| Other current assets                                                                                                                                                       |       | 10,665                  |       | 7,196                  |       |
| Total current assets                                                                                                                                                       |       | 90,188                  |       | 93,003                 |       |
|                                                                                                                                                                       |       |                    |       |                   |       |
| **Net property and equipment**                                                                                                                                             |       | 548,684                 |       | 548,120                |       |
| **Other assets:**                                                                                                                                                          |       |                    |       |                   |       |
| Deferred finance costs, net                                                                                                                                                |       | 20,230                  |       | 16,748                 |       |
| Goodwill, net                                                                                                                                                              |       | 727,470                 |       | 727,470                |       |
| Intangible assets, net                                                                                                                                                     |       | 24,338                  |       | 26,092                 |       |
| Other                                                                                                                                                                      |       | 4,652                   |       | 439                    |       |
| Total other assets                                                                                                                                                         |       | 776,690                 |       | 770,749                |       |
| **Total assets**                                                                                                                                                           |       | $                       | 1,415,562  |                   | $          | 1,411,872 |   |
| **Current liabilities:**                                                                                                                                                   |       |                    |       |                   |       |
| Accounts payable                                                                                                                                                           |       | $                       | 14,579     |                   | $          | 26,955 |   |
| Accrued payroll and related expenses                                                                                                                                       |       | 24,323                  |       | 24,125                 |       |
| Accrued gaming and admission taxes                                                                                                                                         |       | 20,117                  |       | 14,486                 |       |
| Other accrued liabilities                                                                                                                                                  |       | 69,439                  |       | 70,070                 |       |
| Accrued interest                                                                                                                                                           |       | 6,594                   |       | 9,296                  |       |
| Income taxes payable                                                                                                                                                       |       | 9,762                   |       | —                 |       |
| Current maturities of long-term debt                                                                                                                                       |       | 2,526                   |       | 4,648                  |       |
| Total current liabilities                                                                                                                                                  |       | 147,340                 |       | 149,580                |       |
|                                                                                                                                                                       |       |                    |       |                   |       |
| **Long-term debt**                                                                                                                                                         |       | 802,751                 |       | 865,510                |       |
| **Deferred income taxes**                                                                                                                                                  |       | 112,145                 |       | 93,119                 |       |
| **Other long-term obligations**                                                                                                                                            |       | 1,211                   |       | 419                    |       |
|                                                                                                                                                                       |       |                    |       |                   |       |
| **Stockholders’ equity:**                                                                                                                                             |       |                    |       |                   |       |
| Common stock, $.01 par; 120,000,000 shares  authorized; 29,479,267 and 29,314,542 shares issued and outstanding at  September 30, 2004 and December 31, 2003, respectively |       | 295                     |       | 293                    |       |
| Capital in excess of par                                                                                                                                                   |       | 95,796                  |       | 92,551                 |       |
| Accumulated other comprehensive loss                                                                                                                                       |       | —                  |       | (1,941                 | )          |
| Retained earnings                                                                                                                                                          |       | 256,024                 |       | 212,341                |       |
| Total stockholders’ equity                                                                                                                                            |       | 352,115                 |       | 303,244                |       |
| **Total liabilities and stockholders’ equity**                                                                                                                        |       | $                       | 1,415,562  |                   | $          | 1,411,872 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

2

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**ARGOSY GAMING COMPANY**

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

(In Thousands, Except Share and Per Share Data)

 
| ** **                               | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **                               | ** ** | **2004**                             | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                               | ** ** | **(unaudited)**                      | ** ** | **(unaudited)**                     | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **Revenues:**                            |       |                                 |       |                                |       |   |   |   |   |
| Casino                                   |       | $                                    | 271,204    |                                | $          | 245,928 |   | $ | 795,424 |   | $ | 738,938 |   |
| Admissions                               |       | 5,829                                |       | 4,594                               |       | 16,540 |   | 10,761 |   |
| Food, beverage and other                 |       | 26,828                               |       | 24,270                              |       | 79,246 |   | 74,023 |   |
|                                     |       | 303,861                              |       | 274,792                             |       | 891,210 |   | 823,722 |   |
| Less promotional allowances              |       | (37,373                              | )          | (31,854                             | )          | (106,069 | ) | (96,107 | ) |
| Net revenues                             |       | 266,488                              |       | 242,938                             |       | 785,141 |   | 727,615 |   |
|                                     |       |                                 |       |                                |       |   |   |   |   |
| **Costs and expenses:**                  |       |                                 |       |                                |       |   |   |   |   |
| Gaming and admission taxes               |       | 95,442                               |       | 82,125                              |       | 277,033 |   | 257,448 |   |
| Casino                                   |       | 30,660                               |       | 32,499                              |       | 94,413 |   | 99,873 |   |
| Selling, general and administrative      |       | 42,153                               |       | 37,412                              |       | 124,254 |   | 112,682 |   |
| Food, beverage and other                 |       | 19,304                               |       | 17,394                              |       | 56,626 |   | 52,953 |   |
| Other operating expenses                 |       | 10,449                               |       | 10,420                              |       | 30,047 |   | 31,305 |   |
| Depreciation and amortization            |       | 16,504                               |       | 13,235                              |       | 45,577 |   | 38,757 |   |
| Gain on sale of asset held for sale      |       | (3,155                               | )          | —                              |       | (3,155 | ) | — |   |
| Write-down of assets                     |       | —                               |       | —                              |       | — |   | 6,500 |   |
|                                     |       | 211,357                              |       | 193,085                             |       | 624,795 |   | 599,518 |   |
| Income from operations                   |       | 55,131                               |       | 49,853                              |       | 160,346 |   | 128,097 |   |
|                                     |       |                                 |       |                                |       |   |   |   |   |
| **Other income (expense):**              |       |                                 |       |                                |       |   |   |   |   |
| Interest income                          |       | 65                                   |       | 20                                  |       | 104 |   | 106 |   |
| Interest expense                         |       | (15,680                              | )          | (19,054                             | )          | (50,325 | ) | (56,990 | ) |
| Expense on early retirement of debt      |       | —                               |       | —                              |       | (26,040 | ) | — |   |
|                                     |       | (15,615                              | )          | (19,034                             | )          | (76,261 | ) | (56,884 | ) |
|                                     |       |                                 |       |                                |       |   |   |   |   |
| Income before income taxes               |       | 39,516                               |       | 30,819                              |       | 84,085 |   | 71,213 |   |
| Income tax expense                       |       | (18,376                              | )          | (14,330                             | )          | (40,402 | ) | (33,114 | ) |
| **Net income**                           |       | $                                    | 21,140     |                                | $          | 16,489 |   | $ | 43,683 |   | $ | 38,099 |   |
| **Basic income per share**               |       | $                                    | 0.72       |                                | $          | 0.56 |   | $ | 1.48 |   | $ | 1.31 |   |
| **Diluted income per share**             |       | $                                    | 0.71       |                                | $          | 0.56 |   | $ | 1.47 |   | $ | 1.30 |   |
| **Weighted average shares outstanding:** |       |                                 |       |                                |       |   |   |   |   |
| **Basic**                                |       | 29,475,631                           |       | 29,230,951                          |       | 29,421,578 |   | 29,095,635 |   |
| **Diluted**                              |       | 29,658,326                           |       | 29,428,042                          |       | 29,634,103 |   | 29,339,888 |   |
|                                          |            |                                      |            |                                     |            |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to condensed consolidated financial statements.

 

3

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**ARGOSY GAMING COMPANY**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In Thousands, Except Share and Per Share Data)

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **2004**                            | ** ** | **2003** | ** ** |
| ** **                                                                         | ** ** | **(unaudited)**                     | ** ** | **(unaudited)** | ** ** |
| **Cash flows from operating activities:**                                          |       |                                |       |   |   |
| Net income                                                                         |       | $                                   | 43,683     |   | $ | 38,099 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                |       |   |   |
| Depreciation                                                                       |       | 43,823                              |       | 36,987 |   |
| Amortization                                                                       |       | 5,249                               |       | 4,864 |   |
| (Gain) loss on sale of property and  equipment                                     |       | (3,299                              | )          | 204 |   |
| Compensation expense recognized on issuance  of stock                              |       | 27                                  |       | 126 |   |
| Loss on early retirement of debt                                                   |       | 26,040                              |       | — |   |
| Write-down of assets                                                               |       | —                              |       | 6,500 |   |
| Deferred income taxes                                                              |       | 20,471                              |       | 15,235 |   |
| Changes in operating assets and  liabilities, net of effect from acquisitions:     |       |                                |       |   |   |
| Accounts receivable and other current  assets                                      |       | (3,626                              | )          | 6,801 |   |
| Accounts payable and other current  liabilities                                    |       | 15,105                              |       | 22,797 |   |
| Net cash provided by operating activities                                          |       | 147,473                             |       | 131,613 |   |
|                                                                               |       |                                |       |   |   |
| **Cash flows from investing activities:**                                          |       |                                |       |   |   |
| Purchases of property and equipment                                                |       | (59,955                             | )          | (95,838 | ) |
| Proceeds from assets held for sale                                                 |       | 3,610                               |       | — |   |
| Other                                                                              |       | 827                                 |       | 226 |   |
| Net cash used in investing activities                                              |       | (55,518                             | )          | (95,612 | ) |
|                                                                               |       |                                |       |   |   |
| **Cash flows from financing activities:**                                          |       |                                |       |   |   |
| Repayments on credit facility, net                                                 |       | (57,575                             | )          | (39,162 | ) |
| Proceeds from issuance of senior  subordinated notes                               |       | 350,000                             |       | — |   |
| Payments on senior subordinated notes,  including early redemption premium         |       | (377,961                            | )          | — |   |
| Increase in deferred finance costs                                                 |       | (11,642                             | )          | (1,310 | ) |
| Proceeds from stock option exercises                                               |       | 1,775                               |       | 1,798 |   |
| Other                                                                              |       | 72                                  |       | (646 | ) |
| Net cash used in financing activities                                              |       | (95,331                             | )          | (39,320 | ) |
| Net change in cash and cash equivalents                                            |       | (3,376                              | )          | (3,319 | ) |
| Cash and cash equivalents, beginning of  period                                    |       | 67,205                              |       | 59,720 |   |
| Cash and cash equivalents, end of period                                           |       | $                                   | 63,829     |   | $ | 56,401 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

