<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
------------------ ------------------
Commission File Number
------------------
HORSESHOE GAMING, L.L.C.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 88-0343515
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4024 Industrial Road Las Vegas, Nevada 89103
- --------------------------------------------------------------------------------
(Address of principal executive office) (ZIP CODE)
(702) 650-0080
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE> 2
HORSESHOE GAMING, L. L. C. AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements:
Horseshoe Gaming, L. L. C. and Subsidiaries:
Consolidated Condensed Balance Sheets
at September 30, 1998 and December 31, 1997.................................. 3
Consolidated Condensed Statements of Operations
for the three and nine months ended September 30, 1998 and 1997.............. 4
Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997........................ 5
Notes to Consolidated Condensed Financial Statements.............................. 6
Robinson Property Group, L.P.:
Condensed Balance Sheets
at September 30, 1998 and December 31, 1997.................................. 7
Condensed Statements of Operations
for the three and nine months ended September 30, 1998 and 1997.............. 8
Condensed Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997........................ 9
Notes to Condensed Financial Statements........................................... 10
New Gaming Capital Partnership and Subsidiary:
Consolidated Condensed Balance Sheets
at September 30, 1998 and December 31, 1997.................................. 11
Consolidated Condensed Statements of Operations
for the three and nine months ended September 30, 1998 and 1997.............. 12
Consolidated Condensed Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997........................ 13
Notes to Consolidated Condensed Financial Statements.............................. 14
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 15
PART II OTHER INFORMATION
ITEM 6 Exhibits and reports on Form 8-K.................................................. 19
SIGNATURES ................................................................................ 20
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 39,915 $ 48,710
Accounts receivable, net 11,403 13,518
Inventories 3,674 2,958
Prepaid expenses and other 4,923 2,102
--------- ---------
Total current assets 59,915 67,288
--------- ---------
Property and Equipment:
Land and land improvements 15,270 14,688
Buildings, boat, barge and improvements 330,826 276,936
Furniture, fixtures and equipment 81,222 68,194
Less: accumulated depreciation (53,569) (42,769)
--------- ---------
373,749 317,049
Construction in progress 872 67,428
--------- ---------
Net property and equipment 374,621 384,477
--------- ---------
Other Assets:
Goodwill, net 36,541 37,960
Assets not in use 12,000 --
Other 33,866 21,831
--------- ---------
$ 516,943 $ 511,556
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 1,175 $ 1,674
Accounts payable 4,818 8,784
Construction payable 1,192 27,984
Accrued expenses and other 35,823 46,601
--------- ---------
Total current liabilities 43,008 85,043
Long-term Debt, less current maturities 357,411 311,601
Minority Interest (2,522) (1,317)
Commitments and Contingencies
Redeemable Ownership Interests, net 52,858 51,634
Members' Equity 66,188 64,595
--------- ---------
$ 516,943 $ 511,556
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
<PAGE> 4
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 111,839 $ 80,569 $ 321,898 $ 237,285
Food and beverage 13,277 7,648 35,873 21,506
Hotel 9,579 1,698 26,452 5,026
Other 2,540 1,031 6,974 3,095
--------- --------- --------- ---------
137,235 90,946 391,197 266,912
Promotional allowances (17,022) (7,168) (45,553) (20,094)
--------- --------- --------- ---------
Net revenues 120,213 83,778 345,644 246,818
--------- --------- --------- ---------
Expenses:
Casino 63,412 43,500 182,959 126,952
Food and beverage 3,936 2,655 12,261 7,743
Hotel 2,846 1,908 8,788 5,577
Other 1,389 239 4,188 838
General and administrative 13,445 10,372 40,639 32,083
Preopening -- 541 653 541
Depreciation and amortization 8,733 4,580 25,146 13,321
--------- --------- --------- ---------
Total expenses 93,761 63,795 274,634 187,055
--------- --------- --------- ---------
Operating Profit Before Corporate,
Development and Asset Write-down 26,452 19,983 71,010 59,763
Corporate expenses 2,801 4,020 8,910 8,533
Development 134 164 447 898
Asset Write-down 12,911 -- 12,911 --
--------- --------- --------- ---------
Operating Income 10,606 15,799 48,742 50,332
Other Income (Expense):
Interest expense, net (10,000) (4,994) (29,811) (14,839)
Interest income 504 1,269 1,433 3,917
Other, net (8) (9) (178) (420)
Minority interest in loss (income)
of subsidiaries 597 (367) 598 (950)
--------- --------- --------- ---------
Income Before Extraordinary Loss on
Early Retirement of Debt 1,699 11,698 20,784 38,040
Extraordinary Loss on Early Retirement
