** **

**SECURITIESAND EXCHANGE COMMISSION**

 

**WASHINGTON,D.C., 20549**

**FORM 10-Q**

 
| **ý** | **Quarterly Report under Section 13  or 15(d) of the Securities Exchange Act of 1934** |
|------------|----------------------------------------------------------------------------------------|
|       |                                                                                   |
|       | **For the quarterly period ended March 31, 2002.**                                     |

 

**or**

 
| **o** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**Commission File Number 1-11853**

 

| **ARGOSY  GAMING COMPANY**                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as Specified in its Charter)                                                                      |
|                                                                                                                        |   |   |
| **Delaware**                                                                                                                |   | **37-1304247** |
| (State or other jurisdiction  of incorporation)                                                                             |   | (I.R.S. Employer  Identification No.) |
|                                                                                                                        |   |   |
| **219 Piasa Street  Alton, Illinois 62002  (618) 474-7500**                                                                 |
| (Address, including zip code, and telephone number, including  area code, of Registrant’s principal executive offices) |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.         Yes  ý    No o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS:**

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock as of thelatest practicable date:  28,846,229shares of Common Stock, $.01 par value per share, as of May 8, 2002.

 

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**ARGOSYGAMING COMPANY**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

(In Thousands, Except Share and Per Share Data)

 
|                                                                                                                                                                        |   | **March 31,**   | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|------------|------------------|------------|
|                                                                                                                                                                        |   | **2002**        | ** ** | **2001**         | ** ** |
|                                                                                                                                                                        |   | **(unaudited)** | ** ** |             | ** ** |
| **Current  assets:**                                                                                                                                                        |   |            | ** ** |             | ** ** |
| Cash and cash  equivalents                                                                                                                                                  |   | $               | 59,359     |             | $          | 57,221 |   |
| Accounts  receivable                                                                                                                                                        |   | 4,464           |       | 4,384            |       |
| Income taxes  receivable                                                                                                                                                    |   | —          |       | 6,703            |       |
| Deferred income  taxes                                                                                                                                                      |   | 6,357           |       | 6,357            |       |
| Other current  assets                                                                                                                                                       |   | 5,083           |       | 5,679            |       |
| Total current assets                                                                                                                                                        |   | 75,263          |       | 80,344           |       |
|                                                                                                                                                                        |   |            |       |             |       |
| **Net  property and equipment**                                                                                                                                             |   | 438,885         |       | 442,613          |       |
|                                                                                                                                                                        |   |            |       |             |       |
| **Other  assets:**                                                                                                                                                          |   |            | ** ** |             | ** ** |
| Deferred finance  costs, net                                                                                                                                                |   | 23,739          |       | 24,939           |       |
| Goodwill, net                                                                                                                                                               |   | 727,443         |       | 727,443          |       |
| Intangible  assets, net                                                                                                                                                     |   | 30,160          |       | 30,746           |       |
| Other, net                                                                                                                                                                  |   | 6,289           |       | 5,626            |       |
| Total other assets                                                                                                                                                          |   | 787,631         |       | 788,754          |       |
| **Total  assets**                                                                                                                                                           |   | $               | 1,301,779  |             | $          | 1,311,711 |   |
|                                                                                                                                                                        |   |            |       |             |       |   |   |
| **Current  liabilities:**                                                                                                                                                   |   |            | ** ** |             | ** ** |
| Accounts payable                                                                                                                                                            |   | $               | 13,400     |             | $          | 14,048 |   |
| Accrued payroll  and related expenses                                                                                                                                       |   | 21,448          |       | 19,838           |       |
| Other accrued  liabilities                                                                                                                                                  |   | 52,332          |       | 60,846           |       |
| Accrued interest                                                                                                                                                            |   | 14,836          |       | 11,622           |       |
| Income taxes  payable                                                                                                                                                       |   | 7,358           |       | —           |       |
| Current  maturities of long-term debt                                                                                                                                       |   | 4,346           |       | 4,307            |       |
| Total current  liabilities                                                                                                                                                  |   | 113,720         |       | 110,661          |       |
|                                                                                                                                                                        |   |            |       |             |       |
| **Long-term  debt**                                                                                                                                                         |   | 953,203         |       | 994,845          |       |
| **Deferred  income taxes**                                                                                                                                                  |   | 30,808          |       | 27,667           |       |
| **Other  long-term obligations**                                                                                                                                            |   | 510             |       | 536              |       |
|                                                                                                                                                                        |   |            | ** ** |             | ** ** |
| **Stockholders'  equity:**                                                                                                                                                  |   |            | ** ** |             | ** ** |
| Common stock,  $.01 par; 60,000,000 shares authorized; 28,845,710 and 28,829,480 shares  issued and outstanding at March 31, 2002 and December 31, 2001,  respectively |   | 289             |       | 288              |       |
| Capital in  excess of par                                                                                                                                                   |   | 87,206          |       | 86,845           |       |
| Accumulated  other comprehensive income                                                                                                                                     |   | 2,283           |       | 1,809            |       |
| Retained  earnings                                                                                                                                                          |   | 113,760         |       | 89,060           |       |
| Total stockholders'  equity                                                                                                                                                 |   | 203,538         |       | 178,002          |       |
| **Total  liabilities and stockholders' equity**                                                                                                                             |   | $               | 1,301,779  |             | $          | 1,311,711 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