4

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**ARGOSY GAMING COMPANY**

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’EQUITY**

(Unaudited - In Thousands, Except Share and Per Share Data)

 

 
| ** **                                                                   | ** ** | **Shares** | ** ** | **Common  Stock** | ** ** | **Capital in  Excess of Par** | ** ** | **Accumulated  Other  Comprehensive  (Loss) Income** | ** ** | **Retained  Earnings** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|-------------------------------|------------|------------------------------------------------------|------------|------------------------|------------|---------------------------------------|------------|
| ** **                                                                   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **                    | ** ** | ** **                                           | ** ** | ** **             | ** ** | ** **                            | ** ** |
| Balance, December 31, 2003                                                   |       | 29,314,542 |       | $                 | 293        |                          | $          | 92,551                                               |       | $                      | (1,941     | )                                     | $          | 212,341 |   | $ | 303,244 |   |
| Exercise of stock options and restricted  stock award, including tax benefit |       | 164,725    |       | 2                 |       | 3,218                         |       |                                                 |       |                   |       | 3,220                                 |       |
| Restricted stock compensation expense                                        |       |       |       |              |       | 27                            |       |                                                 |       |                   |       | 27                                    |       |
| Comprehensive income:                                                        |       |       |       |              |       |                          |       |                                                 |       |                   |       |                                  |       |
| Other comprehensive income - interest rate  swaps                            |       |       |       |              |       |                          |       | 1,941                                                |       |                   |       | 1,941                                 |       |
| Net income for the nine months ended  September 30, 2004                     |       |       |       |              |       |                          |       |                                                 |       | 43,683                 |       | 43,683                                |       |
| Comprehensive income                                                         |       |       |       |              |       |                          |       |                                                 |       |                   |       | 45,624                                |       |
|                                                                         |       |       |       |              |       |                          |       |                                                 |       |                   |       |                                  |       |
| Balance, September 30, 2004                                                  |       | 29,479,267 |       | $                 | 295        |                          | $          | 95,796                                               |       | $                      | —     |                                  | $          | 256,024 |   | $ | 352,115 |   |
|                                                                              |            |            |            |                   |            |                               |            |                                                      |            |                        |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to condensed consolidated financial statements.

 

5

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# **ARGOSY GAMING COMPANY**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

(Unaudited, in Thousands, Except Share andPer Share Data)

 

**1.****     Basis of Presentation**

 

Argosy Gaming Company providescasino-style gaming and related entertainment to the public and, through itssubsidiaries, operates casinos in Alton and Joliet, Illinois; Lawrenceburg,Indiana; Riverside, Missouri; Baton Rouge, Louisiana; and Sioux City,Iowa.  Except where otherwise noted, thewords “we”, “us”, “our” and similar terms, as well as “Argosy” or the “Company”,refer to Argosy Gaming Company and all of its subsidiaries.

 

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principles forcomplete financial statements.  Interimresults may not necessarily be indicative of results that may be expected forany other interim period or for the year as a whole.  For further information, refer to thefinancial statements and footnotes thereto for the year ended December 31,2003, included in our Annual Report on Form 10-K (File No. 1-11853).  The accompanying unaudited condensedconsolidated financial statements contain all adjustments, which are, in theopinion of management, necessary to present fairly the financial position andthe results of operations for the periods indicated.

 

**2.     Long-TermDebt**

 

Long-term debt consists of the following:

 
| ** **                                                                                                                                  | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Senior Secured Credit Facility:                                                                                                             | ** ** | ** **              | ** ** | ** **             | ** ** |
| Senior secured line of credit, expires  September 30, 2009, interest payable at least quarterly at either LIBOR  and/or prime plus a margin |       | $                       | 77,750     |                   | $          | 42,200 |   |
| Term loan, matures June 30, 2011, principal  and interest payments due quarterly at either LIBOR and/or prime plus a  margin                |       | 175,000                 |       | 268,125                |       |
|                                                                                                                                        |       | 252,750                 |       | 310,325                |       |
| Subordinated Notes:                                                                                                                         |       |                    |       |                   |       |
| Due June 1, 2009, interest payable  semi-annually at 10.75%                                                                                 |       | —                  |       | 356,623                |       |
| Due September 2011, interest payable  semi-annually at 9.0%                                                                                 |       | 200,000                 |       | 200,000                |       |
| Due January 2014, interest payable  semi-annually at 7.0%                                                                                   |       | 350,000                 |       | —                 |       |
|                                                                                                                                        |       | 550,000                 |       | 556,623                |       |
| Notes payable, principal and interest  payments due quarterly through September 2015, discounted at 10.5%                                   |       | 2,527                   |       | 3,210                  |       |
| Total Long-Term Debt                                                                                                                        |       | 805,277                 |       | 870,158                |       |
| Less: current maturities                                                                                                                    |       | 2,526                   |       | 4,648                  |       |
| Long-term debt, less current maturities                                                                                                     |       | $                       | 802,751    |                   | $          | 865,510 |   |
|                                                                                                                                             |            |                         |            |                        |            |  |  |  |  |

 

On September 30, 2004, we entered into theThird Amended and Restated Credit Agreement (“the Credit Facility”) with arevolving line of credit for up to $500,000 and a Term Loan of $175,000maintaining our total facility of $675,000. Our Credit Facility is secured byliens on substantially all of our assets and our subsidiaries areco-borrowers.  Substantially all of oursubsidiaries fully and unconditionally guarantee our 9% Subordinated Notes on ajoint and several basis.  All of oursubordinated notes rank junior to all of our senior indebtedness, includingborrowings under the Credit Facility.

 

In February and June 2004, werefinanced a portion of our existing indebtedness with net proceeds from theissuance of $350,000 in new 7% Subordinated Notes due 2014, together with fundsfrom our Credit Facility. These funds were used to repurchase the $350,00010.75% Subordinated Notes due 2009. Related to this refinancing, we paid$26,040 in net premiums and fees.

 

6

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The subordinated notes contain certain restrictions onthe payment of dividends on our common stock and the incurrence of additionalindebtedness, as well as other customary debt covenants. In addition, theCredit Facility requires us to maintain certain financial ratios, based onterms as defined in the Credit Facility, which, as of September 30, 2004, areas follows: (1) Total Funded Debt to EBITDA Ratio of a maximum of 4.75 to 1.0;(2) Senior Funded Debt to EBITDA Ratio of a maximum of 3.50 to 1.0; and (3)Fixed Charge Coverage Ratio of a minimum of 1.50 to 1.0.  As of September 30, 2004, we are in compliancewith these ratios.  At September 30,2004, based upon these financial ratios, additional availability under theCredit Facility was approximately $412,400.

 

**3.     Stock-based Compensation**

 

In December 2002, the Financial AccountingStandards Board issued FAS 148, “Accounting for Stock-Based Compensation –Transition and Disclosure”.  We have astock-based employee compensation plan and a stock-based director compensationplan.  As we continue to follow APB 25for stock options granted to employees and directors, no stock-basedcompensation cost is reflected in net income, as all options granted underthose plans had an exercise price equal to the market value of the underlyingcommon stock on the date of grant.  Thefollowing table discloses our pro forma net income and diluted net income pershare had we applied the fair value recognition provisions of FAS 123.

 
| ** **                                              | ** ** | **For the three months ended  September 30,** | ** ** | **For the nine months ended  September 30,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| **(unaudited, in thousands,  except share data)**       | ** ** | **2004**                                      | ** ** | **2003**                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net income                                              | ** ** | ** **                                    | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| As reported                                             |       | $                                             | 21,140     |                                         | $          | 16,489 |   | $ | 43,683 |   | $ | 38,099 |   |
| Pro forma stock-based compensation, net of  tax benefit |       | (243                                          | )          | (296                                         | )          | (732 | ) | (772 | ) |
| Pro forma                                               |       | $                                             | 20,897     |                                         | $          | 16,193 |   | $ | 42,951 |   | $ | 37,327 |   |
|                                                    |       |                                          |       |                                         |       |   |   |   |   |
| Diluted net income per share                            |       |                                          |       |                                         |       |   |   |   |   |
| As reported                                             |       | $                                             | 0.71       |                                         | $          | 0.56 |   | $ | 1.47 |   | $ | 1.30 |   |
| Pro forma stock-based compensation, net of  tax benefit |       | (0.01                                         | )          | (0.01                                        | )          | (0.02 | ) | (0.03 | ) |
| Pro forma                                               |       | $                                             | 0.70       |                                         | $          | 0.55 |   | $ | 1.45 |   | $ | 1.27 |   |

 

These pro forma amounts toreflect FAS 123 option expense may not be representative of future disclosuresbecause, under FAS 123, the estimated fair value of the options is amortized toexpense over the vesting period and additional options may be granted in thefuture.

