<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
[X] QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------------------
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 333-0214
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HORSESHOE GAMING HOLDING CORP.
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(Exact name of registrant as specified in its charter)
Delaware 88-0425131
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 2339, Joliet, IL 60434
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(Address of principal executive office) (ZIP CODE)
(815) 773-0700
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(Registrant's telephone number, including area code)
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(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
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<PAGE> 2
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 2000 and December 31,1999....................... 3
Consolidated Condensed Statements of Operations for the
three and nine months ended September 30, 2000 and 1999....... 4
Consolidated Condensed Statements of Cash Flows for the
nine months ended September 30, 2000 and 1999................. 5
Notes to Consolidated Condensed Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 16
SIGNATURE ....................................................... 17
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 80,077 $ 118,276
Restricted cash -- 159,002
Accounts receivable, net 15,817 14,776
Inventories 3,969 4,168
Prepaid expenses and other 9,146 6,212
----------- -----------
Total current assets 109,009 302,434
----------- -----------
Property and equipment, net 529,699 546,464
Asset held for sale -- 1,630
Other assets, net 79,158 87,996
Goodwill, net 480,768 470,720
----------- -----------
Total assets $ 1,198,634 $ 1,409,244
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 12,756 $ 164,245
Accounts payable 19,867 8,514
Accrued expenses and other 119,160 87,588
----------- -----------
Total current liabilities 151,783 260,347
----------- -----------
Long-term liabilities
Long-term debt, less current maturities 976,390 1,094,703
Other long-term liabilities 9,746 12,840
----------- -----------
Total long-term liabilities 986,136 1,107,543
----------- -----------
Commitments and contingencies
Redeemable ownership interests 5,220 6,760
Stockholders' equity
Common stock - par value - $0.01, Shares authorized
- 50,000; Shares issued - 25,000; Shares outstanding
- 23,526 at September 30, 2000 and 23,772 at
December 31, 1999 -- --
Additional paid-in capital 41,091 41,385
Retained earnings 42,434 16,789
----------- -----------
83,525 58,174
Treasury shares, at cost - 1,474 at September 30, 2000
and 1,228 at December 31, 1999 (28,030) (23,580)
----------- -----------
Total stockholders' equity 55,495 34,594
----------- -----------
Total liabilities and stockholders' equity $ 1,198,634 $ 1,409,244
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Casino $247,396 $ 115,096 $ 731,509 $ 338,038
Food and beverage 22,394 12,661 64,445 37,815
Hotel 8,172 8,272 24,484 25,690
Retail and other 5,525 3,012 17,190 10,491
--------- --------- --------- ---------
283,487 139,041 837,628 412,034
Promotional allowances (22,694) (15,461) (64,136) (48,343)
--------- --------- --------- ---------
Net revenues 260,793 123,580 773,492 363,691
--------- --------- --------- ---------
Expenses
Casino 141,504 63,711 413,964 186,612
Food and beverage 8,959 4,077 26,227 11,404
Hotel 1,042 939 3,224 2,579
Retail and other 1,744 1,640 5,309 5,016
General and administrative 31,984 17,841 94,119 50,431
Corporate expenses 15,167 1,989 30,723 5,908
Deferred compensation (2,957) 39 7,373 (2,446)
(Gain) write-down on asset held for sale (1,563) -- (1,563) 8,000
Depreciation and amortization 20,636 10,179 60,427 28,493
--------- --------- --------- ---------
Total expenses 216,516 100,415 639,803 295,997
--------- --------- --------- ---------
Operating income 44,277 23,165 133,689 67,694
Other income (expense)
Interest expense (23,857) (18,526) (72,630) (43,008)
Interest income 822 5,260 2,089 8,789
Other (508) (30) (1,110) (568)
--------- --------- --------- ---------
Total other income (expense) (23,543) (13,296) (71,651) (34,787)
--------- --------- --------- ---------
Income before extraordinary loss on
early retirement of debt 20,734 9,869 62,038 32,907
Extraordinary loss on early retirement of debt -- (4) -- (9,653)
--------- --------- --------- ---------
Net income $ 20,734 $ 9,865 $ 62,038 $ 23,254
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash provided by operating activities
Net income $ 62,038 $ 23,254
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 60,427 28,493
Amortization of debt discounts, deferred
finance charges and other 3,348 2,377
Extraordinary loss on early retirement of debt -- 9,653
(Gain) write-down on asset held for sale (1,563) 8,000
Provision for doubtful accounts 3,676 2,686
(Gain) or loss on sale of assets (686) 117
Minority interest in income of subsidiary -- 312
Increase (decrease) in redeemable ownership interests 7,373 (2,446)
Net change in assets and liabilities 21,151 19,333