2

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**ARGOSYGAMING COMPANY**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME**

(In Thousands,Except Share and Per Share Data)

 
|                                               |   | **Three Months Ended** |    |
|----------------------------------------------------|--------|------------------------|---------|
|                                               |   | **March 31,  2002**    |    | **March 31,  2001** |   |
|                                               |   | **(unaudited)**        |    | **(unaudited)** |   |
| **Revenues:**                                      |   |                   |    |   |   |
| Casino                                             |   | $                      | 242,090 |   | $ | 171,780 |   |
| Admissions                                         |   | 2,792                  |    | 4,639 |   |
| Food, beverage  and other                          |   | 24,732                 |    | 17,167 |   |
|                                               |   | 269,614                |    | 193,586 |   |
| Less promotional  allowances                       |   | (25,748                | )       | (22,851 | ) |
| Net revenues                                       |   | 243,866                |    | 170,735 |   |
|                                               |   |                   |    |   |   |
| **Costs  and expenses:**                           |   |                   |    |   |   |
| Casino                                             |   | 106,683                |    | 70,669 |   |
| Selling, general  and administrative               |   | 33,319                 |    | 29,175 |   |
| Food, beverage  and other                          |   | 18,737                 |    | 12,578 |   |
| Other operating  expenses                          |   | 10,494                 |    | 8,052 |   |
| Depreciation and  amortization                     |   | 11,614                 |    | 10,073 |   |
|                                               |   | 180,847                |    | 130,547 |   |
| Income from  operations                            |   | 63,019                 |    | 40,188 |   |
|                                               |   |                   |    |   |   |
| **Other  income (expense):**                       |   |                   |    |   |   |
| Interest income                                    |   | 50                     |    | 486 |   |
| Interest expense                                   |   | (20,846                | )       | (11,882 | ) |
|                                               |   | (20,796                | )       | (11,396 | ) |
|                                               |   |                   |    |   |   |
| Income before  income taxes and minority interests |   | 42,223                 |    | 28,792 |   |
|                                               |   |                   |    |   |   |
| Minority  interests                                |   | —                 |    | (4,086 | ) |
| Income tax  expense                                |   | (17,523                | )       | (10,123 | ) |
|                                               |   |                   |    |   |   |
| **Net  income**                                    |   | $                      | 24,700  |   | $ | 14,583 |   |
|                                               |   |                   |    |   |   |
| **Basic  net income per share**                    |   | $                      | 0.86    |   | $ | 0.51 |   |
|                                               |   |                   |    |   |   |
| **Diluted  net income per share**                  |   | $                      | 0.84    |   | $ | 0.50 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

3

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**ARGOSYGAMING COMPANY**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

(In Thousands,Except Share and Per Share Data)

 
|                                                                               |   | **Three Months Ended** |   |
|------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                               |   | **March 31,  2002**    |   | **March 31,  2001** |   |
|                                                                               |   | **(unaudited)**        |   | **(unaudited)** |   |
| **Cash  flows from operating activities:**                                         |   |                   |   |   |   |
| Net  income                                                                   |   | $                      | 24,700 |   | $ | 14,583 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                   |   |   |   |
| Depreciation                                                                       |   | 11,027                 |   | 8,395 |   |
| Amortization                                                                       |   | 1,591                  |   | 2,052 |   |
| Loss (gain) on  sale of fixed assets                                               |   | 355                    |   | (29 | ) |
| Minority  interests                                                                |   | —                 |   | 4,086 |   |
| Deferred income  taxes                                                             |   | 2,962                  |   | (259 | ) |
| Changes in  operating assets and liabilities:                                      |   |                   |   |   |   |
| Accounts  receivable and other current assets                                      |   | 7,360                  |   | (694 | ) |
| Accounts payable  and other current liabilities                                    |   | 3,020                  |   | 3,619 |   |
| Net cash  provided by operating activities                                         |   | 51,015                 |   | 31,753 |   |
|                                                                               |   |                   |   |   |   |
| **Cash  flows from investing activities:**                                         |   |                   |   |   |   |
| Purchases of  property and equipment                                               |   | (8,138                 | )      | (7,751 | ) |
| Purchases of  minority interests in partnership                                    |   | —                 |   | (366,265 | ) |
| Other                                                                              |   | 458                    |   | (1,076 | ) |
| Net cash used in  investing activities                                             |   | (7,680                 | )      | (375,092 | ) |
|                                                                               |   |                   |   |   |   |
| **Cash  flows from financing activities:**                                         |   |                   |   |   |   |
| Payments on  long-term debt                                                        |   | (908                   | )      | (14,215 | ) |
| Repayment of  partner loans                                                        |   | —                 |   | (266 | ) |
| Partnership  equity distributions                                                  |   | —                 |   | (5,199 | ) |
| Proceeds from  issuance of subordinated notes                                      |   | —                 |   | 159,000 |   |
| Proceeds from  (repayment of) line of credit, net                                  |   | (40,500                | )      | 195,400 |   |
| Payments of  deferred finance costs                                                |   | —                 |   | (5,999 | ) |
| Payment of  preferred equity return and dividends to partner                       |   | —                 |   | (456 | ) |
| Proceeds from  stock option exercises                                              |   | 211                    |   | 340 |   |
| Other                                                                              |   | —                 |   | 21 |   |
| Net cash (used  in) provided by financing activities                               |   | (41,197                | )      | 328,626 |   |
| Net increase  (decrease) in cash and cash equivalents                              |   | 2,138                  |   | (14,713 | ) |
| Cash and cash  equivalents, beginning of period                                    |   | 57,221                 |   | 59,374 |   |
| Cash and cash  equivalents, end of period                                          |   | $                      | 59,359 |   | $ | 44,661 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