 

In February 2003, we issued 25,000 shares ofrestricted common stock of which 50% vested in February 2004.  The remaining 50% have been forfeited.  In April and July 2004, we granted 638,571and 20,000 shares of non-qualified stock options, respectively, to certain keyemployees and 40,000 shares of non-qualified stock options to our non-employeedirectors under the Argosy Gaming Company Stock Option Plan and the ArgosyGaming Company Directors Option Plan, respectively.

 

7

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**4.****                                     ****Earnings Per Share**

 

The following table sets forth thecomputation of basic and diluted earnings per share:

 
| ** **                                                                                             | ** ** | **Three months ended   September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| **(unaudited, in thousands,  except share data)**                                                      | ** ** | **2004**                               | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Numerator:**                                                                                         | ** ** | ** **                             | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Numerator for basic and diluted earnings per  share - Net income                                       |       | $                                      | 21,140     |                                  | $          | 16,489 |   | $ | 43,683 |   | $ | 38,099 |   |
|                                                                                                   |       |                                   |       |                                  |       |   |   |   |   |
| **Denominator:**                                                                                       |       |                                   |       |                                  |       |   |   |   |   |
| Denominator for basic earnings per share -  weighted average shares outstanding                        |       | 29,475,631                             |       | 29,230,951                            |       | 29,421,578 |   | 29,095,635 |   |
| Effect of dilutive securities (computed  using the treasury stock method):                             |       |                                   |       |                                  |       |   |   |   |   |
| Employee and directors stock options                                                                   |       | 182,695                                |       | 184,284                               |       | 212,525 |   | 235,162 |   |
| Restricted stock                                                                                       |       | —                                 |       | 12,807                                |       | — |   | 9,091 |   |
| Dilutive potential common shares                                                                       |       | 182,695                                |       | 197,091                               |       | 212,525 |   | 244,253 |   |
| Denominator for diluted earnings per share  - adjusted weighted-average shares and assumed conversions |       | 29,658,326                             |       | 29,428,042                            |       | 29,634,103 |   | 29,339,888 |   |
| Basic earnings per share                                                                               |       | $                                      | 0.72       |                                  | $          | 0.56 |   | $ | 1.48 |   | $ | 1.31 |   |
| Diluted earnings per share                                                                             |       | $                                      | 0.71       |                                  | $          | 0.56 |   | $ | 1.47 |   | $ | 1.30 |   |

 

For the three months and nine months endedSeptember 30, 2004, employee options to purchase 713,145 shares of common stockpriced at a range from $35.18 - $37.71 per share and director options topurchase 52,000 shares of common stock priced at a range from $35.15 - $39.99per share, were not included in the computation of diluted earnings per sharebecause the option exercise price was greater than the average market price ofthe underlying common shares and, therefore, the effect would be anti-dilutive.

 

For the three months ended September 30,2003, employee options to purchase 66,471 shares of common stock priced at arange from $25.72 - $35.18 per share and director options to purchase 12,000shares of common stock priced at a range from $35.15 - $39.99 per share, werenot included in the computation of diluted earnings per share because theoption exercise price was greater than the average market price of theunderlying common shares and, therefore, the effect would be anti-dilutive.

 

For the nine months ended September 30, 2003,employee options to purchase 280,744 shares of common stock priced at a rangefrom $21.08 - $35.18 per share and director options to purchase 20,500 sharesof common stock priced at a range from $22.30 - $39.99 per share, were notincluded in the computation of diluted earnings per share because the optionexercise price was greater than the average market price of the underlyingcommon shares and, therefore, the effect would be anti-dilutive.

 

**5.****             Commitments and Contingent Liabilities**

 

We are subject to, from time totime, various legal and regulatory proceedings in the ordinary course of ourbusiness.  We believe that currentproceedings will not have a material effect on our financial condition or theresults of our operations.

 

8

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

 

*Except where otherwise noted, the words, “we,”“us,” “our” and similar terms, as well as references to “Argosy” or the “Company”refer to Argosy Gaming Company and all of its subsidiaries.*

 

**Cautionary Statements forPurposes of the “Safe Harbor” Provisions of the Private Securities LitigationReform Act of 1995**

 

*ThisReport includes “forward-looking” statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements includestatements concerning our business outlook, plans, objectives, goals, strategies,future events, future revenues or performance, capital expenditures, financingneeds, plans or intentions relating to acquisitions and other information thatis not historical information. When used in this document, the words “estimates,”“expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “will,” “would,”“could,” and variations of such words or similar expressions are intended toidentify forward-looking statements. All forward-looking statements, including,without limitation, our examination of historical operating trends, are basedupon our current expectations and various assumptions.  Our expectations, beliefs and projections areexpressed in good faith and we believe there is a reasonable basis for them,but there can be no assurance that our expectations, beliefs and projectionswill be realized.*

 

*There area number of risks and uncertainties that could cause our actual results todiffer materially from the forward-looking statements contained in thisdocument.  Such risks, uncertainties andother important factors include, but are not limited to: (i) increasedcompetition and general economic conditions in our markets, including thelegalization of gaming in states adjacent to our operations; (ii) changes in,or failure to comply with, laws or regulations (including increases in existingtaxes or the imposition of new taxes on gaming revenues or gaming devices), ordecisions of courts, regulators, accounting standards and governmental bodies;(iii) construction factors relating to our expansion projects, includingdelays, zoning issues, environmental restrictions, weather or other hazards,site access matters and building permit issues; (iv) the ability to effectivelyimplement operational changes at our properties; (v) the effect of economic,credit, and capital market conditions on the economy in general, and on gamingcompanies in particular; (vi) the effect of future legislation or regulatorychanges on our operations; (vii) our dependence on our Lawrenceburg, Indiana casino;(viii) our substantial leverage; and (ix) other risks and uncertaintiesdetailed from time to time in our filings with the Securities and ExchangeCommission.*

 

*Allsubsequent written and oral forward-looking statements attributable to us orpersons acting on our behalf are expressly qualified in their entirety by ourcautionary statements. The forward-looking statements included in this documentare made only as of the date of this document. We do not intend, and undertakeno obligation, to update these forward-looking statements.*

 

**Overview**

 

We own and operate the Alton Belle Casino in Alton,Illinois; the Empress Casino Joliet in Joliet, Illinois; the Argosy Casino inRiverside, Missouri; the Argosy Casino in Baton Rouge, Louisiana; the ArgosyCasino in Sioux City, Iowa; and the Argosy Casino in Lawrenceburg, Indiana.

 

In 2003, we investedcapital to enhance our product offering and expand capacity at our facilities.We opened our approximately $105 million casino facility in Riverside onDecember 11, 2003 and have seen a significant increase in revenues. Netrevenues for the nine months ended September 30, 2004 for Riverside increased$39.9 million, or 58.0% compared to the nine months ended September 30, 2003.In May 2003, we opened an approximately $43 million barge-based facility inJoliet.  In spite of this investment,Joliet net revenues decreased 5.9% for the nine months ended September 30, 2004over the nine months ended September 30, 2003 due to the increase in gamingtaxes in the state of Illinois and the subsequent operating measures taken bythe Company as described below. In Sioux City, we completed an approximately $6million renovation in February 2003 and have spent approximately $4 million todate on an $8 million renovation of the riverboat formerly used at ourRiverside property.  This newly renovatedriverboat relocated to our Sioux City property and was placed in service onSeptember 1, 2004.  The earlierrenovation together with the newly remodeled riverboat has increased Sioux City’snet revenues by 13.4% for the nine months ended September 30, 2004 over thenine months ended September 30, 2003.

 

During June 2004, ourLawrenceburg casino amended its development agreement with the City ofLawrenceburg, Indiana effective January 1, 2004.  This amendment allows for a reduction of upto $5 million annually in fees paid to the City of Lawrenceburg.  For the year ended December 31, 2004, weestimate earning the

 

9

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full $5 million reduction, andtherefore, we have recorded a $3.8 million reduction in selling, general andadministrative expense for the nine months ended September 30, 2004.

 

Year over year results wereimpacted by the enactment of higher gaming and admission tax rates in Illinoiseffective July 1, 2003.  Included ingaming and admission tax expense for the nine months ended September 30, 2003is a $5.9 million charge at Lawrenceburg due to new legislation in June 2003relating to the 2002 Indiana gaming tax increase and additional expense of $6.2million combined at our Illinois casinos for the increase in gaming andadmission tax rates in Illinois.  Theseitems raised our effective gaming and admission tax rate for the nine monthsended September 30, 2003 to 35.4%. Exclusive of these 2003 items, ourconsolidated effective gaming and admission tax rates (as a percent of netrevenues) for the nine months ended September 30, 2004 and 2003 were 35.3% and33.7%, respectively. For the nine months ended September 30, 2004, our income fromoperations increased 25.2%, or $32.2 million, as compared to the nine monthsended September 30, 2003.  This increasewas the result of increased revenues at all of our facilities except ourIllinois locations.  For example,Riverside net revenues increased 58.0% as we opened our new expanded casino inDecember 2003 and our Lawrenceburg casino’s net revenues increased 8.5%.  Our Illinois facilities’ net revenues werelower due to implementation of reduced hours of operation at both casinos andrestaurants, changes in product mix, significant revisions to marketingprograms and Joliet implementing an admission fee to minimize the impact ofincreased gaming and admission tax rates in Illinois.  Our operating expenses increased dueprimarily to higher state gaming and admission taxes at our properties withincreased revenues and due to rate increases in Illinois.