of Debt (787) -- (787) (5,243)
--------- --------- --------- ---------
Net Income $ 912 $ 11,698 $ 19,997 $ 32,797
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
<PAGE> 5
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash provided by operating activities:
Net income $ 19,997 $ 32,797
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in (loss) income of subsidiary (598) 950
Depreciation and amortization 25,146 13,321
Amortization of debt discount, deferred
finance charges and other 2,055 1,798
Extraordinary loss on early retirement of debt 787 5,243
Loss on sale of property and equipment 57 295
Write-down of assets not in use 12,911 --
Provision for doubtful accounts 8,883 4,432
Increase in redeemable ownership interests 3,317 2,907
Net change in assets and liabilities (27,909) (4,688)
--------- ---------
Net cash provided by operating activities 44,646 57,055
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (38,838) (141,945)
Proceeds from sale of property and equipment 392 --
Decrease in escrow funds -- 42,235
Increase (decrease) in construction payable (26,791) 7,300
Increase in other assets (14,793) (1,687)
--------- ---------
Net cash used in investing activities (80,030) (94,097)
--------- ---------
Cash flows from financing activities:
Proceeds from debt and warrants, net of debt issue
costs of $3,400 in 1997 55,000 155,811
Payments on debt, including early retirement
premium and penalties (10,795) (97,639)
Distribution to minority shareholders (610) (1,112)
Capital distributions (17,006) (11,232)
--------- ---------
Net cash provided by financing activities 26,589 45,828
--------- ---------
Net change in cash and cash equivalents (8,795) 8,786
Cash and cash equivalents, beginning of period 48,710 79,159
--------- ---------
Cash and cash equivalents, end of period $ 39,915 $ 87,945
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
<PAGE> 6
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Introduction:
The accompanying unaudited Consolidated Condensed Financial Statements of
Horseshoe Gaming, L.L.C., a Delaware limited liability company, have been
prepared in accordance with the instructions to Form 10-Q, and therefore do not
include all information and disclosures necessary for complete financial
statements in conformity with generally accepted accounting principles. The
consolidated condensed balance sheet at December 31, 1997 was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results for the periods indicated
are unaudited, but reflect all adjustments (consisting only of normal, recurring
adjustments) which management considers necessary for a fair presentation of
operating results. Results of operations for interim periods are not necessarily
indicative of a full year of operations.
2. Commitments and Contingencies:
Construction
The Company has substantially completed the expansion of its casino facilities
in both Tunica, Mississippi, and Bossier City, Louisiana at a total estimated
cost of approximately $314.2 million.
The Horseshoe Bossier City's new riverboat casino facility replaced the existing
riverboat casino facility (the "Queen of the Red"). The Queen of the Red, along
with related gaming equipment, is included in assets not in use in the
Consolidated Condensed Balance Sheets at September 30, 1998. During the quarter
ended September 30, 1998, the Company recorded a charge of approximately $12.9
million from the write-down of the carrying value of the Queen of the Red.
Management is continuing to review various options for use of the Queen of the
Red up to and including a sale.
Legal
The Company and its subsidiaries, during the normal course of operating their
businesses, become engaged in various litigation and other legal disputes. In
the opinion of the Company's management, the ultimate disposition of such
disputes will not have a material impact on the Company's, or its subsidiaries',
operations.
3. Merger Agreement
On September 2, 1998 the Company agreed to acquire Empress Entertainment, Inc.
("Empress") for an estimated $609 million, including assumption of Empress'
existing debt of approximately $150 million. The Company intends to obtain the
funds for the remainder of the purchase price (approximately $459 million) from
borrowings of new long-term debt. The Company has made a down payment of $10
million towards the purchase price. The agreement is subject to the approval of
both the Illinois Gaming Board and the Indiana Gaming Commission and Empress
achieving certain earnings levels as defined in the agreement. Empress owns two
riverboat gaming operations: one in Hammond, Indiana with 44,000 square feet of
gaming space and one in Joliet, Illinois with 36,000 square feet of gaming
space.
4. Subsequent Event
On October 13, 1998 the Company was notified by Lady Luck Gaming Corp. that it
was terminating the joint venture agreement to develop a casino in Vicksburg,
Mississippi. Management of Lady Luck indicated that it was terminating the joint
venture plans because of extended legal proceedings concerning the suitability
of gaming on the nearby Big Black River.