--------- ---------
Net cash provided by operating activities 155,764 91,779
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (49,904) (11,720)
Proceeds from sale of property and equipment 6,360 --
Increase (decrease) in construction payables 8,511 (1,662)
Net increase in other assets (79) (7,873)
--------- ---------
Net cash used in investing activities (35,112) (21,255)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt 12,000 582,671
Increase in debt issue costs (291) (10,507)
Decrease (increase) in restricted cash 159,002 (349,516)
Distribution to minority shareholders -- (842)
Repayments on long-term debt (291,538) (252,061)
Capital distributions (38,024) (11,182)
Warrant repurchases -- (34,426)
--------- ---------
Net cash used in financing activities (158,851) (75,863)
--------- ---------
Net change in cash and cash equivalents (38,199) (5,339)
Cash and cash equivalents, beginning of period 118,276 84,151
--------- ---------
Cash and cash equivalents, end of period $ 80,077 $ 78,812
========= =========
Supplemental cash flow disclosure
Interest paid, net of $582 capitalized in 2000 $ 59,855 $ 20,962
Note receivable related to sale of hotel $ 2,000 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
of Horseshoe Gaming Holding Corp., a Delaware corporation, and its subsidiaries
(the "Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. It is suggested that these unaudited
consolidated condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10-K
for the year ended December 31, 1999. In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows of all
periods presented have been made. The results of operations for the three and
nine months ended September 30, 2000, are not necessarily indicative of the
operating results for the full year. Certain reclassifications have been made to
the financial statements as previously presented to conform to current
classifications.
NOTE 2 - ACTION BY ILLINOIS GAMING BOARD
On November 30, 1999, the Illinois Gaming Board ("IGB") approved the
acquisition of Empress Casino Joliet Corporation ("Empress Joliet"), the owner
and operator of the Empress Casino in Joliet, Illinois, by the Company (see Note
3 - Empress Acquisition), placing certain conditions on its decision. One of the
conditions was the completion of the investigation and approval of all key
persons of the Company. On March 13, 2000, Empress Joliet filed its renewal
application with the IGB and on June 30, 2000, the IGB issued its initial
decision and directed the Administrator to issue a Notice of Denial to Empress
Joliet, denying its application for renewal of its Owner's License. On July 19,
2000, Empress Joliet received the Notice of Denial of License Renewal from the
IGB. In response to the denial, the Company filed an appeal and submitted a
request for an administrative hearing. Empress Joliet's existing license will
continue in full force and effect until the final decision on the application
has been made. During the appeal process, the Company continues to operate
Empress Joliet in a business as usual manner.
NOTE 3 - EMPRESS ACQUISITION
On December 1, 1999, the Company acquired from Empress Entertainment,
Inc. ("Empress"), all of the outstanding stock of two of Empress' operating
subsidiaries, Empress Casino Hammond Corporation ("Empress Hammond"), the owner
and operator of the Empress Casino in Hammond, Indiana, and Empress, Joliet for
$493.9 million in cash plus transaction costs. As additional consideration, the
Company assumed $150.0 million of Empress' 8.125% Senior Subordinated Notes due
2006 (the "Empress Notes"). Pursuant to a change in control offer to purchase
the Empress Notes at 101% of their principal amount in accordance with the terms
of the Indenture, the Company retired all of the Empress Notes in January 2000.
Empress Joliet and Empress Hammond continue to operate as wholly owned
subsidiaries of the Company.
The acquisition has been recorded using the purchase method of
accounting. During the third quarter of 2000, the Company recorded an additional
$25.4 million of goodwill relating to further allocations of the purchase price
of the Empress properties to the tangible and intangible assets acquired and
liabilities assumed, bringing the total goodwill to $447.2 million. The goodwill
is being amortized over 25 years from the date of acquisition. The Company
estimates the value of other acquired intangibles (included in other assets, net
in the accompanying consolidated condensed balance sheets) to be $10.0 million
for trademarks and $5.0 million for customer lists. These amounts are being
amortized over five years.
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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 - EMPRESS ACQUISITION (CONTINUED)
The following unaudited pro-forma consolidated financial information
has been prepared assuming the acquisitions and the debt extinguishment
described above had occurred on January 1, 1999. These results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made at the beginning of the
period, or as a prediction of results which may occur in the future (in
thousands).