 

We also continue toinvest in coinless or “TITO” slot machines, which, when implemented, are moreconvenient to our customers and result in operational efficiencies. As ofSeptember 30, 2004, approximately 96% of our total slot machines wereTITO-operational. We believe that going forward the convenience and efficiencyof TITO machines will have a positive impact on both our casino revenues andour operating expenses.

 

On September 30, 2004, weentered into the Third Amended and Restated Credit Agreement (“Credit Facility”)with a revolving line of credit of $500 million and a Term Loan of $175 millionmaintaining our total Credit Facility of $675 million. In February and June2004, we refinanced a portion of our existing indebtedness with net proceedsfrom the issuance of $350 million in new 7% Senior Subordinated Notes (“7%Notes”) due 2014, together with funds from our Credit Facility.  These funds were used to repurchase the $350million 10.75% Senior Subordinated Notes (“10.75% Notes”) due 2009.  Associated with this refinancing, we incurreda pretax charge for the nine months ended September 30, 2004 of $26.0 millionfor net premiums and fees associated with the early redemption of our 10.75%Notes.

 

Legislative uncertaintiespresent challenges and risks to our ongoing operations.  For example, casino gaming is currentlyprohibited or restricted in several states adjacent to Indiana, Iowa and Missouri,and residents of those states comprise a significant portion of the patrons atour Lawrenceburg, Sioux City and Riverside casinos.  Legislation has been proposed in variousstates that would permit certain types of casino-style gaming. If this legislationwere approved in states adjacent to our properties, it would result inincreased competition with respect to significant portions of our targetmarkets.  Furthermore, the large numberof state and local governments with significant current or projected budgetdeficits make it more likely that those governments that permit gaming willseek to fund such deficits with new or increased gaming taxes.  To address these legislative risks, we mustregularly adjust our business strategies and adapt our casino operations.

 

10

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**ARGOSY GAMING COMPANY AND SUBSIDIARIES**

**SELECTED FINANCIAL INFORMATION**

**(in thousands, unaudited)**

** **
| ** **                        | ** ** | **Three months ended   September 30,** | ** ** | **Nine months ended   September 30,** | ** ** |
|-----------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                        | ** ** | **2004**                               | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| **CASINO REVENUES**               |       |                                   |       |                                  |       |   |   |   |   |
| Alton Belle Casino                |       | $                                      | 27,774     |                                  | $          | 26,778 |   | $ | 80,861 |   | $ | 85,364 |   |
| Argosy Casino - Riverside         |       | 35,980                                 |       | 23,453                                |       | 111,181 |   | 71,569 |   |
| Argosy Casino - Baton Rouge       |       | 20,109                                 |       | 20,109                                |       | 62,743 |   | 60,598 |   |
| Argosy Casino - Sioux City        |       | 12,914                                 |       | 10,515                                |       | 35,997 |   | 31,684 |   |
| Argosy Casino - Lawrenceburg      |       | 115,358                                |       | 106,817                               |       | 335,031 |   | 307,014 |   |
| Empress Casino Joliet             |       | 59,069                                 |       | 58,256                                |       | 169,611 |   | 182,709 |   |
| Total                             |       | $                                      | 271,204    |                                  | $          | 245,928 |   | $ | 795,424 |   | $ | 738,938 |   |
|                              |       |                                   |       |                                  |       |   |   |   |   |
| **NET REVENUES**                  |       |                                   |       |                                  |       |   |   |   |   |
| Alton Belle Casino                |       | $                                      | 26,433     |                                  | $          | 25,583 |   | $ | 77,067 |   | $ | 81,718 |   |
| Argosy Casino - Riverside         |       | 34,847                                 |       | 22,724                                |       | 108,603 |   | 68,738 |   |
| Argosy Casino - Baton Rouge       |       | 20,533                                 |       | 20,358                                |       | 64,389 |   | 62,160 |   |
| Argosy Casino - Sioux City        |       | 12,497                                 |       | 10,190                                |       | 34,878 |   | 30,765 |   |
| Argosy Casino - Lawrenceburg      |       | 115,504                                |       | 107,805                               |       | 336,486 |   | 310,228 |   |
| Empress Casino Joliet             |       | 56,674                                 |       | 56,278                                |       | 163,718 |   | 174,006 |   |
| Total                             |       | $                                      | 266,488    |                                  | $          | 242,938 |   | $ | 785,141 |   | $ | 727,615 |   |
|                              |       |                                   |       |                                  |       |   |   |   |   |
| **INCOME (LOSS) FROM OPERATIONS** |       |                                   |       |                                  |       |   |   |   |   |
| Alton Belle Casino                |       | $                                      | 3,009      |                                  | $          | 3,694 |   | $ | 8,593 |   | $ | 13,027 |   |
| Argosy Casino - Riverside         |       | 6,208                                  |       | 3,814                                 |       | 23,713 |   | 11,216 |   |
| Argosy Casino - Baton Rouge       |       | 1,809                                  |       | 1,226                                 |       | 7,239 |   | 4,215 |   |
| Argosy Casino - Sioux City        |       | 3,055                                  |       | 1,748                                 |       | 8,267 |   | 5,338 |   |
| Argosy Casino - Lawrenceburg      |       | 34,530                                 |       | 32,302                                |       | 101,368 |   | 82,733 |   |
| Empress Casino Joliet (4)         |       | 14,259                                 |       | 12,802                                |       | 33,672 |   | 29,020 |   |
| Corporate                         |       | (7,739                                 | )          | (5,733                                | )          | (22,506 | ) | (17,452 | ) |
| Total                             |       | $                                      | 55,131     |                                  | $          | 49,853 |   | $ | 160,346 |   | $ | 128,097 |   |
|                                   |            |                                        |            |                                       |            |  |  |  |  |  |  |  |  |  |

 

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**RECONCILIATION OF NET INCOME TO EBITDA (1) (2)**

(In thousands, unaudited)

 
| ** **                             | ** ** | **For the three months ended September 30,** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                     | ** ** | **2003** | ** ** |
| Net income                             |       |                                         |       | $ | 21,140 |   |   |   | $ | 16,489 |   |
| Income tax expense                     |       |                                         |       | 18,376 |   |   |   | 14,330 |   |
| Interest expense, net                  |       |                                         |       | 15,615 |   |   |   | 19,034 |   |
|                                   |       |                                         |       |   |   |   |   |   |   |
| Depreciation and amortization expense: |       |                                         |       |   |   |   |   |   |   |
| Alton Belle Casino                     |       | $                                            | 1,746      |   |   |   | $ | 1,598 |   |   |   |
| Argosy Casino - Riverside              |       | 4,355                                        |       |   |   | 1,479 |   |   |   |
| Argosy Casino - Baton Rouge            |       | 2,178                                        |       |   |   | 2,282 |   |   |   |
| Argosy Casino - Sioux City             |       | 786                                          |       |   |   | 1,119 |   |   |   |
| Argosy Casino - Lawrenceburg           |       | 3,585                                        |       |   |   | 3,216 |   |   |   |
| Empress Casino Joliet                  |       | 3,212                                        |       |   |   | 2,986 |   |   |   |
| Corporate                              |       | 642                                          |       |   |   | 555 |   |   |   |
| Depreciation and amortization expense  |       | 16,504                                       |       | 16,504 |   | 13,235 |   | 13,235 |   |
|                                   |       |                                         |       |   |   |   |   |   |   |
| EBITDA (1) (2):                        |       |                                         |       |   |   |   |   |   |   |
| Alton Belle Casino                     |       | 4,755                                        |       |   |   | 5,292 |   |   |   |
| Argosy Casino - Riverside              |       | 10,563                                       |       |   |   | 5,293 |   |   |   |
| Argosy Casino - Baton Rouge            |       | 3,987                                        |       |   |   | 3,508 |   |   |   |
| Argosy Casino - Sioux City             |       | 3,841                                        |       |   |   | 2,867 |   |   |   |
| Argosy Casino - Lawrenceburg           |       | 38,115                                       |       |   |   | 35,518 |   |   |   |
| Empress Casino Joliet (4)              |       | 17,471                                       |       |   |   | 15,788 |   |   |   |
| Corporate (2)                          |       | (7,097                                       | )          |   |   | (5,178 | ) |   |   |
| EBITDA (1) (2)                         |       | $                                            | 71,635     |   | $ | 71,635 |   | $ | 63,088 |   | $ | 63,088 |   |

 

 

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**RECONCILIATION OF NET INCOME TO EBITDA (1) (2)**