6
<PAGE> 7
ROBINSON PROPERTY GROUP, L.P.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,211 $ 23,159
Accounts receivable, net 8,048 10,718
Inventories 1,945 1,424
Prepaid expenses and other 1,832 505
--------- ---------
Total current assets 28,036 35,806
--------- ---------
Property and Equipment:
Land and land improvements 3,168 4,110
Buildings, barge and improvements 138,596 131,154
Furniture, fixtures and equipment 36,926 32,670
Less: accumulated depreciation (29,604) (19,066)
--------- ---------
Net property and equipment 149,086 148,868
--------- ---------
Other Assets:
Goodwill, net 18,853 19,670
Other 4,738 4,739
--------- ---------
$ 200,713 $ 209,083
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable $ 1,937 $ 4,941
Construction payable -- 9,228
Due to affiliates 13,184 10,315
Accrued expenses and other 14,207 9,901
--------- ---------
Total current liabilities 29,328 34,385
--------- ---------
Long-term Debt 70,400 85,400
Commitments and Contingencies
Partners' Capital 100,985 89,298
--------- ---------
$ 200,713 $ 209,083
========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
7
<PAGE> 8
ROBINSON PROPERTY GROUP, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 53,356 $ 38,254 $ 158,651 $ 118,490
Food and beverage 5,531 3,190 15,664 9,468
Hotel 3,475 820 9,704 2,471
Other 1,457 590 3,987 1,820
--------- --------- --------- ---------
63,819 42,854 188,006 132,249
Promotional allowances (7,863) (3,165) (22,007) (9,723)
--------- --------- --------- ---------
Net revenues 55,956 39,689 165,999 122,526
--------- --------- --------- ---------
Expenses:
Casino 30,850 19,746 88,403 60,287
Food and beverage 1,213 993 3,759 2,747
Hotel 889 858 2,697 2,370
Other 995 116 2,964 491
General and administrative 5,665 4,838 16,689 14,271
Depreciation and amortization 3,892 2,179 11,358 5,832
Preopening -- 277 -- 277
--------- --------- --------- ---------
Total expenses 43,504 29,007 125,870 86,275
--------- --------- --------- ---------
Operating Profit Before Corporate Expenses 12,452 10,682 40,129 36,251
Corporate expenses 1,400 2,010 4,455 4,267
--------- --------- --------- ---------
Operating Income 11,052 8,672 35,674 31,984
Other Income (Expense):
Interest expense, net (2,552) (822) (8,045) (2,360)
Interest income 147 89 425 449
Other, net (5) (5) (14) (351)
--------- --------- --------- ---------
Net Income $ 8,642 $ 7,934 $ 28,040 $ 29,722
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
8
<PAGE> 9
ROBINSON PROPERTY GROUP, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash provided by operating activities:
Net income $ 28,040 $ 29,722
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 11,358 5,832
Provision for doubtful accounts 6,834 3,146
Amortization of debt discounts,
deferred finance charges and other 704 456
Loss on sale of assets -- 295
Net change in assets and liabilities (4,958) (4,705)
-------- --------
Net cash provided by operating activities 41,978 34,746
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (11,698) (48,597)
Decrease in construction payable (9,226) 1,378
Increase in other assets (558) (913)
-------- --------
Net cash used in investing activities (21,482) (48,132)
-------- --------
Cash flows from financing activities:
Proceeds from debt -- 13,400
Payments on debt (15,000) --
Capital distributions (15,244) (11,216)
Changes in due to/from affiliates 2,800 675
-------- --------
Net cash used in financing activities (27,444) 2,859
-------- --------
Net change in cash and cash equivalents (6,948) (10,527)
Cash and cash equivalents, beginning of period 23,159 22,858
-------- --------
Cash and cash equivalents, end of period $ 16,211 $ 12,331
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
9
<PAGE> 10
ROBINSON PROPERTY GROUP, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Introduction:
The accompanying unaudited Condensed Financial Statements of Robinson Property
Group, L.P., have been prepared in accordance with the instructions to Form
10-Q, and therefore do not include all information and disclosures for complete
financial statements in conformity with generally accepted accounting
principles. The condensed balance sheet at December 31, 1997 was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results for the periods indicated
are unaudited, but reflect all adjustments (consisting only of normal, recurring
adjustments) which management considers necessary for a fair presentation of
operating results. Results of operations for interim periods are not necessarily
indicative of a full year of operations.
2. Commitments and Contingencies:
Construction
As of September 30, 1998, the Horseshoe Casino Center expansion project was
substantially complete at a total cost of approximately $109.8 million.
Legal
The Partnership, during the normal course of operating its business, becomes
engaged in various litigation and other legal disputes. In the opinion of the
Partnership's management, the ultimate disposition of such disputes will not
have a material impact on the Partnership's operations.