Three months ended Nine months ended
Sept. 30, 1999 Sept. 30, 1999
------------------ ------------------
Net revenues $242,328 $699,214
Operating income $ 42,316 $119,829
Net income $ 17,693 $ 35,661
NOTE 4 - DEFERRED COMPENSATION
The Company recorded deferred compensation of ($3.0) million and $7.4
million during the three and nine months ended September 30, 2000, respectively,
and $39,000 and ($2.4) million for the three and nine months ended September 30,
1999, respectively. These items relate to the increase or decrease in the
valuation of ownership interests of: (i) vested put/call options included in
certain employment agreements; (ii) vested options in the 1997 Unit Option Plan;
and (iii) vested options and stock appreciation rights in the 1999 Equity
Incentive Plan. The valuation of the Company's stock is calculated quarterly and
is a function of the Company's operating income, depreciation and debt as
applied to trading multiples of other publicly traded gaming companies.
NOTE 5 - OWNERSHIP TRANSACTIONS
On April 1, 2000, the Company repurchased ownership interests of
approximately 1.0% of the Company from two owners totaling $10.9 million. After
deducting for amounts previously advanced to the owners, the remaining balance
of $7.1 million will be paid on various dates through April 30, 2005.
NOTE 6 - (GAIN) WRITE-DOWN ON ASSET HELD FOR SALE
During the third quarter of 2000, the Company sold a riverboat held for
sale, which had previously been written down to $1.0 million. A gain on the sale
of $1.6 million was recorded in the third quarter of 2000.
NOTE 7 - CONTINGENCIES
As discussed in Note 2 above, the Company received a Notice of Denial
of License Renewal from the IGB related to its Empress Joliet casino. In
response to the denial, the Company filed an appeal and submitted a request for
an administrative hearing. During the appeal process, the Company continues to
operate Empress Joliet in a business as usual manner.
The City of Hammond, Indiana (the "City") is a plaintiff in a
condemnation proceeding filed in September 1995, in the Lake Superior Court in
Lake County, Indiana, in which the City condemned a small parcel of land for the
construction of the overpass located near Empress Hammond. The case was
transferred on a change of venue in the summer of 1998 to Newton County,
Indiana. On September 28, 1998, the jury awarded a $5.2 million verdict against
the City. Under the terms of the Development Agreement between Empress Hammond
and the City, Empress Hammond is responsible for reimbursing the City for its
costs, fees and any judgment. The City of Hammond appealed the decision to the
Indiana Appellate Court, which affirmed the decision on August 8, 2000. The City
of Hammond appealed the decision to the Indiana Supreme Court, and it is not yet
clear how much, or when the condemnation award will be paid.
7
<PAGE> 8
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 - CONTINGENCIES (CONTINUED)
On July 21, 1998, a lawsuit was filed against Empress Hammond and
Empress Joliet and four of their employees by two former employees of Empress
Joliet alleging that Empress Hammond and Empress Joliet committed gender
discrimination and sexual harassment in violation of Title XII of the Civil
Rights Act of 1964, and permitted a hostile work environment to exist at its
facilities. The lawsuit also alleges certain tort claims and seeks certification
as a class action on behalf of similarly situated current and former employees
of Empress Joliet and Empress Hammond, and seeks injunctive and monetary relief.
Empress Hammond and Empress Joliet deny the allegations in the complaint and the
Court has denied the plaintiff's request to certify a class for similarly
situated current and former employees. Empress Hammond and Empress Joliet intend
to vigorously contest the remaining allegations in the complaint.
On June 2, 2000, a lawsuit was filed against Empress Hammond and the
Company on behalf of current and former employees of Empress Hammond alleging
that Empress Hammond and the Company are responsible for damages to current and
former employees as a result of poor air quality on the Empress III, which is
the gaming vessel operating in Hammond, Indiana. The lawsuit alleges certain
tort claims based on poor air quality and seeks certification as a class on
behalf of similarly situated current and former employees of Empress Hammond.
Empress Hammond and the Company deny the allegations in the complaint and intend
to vigorously contest this matter.
Empress Hammond, Empress Joliet and the Company have demanded
indemnification from Empress Entertainment, Inc., the former owner of Empress
Hammond and Empress Joliet, with respect to each of the above claims, but there
can be no assurance that such indemnity will be adequate or available to the
Company or that any judgment in this matter would not have a material adverse
effect on the Company.
The Company and its subsidiaries, during the normal course of operating
their business, 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 financial position and
results of operations.
NOTE 8 - SUBSEQUENT EVENTS
On October 1, 2000, under the terms of a promissory note due 2004, the
Company agreed to repurchase an approximate 0.5% ownership interest of the
Company for approximately $3.6 million.
8
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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
Holding Corp. (the "Company") and its subsidiaries. The discussion should be
read in conjunction with the Company's 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 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 risks associated with substantial indebtedness, debt
service and liquidity; risks of competition in the Company's existing and future
markets; failure to obtain or retain licenses or regulatory approvals; changes
in gaming laws and regulations; and other factors discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, which could
cause actual results to differ materially.