4

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**ARGOSYGAMING COMPANY**

**CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

(Unaudited—InThousands, Except Share and Per Share Data)

 
|                                                  |   | **Shares** | ** ** | **Common  Stock** | ** ** | **Capital in  Excess of Par** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Retained  Earnings** |   | **Total  Stockholders'  Equity** |   |
|-------------------------------------------------------|--------|------------|------------|-------------------|------------|-------------------------------|------------|-----------------------------------------------|------------|------------------------|--------|----------------------------------|--------|
| Balance,  December 31, 2001                           |   | 28,829,480 |       | $                 | 288        |                          | $          | 86,845                                        |       | $                      | 1,809  |                             | $      | 89,060 |   | $ | 178,002 |   |
| Exercise of stock  options, including tax benefit     |   | 16,230     |       | 1                 |       | 361                           |       |                                          |       |                   |   | 362                              |   |
| Comprehensive  income:                                |   |       |       |              |       |                          |       |                                          |       |                   |   |                             |   |
| Other  comprehensive income - interest rate swaps     |   |       |       |              |       |                          |       | 474                                           |       |                   |   | 474                              |   |
| Net income for  the three months ended March 31, 2002 |   |       |       |              |       |                          |       |                                          |       | 24,700                 |   | 24,700                           |   |
| Comprehensive  income                                 |   |       |       |              |       |                          |       |                                          |       |                   |   | 25,174                           |   |
|                                                  |   |       |       |              |       |                          |       |                                          |       |                   |   |                             |   |
| Balance, March  31, 2002                              |   | 28,845,710 |       | $                 | 289        |                          | $          | 87,206                                        |       | $                      | 2,283  |                             | $      | 113,760 |   | $ | 203,538 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

5

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**ARGOSY GAMING COMPANY**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(UNAUDITED)**

(In Thousands,Except Share and Per Share Data)

 

**1.         Basis of Presentation**

 

ArgosyGaming Company provides casino-style gaming and related entertainment to thepublic and, through our subsidiaries, operates casinos in Alton and Joliet,Illinois; Lawrenceburg, Indiana; Riverside, Missouri; Baton Rouge, Louisiana;and Sioux City, Iowa.  Except where otherwisenoted, the words “we”, “us”, “our” and similar terms, as well as “Argosy” orthe “Company”, refer to Argosy Gaming Company and all of its subsidiaries.

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with the instructions to Form 10-Q and Article 10 ofRegulation S-X.  Accordingly, they donot include all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  Interim results may not necessarily beindicative of results which may be expected for any other interim period or forthe year as a whole.  For furtherinformation, refer to the financial statements and footnotes thereto for theyear ended December 31, 2001, included in our Annual Report on Form 10-K (FileNo. 1-11853).  The accompanyingunaudited condensed consolidated financial statements contain all adjustmentswhich are, in the opinion of management, necessary to present fairly thefinancial position and the results of operations for the periodsindicated.  Such adjustments includeonly normal recurring accruals.  Certain2001 amounts have been reclassified to conform to the 2002 financial statementpresentation.

 

TheFinancial Accounting Standards Board issued SFAS Statement 142, “Goodwill andOther Intangible Assets.”  Under thisstatement, amortization of the remaining book value of goodwill ceased as ofJanuary 1, 2002 and will be tested for impairment at least annually.  During the first half of 2002, we willperform the first of the required impairment tests of goodwill and indefinitelived intangible assets and as such have not yet determined what the effect ofthese tests, if any, will be on our earnings and financial position.  If SFAS 142 had been in effect January 1,2001, pre-tax goodwill amortization of $1,310 would not have been recorded forthe three months ended March 31, 2001. This would have increased our net income by $773 to $15,356 and ourdiluted net income per share by $0.03 to $0.53 for the three months ended March31, 2001.