10
<PAGE> 11
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,807 $ 16,143
Accounts receivable, net 3,344 2,589
Inventories 1,728 1,535
Prepaid expenses and other 2,876 1,329
--------- ---------
Total current assets 24,755 21,596
--------- ---------
Property and Equipment:
Land and land improvements 12,101 10,579
Buildings, boat and improvements 192,230 145,781
Furniture, fixtures and equipment 43,678 34,914
Less: accumulated depreciation (23,628) (23,452)
--------- ---------
224,381 167,822
Construction in progress 744 67,428
--------- ---------
Net property and equipment 225,125 235,250
--------- ---------
Other Assets:
Goodwill, net 17,687 18,290
Assets not in use 12,000 --
Other 13,805 12,137
--------- ---------
$ 293,372 $ 287,273
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Current maturities of long-term debt $ 18,793 $ 15,003
Accounts payable 2,499 3,568
Due to affiliates 17,247 12,796
Construction payable 1,192 18,757
Accrued expenses and other 20,213 9,793
--------- ---------
Total current liabilities 59,944 59,917
Long-term Debt, less current maturities 214,702 199,989
Minority Interest (2,522) (1,317)
Commitments and Contingencies
Partners' Capital 21,248 28,684
--------- ---------
$ 293,372 $ 287,273
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
11
<PAGE> 12
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 58,483 $ 42,315 $ 163,247 $ 118,795
Food and beverage 7,746 4,458 20,209 12,038
Hotel 6,104 878 16,748 2,555
Other 1,083 441 2,987 1,275
--------- --------- --------- ---------
73,416 48,092 203,191 134,663
Promotional allowances (9,159) (4,003) (23,546) (10,371)
--------- --------- --------- ---------
Net revenues 64,257 44,089 179,645 124,292
--------- --------- --------- ---------
Expenses:
Casino 32,562 23,754 94,556 66,665
Food and beverage 2,723 1,662 8,502 4,996
Hotel 1,957 1,050 6,091 3,207
Other 394 123 1,224 347
General and administrative 7,780 6,134 23,950 17,812
Preopening -- 265 653 265
Depreciation and amortization 4,837 2,396 13,773 7,474
--------- --------- --------- ---------
Total expenses 50,253 35,384 148,749 100,766
--------- --------- --------- ---------
Operating Profit Before Corporate
Expenses and Asset Write-down 14,004 8,705 30,896 23,526
Corporate expenses 1,400 2,010 4,455 4,266
Asset write-down 12,911 -- 12,911 --
--------- --------- --------- ---------
Operating Income (Loss) (307) 6,695 13,530 19,260
Other Income (Expense):
Interest expense, net (7,470) (3,044) (22,212) (9,120)
Interest income 244 216 662 683
Other, net (5) (5) (14) (14)
Minority interest in loss (income)
of subsidiary 597 (367) 598 (950)
--------- --------- --------- ---------
Net Income (Loss) $ (6,941) $ 3,495 $ (7,436) $ 9,859
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
12
<PAGE> 13
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
Cash provided by operating activities:
Net income (loss) $ (7,436) $ 9,859
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Minority interest in (loss) income of subsidiary (598) 950
Depreciation and amortization 13,773 7,474
Provision for doubtful accounts 2,049 1,286
Amortization of debt discounts,
deferred finance costs and other 1,634 897
Asset write-down 12,911 --
Loss on sale of property and equipment 37 --
Net change in assets and liabilities 4,820 956
-------- --------
Net cash provided by operating activities 27,190 21,422
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (26,936) (93,256)
Proceeds from sale of property and equipment 383 --
(Decrease) increase in construction payables (17,565) 5,922
Increase in other assets (4,674) (3,012)
-------- --------
Net cash used in investing activities (48,792) (90,346)
-------- --------
Cash flows from financing activities:
Proceeds from debt 36,533 80,400
Payments on debt (18,030) (15,599)
Capital distributions -- (2,002)
Distributions to minority partners (610) (1,112)
Increase in due to affiliates 4,373 2,860
-------- --------
Net cash provided by financing activities 22,266 64,547
-------- --------
Net change in cash and cash equivalents 664 (4,377)
Cash and cash equivalents, beginning of period 16,143 14,913
-------- --------
Cash and cash equivalents, end of period $ 16,807 $ 10,536
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
13
<PAGE> 14
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Introduction:
The accompanying unaudited Consolidated Condensed Financial Statements of New
Gaming Capital Partnership and Subsidiary have been prepared in accordance with
the instructions to Form 10-Q, and therefore do not include all information and
disclosures necessary for complete financial statements in conformity with
generally accepted accounting principles. The consolidated condensed balance
sheet at December 31, 1997 was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect all
adjustments (consisting only of normal, recurring adjustments) which management
considers necessary for a fair presentation of operating results. Results of
operations for interim periods are not necessarily indicative of a full year of
operations.
