<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 June 30, 2000
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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)
2300 Empress Drive, Joliet, IL 60436
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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 June 30, 2000
and December 31, 1999.......................................... 3
Consolidated Condensed Statements of Operations for the
three and six months ended June 30, 2000 and 1999.............. 4
Consolidated Condensed Statements of Cash Flows for the
six months ended June 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...................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................ 16
Item 6. Exhibits and Reports on Form 8-K ................................ 17
SIGNATURE................................................................. 18
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>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 86,047 $ 118,276
Restricted cash -- 159,002
Accounts receivable, net 14,054 14,776
Inventories 3,829 4,168
Prepaid expenses and other 11,087 6,212
----------- -----------
Total current assets 115,017 302,434
----------- -----------
Property and equipment, net 541,436 546,464
Assets held for sale 1,000 1,630
Other, net 89,235 87,996
Goodwill, net 461,077 470,720
----------- -----------
Total assets $ 1,207,765 $ 1,409,244
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 10,334 $ 164,245
Accounts payable 9,299 8,514
Accrued expenses and other 105,171 87,588
----------- -----------
Total current liabilities 124,804 260,347
----------- -----------
Long-term liabilities
Long-term debt, less current maturities 1,028,052 1,094,703
Other long-term liabilities 7,840 12,840
----------- -----------
Total long-term liabilities 1,035,892 1,107,543
----------- -----------
Commitments and contingencies
Redeemable ownership interests 8,485 6,760
Stockholders' equity
Common stock - par value - $1.00, Shares
authorized - 50,000; Shares issued - 25,000;
Shares outstanding - 23,526 at June 30, 2000
and 23,772 at December 31, 1999 25 25
Additional paid-in capital 40,374 41,360
Retained earnings 26,215 16,789
----------- -----------
66,614 58,174
Less treasury shares, at cost - 1,474 at June 30,
2000 and 1,228 at December 31, 1999 (28,030) (23,580)
----------- -----------
Total stockholders' equity 38,584 34,594
----------- -----------
Total liabilities and stockholders' equity $ 1,207,765 $ 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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Casino $ 239,912 $ 110,244 $ 484,113 $ 222,942
Food and beverage 20,921 12,159 42,051 25,154
Hotel 8,206 8,656 16,312 17,418
Retail and other 6,484 4,344 11,665 7,479
--------- --------- --------- ---------
275,523 135,403 554,141 272,993
Less: Promotional allowances (21,082) (15,484) (41,442) (32,882)
--------- --------- --------- ---------
Net revenues 254,441 119,919 512,699 240,111
--------- --------- --------- ---------
Expenses
Casino 137,366 61,649 272,460 122,901
Food and beverage 8,486 2,949 17,268 7,327
Hotel 1,036 1,025 2,182 1,640
Retail and other 1,943 861 3,565 3,376
General and administrative 31,173 18,598 62,135 32,590
Corporate expenses 8,072 2,217 15,556 3,919
Deferred compensation expense 1,881 (3,060) 10,330 (2,485)
Asset write-down -- 8,000 -- 8,000
Depreciation and amortization 19,779 9,729 39,791 18,314
--------- --------- --------- ---------
Total expenses 209,736 101,968 423,287 195,582
--------- --------- --------- ---------
Operating income 44,705 17,951 89,412 44,529
Other income (expense)
Interest expense (23,994) (14,222) (48,773) (24,482)
Interest income 566 2,957 1,267 3,529
Other (456) (217) (602) (538)
--------- --------- --------- ---------
Total other income (expense) (23,884) (11,482) (48,108) (21,491)
--------- --------- --------- ---------
Income before extraordinary loss on
early retirement of debt 20,821 6,469 41,304 23,038
Extraordinary loss on early retirement of debt -- (9,649) -- (9,649)
--------- --------- --------- ---------
Net income (loss) $ 20,821 $ (3,180) $ 41,304 $ 13,389
========= ========= ========= =========
</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>
Six Months Ended
June 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash provided by operating activities
Net income $ 41,304 $ 13,389
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 39,791 18,314
Amortization of debt discounts, deferred
finance charges and other 2,229 1,339
Extraordinary loss on early retirement of debt -- 9,649
Asset write-down -- 8,000
Provision for doubtful accounts 2,126 1,524
(Gain) or loss on sale of assets (717) 84
Minority interest in income of subsidiary -- 312
Increase (decrease) in redeemable ownership interests 10,330 (2,485)
Net change in assets and liabilities 1,236 1,147
--------- ---------
Net cash provided by operating activities 96,299 51,273
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (23,685) (8,932)
Proceeds from sale of property and equipment 2,797 --
Increase (decrease) in construction payables 3,331 (1,520)
Goodwill (63) (232)