(In thousands, unaudited)

 
| ** **                             | ** ** | **For the nine months ended September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------|------------|
| ** **                             | ** ** | **2004**                                    | ** ** | **2003** | ** ** |
| Net income (3)                         |       |                                        |       | $ | 43,683 |   |   |   | $ | 38,099 |   |
| Income tax expense                     |       |                                        |       | 40,402 |   |   |   | 33,114 |   |
| Interest expense, net                  |       |                                        |       | 50,221 |   |   |   | 56,884 |   |
|                                   |       |                                        |       |   |   |   |   |   |   |
| Depreciation and amortization expense: |       |                                        |       |   |   |   |   |   |   |
| Alton Belle Casino                     |       | $                                           | 4,906      |   |   |   | $ | 5,009 |   |   |   |
| Argosy Casino - Riverside              |       | 9,404                                       |       |   |   | 4,297 |   |   |   |
| Argosy Casino - Baton Rouge            |       | 6,683                                       |       |   |   | 6,514 |   |   |   |
| Argosy Casino - Sioux City             |       | 2,506                                       |       |   |   | 3,306 |   |   |   |
| Argosy Casino - Lawrenceburg           |       | 10,580                                      |       |   |   | 9,710 |   |   |   |
| Empress Casino Joliet                  |       | 9,599                                       |       |   |   | 8,319 |   |   |   |
| Corporate                              |       | 1,899                                       |       |   |   | 1,602 |   |   |   |
| Depreciation and amortization expense  |       | 45,577                                      |       | 45,577 |   | 38,757 |   | 38,757 |   |
|                                   |       |                                        |       |   |   |   |   |   |   |
| EBITDA (1) (2):                        |       |                                        |       |   |   |   |   |   |   |
| Alton Belle Casino                     |       | 13,499                                      |       |   |   | 18,036 |   |   |   |
| Argosy Casino - Riverside              |       | 33,117                                      |       |   |   | 15,513 |   |   |   |
| Argosy Casino - Baton Rouge            |       | 13,922                                      |       |   |   | 10,729 |   |   |   |
| Argosy Casino - Sioux City             |       | 10,773                                      |       |   |   | 8,644 |   |   |   |
| Argosy Casino - Lawrenceburg           |       | 111,948                                     |       |   |   | 92,443 |   |   |   |
| Empress Casino Joliet (4)              |       | 43,271                                      |       |   |   | 37,339 |   |   |   |
| Corporate (2) (3)                      |       | (46,647                                     | )          |   |   | (15,850 | ) |   |   |
| EBITDA (1) (2)                         |       | $                                           | 179,883    |   | $ | 179,883 |   | $ | 166,854 |   | $ | 166,854 |   |

 

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(1) “EBITDA” is defined as earnings before interest, taxes,depreciation and amortization. EBITDA is presented solely as a supplementaldisclosure because management believes it is 1) a widely used measure ofoperating performance in the gaming industry, 2) a principal basis forvaluation of gaming companies and 3) is used as a basis for determiningcompliance with our credit facility. Management uses property-level EBITDA(EBITDA before corporate expense) and EBITDA margin (EBITDA as a percent of netrevenues) as the primary measures of our properties’ performance, including theevaluation of operating personnel. EBITDA should not be construed as analternative to GAAP-based financial measures such as operating income, anindicator of our operating performance, or cash flows from operatingactivities, as a measure of liquidity. We have significant uses of cash flows,including capital expenditures, interest payments, taxes and debt principalrepayments, which are not reflected in EBITDA. We believe the performance of our operating units is more appropriatelymeasured before these expenses, since the allocation of our capital is decidedby corporate management and is subject to the approval of the board ofdirectors.  In addition, we manage cashand finance our operations at the consolidated level and we file a consolidatedincome tax return.  We do not considerEBITDA in isolation. Our calculation of EBITDA may not be comparable tosimilarly titled measures reported by other companies. For a further discussionof such limitations, see our additional disclosures in this report under theheading “Non-GAAP Financial Measures.”

 

(2) Because we do not includecorporate expense in our computation, property-level EBITDA does not reflectall the costs of operating the properties as if each were a stand-alonebusiness unit.  Corporate expense includessignificant expenses necessary to manage a multiple casino operation, certainof which, such as corporate executive compensation, development, public companyreporting, treasury, legal and tax expenses, would also be required of atypical stand-alone casino property.

 

(3) Includes $26,040 of pre-tax expense on earlyretirement of debt for the nine months ended September 30, 2004.

 

(4) Included for the three and nine months endedSeptember 30, 2004 is a gain of $3,155 on the sale of an asset held forsale.  Included for the nine months endedSeptember 30, 2003 is a $6,500 write-down of assets related to assetspreviously held for future development.

 

 

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**Nine months ended September 30,2004, compared to nine months ended September 30, 2003**

 

A discussion of each of ourproperties operating results:

 

*Lawrenceburg* – Net revenues increased $26.3 million primarilydue to an increase in casino revenues of $28.0 million, or 9.1%, to $335.0million.  This increase resulted fromincreases in admissions of 2.6% and win per admission of 6.4%, theimplementation of 24-hour gaming and revisions to our marketing programs.Additionally, promotional allowances increased $3.3 million across all lines ofcomplimentary programs due to changes in marketing programs and overallincreases in casino revenues.  Operatingexpenses increased $7.6 million to $235.1 million from $227.5 million.  Included in the nine months ended September30, 2003 was a charge of $5.9 million in gaming and admission taxes due to newlegislation in June 2003 relating to the 2002 Indiana gaming tax increase.  Excluding this charge, gaming and admissiontaxes increased $11.1 million due to our increased revenue.  Selling, general and administrative (“SG&A”)expense increased $1.1 million due primarily to a combined $1.4 millionincrease in promotions and payroll offset by a net decrease in city developmentfees of $0.5 million.  This decrease incity development fees is due to an amendment to the development agreement withthe City of Lawrenceburg that reduces our annual fee paid to the City ofLawrenceburg.

 

*Riverside* – Net revenues increased $39.9 million as casinorevenues increased $39.6 million, or 55.3%, to $111.2 million due to theopening of our renovated casino property in December 2003, which included a 53%increase in gaming capacity, renovation of the pavilion and increased food andbeverage facilities.  Admissionsincreased 45.0% and win per admission increased 7.2%.  Food, beverage and other (“FB&O”) revenueincreased $6.3 million to $13.4 million due to our new restaurants, theincrease in admissions with the opening of our new casino and limited foodservice during the first nine months of 2003 due to renovations in our buffet.  With this increase in revenues and patrons,our promotional allowances increased $6.1 million, primarily in ourcomplimentary food program.

 

Operating expenses increased$27.4 million in the following areas: gaming and admission taxes increased $10.3 million corresponding withour increase in revenues and admissions with the opening of our new casino inDecember 2003, SG&A expense and casino expense increased $5.5 million and$2.5 million, respectively, with our expanded casino operations, FB&Oexpense increased $4.2 million due to our expanded restaurant operations andthe increase in patrons with our overall expanded facility and depreciation andamortization expense increased $5.1 million due to the project capital placedin service with the opening of our new casino in December 2003 and accelerateddepreciation on our current parking garage structure to be demolished duringearly 2005 to allow construction of our new hotel.  Additionally, operating margins haveincreased due to efficiencies from operating on one level and fullimplementation of TITO slot machines.

 

*Joliet* – Net revenues decreased $10.3 million dueprimarily to a decrease in casino revenues of $13.1 million, or 7.2%, to $169.6million due to the implementation of reduced hours of operations, the implementationof an admission fee and changes in marketing efforts commencing in August 2003in response to Illinois tax legislation increasing gaming and admission taxrates effective July 2003.  Due to thecommencement of an admission fee in August 2003, admission revenues were $6.5million in 2004 compared with $1.1 million in 2003 while net admission revenue(net of complimentary admissions) was $1.0 million in 2004 compared with $0.5million in 2003. Additionally, FB&O revenues decreased $2.9 million due tothe reduced admissions.

 

After excluding the impact of a$6.5 million write-down of assets for the nine months ended September 30, 2003and a $3.2 million gain on the sale of one of the Empress boats for the ninemonths ended September 30, 2004, operating expenses decreased $5.3million.  Components of this decreaseare: casino expense and other operating expense decreased $3.7 million and $1.8million, respectively, following the operational changes implemented in responseto the Illinois tax legislation increasing gaming and admission tax rates,FB&O expense decreased $1.7 million corresponding to our decrease inrevenues and admissions, and offsetting these decreases was an increase ingaming and admission taxes of $1.8 million due to the increased tax rates inIllinois, even though casino revenues have decreased.

 

*Alton* – Net revenues decreased $4.7 million as casinorevenues decreased $4.5 million, or 5.3%, to $80.9 million due to competitivepressures in the St. Louis market and the implementation of reduced hourscommencing in August 2003 in response to the Illinois tax legislation.  Operating expenses increased slightly by $0.1million consisting of: increases in SG&A of $1.7 million and gaming andadmission taxes of $0.5 million, not ratably with the decrease in casinorevenues due to the increased tax rates in Illinois, offset by a reduction incasino expense of $2.1 million due to

 

14

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the operational changesimplemented in response to the Illinois tax legislation increasing gaming andadmission tax rates.

 

*Baton Rouge* – Net revenues increased $2.2 million as casinorevenues increased $2.1 million, or 3.5%, to $62.7 million due primarily to anincrease in win per admission.  Operatingexpenses decreased $0.8 million primarily due to a decrease in casino expenseof $1.1 million offset by an increase in gaming and admission taxes of $0.4million corresponding with the increase in casino revenues.