2. Commitments and Contingencies:
Construction
As of September 30, 1998, the Horseshoe Bossier City expansion project was
substantially complete at a total cost of approximately $204.4 million. The
Horseshoe Bossier City has also begun an expansion of their current parking
facility to include an additional 1,000 spaces, as well as a temporary
entertainment facility. The total projected cost of the additional parking and
entertainment facility is estimated to be approximately $12 million and is
expected to be substantially completed in the first quarter of 1999.
The Horseshoe Bossier City's new riverboat casino facility replaced the existing
riverboat casino facility (the "Queen of the Red"). The Queen of the Red, along
with related gaming equipment, is included in assets not in use in the
Consolidated Condensed Balance Sheets at September 30, 1998. During the quarter
ended September 30, 1998, the Company recorded a charge of approximately $12.9
million from the write-down of the carrying value of the Queen of the Red.
Management is continuing to review various options for use of the Queen of the
Red up to and including a sale.
Legal
The Partnership and its subsidiary, during the normal course of operating their
businesses, become engaged in various litigation and other legal disputes. In
the opinion of the Partnership's management, the ultimate disposition of such
disputes will not have a material impact on the Partnership's, or its
subsidiary's, operations.
14
<PAGE> 15
PART I FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis provides information which Management
believes is relevant to an assessment and understanding of the consolidated
financial condition and results of operations of Horseshoe Gaming, L.L.C. (the
"Company"). The discussion should be read in conjunction with the Consolidated
Condensed Financial Statements and notes thereto.
This Quarterly Report on Form 10-Q contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which generally can be identified by the use of such terms such as "may,"
"expect," "anticipate," "believe," "continue," or similar variations or the
negative thereof. These forward looking statements are subject to certain risks
and uncertainties, such as changes in the economy or market conditions, the
Company's ability to obtain financing and complete construction and acquisitions
in a timely and cost-effective manner, changes in government policy or
regulations and other factors discussed in the Company's Annual report on Form
10-K for the year ended December 31, 1997, which could cause actual results to
differ materially.
RESULTS OF OPERATIONS
Three months ended September 30, 1998 and 1997
- ----------------------------------------------
Net revenues for the three months ended September 30, 1998 were $120.2 million,
compared to $83.8 million for the comparable period in 1997. Operating profit
before corporate expenses, development and asset write-down increased to $26.5
million for the three months ended September 30, 1998, from $20.0 million for
the comparable 1997 period. The increase in net revenues and operating profit
before corporate expenses, development and asset write-down occurred as a result
of an increase in gaming capacity from the completion of the significant
expansions that occurred at both the Horseshoe Casino Center and Horseshoe
Bossier City.
The Horseshoe Casino Center
The Horseshoe Casino Center contributed net revenues and operating profit before
corporate expenses of $56.0 million and $12.5 million, respectively, for the
quarter ended September 30, 1998 and $39.7 million and $10.7 million,
respectively, for the quarter ended September 30, 1997.
The Horseshoe Casino Center's net revenues include casino revenues and
non-casino revenues of $53.4 million and $2.6 million, respectively, for the
quarter ended September 30, 1998 and $38.3 million and $1.4 million,
respectively, for the quarter ended September 30, 1997. The increase in net
revenues for the quarter ended September 30, 1998 compared to the prior year
period is due largely to an increase in total revenue and primarily in slot
revenue, resulting from the recently completed expansion at the property. The
increase in slot revenues was partially offset by a lower than normal win
percentage in table games for the three months ended September 30, 1998. Casino
revenue per day increased approximately 39% in 1998 to $580,000 from $416,000 in
1997.
The increase of $4.7 million in promotional allowances for the quarter ended
September 30, 1998 compared to the prior year period is due largely to an
increase in the pricing structure of non-casino services. Of the $4.7 million
increase over the prior year period, $1.9 million is caused by an increase in
the retail value of goods and services provided to customers. The majority of
the remaining increase is caused by an increase in overall volume, mainly in
hotel rooms and entertainment which was not present during 1997.
The Horseshoe Casino Center's margin for operating profit before corporate
expenses for the quarter ended September 30, 1998 was 22%, compared with 27% for
the quarter ended September 30, 1997. The margin reduction of 5 percentage
points was primarily caused by an increase in bad debt reserves due to increases
in total gaming receivables. The margin was also affected by an increase in
depreciation and amortization expense due to the expansion of the casino
facility.
15
<PAGE> 16
The Horseshoe Bossier City
The Horseshoe Bossier City contributed net revenues and operating profit before
corporate expenses and asset write-down of $64.3 million and $14.0 million,
respectively, for the quarter ended September 30, 1998 and $44.1 million and
$8.7 million, respectively, for the quarter ended September 30, 1997.