Net increase in other assets (5,871) (6,721)
--------- ---------
Net cash used in investing activities (23,491) (17,405)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt, net of debt issue
costs of 24,830 in 1999 12,000 582,671
Increase in debt issue costs (291) (9,691)
Increase in secured proceeds account -- (344,859)
Distribution to minority shareholders -- (842)
Repayments on long-term debt (242,240) (247,930)
Decrease in restricted cash 159,002 --
Capital distributions (33,508) (10,616)
Warrant repurchases -- (34,426)
--------- ---------
Net cash used in financing activities (105,037) (65,693)
--------- ---------
Net change in cash and cash equivalents (32,229) (31,825)
Cash and cash equivalents, beginning of period 118,276 84,151
--------- ---------
Cash and cash equivalents, end of period $ 86,047 $ 52,326
========= =========
Supplemental cash flow disclosure
Interest paid $ 53,211 $ 21,299
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 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 six months
ended June 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 the Empress Casino in Joliet, IL ("Empress Joliet") 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. As a result of their investigation,
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 has filed an appeal and submitted a request for an
administrative hearing before an administrative law judge appointed by the IGB.
The Company intends to vigorously contest the decision of the IGB. 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") and Empress
Casino Joliet Corporation ("Empress Joliet") for $493.9 million in cash plus
transaction costs (the "Empress Acquisition"). As additional consideration, the
Company assumed $150 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. The Company is in the process of allocating the purchase price among
the tangible and intangible assets acquired and the liabilities assumed in the
Empress acquisition. The Company estimates the value of other acquired
intangibles included in other assets, net in the accompanying consolidated
condensed balance sheets are $10.0 million for trademarks and $5.0 million for
customer lists, to be amortized over five years. Upon completion of the final
purchase price allocation, to the extent the purchase price exceeds the fair
value of the net identifiable tangible and intangible assets acquired, such
excess will be allocated to goodwill and amortized over 25 years.
6
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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 Six months ended
June 30, 1999 June 30, 1999
------------------ ---------------
Net revenues $230,990 $456,886
Operating income $ 35,224 $ 77,513
Net income $ 427 $ 17,968
Note 4 - Deferred Compensation Expense
The Company recorded deferred compensation expense of $1.9 million and
$10.3 million during the three and six months ended June 30, 2000, respectively,
and recorded a reduction of deferred compensation expense of $3.1 million and
$2.5 million for the three and six months ended June 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 (see
Note 5-Ownership Transactions). The increase in valuation in 2000 was primarily
related to the Empress Acquisition .
Note 5 - Ownership Transactions
On April 1, 2000, the Company agreed to repurchase 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.
In May 1999, the Company purchased redeemable ownership interests
comprising an aggregate 7.2% of the Company from five former employees for an
aggregate purchase price of $39.0 million. In June 1999, the first installment
of approximately $11.5 million was paid with the remaining amount to be paid
over a period not to exceed four years. The notes receivable from these
employees were fully paid as a result of this transaction. Operating results for
the three and six months ended June 30, 1999 include a $2.9 million reduction in
deferred compensation expense resulting from the final valuation of these
ownership interests.
In April 1999, the Company exercised an option to purchase an 8.08%
limited partnership interest in Horseshoe Entertainment (the remaining interest
not held by New Gaming Capital Partnership, L.P., a wholly owned subsidiary of
the Company) for total consideration of approximately $30.6 million, which
includes payments for goodwill, a non-compete covenant, consents and the release
of claims. The consideration for the repurchase consisted of cash, payables to
the former limited partners, and offsets against the negative capital account
balances of the former limited partners.
In January 1999, the Company repurchased outstanding warrants held by a
third party which entitled such third party to purchase an approximate 6.99%
ownership interest in the Company from its largest stockholder for an exercise
price of $510,000. Upon acquisition, the Company exercised the warrants and
retired the shares acquired from the shareholder. The total cost of the
warrants, including fees, expenses and exercise price, was approximately $34.4
million, which was recorded as a reduction in stockholders' equity in the first
six months of 1999.