On November 30, 1999, the Illinois Gaming Board ("IGB") approved the
acquisition of Empress Casino Joliet Corporation ("Empress Joliet"), the owner
and operator of the Empress Casino in Joliet, Illinois, by the Company (see Note
3 - Empress Acquisition), placing certain conditions on its decision. One of the
conditions was the completion of the investigation and approval of all key
persons of the Company. On March 13, 2000, Empress Joliet filed its renewal
application with the IGB and on June 30, 2000, the IGB issued its initial
decision and directed the Administrator to issue a Notice of Denial to Empress
Joliet, denying its application for renewal of its Owner's License. On July 19,
2000, Empress Joliet received the Notice of Denial of License Renewal from the
IGB. In response to the denial, the Company filed an appeal and submitted a
request for an administrative hearing. Empress Joliet's existing license will
continue in full force and effect until the final decision on the application
has been made. During the appeal process, the Company continues to operate
Empress Joliet in a business as usual manner.
RESULTS OF OPERATIONS
Results of operations include the consolidated results of Horseshoe
Tunica and Horseshoe Bossier City, and Empress Hammond and Empress Joliet from
the date of their acquisition on December 1, 1999.
Horseshoe Tunica competes with nine other casinos in the competitive
Tunica County, Mississippi market. Horseshoe Tunica is expanding its facility
whereby it will move and expand the existing buffet restaurant, add an
additional restaurant and utilize the area to be vacated by the current buffet
restaurant to add approximately 500 slot machines and 10 table games. The
Company estimates the expansion will cost approximately $40 million and expects
to complete the project in December 2000. The expansion is being funded through
operating cash flow.
Horseshoe Bossier City is one of four riverboat casinos currently
operating in the Bossier City/Shreveport, Louisiana market. A fifth casino,
including an all-suite hotel and entertainment complex, is expected to open in
the Bossier City/Shreveport market late in the fourth quarter of 2000. In
addition, one of the existing casinos in that market is expanding their facility
by adding a hotel, four restaurants, a convention center, health spa and parking
garage. This expansion is expected to be completed in the first quarter of 2001.
The impact of these additions on the operating results of the Horseshoe Bossier
City property is uncertain.
Empress Hammond and Empress Joliet compete with seven other casinos in
the Chicago market, which include four casinos on Lake Michigan in northern
Indiana and three casinos located in Illinois. In May 1999, the Illinois
legislature enacted amendments to the Illinois Riverboat Gambling Act that could
result in one of the ten state-authorized licenses for Illinois being relocated
to Rosemont, Illinois. The impact on the operating results of Empress Hammond
and Empress Joliet due to the relocation of a gaming license to the Chicago
market is uncertain.
9
<PAGE> 10
Three months ended September 30, 2000 and 1999
Net revenues for the quarter ended September 30, 2000 were $260.8
million as compared to $123.6 million for the quarter ended September 30, 1999.
Operating income for the quarter ended September 30, 2000 was $44.3 million
compared to $23.2 million for the quarter ended September 30, 1999. The
operating margin decreased in the quarter ended September 30, 2000 to 17% of net
revenues from 19% for the comparable 1999 period. Excluding corporate expenses,
deferred compensation and (gain) write-down on asset held for sale (all
discussed below), operating margins were 21% of net revenues for the quarter
ended September 30, 2000 and 20% for the comparable 1999 period.
The Company's net revenues include casino revenues and non-casino
revenues of $247.4 million and $13.4 million, respectively, for the quarter
ended September 30, 2000 and $115.1 million and $8.5 million, respectively, for
the quarter ended September 30, 1999. Casino revenue per day increased
approximately 115% in the third quarter of 2000 to $2.7 million from $1.3
million in the comparable 1999 period. Excluding the Empress properties, which
were acquired in December 1999, casino revenue per day increased approximately
10% in the third quarter of 2000 to $1.4 million from $1.3 million in the third
quarter of 1999.
Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $62.8 million for the
quarter ended September 30, 2000 and $59.0 million for the quarter ended
September 30, 1999. The increase in net revenues is primarily due to an increase
in slot volume. Horseshoe Tunica's net revenues include casino revenues and
non-casino revenues of $60.1 million and $2.7 million, respectively, for the
quarter ended September 30, 2000 and $56.4 million and $2.6 million,
respectively, for the quarter ended September 30, 1999. Casino revenue per day
increased approximately 7% in the quarter ended September 30, 2000 to $653,000
from $613,000 for the comparable 1999 period.
Operating income before corporate expenses for the quarter ended
September 30, 2000 was $17.8 million compared to $14.9 million for the quarter
ended September 30, 1999. The operating margin for the quarter ended September
30, 2000 was 28% of net revenues compared to 25% for the quarter ended September
30, 1999. The increase in operating margins is primarily attributable to the
increase in slot volume.