 

*Sioux City* – Net revenues increased $4.1 million due to an increasein casino revenues of $4.3 million, or 13.6%, to $36.0 million due to thepositive impact of property renovations completed in the first quarter 2003 andthe transfer and renovation of our Riverside riverboat to Sioux City that wasplaced in service on September 1, 2004 and provides 125 additional slotmachines and six additional table games. Operating expenses increased $1.2million as gaming and admissions taxes increased $1.4 million corresponding tothe increase in casino revenues offset by a decrease in depreciation andamortization of $0.8 million as the former riverboat was depreciated to itssalvage value in June 2004 and replaced by our Riverside riverboat in September2004.  Depreciation expense in futureperiods will increase.

 

*Corporate* – Operating expenses increased $4.7 million duein part to changes in incentive compensation plans and year-over-year expansionof our corporate MIS staff and increased business development activities.

 

Other overallcompany costs were as follows:

 

*Other Income (Expense) –* Net interest expense decreased $6.7 million to$50.2 million due to the refinancing, in February and June 2004, of our 10.75%Notes with new 7% Notes due 2014 and reductions in our overall debtlevels.  We also had capitalized interestof $2.3 million related to our casino construction projects for the nine monthsended September 30, 2003 compared to minimal capitalized interest for the ninemonths ended September 30, 2004, as these assets were placed in service during2003. Associated with this debt refinancing, we incurred $26.0 million in netpremiums and fees for the nine months ended September 30, 2004.

 

*Income Tax Expense –*Income tax expense increased $7.3 million to $40.4million as pretax earnings increased primarily due to increased earnings at ourRiverside and Lawrenceburg properties offset by expenses related to the earlyretirement of our 10.75% Notes. Our overall effective tax rate is higher forthe nine months ended September 30, 2004 compared to the nine months endedSeptember 30, 2003 due to recording a tax benefit related to this debtrefinancing at a rate lower than our overall effective tax rate. Our effectivetax rate would have been the same in both years had this debt refinancing notoccurred.

 

**Three months ended September30, 2004, compared to three months ended September 30, 2003**

 

A discussion of each of ourproperties operating results:

 

*Lawrenceburg* – Net revenues increased $7.7 million, primarilydue to an increase in casino revenues of $8.5 million, or 8.0%, to $115.4million as win per admission increased 9.9% and admissions decreased 1.7%.Promotional allowances increased $1.2 million across all lines of complimentaryprograms due to changes in marketing programs. Operating expenses increased$5.5 million to $81.0 million from $75.5 million principally due to gaming andadmissions taxes increasing $4.1 million due to our increase in casinorevenues.

 

*Riverside* – Net revenues increased $12.1 million as casinorevenues increased $12.5 million, or 53.4%, to $36.0 million due to the openingof our renovated casino property in December 2003 which included a 53% increasein gaming capacity, renovation of the pavilion and increased food and beveragefacilities.  Admissions increased 40.5%and win per admission increased 9.2%. FB&O revenue increased $1.8 million to $4.3 million due to our newrestaurants and the increase in admissions with the opening of our new casino.With this increase in revenues and patrons, our promotional allowancesincreased $2.2 million, primarily in our complimentary food program.

 

Operating expenses increased$9.7 million in the following areas: an increase in gaming and admission taxesof $3.2 million corresponding with our increase in revenues and admissions withthe opening of our new casino in December 2003, SG&A expense and casinoexpense increased $1.8 million and $0.9 million, respectively, with ourexpanded casino operations, FB&O expense increased $1.2 million due to ourexpanded restaurant operations and the

 

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increase in patrons with ouroverall expanded facility and depreciation and amortization expense increased$2.9 million due to the project capital placed in service with the opening ofour new casino in December 2003 and accelerated depreciation on our currentparking garage structure to be demolished during early 2005 to allowconstruction of our new hotel. Additionally, operating margins have increaseddue to efficiencies from operating on one level and full implementation of TITOslot machines.

 

*Joliet* – Net revenues increased $0.4 million as casinorevenues increased $0.8 million, or 1.4%, to $59.1 million.  With the opening of our new barge-basedcasino in May 2003, we experienced increased revenues prior to the implementationof reduced hours of operations, the implementation of an admission fee andchanges in marketing efforts commencing in August 2003 in response to Illinoistax legislation increasing gaming and admission tax rates effective July 2003.Additionally, admissions increased 2.2% and win per admission increased 0.8%.Admission revenues were $2.4 million in 2004 compared to $1.1 million inadmission revenues in 2003 due to the commencement of an admission fee inAugust 2003. Promotional allowances increased $1.4 million due to an increasein complimentary admissions of $1.6 million.

 

Operating expenses decreased$1.1 million due primarily to a $3.2 million gain on the sale of one of theEmpress boats.  Excluding this gain,operating expenses increased $2.3 million as gaming and admission taxesincreased $3.7 million due primarily to higher tax rates for Illinois and aslight increase in revenues.  Casinoexpense decreased $1.3 million due to the operational changes implemented inresponse to the Illinois tax legislation increasing gaming and admission taxrates.

 

*Alton* – Net revenues increased $0.9 million as casinorevenues increased $1.0 million to $27.8 million as admissions increased 0.8%and win per admission increased 2.9%. Operating expenses increased $1.5 milliondue to increased gaming and admission taxes of $1.6 million due primarily tothe higher tax rates for Illinois and an increase in SG&A expense of $0.7million, offset by a decrease in casino expense of $1.0 million due to theoperational changes implemented in response to the Illinois tax legislationincreasing gaming and admission tax rates.

 

*Baton Rouge–* Net revenues increased $0.2 million as admissionsdecreased 2.4% and win per admission increased 2.5%.  Operating expenses decreased $0.4 million primarilydue to reductions in payroll costs.

 

*Sioux City* – Net revenues increased $2.3 million consistingof an increase in casino revenues of $2.4 million, or 22.8%, to $12.9 milliondue primarily to the transfer of our larger Riverside riverboat to Sioux Citythat was placed in service in September 2004 adding 125 slot machines and sixtable games. This capacity increase resulted in increases in admissions of19.9% and win per admission of 2.4%.  Forthe month of September 2004, casino revenues increased 48% on a 28% increase incapacity. Operating expenses increased $1.0 million due primarily to anincrease in gaming and admissions taxes of $0.8 million corresponding to theincrease in casino revenues. Depreciation expense in future periods will increase as we placed thelarger riverboat in service in September 2004.

 

*Corporate* – Operating expenses increased $2.0 millionprimarily in increases in SG&A expense of $1.9 million spread throughoutvarious corporate departments.

 

Other overallcompany costs were as follows:

 

*Other Income (Expense) –* Net interest expense decreased $3.4 million to$15.6 million, which is primarily attributable to the refinancing, in Februaryand June 2004, of our 10.75% Notes with new 7% Notes due 2014.  We also had capitalized interest of $0.7million related to our casino construction projects for the three months endedSeptember 30, 2003 compared to minimal capitalized interest for the threemonths ended September 30, 2004 as these assets were placed in service during2003.

 

*Income Tax Expense –*Income tax expense increased $4.1 million to $18.4million as pretax earnings increased due to increased operating income at allof our locations, except for Alton, and reduced interest expense.

 

**Competition**

 

Our Alton Casino faces competitionfrom four other casino operators in the St. Louis area (two additional casinoshave been approved for the St. Louis market). One competitor opened a hotel expansion and facility renovation duringthe third quarter 2004.  Our RiversideCasino faces competition from three casinos in the Kansas City area.  Our

 

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Baton Rouge Casino facescompetition from one casino located in downtown Baton Rouge, a nearby NativeAmerican casino and multiple casinos throughout Louisiana. We face competitionin Sioux City, Iowa from video gaming devices in nearby South Dakota, from twoland-based Native American casinos and, to a lesser extent, from slot machinesat a pari-mutuel racetrack in Council Bluffs, Iowa and from two riverboatcasinos in the Council Bluffs, Iowa/Omaha, Nebraska market. The Lawrenceburgcasino faces competition from two riverboat casinos in the Cincinnati market.Our Joliet casino faces competition from seven other casino operators in theChicago metropolitan area, including four casinos in Indiana.

 

There could be furtherunanticipated competition in any market in which we operate as a result oflegislative changes or other events.  Forinstance, several states have discussed adopting or expanding gaming in variousforms, which could cause increased competition in our markets.  We expect each market in which weparticipate, both current and prospective, to be highly competitive.

 

**Liquidity and Capital Resources**

 

In the nine months endedSeptember 30, 2004, we generated cash flows from operating activities of $147.5million compared to $131.6 million for the nine months ended September 30,2003. This increase is due to an overall increase in our operating performance.

 

In the nine months ended September 30, 2004, we used cash flows forinvesting activities of $55.5 million compared to $95.6 million for the ninemonths ended September 30, 2003.  Duringthe nine months ended September 30, 2004, our investing activities includedpurchases of property and equipment of $60.0 million ($28.4 million forresidual payments on the Riverside construction project opened in December 2003(including $13.6 million relating to accounts payable at December 31, 2003))and our new Riverside garage project and $3.9 million on the renovation of ourRiverside riverboat placed in service in September 2004 in Sioux City with theremainder for maintenance capital.  Thiscompares to $95.8 million in property and equipment purchases for the ninemonths ended September 30, 2003 ($77.4 million for construction projects at ourRiverside, Joliet and Sioux City facilities with the remainder for maintenancecapital).