The Horseshoe Bossier City's net revenues include casino revenues and non-casino
revenues of $58.5 million and $5.8 million, respectively, for the quarter ended
September 30, 1998 and $42.3 million and $1.8 million, respectively, for the
quarter ended September 30, 1997. The increase in net revenues for the quarter
ended September 30, 1998 compared to the prior year period is due largely to an
increase in total revenue and primarily in casino revenue, resulting from the
recently completed expansion at the property. Casino revenue per day increased
approximately 38% in 1998 to $636,000 from $460,000 in 1997.
The increase of $5.2 million in promotional allowances for the quarter ended
September 30, 1998 compared to the prior year period is due largely to an
increase in the pricing structure of non-casino services. Of the $5.2 million
increase over the prior year period, $2.2 million is caused by an increase in
the retail value of goods and services provided to customers. The remaining
increase is caused by an increase in overall volume, mainly in hotel rooms.
The Horseshoe Bossier City's margin for operating profit before corporate
expenses and asset write-down for the quarter ended September 30, 1998 was 22%,
compared with 20% for the quarter ended September 30, 1997. The margin increase
of 2 percentage points was primarily caused by an increase in both gaming and
non-gaming revenues due to the expansion of the casino facility.
The Horseshoe Bossier City's new riverboat casino facility replaced the existing
riverboat casino facility (the "Queen of the Red"). The Queen of the Red, along
with related gaming equipment, is included in assets not in use in the
Consolidated Condensed Balance Sheets at September 30, 1998. During the quarter
ended September 30, 1998, the Company recorded a charge of approximately $12.9
million from the write-down of the carrying value of the Queen of the Red.
Management is continuing to review various options for use of the Queen of the
Red up to and including a sale.
Other Factors Affecting Earnings
The increase of $5.0 million in interest expense, net for the three months ended
September 30, 1998, compared with the prior year period ended September 30,
1997, is mainly due to the increase in the total amount of debt outstanding and
the fact that approximately $3.6 million of construction period interest related
to the now completed expansion programs at Horseshoe Casino Center and Horseshoe
Bossier City was capitalized in the three months ended September 30, 1997. Total
debt outstanding increased to $358.6 million as of September 30, 1998 from
$297.8 million as of September 30, 1997. The increased borrowings were necessary
to fund a major portion of the construction.
Nine months ended September 30, 1998 and 1997
- ---------------------------------------------
Net revenues for the nine months ended September 30, 1998 were $345.6, compared
to $246.8 for the comparable period in 1997. Operating profit before corporate
expenses, development and asset write-down increased to $71.0 million for the
nine months ended September 30, 1998, from $59.8 million for the comparable 1997
period. The increase in net revenues and operating profit before corporate
expenses, development and asset write-down occurred as a result of an increase
in gaming capacity from the completion of the significant expansions that
occurred at both the Horseshoe Casino Center and Horseshoe Bossier City.
The Horseshoe Casino Center
The Horseshoe Casino Center contributed net revenues and operating profit before
corporate expenses of $166.0 million and $40.1 million, respectively, for the
nine months ended September 30, 1998 and $122.5 million and $36.3 million,
respectively, for the nine months ended September 30, 1997.
The Horseshoe Casino Center's net revenues include casino revenues and
non-casino revenues of $158.7 million and $7.3 million, respectively, for the
nine months ended September 30, 1998 and $118.5 million and $4.0 million,
respectively, for the nine months ended September 30, 1997. The increase in net
revenues for the nine months ended September 30, 1998 compared to the prior year
period is due largely to an increase in total revenue and primarily in slot
revenue, resulting from the recently completed expansion at such property. The
increase in slot revenue was partially offset by a lower than normal win
percentage in table games for the nine months ended September 30, 1998. Casino
revenue per day increased approximately 34% in 1998 to $581,000 from $434,000 in
1997.
16
<PAGE> 17
The increase of $12.3 million in promotional allowances for the nine months
ended September 30, 1998 compared to the prior year period is due largely to an
increase in the pricing structure of non-casino services. Of the $12.3 million
increase over the prior year period, $5.6 million is caused by an increase in
prices. The majority of the remaining increase is caused by an increase in
overall volume, mainly in hotel rooms and entertainment which were not present
during 1997.
The Horseshoe Casino Center's margin for operating profit before corporate
expenses for the nine months ended September 30, 1998 was 24%, compared with 30%
for the nine months ended September 30, 1997. The margin reduction of 6
percentage points was primarily caused by an increase in depreciation and
amortization expense due to the expansion of the casino facility. The margin was
also affected by an increase in bad debt reserves due to increases in total
gaming receivables and the reduction in win percentage in table games as
mentioned above.