Horseshoe Bossier City
Horseshoe Bossier City contributed net revenues of $72.0 million for
the quarter ended September 30, 2000 and $64.6 million for the quarter ended
September 30, 1999. The increase in net revenues was primarily due to an
increase in slot volume. A portion of the volume increase is attributable to the
approximately 200 additional slot machines that were added to the gaming floor
upon the closure of the poker room in the first quarter of 2000. Net revenues
include casino revenues and non-casino revenues of $66.7 million and $5.3
million, respectively, for the quarter ended September 30, 2000 and $58.7
million and $5.9 million, respectively, for the quarter ended September 30,
1999. Casino revenue per day increased approximately 14% in the quarter ended
September 30, 2000 to $725,000 from $638,000 for the comparable 1999 period.
Operating income before corporate expenses and gain on asset held for
sale for the quarter ended September 30, 2000 was $13.8 million compared to
$10.3 million for the quarter ended September 30, 1999. The operating margin for
the quarter ended September 30, 2000 was 19% of net revenues, compared with 16%
for the quarter ended September 30, 1999. The increase in operating margins is
primarily the result of increased slot volume.
Empress Joliet
Empress Joliet contributed net revenues of $62.1 million for the
quarter ended September 30, 2000 versus $58.1 million for the comparable 1999
quarter. Net revenues include casino revenues and non-casino revenues of $59.3
million and $2.8 million, respectively, for the quarter ended September 30, 2000
and $53.5 million and $4.6 million, respectively, for the quarter ended
September 30, 1999. Casino revenue per day increased approximately 11% to
$645,000 for the quarter ended September 30, 2000 from $582,000 per day in the
comparable 1999 period. The revenue increase in the quarter ended September 30,
2000 was primarily attributable to an increase in slot volume but was partially
offset by a decrease in the slot hold percentage.
Empress Joliet's operating income before corporate expenses for the
quarter ended September 30, 2000 was unchanged at $16.3 million as compared to
the quarter ended September 30, 1999. The operating margin for the quarter ended
September 30, 2000 was 26% of net revenues, compared to 28% for the quarter
ended September 30, 1999. The
10
<PAGE> 11
newly acquired Empress properties have been affected by additional expenditures
necessary to increase the operating and service standards to a level more
consistent with the Company's expectations.
Empress Hammond
Empress Hammond contributed net revenues of $63.4 million for the
quarter ended September 30, 2000 as compared to $60.7 million for the quarter
ended September 30, 1999. Net revenues include casino revenues and non-casino
revenues of $61.3 million and $2.1 million, respectively, for the quarter ended
September 30, 2000 and $57.5 million and $3.2 million, respectively, for the
quarter ended September 30, 1999. The increase in gaming revenues was the result
of volume increases in both slots and table games in spite of the ongoing
disruption associated with the reconfiguration of the gaming floor and the
remodeling of the buffet and pavilion. Casino revenue per day increased
approximately 7% to $666,000 for the quarter ended September 30, 2000 from
$625,000 per day in the comparable 1999 period.
Empress Hammond's operating income before corporate expenses for the
quarter ended September 30, 2000 was $12.4 million compared to $12.7 million for
the quarter ended September 30, 1999. The operating margin for the quarter ended
September 30, 2000 was 20% of net revenues compared to 21% for the quarter ended
September 30, 1999. The newly acquired Empress properties have been affected by
additional expenditures necessary to increase the operating and service
standards to a level more consistent with the Company's expectations.
Other
Corporate expenses for the third quarter of 2000 were $15.2 million as
compared to $2.0 million in the third quarter of 1999. In addition to increased
costs related to the doubling of the size of the corporate staff in order to
build the corporate infrastructure required to accommodate the Empress
acquisition and approximately $1.7 million of increased legal and professional
fees primarily related to regulatory matters in Illinois, the Company also
recorded $8.1 million in other charges. These charges include $3.1 million for
benefits and severance related to certain current and former executives and $5.0
million of contributions to the MBE Incubator Fund, Inc. (the "Incubator Fund").
The main purpose of the Incubator Fund is to assist and foster minority owned
business enterprises located in Illinois, Indiana, Louisiana and Mississippi,
which provide goods and services to the casino industry. In addition, the
Company paid $1.0 million during the third quarter of 2000 related to a
consulting agreement with the former Empress owners.
Deferred compensation decreased $3.0 million in the third quarter of
2000 as compared to the same period in the prior year resulting in income of
$3.0 million for the quarter. This is a result of the decrease in valuation of
the Company's stock which is a function of the Company's operating income,
depreciation and debt as applied to trading multiples of other publicly traded
gaming companies.