 

**2.         Long-Term Debt**

 

Long-termdebt consists of the following:

 
|                                                                                                                                            |   | **March 31,  2002** |    | **December 31,  2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
| Senior secured  line of credit, expires July 31, 2006, interest payable at least quarterly at  either LIBOR or prime plus a margin              |   | $                   | 121,700 |                   | $      | 162,200 |   |
|                                                                                                                                            |   |                |    |                   |   |
| Term loan,  matures July 31, 2008, principal and interest payments due quarterly at  either LIBOR and/or prime plus a margin                    |   | 272,938             |    | 273,625                |   |
|                                                                                                                                            |   |                |    |                   |   |
| Senior  subordinated notes, including unamortized premium of $8,136 at March 31,  2002, due June 2009, interest payable semi-annually at 10.75% |   | 358,136             |    | 358,331                |   |
|                                                                                                                                            |   |                |    |                   |   |
| Senior  subordinated notes, due September 2011, interest payable quarterly at 9%                                                                |   | 200,000             |    | 200,000                |   |
|                                                                                                                                            |   |                |    |                   |   |
| Notes payable,  principal and interest payments due quarterly through September 2015,  discounted at 10.5%                                      |   | 4,775               |    | 4,996                  |   |
|                                                                                                                                            |   | 957,549             |    | 999,152                |   |
| Less:  current maturities                                                                                                                  |   | 4,346               |    | 4,307                  |   |
| Long-term debt,  less current maturities                                                                                                        |   | $                   | 953,203 |                   | $      | 994,845 |   |

 

6

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OnJuly 26, 2001, we issued $200,000 of 9.0% senior subordinated notes due2011.  On February 1, 2001, we issued$150,000 of additional 103⁄4% senior subordinated notes due 2009.  Prior to this issuance, we had $200,000 ofoutstanding 103⁄4% subordinated notes (all “subordinated notes”).  On July 31, 2001, we entered into an amendedand restated senior secured line of credit, maintaining our available line ofcredit at $400,000 and adding a term loan of $275,000 (“credit facility”).  The credit facility is secured by liens onsubstantially all of our assets and our subsidiaries are co-borrowers.  Substantially all of our subsidiaries fullyand unconditionally guarantee the subordinated notes on a joint and severablebasis.  The subordinated notes rankjunior to all of our senior indebtedness, including borrowings under the creditfacility.

 

Thesubordinated notes and the credit facility contain certain restrictions on thepayment of dividends on our common stock and the incurrence of additionalindebtedness, as well as other customary debt covenants.  In addition, the credit facility requires usto maintain certain financial ratios as follows: (1) Total Funded Debt toEBITDA Ratio of a maximum of 4.25 to 1.0; (2) Senior Leverage Ratio of amaximum of 2.50 to 1.0; and (3) Fixed Charge Ratio of a minimum of 1.25 to1.0.  As of March 31, 2002, we are incompliance with these ratios.

 

**3.         EarningsPer Share**

 

The following table setsforth the computation of basic and diluted earnings per share:

 
|                                                                                                    |   | **Three Months Ended** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                    |   | **March 31,  2002**    |   | **March 31,  2001** |   |
|                                                                                                    |   | **(unaudited)**        |   | **(unaudited)** | ** ** |
| **Numerator:**                                                                                          |   |                   |   |   |   |
| Numerator for  basic and diluted earnings per share -                                                   |   |                   |   |   |   |
| Net income                                                                                              |   | $                      | 24,700 |   | $ | 14,583 |   |
|                                                                                                    |   |                   |   |   |   |
| **Denominator:**                                                                                        |   |                   |   |   |   |
| Denominator for  basic earnings per share - weighted-average shares outstanding                         |   | 28,834,559             |   | 28,455,459 |   |
|                                                                                                    |   |                   |   |   |   |
| Effect of  dilutive securities (computed using the treasury stock method):                              |   |                   |   |   |   |
| Employee and  directors stock options                                                                   |   | 481,643                |   | 718,385 |   |
| Warrants                                                                                                |   | 81,424                 |   | 75,023 |   |
| Dilutive  potential common shares                                                                       |   | 563,067                |   | 793,408 |   |
|                                                                                                    |   |                   |   |   |   |
| Denominator for  diluted earnings per share - adjusted weighted-average shares and assumed  conversions |   | 29,397,626             |   | 29,248,867 |   |
|                                                                                                    |   |                   |   |   |   |
| Basic earnings  per share                                                                               |   | $                      | 0.86   |   | $ | 0.51 |   |
|                                                                                                    |   |                   |   |   |   |
| Diluted earnings  per share                                                                             |   | $                      | 0.84   |   | $ | 0.50 |   |

 

7

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**4.         Acquisitions**

 

In 2001, we purchased the42.5% limited partnership interests in the Argosy Casino and Hotel inLawrenceburg, Indiana (the “Lawrenceburg Casino”) for an aggregate price of$365,000 including all preferred equity interest and outstanding partnerloans.  As a result of theseacquisitions, we now own 100% of the Lawrenceburg casino.

 

The purchase prices forthe minority interests were determined based upon estimates of future cashflows and evaluations of the net worth of the assets acquired.  The purchases are being accounted for under the purchasemethod.  The allocation of the purchaseprice resulted in approximately $298,000 in goodwill, which was being amortizedover a 40-year life.  In accordance withSFAS Statement 142, amortization of the remaining book value of goodwill ceasedas of January 1, 2002, and will be tested for impairment at leastannually.  The purchases were fundedwith approximately $155,000 of net proceeds from the issuance of subordinatednotes and borrowings of approximately $210,000 under our credit facility.