The Horseshoe Bossier City
The Horseshoe Bossier City contributed net revenues and operating profit before
corporate expenses, asset write-down and preopening expenses of $179.6 million
and $30.9 million, respectively, for the nine months ended September 30, 1998
and $124.3 million and $23.5 million, respectively, for the nine months ended
September 30, 1997.
The Horseshoe Bossier City's net revenues include casino revenues and non-casino
revenues of $163.2 million and $16.4 million, respectively, for the nine months
ended September 30, 1998 and $118.8 million and $5.5 million, respectively, for
the nine months ended September 30, 1997. The increase in net revenues for the
nine months ended September 30, 1998 compared to the prior year period is due
largely to an increase in total revenue and primarily in casino revenue,
resulting from the recently completed expansion at such property. Casino revenue
per day increased approximately 37% in 1998 to $598,000 from $435,000 in 1997.
The increase of $13.2 million in promotional allowances for the nine months
ended September 30, 1998 compared to the prior year period is due largely to an
increase in the pricing structure of non-casino services. The recently completed
expansion of the property provided management with an opportunity to increase
the retail cost of hotel and food prices. Of the $13.2 million increase over the
prior year period, $5.8 million is caused by an increase in prices. The
remaining increase is caused by an increase in overall volume, mainly in hotel
rooms.
The Horseshoe Bossier City's margin for operating profit before corporate
expenses, asset write-down and preopening expenses for the nine months ended
September 30, 1998 was 17%, compared with 19% for the nine months ended
September 30, 1997. The margin reduction of 2 percentage points was primarily
caused by an increase in depreciation and amortization expense due to the
expansion of the casino facility.
The Horseshoe Bossier City's new riverboat casino facility replaced the existing
riverboat casino facility (the "Queen of the Red"). The Queen of the Red, along
with related gaming equipment, is included in assets not in use in the
Consolidated Condensed Balance Sheets at September 30, 1998. During the nine
months ended September 30, 1998, the Company recorded a charge of approximately
$12.9 million from the write-down of the carrying value of the Queen of the Red.
Management is continuing to review various options for use of the Queen of the
Red up to and including a sale.
Other Factors Affecting Earnings
The increase of $15.0 million in interest expense, net for the nine months ended
September 30, 1998, compared with the prior year period ended September 30,
1997, is mainly due to the increase in the total amount of debt outstanding and
the fact that approximately $8.3 million of construction period interest related
to the now completed expansion programs at Horseshoe Casino Center and Horseshoe
Bossier City was capitalized in the nine months ended September 30, 1997. Total
debt outstanding increased to $358.6 million as of September 30, 1998 from
$297.8 million as of September 30, 1997. The increased borrowings were necessary
to fund a major portion of the construction.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
DEVELOPMENT
Tunica, Mississippi
Horseshoe Casino Center has substantially completed the expansion of its casino
facility at a cost of approximately $109.8 million. The newly expanded casino
complex, which was completed on January 21, 1998, includes an additional 15,000
square feet of gaming space (the gaming facility now includes 1,519 slot
machines, 64 table games and 12 poker tables), 312 hotel suites (in addition to
the existing 195 room hotel facility), a multi-level, 1,100 space parking garage
and Bluesville, an entertainment facility which accommodates approximately 1,000
customers. Additional facilities include a health club, an additional
restaurant, a new, relocated and expanded buffet, a remodeled steak house and
meeting room facilities.
Bossier City, Louisiana
Horseshoe Bossier City has substantially completed the expansion of its entire
casino facility at a cost of approximately $204.4 million. The newly expanded
casino facility, which was completed on January 28, 1998, features a new
riverboat casino facility with approximately 40% more gaming positions ( the
gaming facility now includes a total of 1,343 slot machines, 58 table games and
11 poker tables), a 25 story hotel tower with 606 suites, meeting room
facilities, a health club, the renovation and expansion of existing dockside
facilities, the addition of two specialty restaurants, the complete renovation
and expansion of the existing buffet, as well as the recently completed 1,100
space parking garage, administration building and remodeled existing steak house
restaurant. The Horseshoe Bossier City has also begun an expansion of their
current parking facility to include an additional 1,000 spaces, as well as a
temporary entertainment facility. The total projected cost of the additional
parking and entertainment facility is estimated to be approximately $12 million
and is expected to be completed in the first quarter of 1999. Management intends
to fund the additional parking and entertainment facility through cash from
operations and additional borrowings under their debt agreements with Horseshoe
Gaming, L.L.C.