The increase in consolidated depreciation and amortization expense of
$10.5 million in the third quarter of 2000 as compared to the year-earlier
period is primarily attributable to both depreciation of the two new properties
and the amortization of the goodwill associated with the Empress acquisition.
During the third quarter of 2000, the Company recorded $25.4 million of
additional goodwill relating to further allocations of the purchase price of the
Empress properties to the tangible and intangible assets acquired and
liabilities assumed. The goodwill is being amortized over 25 years from the date
of acquisition.
Interest expense increased $5.3 million in the third quarter of 2000 as
compared to the comparable period in the prior year due to increased borrowings
necessary to fund the Empress acquisition. During the third quarter, the Company
capitalized $0.6 million in interest expense from the ongoing expansion of its
Tunica property.
Interest income decreased $4.4 million in the third quarter of 2000 as
compared to the third quarter of 1999. This was due to the fact that the prior
year included earnings on the $342.3 million included in the secured proceeds
account. The $342.3 was obtained in the second quarter of 1999 through a $600.0
million note offering and was later used to partially fund the Empress
Acquisition.
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<PAGE> 12
During the third quarter of 2000, the Company sold a riverboat held for
sale, which had previously been written down to $1.0 million. A gain on the sale
of $1.6 million was recorded in the third quarter of 2000.
Nine months ended September 30, 2000 and 1999
Net revenues for the nine months ended September 30, 2000 were $773.5
million, compared to $363.7 million for the comparable period in 1999. Operating
income increased to $133.7 million for the nine months ended September 30, 2000,
from $67.7 million for the comparable 1999 period. The operating margin
decreased in the nine months ended September 30, 2000 to 17% of net revenue from
19% for the comparable 1999 period. The decrease in operating margins is the
result of higher corporate expenses and deferred compensation charges (discussed
below) in the 2000 period. Corporate expenses, deferred compensation and (gain)
write-down on asset held for sale totaled 5% of net revenues in the first nine
months of 2000 while these items amounted to 3% of net revenues in the
comparable 1999 period.
The Company's net revenues include casino revenues and non-casino
revenues of $731.5 million and $42.0 million, respectively, for the nine months
ended September 30, 2000 and $338.0 million and $25.7 million, respectively, for
the nine months ended September 30, 1999. Casino revenue per day increased
approximately 116% in 2000 to $2.7 million from $1.2 million in 1999. Excluding
the Empress properties, casino revenue per day increased approximately 10% in
the first nine months of 2000 to $1.4 million from $1.2 million in the first
nine months of 1999.
Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $190.2 million for the
nine months ended September 30, 2000 and $176.6 million for the nine months
ended September 30, 1999. The increase in net revenues is primarily due to an
increase in slot volume. Horseshoe Tunica's net revenues include casino revenues
and non-casino revenues of $182.4 million and $7.8 million, respectively, for
the nine months ended September 30, 2000 and $168.9 million and $7.7 million,
respectively, for the nine months ended September 30, 1999. Casino revenue per
day increased approximately 8% in the nine months ended September 30, 2000 to
$666,000 from $618,000 for the comparable 1999 period.
Operating income before corporate expenses for the nine months ended
September 30, 2000 was $56.1 million compared to $47.3 million for the nine
months ended September 30, 1999. The operating margin for the nine months ended
September 30, 2000 was 29% of net revenues compared to 27% for the nine months
ended September 30, 1999. The increase in operating margins is directly
attributable to the increase in slot volume.
Horseshoe Bossier City
Horseshoe Bossier City contributed net revenues of $205.7 million for
the nine months ended September 30, 2000 and $186.0 million for the nine months
ended September 30, 1999. The increase in net revenues was due to an increase in
slot volume. A portion of the volume increase is attributable to the
approximately 200 additional slot machines that were added to the gaming floor
upon the closure of the poker room in the first quarter of 2000. Net revenues
include casino revenues and non-casino revenues of $188.9 million and $16.8
million, respectively, for the nine months ended September 30, 2000 and $169.2
million and $16.8 million, respectively, for the nine months ended September 30,
1999. Casino revenue per day increased approximately 12% in the nine months
ended September 30, 2000 to $689,000 from $620,000 for the comparable 1999
period. Non-casino revenues include a $707,000 gain on the sale of an off-site
hotel in the first nine months of 2000.
Operating income before corporate expenses and (gain) write-down on
asset held for sale for the nine months ended September 30, 2000 was $39.6
million compared to $30.7 million for the nine months ended September 30, 1999.
The operating margin for the nine months ended September 30, 2000 was 19% of net
revenues, compared with 17% for the nine months ended September 30, 1999. The
increase in operating margins is primarily the result of increased slot revenues
coupled with a 7% decline in promotional allowances in the first nine months of
2000 as compared to the first nine months of 1999.