 

On July 31, 2001, wediversified our operations and cash flows by completing the acquisition of 100%of the Empress Casino Joliet Corporation (with casino operations located inJoliet, Illinois) for approximately $463,764. The purchase price was determined based upon estimates of future cashflows and the net worth of the assets acquired.  We funded this acquisition through the issuance of subordinatednotes and borrowings under the credit facility.

 

The Empress Casino Jolietacquisition was accounted for using the purchase method under SFAS Statement141.  The allocation of the purchaseprice, using appraised values, resulted in approximately $409,000 in goodwilland $5,400 in intangibles.  Inaccordance with SFAS Statement 142, the goodwill will not be amortized butinstead subject to impairment testing at least annually.

 

Thefollowing unaudited pro forma consolidated financial information for the threemonths ended March 31, 2001 has been prepared assuming the acquisitions andimplementation of SFAS Statements 141 and 142 had occurred on January 1, 2001(for the three months ended March 31, 2001, pre-tax amortization of goodwill of$1,310 has been excluded).

 
|                          |   | **For the three months ended** |    |
|-------------------------------|--------|--------------------------------|---------|
|                          |   | **March 31, 2002  Actual**     |    | **March 31, 2001  Pro Forma** |   |
|                          |   | **(unaudited)**                |    | **(unaudited)** | ** ** |
| Net revenues                  |   | $                              | 243,866 |   | $ | 238,046 |   |
|                          |   |                           |    |   |   |
| Income from  operations       |   | $                              | 63,019  |   | $ | 60,809 |   |
|                          |   |                           |    |   |   |
| Net income                    |   | $                              | 24,700  |   | $ | 20,582 |   |
|                          |   |                           |    |   |   |
| Diluted net  income per share |   | $                              | 0.84    |   | $ | 0.70 |   |

 

Theseunaudited pro forma results are presented for comparative purposes only.  The pro forma results are not necessarilyindicative of what our actual results would have been had the acquisitions beencompleted as of the beginning of the respective year, or of future results.

 

**5.         Commitments and Contingent Liabilities**

 

Weare subject to, from time to time, various legal and regulatory proceedings inthe ordinary course of our business.  Webelieve that current proceedings will not have a material effect on ourfinancial condition or the results of our operations.

 

8

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**ARGOSY GAMING COMPANY**

**MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS**

 

*Except where otherwise noted, thewords, “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.*

 

**Overview**

 

We own and operate the Alton Belle Casino, in Alton, Illinois; theEmpress Casino Joliet in Joliet, Illinois; the Argosy Casino in Riverside,Missouri; the Argosy Casino in Baton Rouge, Louisiana; the Belle of Sioux CityCasino in Sioux City, Iowa; and the Argosy Casino in Lawrenceburg, Indiana.  In the first quarter of 2001, we became thesole owner of the Argosy Casino in Lawrenceburg, Indiana, through the purchaseof the 42.5% minority interests in the property.  Prior to this acquisition, we were the majority owner of theLawrenceburg casino and, as such, our historical consolidated financialstatements included the assets, liabilities and results of operations for theLawrenceburg casino on a consolidated basis.

 

On July 31, 2001, we acquired the Empress Casino Joliet inJoliet, Illinois on a 300-acre site approximately 40 miles southwest of Chicagoand approximately two miles from the intersection of Interstate 55 andInterstate 80.  We funded thisacquisition through the issuance of $200 million of 9.0% senior subordinatednotes due 2011 and a $275 million term loan through our amended and restatedcredit facility dated July 31, 2001.

 