OTHER ITEMS
Cash and cash equivalents totaled $39.9 million as of September 30, 1998.
Management believes that the Company's cash and cash equivalents on hand, cash
from operations and additional borrowings under its Amended and Restated Credit
Facility will be adequate to meet the Company's existing obligations when they
become due.
Since December 31, 1997 the Company borrowed an additional $55 million under the
Amended and Restated Credit Facility. The borrowings were used to fund the
completion of the expansions at the Horseshoe Bossier City and Horseshoe Casino
Center.
On September 2, 1998 the Company agreed to acquire Empress Entertainment, Inc.
("Empress") for an estimated $609 million, including assumption of Empress'
existing debt of approximately $150 million. The Company intends to obtain the
funds for the remainder of the purchase price (approximately $459 million) from
borrowings of new long-term debt. The Company has made a down payment of $10
million towards the purchase price. The agreement is subject to the approval of
both the Illinois Gaming Board and the Indiana Gaming Commission and Empress
achieving certain earnings levels as defined in the agreement. Empress owns two
riverboat gaming operations: one in Hammond, Indiana with 44,000 square feet of
gaming space and one in Joliet, Illinois with 36,000 square feet of gaming
space. There can be no assurance that the Company will be successful in
obtaining the necessary financing to complete the acquisition.
On October 13, 1998 the Company was notified by Lady Luck Gaming Corp. that it
was terminating the joint venture agreement to develop a casino in Vicksburg,
Mississippi. Management of Lady Luck indicated that it was terminating the joint
venture plans because of extended legal proceedings concerning the suitability
of gaming on the nearby Big Black River.
During the first quarter of 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. There was no impact of such adoption on the Company's
consolidated financial statements, as total comprehensive income is the same as
net income for all periods presented.
18
<PAGE> 19
YEAR 2000
The Year 2000 or "Y2K" problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations.
As a part of the first phase of the Company's Year 2000 compliance program, the
Company conducted an internal review of its computer systems to identify the
systems that could be affected by the Year 2000 problem, including both
"information technology" systems (such as software that processes financial and
other information) and non-information technology. The Company is in the process
of completing the second phase of its Year 2000 compliance program, which
involves (1) the implementation of its existing remediation plan to resolve the
Company's internal Year 2000 issues, and (2) the identification of any potential
year 2000 issues with the Company's significant vendors and suppliers.
The Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 issue will not pose significant
operational problems for the Company's internal computer systems as so modified
and converted. However, if such modifications and conversions are not completed
on a timely basis, the Year 2000 problem may have a material adverse impact on
the operations of the Company. In addition, in the event that any of Company's
significant suppliers do not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
The Company has yet to determine the aggregate amount of costs that will be
incurred in connection with making its systems Year 2000 compliant.
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibit No. 27.1 -- Financial Data Schedule - Horseshoe Gaming, L.L.C.
and Subsidiaries
(b)
Form 8-K
The Company filed a Form 8-K dated September 2, 1998 under Item 5 Other
Events covering the Company's agreement to acquire the riverboat gaming
operations of Empress Entertainment, Inc. There were no financial
statements filed with this Form 8-K.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORSESHOE GAMING, L.L.C.
a Delaware limited liability company
By: Horseshoe Gaming, Inc.,
a Nevada corporation
Its: Manager
Date: November 13, 1998 By: /s/ KIRK C. SAYLOR
--------------------------------
Kirk C. Saylor
Chief Financial Officer
of Horseshoe Gaming, Inc.
20
<PAGE> 21
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule-Horseshoe Gaming L.L.C. and Subsidiaries
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 27,645
<SECURITIES> 12,270
<RECEIVABLES> 11,403<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 3,674
<CURRENT-ASSETS> 59,915
<PP&E> 428,190
<DEPRECIATION> 53,569
<TOTAL-ASSETS> 516,943
<CURRENT-LIABILITIES> 43,008
<BONDS> 358,586
0
0
<COMMON> 0
<OTHER-SE> 66,188
<TOTAL-LIABILITY-AND-EQUITY> 516,943
<SALES> 11,945<F2>
<TOTAL-REVENUES> 345,644
<CGS> 13,805
<TOTAL-COSTS> 208,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,139
<INTEREST-EXPENSE> 29,811
<INCOME-PRETAX> 20,784
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,784
<DISCONTINUED> 0
<EXTRAORDINARY> 787
<CHANGES> 0
<NET-INCOME> 19,997
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Notes and accounts receivable-trade are reported net of allowances for
doubtful accounts in the Consolidated Condensed Balance sheet.
<F2>Net sales are reported net of promotional allowances applicable to tangible
items.
</FN>
</TABLE>