Hotel revenue at Horseshoe Bossier City decreased 18% in the first nine
months of 2000 as compared to the first nine months of 1999 primarily due to a
reduction in the direct mail programs that were in effect in the prior year. In
addition, hotel revenues were adversely impacted by the sale of an off-site
hotel in the first nine months of 2000.
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<PAGE> 13
Empress Joliet
Empress Joliet contributed net revenues of $187.6 million for the nine
months ended September 30, 2000 versus $151.4 million for the comparable 1999
period. Net revenues include casino revenues and non-casino revenues of $178.4
million and $9.2 million, respectively, for the nine months ended September 30,
2000 and $140.9 million and $10.5 million, respectively, for the nine months
ended September 30, 1999. Casino revenue per day increased approximately 26% to
$651,000 for the nine months ended September 30, 2000 from $516,000 per day in
the comparable 1999 period. Empress Joliet's results have been aided by the June
1999 conversion to dockside gaming.
Empress Joliet's operating income before corporate expenses for the
nine months ended September 30, 2000 was $49.8 million compared to $36.8 million
for the nine months ended September 30, 1999. The operating margin for the nine
months ended September 30, 2000 was 27% of net revenues, compared to 24% for the
nine months ended September 30, 1999. The newly acquired Empress properties have
been affected by additional expenditures necessary to increase the operating and
service standards to a level more consistent with the Company's expectations.
Empress Hammond
Empress Hammond contributed net revenues of $188.3 million for the nine
months ended September 30, 2000 as compared to $184.1 million for the nine
months ended September 30, 1999. Net revenues include casino revenues and
non-casino revenues of $181.9 million and $6.4 million, respectively, for the
nine months ended September 30, 2000 and $175.0 million and $9.1 million,
respectively, for the nine months ended September 30, 1999. Casino revenue per
day increased approximately 4% to $664,000 for the nine months ended September
30, 2000 from $641,000 per day in the comparable 1999 period.
Empress Hammond's operating income before corporate expenses for the
nine months ended September 30, 2000 was $39.2 million compared to $44.0 million
for the nine months ended September 30, 1999. The operating margin for the nine
months ended September 30, 2000 was 21% of net revenues compared to 24% for the
nine months ended September 30, 1999. The newly acquired Empress properties have
been affected by additional expenditures necessary to increase the operating and
service standards to a level more consistent with Company's expectations.
Other
Corporate expenses for the nine months ended September 30, 2000 were
$30.7 million as compared to $5.9 million in the comparable period of 1999. In
addition to increased costs related to the relocation of the corporate office
and doubling of the size of the corporate staff in order to build the corporate
infrastructure required to accommodate the Empress acquisition and approximately
$3.3 million of increased legal and professional fees primarily related to
regulatory matters in Illinois, the Company also recorded $9.1 million in other
charges. These charges include $3.1 million for benefits and severance related
to certain current and former executives and $6.0 million of contributions to
the MBE Incubator Fund, Inc. (the "Incubator Fund"). The main purpose of the
Incubator Fund is to assist and foster minority owned business enterprises
located in Illinois, Indiana, Louisiana and Mississippi, which provide goods and
services to the casino industry. In addition, the Company paid $3.0 million
during the first nine months of 2000 related to a consulting agreement with the
former Empress owners.
Deferred compensation increased $9.8 million in the first nine months
of 2000 as compared to the same period in the prior year. This is a result of
the valuation of the Company's stock which is a function of the Company's
operating income, depreciation and debt as applied to trading multiples of other
publicly traded gaming companies.
The increase in consolidated depreciation and amortization expense of
$31.9 million in the first nine months of 2000 as compared to the year-earlier
period is primarily attributable to both depreciation of the two new properties
and the amortization of the goodwill associated with the Empress acquisition.
Interest expense increased $29.6 million in the first nine months of
2000 as compared to the comparable period in the prior year due to increased
borrowings necessary to fund the Empress acquisition. During the first nine
months of 2000, the Company capitalized $0.6 million in interest from the
ongoing expansion of its Tunica property.
Interest income decreased $6.7 million during the nine months ended
September 30, 2000 as compared to the same period in 1999. This was due to the
fact that the prior year included interest income earned on the $342.3 million
included in the secured proceeds account. The $342.3 million was obtained in the
second quarter of 1999 through a $600.0 million note offering and was later used
to partially fund the Empress Acquisition.
During the third quarter of 2000, the Company sold a riverboat held for
sale, which had previously been written down to $1.0 million. A gain on the sale
of $1.6 million was recorded in the first nine months of 2000.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash and cash equivalents of
$80.0 million. During the first nine months of 2000, cash provided by operating
activities was $155.8 million and net cash used in investing activities was
$35.1 million. During the period, the Company had a net repayment of long-term
debt of $279.5 million, received $159.0 million in proceeds from restricted cash
and paid capital distributions of $38.0 million. The Company believes that the
Company's cash and cash equivalents on hand, cash from operations and available
borrowing capacity under its existing revolving credit facility will be adequate
to meet the Company's debt service obligations and capital expenditures
commitments for the next twelve months.