9

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|                                     |   | **Three Months Ended** | ** ** |
|------------------------------------------|--------|------------------------|------------|
|                                     |   | **March 31,  2002**    | ** ** | **March 31,  2001** | ** ** |
|                                     |   | **(unaudited)**        |       | **(unaudited)** | ** ** |
| **Casino  Revenues**                     |   |                   |       |   |   |
| Alton Belle  Casino                      |   | $                      | 31,070     |   | $ | 31,087 |   |
| Argosy Casino -  Riverside               |   | 25,798                 |       | 25,375 |   |
| Argosy Casino -  Baton Rouge             |   | 20,164                 |       | 19,054 |   |
| Belle of Sioux  City Casino              |   | 9,778                  |       | 8,869 |   |
| Argosy Casino -  Lawrenceburg            |   | 93,042                 |       | 87,395 |   |
| Empress Casino  Joliet (1)               |   | 62,238                 |       | — |   |
| Total                                    |   | $                      | 242,090    |   | $ | 171,780 |   |
|                                     |   |                   |       |   |   |
| **Net  Revenues**                        |   |                   |       |   |   |
| Alton Belle  Casino                      |   | $                      | 30,006     |   | $ | 29,940 |   |
| Argosy Casino -  Riverside               |   | 24,786                 |       | 24,391 |   |
| Argosy Casino -  Baton Rouge             |   | 20,506                 |       | 18,570 |   |
| Belle of Sioux  City Casino              |   | 9,636                  |       | 8,632 |   |
| Argosy Casino -  Lawrenceburg            |   | 95,095                 |       | 89,069 |   |
| Empress Casino  Joliet (1)               |   | 63,731                 |       | — |   |
| Other                                    |   | 106                    |       | 133 |   |
| Total                                    |   | $                      | 243,866    |   | $ | 170,735 |   |
|                                     |   |                   |       |   |   |
| **Income  (loss) from Operations (2)**   |   |                   |       |   |   |
| Alton Belle  Casino                      |   | $                      | 8,489      |   | $ | 9,500 |   |
| Argosy Casino -  Riverside               |   | 5,949                  |       | 5,830 |   |
| Argosy Casino -  Baton Rouge             |   | 3,377                  |       | 2,121 |   |
| Belle of Sioux  City Casino              |   | 2,154                  |       | 1,855 |   |
| Argosy Casino -  Lawrenceburg            |   | 32,669                 |       | 28,580 |   |
| Empress Casino  Joliet (1)               |   | 17,077                 |       | — |   |
| Jazz  Enterprises, Inc. (3)              |   | (746                   | )          | (1,243 | ) |
| Corporate                                |   | (5,700                 | )          | (6,097 | ) |
| Other                                    |   | (250                   | )          | (358 | ) |
| Total                                    |   | $                      | 63,019     |   | $ | 40,188 |   |
|                                     |   |                   |       |   |   |
| **EBITDA  (2)(4)**                       |   |                   |       |   |   |
| Alton Belle  Casino                      |   | $                      | 10,095     |   | $ | 10,938 |   |
| Argosy Casino -  Riverside               |   | 7,032                  |       | 6,854 |   |
| Argosy Casino -  Baton Rouge             |   | 4,942                  |       | 3,505 |   |
| Belle of Sioux  City Casino              |   | 2,709                  |       | 2,244 |   |
| Argosy Casino -  Lawrenceburg            |   | 36,175                 |       | 33,197 |   |
| Empress Casino  Joliet (1)               |   | 19,478                 |       | — |   |
| Lawrenceburg  financial advisory fee (5) |   | —                 |       | (927 | ) |
| Jazz  Enterprises, Inc. (3)              |   | (337                   | )          | (555 | ) |
| Corporate                                |   | (5,450                 | )          | (4,982 | ) |
| Other                                    |   | (11                    | )          | (13 | ) |
| Total                                    |   | $                      | 74,633     |   | $ | 50,261 |   |

 

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(1)          Aswe acquired the Empress Casino Joliet on July 31, 2001, the three months endedMarch 31, 2001 does not include any operations under our ownership.  In accordance with FASB Statement 142, Accountingfor Goodwill and Intangible Assets, no amortization expense has been recordedon the goodwill portion of the purchase price.

 

(2)          Incomefrom operations and EBITDA exclude consideration of any management fee paid tous and the 42.5% minority interest in our Lawrenceburg casino for periods priorto our first quarter 2001 acquisitions of these minority interests.

 

(3)          JazzEnterprises, Inc. is a wholly owned subsidiary that owns and operates theCatfish Town real estate development adjacent to our Baton Rouge casino.

 

(4)          “EBITDA” is defined as earnings beforeinterest, taxes, depreciation and amortization and is presented before anymanagement fees paid to Argosy.  EBITDAshould not be construed as an alternative to operating income, or net income(as determined in accordance with generally accepted accounting principles) asan indicator of our operating performance, or as an alternative to cash flowsgenerated by operating, investing and financing activities (as an indicator ofcash flow or a measure of liquidity). EBITDA is presented solely as a supplemental disclosure becausemanagement believes that it is a widely used measure of operating performancein the gaming industry and for companies with a significant amount ofdepreciation and amortization.  EBITDAmay not be comparable to similarly titled measures reported by othercompanies.  We have other significantuses of cash flows, including debt service and capital expenditures, which arenot reflected in EBITDA.

 

(5)          The Lawrenceburg partnership paid afinancial advisory fee equal to 5.0% of its EBITDA to a minority partner priorto our acquisition of this minority interest in February 2001.

 

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**Three months ended March 31, 2002compared to three months ended March 31, 2001**

 

*Casino*—Casino revenues for the three months ended March31, 2002, increased $70.3 million, or 40.9% to $242.1 million from $171.8million for the three months ended March 31, 2001.  Our Empress Casino Joliet, acquired July 31, 2001, recorded $62.2million in casino revenue for the three months ended March 31, 2002.  Lawrenceburg casino revenues increased $5.6million, or 6.5%, to $93.0 million for the three months ended March 31, 2002,from $87.4 million for the three months ended March 31, 2001.  Alton, Riverside, Sioux City and Baton Rougereported an aggregate 2.9% increase in casino revenues from $84.4 million to$86.8 million. In particular, Alton casino revenues remained comparable at $31.1million, Riverside casino revenues increased from $25.4 million to $25.8million, Sioux City casino revenues increased from $8.9 million to $9.8million, and Baton Rouge casino revenues increased from $19.1 million to $20.2million.  Each of our casinos reportedincreases in the average win per passenger for the three months ended March 31,2002, versus the three months ended March 31, 2001, except Sioux City, whichhad a significant increase in the number of passengers.