 

During the nine months ended September 30, 2004, we used cash flows of$95.3 million for financing activities compared to using $39.3 million for thenine months ended September 30, 2003. For the nine months ended September 30, 2004, we used $378.0 million forpayments related to the repurchase of our 10.75% Notes offset by cash providedthrough the issuance of $350 million of our new 7% Notes.  Additionally, for the nine months endedSeptember 30, 2004, we incurred $11.6 million for deferred finance fees relatedto the 7% Notes and our Third Amended and Restated Credit Agreement.  For the nine months ended September 30, 2004 andSeptember 30, 2003, we used cash of $57.6 million and $39.2 million,respectively, for repayments on our senior secured credit facility.

 

On September 30,2004, we entered into the Third Amended and Restated Credit Agreement (the “CreditFacility”) with a revolving line of credit up to $500 million and a Term Loanof $175 million maintaining our total facility of $675 million.  In February and June 2004, werefinanced a portion of our existing indebtedness with net proceeds from theissuance of $350 million in new 7% Notes due 2014, together with funds from ourCredit Facility.  These funds were usedto repurchase the $350 million 10.75% Notes due 2009. Related to thisrefinancing, we paid approximately $28.0 million in premiums.  Funding of this debt purchase, call premiumand accrued interest was from funds available under our Credit Facility.

 

During October 2001, we effectively fixed the interest rate onapproximately $200.0 million of our term loan through three interest rate swapagreements, which expired on September 30, 2004.  For each swap agreement, we agreed to receivea floating rate of interest on the notional principal amount based upon a threemonth LIBOR rate (plus a 2.75% spread) in exchange for fixed rates ranging from6.19% to 6.27%.

 

Our subordinated notes due in 2011 and 2014 contain certain restrictionson the payment of dividends on our common stock and the occurrence ofadditional indebtedness, as well as other customary debt covenants.  In addition, the Credit Facility requires usto maintain certain financial ratios, based on terms as defined in the CreditFacility, which, as of September 30, 2004, are as follows:  (1) Total Funded Debt to EBITDA Ratio of amaximum of 4.75 to 1.0; (2) Senior Funded Debt to EBITDA Ratio of a maximum of3.50 to 1.0; and (3) Fixed Charge Coverage Ratio of a minimum of 1.50 to1.0.  As of September 30, 2004, we werein compliance with these ratios.

 

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Under oursubordinated notes indentures, our ability to make dividends and otherdistributions on our common stock and make investments outside of the Companyand its restricted subsidiaries is generally limited to 50% of our consolidatednet income since July 1, 1999.  Inaddition, we are restricted from incurring additional indebtedness, which,after giving effect of the additional indebtedness, would cause our InterestCoverage Ratio (Consolidated EBITDA to Consolidated Interest Expense for themost recent four fiscal quarters on a pro forma basis) to be less than 2.0 to1.  None of these covenants currentlyplaces any material limitations on our anticipated future operating plans.

 

During May 2003, we announced Board of Directors approval of a stockrepurchase program authorizing us to repurchase up to $30.0 million of ourcommon stock.  The repurchases can bemade at management’s discretion without prior notice from time to time in theopen market or through privately negotiated third party transactions incompliance with applicable laws and depending on market conditions.  As of the filing date of this report, we havemade no stock repurchases under this program.

 

We continue tomake capital investments at our existing properties for expansion and productenhancement.  In December 2003, we openedour new approximately $105 million Riverside casino.  For the remainder of 2004, we expect to spendapproximately $15-$20 million, including continued expansion at Riverside for anew 1,400-space parking garage (estimated to be completed in the third quarter2005) and maintenance capital expenditures (including the continuingimplementation of our coinless TITO slot product). The new garage at ourRiverside property is part of a $75 million expansion project that alsoincludes a new 250-room hotel.  Additionally,in October 2004, we entered into a contract to purchase Raceway Park in Toledo,Ohio for approximately $20 million, subject to various conditions includingregulatory approval. We expect to fund these expenditures from internallygenerated cash and availability under our Credit Facility.

 

Given oursignificant cash generation capabilities, we seek investment opportunities atour existing properties, including but not limited to additional capitalinvestments at our Riverside and Lawrenceburg properties, or into new assets.Should we decide to make additional investments at our existing properties oracquire new assets, we may amend our existing Credit Facility or issueadditional debt or equity securities.  AtSeptember 30, 2004, we had approximately $63.8 million of cash and cash equivalents; $252.8 million wasoutstanding on our Credit Facility ($77.8 million on our revolving CreditFacility and $175.0 million on our term loan) and $550.0 million ofSubordinated Notes (due in September 2011 and January 2014).  As of September 30, 2004, we had outstandingletters of credit of $9.9 million and additional availability under the CreditFacility was approximately $412.4 million. We have no off-balance sheet debt.

 

Consistent withgaming industry practice, we conduct our operations with a net working capitaldeficit. Unlike traditional industrial companies, a gaming company’s balancesheet has limited accounts receivable and inventories. In addition, casinosgenerate significant cash on a daily basis. We generally apply our daily cashflows to fund capital expenditures or pay down debt under our revolving creditfacility and pay our current liabilities pursuant to their normal cycles.  Given the significant daily cash flows generatedby our operations and the financial flexibility provided by our CreditFacility, the existence of a working capital deficit has no impact on ourability to operate our business or meet our obligations as they becomedue.  We believe that cash on hand,operating cash flows, and funds available under our Credit Facility will besufficient to fund our current operating, capital expenditure and debt serviceobligations for the next 12 months.

 

Because we have nodirect operations and no significant assets other than ownership of stock inour subsidiaries, we are dependent on our subsidiaries for payments ofdividends and other distributions to generate the funds necessary to meet ourcash needs.  Although there are currentlyno restrictions on the flow of funds between our subsidiaries and us, shouldour subsidiaries be unable to remit dividends or other payments, our ability tomeet our financial obligations may be impaired.

 

Our long-termdebt, as of September 30, 2004, matures as follows (in thousands):

 
| One year and less |   | $       | 2,526   |   |
|-------------------|--------|---------|---------|--------|
| 1 - 3 years       |   | 3,899   |    |
| 4 - 5 years       |   | 81,741  |    |
| After 5 years     |   | 717,111 |    |
| Total             |   | $       | 805,277 |   |

 

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# **Off Balance Sheet Arrangements**

# ** **

# **Wehave not entered into any transactions with unconsolidated entities whereby wehave financial guarantees, subordinated retained interest, derivativeinstruments or other contingent arrangements that expose us to materialcontinuing risks, contingent liabilities or any other obligation under avariable interest in an unconsolidated entity that provides financing,liquidity, market risk or credit risk support to us.**

 

# **Critical Accounting Estimates**

 

Our consolidatedfinancial statements are prepared in accordance with accounting principlesgenerally accepted in the United States, which requires our management to makeestimates and assumptions about the effects of matters that are inherentlyuncertain.  Of our accounting estimates,we believe the following may involve a higher degree of judgment and complexity.

 

*Goodwill –*We have approximately $727 million of goodwillrecorded on our balance sheet at September 30, 2004, related toacquisitions.  We regularly evaluate ouracquired businesses for potential impairment indicators.  Additionally, we adopted the provisions ofSFAS No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002, thatrequires us to perform impairment testing at least annually.  Our judgments regarding the existence ofimpairment indicators are based on, among other things, the regulatory andcompetitive status and operational performance of each of our acquiredbusinesses.  Future events couldsignificantly impact our judgments and any resulting impairment loss could havea material adverse impact on our financial condition and results of operations.

 

*Property and Equipment –*Our operations are capital intensive and we havemade significant capital investments in each of our properties.  At September 30, 2004, we have approximately$549 million of net property and equipment recorded on our balance sheet.  We depreciate our assets on a straight-linebasis over their estimated useful lives. The estimates of the useful lives are based on the nature of the assetsas well as our current operating strategy. Future events, such as property expansions, new competition and new regulations,could result in a change in the manner in which we are using certain assetsrequiring a change in the estimated useful lives of such assets.  In assessing the recoverability of thecarrying value of property and equipment, we must make assumptions regardingestimated future cash flows and other factors. If these estimates or the related assumptions change in the future, wemay be required to record impairment charges for these assets.

 

*InsuranceAccruals –*Ourinsurance policies for employee health, workers’ compensation and generalpatron liability have significant deductible levels on an individual claimbasis.  We accrue a liability for knownworkers’ compensation and general patron liability based upon claims reservesestablished by the third party administrator processing our claims.  Additionally, we accrue an amount forincurred but not reported claims based on our historical experience and otherfactors.  Our employee health insuranceaccrual is based on our historical claims experience rate including anestimated lag factor.  These accrualsinvolve complex estimates and could be significantly affected should current orfuture claims vary from historical levels. Management reviews our insurance accruals for adequacy at the end ofeach reporting period.

 

*Effective Gaming Tax Rates*–We record gaming taxes based upon effective gaming tax rates for each of ourcasinos.  These effective rates are basedupon statutory gaming tax rates and estimates of annual casino revenues.  Increases or decreases in our actual orestimated casino revenues or changes in statutory gaming tax rates couldrequire changes to our effective gaming tax rates.  Management reviews our effective gaming taxrates at the end of each reporting period.