CONTINGENCIES
The Company received a Notice of Denial of License Renewal from the IGB
related to its Empress Joliet casino. In response to the denial, the Company
filed an appeal and submitted a request for an administrative hearing. During
the appeal process, the Company continues to operate Empress Joliet in a
business as usual manner.
The Company and its subsidiaries, during the normal course of operating
their business, 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 financial position or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of September 30, 2000 there were no material changes to the
information incorporated by reference in Item 7A of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The City of Hammond, Indiana (the "City") is a plaintiff in a
condemnation proceeding filed in September 1995, in the Lake Superior Court in
Lake County, Indiana, in which the City condemned a small parcel of land for the
construction of the overpass located near Empress Hammond. The case was
transferred on a change of venue in the summer of 1998 to Newton County,
Indiana. On September 28, 1998, the jury awarded a $5.2 million verdict against
the City. Under the terms of the Development Agreement between Empress Hammond
and the City, Empress Hammond is responsible for reimbursing the City for its
costs, fees and any judgment. The City of Hammond appealed the decision to the
Indiana Appellate Court, which affirmed the decision on August 8, 2000. The City
of Hammond appealed the decision to the Indiana Supreme Court, and it is not yet
clear how much, or when the condemnation award will be paid.
On July 21, 1998, a lawsuit was filed against Empress Hammond and
Empress Joliet and four of their employees by two former employees of Empress
Joliet alleging that Empress Hammond and Empress Joliet committed gender
discrimination and sexual harassment in violation of Title XII of the Civil
Rights Act of 1964, and permitted a hostile work environment to exist at its
facilities. The lawsuit also alleges certain tort claims and seeks certification
as a class action on behalf of similarly situated current and former employees
of Empress Joliet and Empress Hammond, and seeks injunctive and monetary relief.
Empress Hammond and Empress Joliet deny the allegations in the complaint and the
Court has denied the plaintiff's request to certify a class for similarly
situated current and former employees. Empress Hammond and Empress Joliet intend
to vigorously contest the remaining allegations in the complaint.
On June 2, 2000, a lawsuit was filed against Empress Hammond and the
Company on behalf of current and former employees of Empress Hammond alleging
that Empress Hammond and the Company are responsible for damages to current and
former employees as a result of poor air quality on the Empress III, which is
the gaming vessel operating in Hammond, Indiana. The lawsuit alleges certain
tort claims based on poor air quality and seeks certification as a class on
behalf of similarly situated current and former employees of Empress Hammond.
Empress Hammond and the Company deny the allegations in the complaint and intend
to vigorously contest this matter.
Empress Hammond, Empress Joliet and the Company have demanded
indemnification from Empress Entertainment, Inc., the former owner of Empress
Hammond and Empress Joliet, with respect to each of the above claims, but there
can be no assurance that such indemnity will be adequate or available to the
Company or that any judgment in this matter would not have a material adverse
effect on the Company.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description
------- -----------
3.1 # Certificate of Incorporation of Horseshoe Gaming Holding Corp.
3.2 # By-laws of Horseshoe Gaming Holding Corp.
10.1 * Purchase Agreement dated October 1, 2000 between Horseshoe
Gaming Holding Corp. and Patrick Savin.
10.2 * Promissory Note dated October 1, 2000 between Horseshoe Gaming
Holding Corp. and Patrick Savin.
27 * Financial Data Schedule
------------------
# Filed as an Exhibit to Horseshoe Gaming Holding Corp.'s Form S-4 Registration
Statement filed on June 15, 1999.
* Included herein.
Reports on Form 8-K filed during the quarter:
None
16
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SIGNATURE
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 HOLDING CORP.
a Delaware corporation
Date: November 13, 2000 By: /s/ Kirk C. Saylor
---------------------------------
Kirk C. Saylor
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
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<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 # Certificate of Incorporation of Horseshoe Gaming Holding Corp.
3.2 # By-laws of Horseshoe Gaming Holding Corp.
10.1 * Purchase Agreement dated October 1, 2000 between Horseshoe
Gaming Holding Corp. and Patrick Savin.
10.2 * Promissory Note dated October 1, 2000 between Horseshoe Gaming
Holding Corp. and Patrick Savin.
27 * Financial Data Schedule
------------------
# Filed as an Exhibit to Horseshoe Gaming Holding Corp.'s Form S-4 Registration
Statement filed on June 15, 1999.
* Included herein.