 

Casinoexpenses increased $36.0 million to $106.7 million for the three months endedMarch 31, 2002, from $70.7 million for the three months ended March 31,2001.  Joliet had $32.6 million incasino expenses for the three months ended March 31, 2002.  The remaining increase is due to increasedgaming taxes totaling $2.3 million and increases in other casino expenses of$1.1 million to support the overall increased revenues as well as increasedpayroll related costs at all properties.

 

*Admissions*—Admissions revenues (net of complimentaryadmissions) decreased to $0.4 million for the three months ended March 31,2002, from $1.0 million for the three months ended March 31, 2001, due to adecrease in the admissions price during the first quarter 2002 at Lawrenceburg.

 

*Food, Beverageand Other*—Food, beverageand other revenues increased $7.5 million to $24.7 million for the three monthsended March 31, 2002, from $17.2 million for the three month period ended March31, 2001.  Joliet contributed $5.2million of this increase.  Food,beverage and other net profit increased $1.4 million to $6.0 million for thethree months ended March 31, 2002, from $4.6 million for the three months endedMarch 31, 2001.  Joliet contributed $0.6million of this increase.  The remainderof the increases is an overall increase in revenues and profits spreadthroughout our other properties.

 

*Selling, General and Administrative*—Selling,general and administrative expenses increased $4.1 million to $33.3 million forthe three months ended March 31, 2002, from $29.2 million for the three monthsended March 31, 2001, due primarily to Joliet’s expenses of $4.3 million forthe three months ended March 31, 2002.

 

*Other OperatingExpenses*—Other operatingexpenses increased by $2.4 million to $10.5 million for the three months endedMarch 31, 2002, as compared to $8.1 million for the three months ended March31, 2001.  Joliet incurred $2.8 millionof other operating expenses during the three months ended March 31, 2002.

 

*Depreciationand Amortization*—Depreciationand amortization increased $1.5 million from $10.1 million for the three monthsended March 31, 2001, to $11.6 million for the three months ended March 31,2002.  Joliet added $2.4 million ofdepreciation and intangible asset amortization and the other properties combinedadded $0.4 million for the three months ended March 31, 2002.  These increases are offset by a decrease ingoodwill amortization due to its’ elimination in accordance with SFAS 142,effective as of January 1, 2002 for all goodwill.  If SFAS 142 had been in effect January 1, 2001, pre-tax goodwillamortization of $1.3 million would not have been recorded for the three monthsended March 31, 2001.  This would haveincreased our net income by $0.8 million to $15.4 million and our diluted netincome per share by $0.03 to $0.53 for the three months ended March 31, 2001.

 

*InterestExpense*—Net interestexpense increased $9.4 million to $20.8 million for the three months endedMarch 31, 2002, from $11.4 million for the three months ended March 31,2001.  This increase is primarilyattributable to additional borrowings in connection with the Lawrenceburg andJoliet acquisitions.

 

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*MinorityInterests —*We had nominority interest expense for the three months ended March 31, 2002, ascompared to $4.1 million for the three months ended March 31, 2001.  This decrease is attributable to ourLawrenceburg casino minority interests acquisitions during the first quarter2001, and as the sole owner, we no longer incur minority interest expense.

 

*Income TaxExpense —*Income taxexpense increased by $7.4 million to $17.5 million for the three months endedMarch 31, 2002, from $10.1 million for the three months ended March 31, 2001,due to increased pre-tax earnings (net of minority interests expense in 2001).

 

*Net Income —*Net income was $24.7 million for the three monthsended March 31, 2002, compared to $14.6 million for the three months endedMarch 31, 2001, due primarily to the factors discussed above.

 

**Competition**

 

Our Alton Casino faces competition from four other riverboat casinooperators in the St. Louis area.  OurRiverside Casino faces competition from three casino companies in the KansasCity area.  Our 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 Lawrenceburg casino faces competitionfrom two riverboat casinos in the Cincinnati market.  Our Joliet casino faces competition from eight other riverboatcasino operators in the Chicago area. There could be further unanticipated competition in any market, which weoperate as a result of legislative changes or other events.  We expect each market in which weparticipate, both current and prospective, to be highly competitive.

 

**Liquidity and Capital Resources**

 

In the three months ended March 31, 2002, we generated cash flows fromoperating activities of $51.0 million compared to $31.8 million for the sameperiod in 2001.  This increase is due primarilyto increases in our net income of $10.1 million and working capital of $7.5million for the three months ended March 31, 2002 over the three months endedMarch 31, 2001, throughout our properties.

 

In the threemonths ended March 31, 2002, we used cash flows for investing activities of$7.7 million compared to $375.1 million for the three months ended March 31,2001.  The greater use of funds for thethree months ended March 31, 2001, is due primarily to our acquisition of theminority interests in the Lawrenceburg casino requiring the use of $366.3million in cash.

 

During the threemonths ended March 31, 2002, cash of $41.2 million was used by financingactivities compared to $328.7 million of cash flows provided by financingactivities for the same period in 2001. In 2001, $354.4 million was provided through the issuance of seniorsubordinated notes and borrowings on our credit facility.  These funds were used to fund the purchasesof the Lawrenceburg casino minority interests. For the three months ended March 31, 2002, we used $40.5 million forrepayments on our credit facility.  Cashflows in 2001 were also used for repayment of partner loans and distributionsrelated to the Lawrenceburg partnership.