 

*Income Taxes*– Weare subject to income taxes in the United States and in several states.  We account for income taxes in accordancewith SFAS Statement 109, “Accounting for Income Taxes.”  Our income tax returns are subject toexamination by various taxing authorities. We regularly assess the potentialoutcomes of these examinations in determining the adequacy of our provision forincome taxes and our income tax liabilities. Inherent on our determination of any necessary reserves are assumptionsbased on past experiences and judgments about potential actions by taxingauthorities.  Our estimate of thepotential outcome for any uncertain tax issue is highly judgmental.  We believe we have adequately provided forany reasonable and foreseeable outcome related to uncertain tax matters.  When actual results of tax examinationsdiffer from our estimates, we adjust the income tax provision in the period inwhich the examination issues are settled.

 

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We have received proposed assessments fromthe Indiana Department of Revenue (“IDR”) in connection with our Indiana incometax returns for the years 1997 through 2002. Those assessments are based on the IDR’s position that state gamingtaxes are based on gaming revenues and are not deductible for Indiana incometax purposes.  We have filed a formalprotest of the proposed assessment with the IDR.  Additionally, another company and the IDRhave litigated this matter in Indiana Tax Court during 2001.  During April 2004, the court issued an opinionin this case finding for the IDR. This decision was appealed and on September28, 2004, the court denied the appeal. At September 30, 2004, we have accruedapproximately $20.6 million, net of federal tax benefit, for the proposed IDRassessments including amounts for additional pending assessments for the periodJanuary 1, 2003 through September 30, 2004. For the nine months ended September 30, 2004, we expensed $5.0 millionrelated to this issue.  We continue toreview the facts and circumstances of the proposed assessments.  Should our evaluation of the IDR’s proposedassessments change, we could be required to record additional expense forpenalties that could be assessed by the IDR.

 

# **Non-GAAP FinancialMeasures**

 

EBITDA is a supplemental measure of ourperformance that is not required by, or presented in accordance with GenerallyAccepted Accounting Principles (“GAAP”). EBITDA is not a measurement of ourfinancial performance under GAAP and should not be considered as an alternativeto net income, operating income or any other performance measures derived inaccordance with GAAP or as an alternative to cash flow from operatingactivities as measures of our liquidity.

 

EBITDA is defined as earningsbefore interest, taxes, depreciation and amortization. Our compensation plansbase incentive compensation payments in part on EBITDA performance measuredagainst targets, and we use it to establish our budgets and analyze ouroperations as compared to our budgets. In addition, our Credit Facility and ourindentures use measures similar to EBITDA (with additional adjustments) tomeasure our compliance with covenants such as interest coverage and debtincurrence. We believe EBITDA facilitates operating performance comparisonsfrom period to period and company to company by backing out potentialdifferences caused by variations in capital structures (affecting interestexpense), tax positions (such as the impact on periods or companies of changesin effective tax rates or net operating losses) and the age and bookdepreciation of facilities and equipment (affecting relative depreciationexpense). We also present EBITDA because we believe it is frequently used bysecurities analysts, investors and other interested parties in the evaluationof the operating performance of companies in the gaming industry, the vastmajority of which present EBITDA when reporting their results.

 

In addition, in evaluating EBITDA,you should be aware that in the future we will incur expenses such as thoseused in calculating EBITDA. Our presentation of EBITDA should not be construedas an inference that our future results will be unaffected by unusual ornonrecurring items.

 

EBITDA has limitations as ananalytical tool, and you should not consider it in isolation, or as asubstitute for analysis of our results as reported under GAAP. Some of theselimitations are:

 

•                                          itdoes not reflect our cash expenditures, or future requirements for capitalexpenditures or contractual commitments;

•                                          itdoes not reflect changes in, or cash requirements for, our working capitalneeds;

•                                          itdoes not reflect the significant interest expense, or the cash requirementsnecessary to service interest or principal payments, on our debt;

•                                          althoughdepreciation and amortization are non-cash charges, the assets beingdepreciated and amortized will often have to be replaced in the future, andEBITDA does not reflect any cash requirements for such replacements;

•                                          itis not adjusted for all non-cash income or expense items that are reflected inour statements of cash flows;

•                                          itdoes not reflect the impact of earnings or charges resulting from matters weconsider not to be indicative of our ongoing operations, as discussed in ourpresentation of EBITDA and Management’s Discussion and Analysis of FinancialCondition and Results of Operation; and

•                                          othercompanies in our industry may calculate EBITDA differently than we do, limitingits usefulness as a comparative measure.

 

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Because of these limitations,EBITDA should not be considered as a measure of discretionary cash available tous to invest in the growth of our business. We compensate for these limitationsby relying primarily on our GAAP results and using EBITDA only supplementally.

 

Property-level EBITDArepresents EBITDA attributable to a particular casino property before corporateexpense. We present property-level EBITDA as a further supplementalmeasure of the performance of our casino properties. Management uses property-levelEBITDA as the primary measure of our properties’ performance, including theevaluation of operating personnel at our properties. We also use property-levelEBITDA to make decisions regarding the allocation of capital among ourproperties. These decisions are made primarily by corporate management and ourboard of directors. We believe that property-level performance isappropriately measured before expenses such as interest and income taxes andother non-cash items such as depreciation and amortization, because we financeour operations at the consolidated level and file a consolidated taxreturn.

 

As an analytical tool, property-level EBITDA is subject to similarlimitations as EBITDA. In addition, because we do not include corporate expensein our computation, property-level EBITDA does not reflect all the costsof operating the properties as if each were a stand-alone business unit.Corporate expense includes significant expenses necessary to manage a multiplecasino operation, certain of which, such as corporate executive compensation, development,public company reporting, treasury, legal and tax expenses, would also berequired of a typical stand alone casino property.

 

**Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk**

 

The information called for bythis item is provided under the caption “Liquidity and Capital Resources” underItem 2 – Management’s Discussion and Analysis of Financial Condition andResults of Operations.

 

**Item 4.  Controls and Procedures**

 

(a)******                 ***Evaluation of disclosure controls and procedures:*

 

We maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in our Exchange Act reports is recorded, processed,summarized and reported within the time periods specified in the Commission’srules and forms, and that such information is accumulated and communicated toour management including our President and Chief Executive Officer and SeniorVice President and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

 

As of the end ofthe period covered by this Report, September 30, 2004, (the “Evaluation Date”),we carried out an evaluation, under the supervision and with the participationof the Company’s management, including Richard J. Glasier, our President andChief Executive Officer and Dale R. Black, our Senior Vice President and ChiefFinancial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures. Based upon that evaluation, the President and Chief Executive Officerand the Senior Vice President and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of the Evaluation Date.

 

(b)******                 ***Changes in internal controls:*

 

There was no change in theCompany’s internal controls during the period covered by this Report that couldmaterially affect, or could reasonably be expected to materially affect, theCompany’s internal control over financial reporting.

 

**PART II.****          OtherInformation**

 

**Item 1.**    *Legal Proceedings –*

 

The Company is from time to timea party to legal proceedings arising in the ordinary course of business.  No material changes have occurred since ourlast filing.

 

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**Item 2.**    *Unregistered Sales of Equity Securities and Use of Proceeds*–

 

(a)           None.

 

(b)           None.

 

(c)           None.

 

(d)           None.

 

(e)           OnMay 6, 2003, we announced Board of Directors approval of a stock repurchaseprogram authorizing us to repurchase up to $30.0 million of our commonstock.  The repurchases may be made atmanagement’s discretion without prior notice from time to time in the openmarket or through privately negotiated third party transactions in compliancewith applicable laws and depending on market conditions.  During the quarter ended September 30, 2004,we did not make any stock repurchases under the program.  The stock repurchase program has noexpiration date.

 

**Item 3.**    *Defaults Upon Senior Securities –* None

 

**Item 4.**    *Submission of Matters to a Vote of Security Holders –* None

 

**Item 5.**    *Other Information –*None

 

**Item 6.**    *Exhibits*

 
| Exhibit 10.1 |   | Third Amended and Restated Credit Agreement dated  September 30, 2004, among the (1) Company, Alton Gaming Company, Argosy of  Iowa, Inc., Argosy of Louisiana, Inc., Belle of Sioux City, L.P., Catfish  Queen Partnership In Commendam, Centroplex Centre Convention Hotel, L.L.C.,  Empress Casino Joliet Corporation, Indiana Gaming II, L.P., The Indiana  Gaming Company, Indiana Gaming Holding Company, Indiana Gaming Company, L.P.,  Iowa Gaming Company, Jazz Enterprises, Inc. and The Missouri Gaming Company,  (2) each of the financial institutions from time to time party hereto  (collectively, the “Lenders”); (3) Calyon New York Branch and  Bank Of Scotland, as Co-Syndication Agents; (4) Morgan Stanley Bank and  Bank Of America, N.A., as Co-Documentation Agents; and (5) Wells Fargo  Bank, National Association, a national banking association, as Administrative  Agent, L/C Issuer and Swing Line Lender. |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Exhibit 10.2 |   | Third Amendment to Riverboat Gaming Development  Agreement Between City of Lawrenceburg, Indiana, and the Indiana Gaming  Company, L.P. dated June 24, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Exhibit 31.1 |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Exhibit 31.2 |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Exhibit 32.1 |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Exhibit 32.2 |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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**ARGOSYGAMING COMPANY**

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
| ** **             | Argosy  Gaming Company                          |   |
|------------------------|-------------------------------------------------|--------|
| ** **             | Registrant                                      |   |
|                   |                                            |
| Date: October 29, 2004 | /s/ Dale R. Black                               |   |
|                   | Dale R. Black                                   |
|                   | Senior Vice President - Chief Financial Officer |
|                        |                                                 |        |  |

 

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