 

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At March 31, 2002,we had approximately $59.4 million of cash and cash equivalents.  At March 31, 2002, we had outstanding $394.6million on our senior secured credit facility ($121.7 million on our revolverand $272.9 million on our term loan).  Additionally, we had outstanding $558.1 million of subordinatednotes (due in June 2009 and September 2011), including $8.1 million ofunamortized premium.  As of March 31, 2002,availability under the credit facility was approximately $275.6 million.  We have no off balance sheet debt.

 

During October2001, we effectively fixed the interest rate on approximately $200.0 million ofour term loan through three interest rate swap agreements expiring on September30, 2004.  For each swap agreement, we agreeto receive a floating rate of interest on the notional principal amount basedupon a three month LIBOR rate (plus a 2.75% spread) in exchange for fixed ratesranging from 6.19% to 6.27%.  As ofMarch 31, 2002, the notional principal amounts were $199.5 million.  These notional amounts do not representamounts exchanged by the parties and, thus, are not a measure of our exposureto credit loss.  In accordance with SFAS133, “Accounting for Derivative Instruments and Hedging Activities”, werecorded, as of March 31, 2002, the fair value of these interest rate swapagreements in the consolidated balance sheet in other assets ($3.9 millionpretax) and the related change in fair value of these agreements is deferred instockholders’ equity as a component of accumulated other comprehensive income($2.3 million net of deferred taxes of $1.6 million).

 

The subordinatednotes and the credit facility contain certain restrictions on the payment ofdividends on our common stock and the occurrence of additional indebtedness, aswell as other typical debt covenants. In addition, the credit facility requires us to maintain certainfinancial ratios as follows:  (1) TotalFunded Debt to EBITDA Ratio of a maximum of 4.25 to 1.0; (2) Senior LeverageRatio of a maximum of 2.50 to 1.0; and (3) Fixed Charge Ratio of a minimum of1.25 to 1.0.  As of March 31, 2002, weare in compliance with these ratios.

 

Consistent withgaming industry practice, we conduct our operations with a net working capitaldeficit.  Unlike traditional industrialcompanies, a gaming company’s balance sheet has limited accounts receivable andinventories.  In addition, casinosgenerate significant cash on a daily basis. We generally apply our daily cash flows to pay down indebtedness underour revolving credit facility and pay our current liabilities pursuant to theirnormal cycles.  Given the significantdaily cash flows generated by our operations and the financial flexibilityprovided by our credit facility, the existence of a working capital deficit hasno impact on our ability to operate our business or meet our obligations asthey become due.  We believe that cashon hand, operating cash flows, and funds available under our Credit Facilitywill be sufficient to fund our current operating, capital expenditure and debtservice obligations for the next 12 months.

 

**Cautionary Statements for Purposes ofthe “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of1995**

 

*This Reportcontains forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. When used in this document, the words “anticipate”, “believe”,“estimate” and “expect” and similar expressions are generally intended toidentify forward-looking statements. Investors are cautioned that any forward-looking statements, includingthose regarding the intent, belief or current expectations of the Company orits management, are not guarantees of future performance and involve risks anduncertainties, and that actual results may differ materially from those in theforward-looking statements as a result of various factors including, but notlimited to, (i) competitive and general economic conditions in the markets inwhich the Company operates, (ii) increased competitive pressures in the marketsin which the Company operates, (iii) the effect of future legislation orregulatory changes on the Company’s operations and (iv) other risks detailedfrom time to time in the Company’s Securities and Exchange Commission filings.  The Company does not intend to update theseforward-looking statements.*

 

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**ARGOSY GAMING COMPANY**

**OTHER INFORMATION**

 

**PART II.        Other Information**

 

Item 1.            *Legal Proceedings -*

 

The Company is from time to time a party to legal proceedings arising inthe ordinary course of business. No material changes have occurred in our legalproceedings since our last filing, and we are unaware of any legal proceedings,which, even if the outcome were unfavorable to the Company, would have amaterial adverse impact on either its financial condition or results ofoperations.

 

Item2.    *Changes in Securities*-**None

 

Item3.    *Defaults Upon Senior Securities -* None

 

Item4.    *Submission of Matters to a Vote of Security Holders -*None

 

Item5.    *Other Information -*None

 

Item 6.    *Exhibits and reports on Form 8-K*

 

(a)           *Exhibits -*None

 

(b)           *Reports on Form 8-K*- None

 

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**ARGOSY GAMING COMPANY**

**SIGNATURES**

 

Pursuant to therequirement of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| Date:  | May 10, 2002 |                                                   | /s/ Dale R. Black |   |
|--------|--------------|--------------------------------------------------------|-------------------|--------|
|   |         |                                                   |
|   |         |  Dale R. Black                                    |
|   |         |  Senior Vice President - Chief Financial  Officer |
|   |         |                                                   |              |
|        |              |                                                        |                   |        |  |

 

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