7
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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 6 - Asset Write-down
During the second quarter of 1999, the Company recorded an additional
$8.0 million charge to adjust the carrying value of a riverboat held for sale,
to an estimated net realizable value of $4.0 million. In May 1999, the Illinois
Legislature passed a bill allowing dockside gaming and eliminated the need for
cruising vessels. This additional charge was made to reflect the current market
conditions for idle riverboats and was based on recent market information
concerning riverboat sales.
Note 7 - Extraordinary Loss
In May 1999, the Company consummated a tender offer for its 12 3/4%
senior notes due 2000 of which $128.6 million were outstanding prior to the
tender offer. Substantially all of the senior notes were tendered in the tender
offer. In the second quarter of 1999, the Company recognized an extraordinary
loss of $9.6 million in conjunction with the tender offer.
Note 8 - Contingencies
As discussed in Note 2 above, the Company has received a Notice of
Denial of License Renewal from the Illinois Gaming Board related to its Empress
Joliet casino. In response to the denial, the Company has filed an appeal and
submitted a request for an administrative hearing before an administrative law
judge appointed by the IGB. If the judge upholds the ruling, the Company can
take the case to an Illinois Appellate Court and from there to the State Supreme
Court. The Company intends to vigorously contest the decision of the IGB. During
the appeal process, the Company continues to operate Empress Joliet in a
business as usual manner. Gaming regulators in Louisiana, Mississippi, Indiana
and Nevada are currently reviewing the IGB's decision.
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. Empress Entertainment, Inc. has agreed to
indemnify Empress Hammond with respect to this claim and others up to an
aggregate amount of $7 million. The City of Hammond appealed the decision to the
Indiana Appellate Court, which affirmed the decision on August 8, 2000. The City
of Hammond intends to appeal the decision to the Indiana Supreme Court, and as a
result, 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 denies 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 intends to vigorously contest the remaining allegations in
the complaint. Although Empress Entertainment, Inc. has agreed to indemnify the
company with respect to this claim and others, there can be no assurance that
such indemnity will be adequate or available to the Company.
8
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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 8 - Contingencies (continued)
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 and the Company have demanded
indemnification with respect to this claim from Empress Entertainment, Inc., 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 operations.
9
<PAGE> 10
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; difficulties in successfully completing the integration with Empress,
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 the Empress Casino in Joliet, IL ("Empress Joliet") by the
Company placing certain conditions on its decision. One of these conditions was
the completion of the investigation and approval of all key persons of the
Company. As a result of their investigation, 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 has filed an appeal
and submitted a request for an administrative hearing before an administrative
law judge appointed by the IGB. The Company intends to vigorously contest the
decision of the IGB. 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 475 slot machines and 10 table games. The
Company estimates the expansion will cost between $38 to $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 margins 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 margins of Empress Hammond
and Empress Joliet due to the relocation of a gaming license to the Chicago
market is uncertain.
10
<PAGE> 11
Three months ended June 30, 2000 and 1999
Net revenues for the quarter ended June 30, 2000 were $254.4 million as
compared to $119.9 million for the quarter ended June 30, 1999. Operating income
for the quarter ended June 30, 2000 was $44.7 million compared to $18.0 million
for the quarter ended June 30, 1999. The operating margin increased in the
quarter ended June 30, 2000 to 18% of net revenues from 15% for the comparable
1999 period. Excluding corporate expense, deferred compensation expense and
asset write-down (all discussed below), operating margins were 21% of net
revenues for both the quarters ended June 30, 2000 and June 30, 1999.
The Company's net revenues include casino revenues and non-casino
revenues of $239.9 million and $14.5 million, respectively, for the quarter
ended June 30, 2000 and $110.2 million and $9.7 million, respectively, for the
quarter ended June 30, 1999. Casino revenue per day increased approximately 118%
in the second quarter of 2000 to $2.6 million from $1.2 million in the
comparable 1999 period. Excluding the Empress properties, which were acquired in
December 1999, casino revenue per day increased approximately 11% in the second
quarter of 2000 to $1.3 million from $1.2 million in the second quarter of 1999.
Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $62.6 million for the
quarter ended June 30, 2000 and $58.1 million for the quarter ended June 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 $60.2 million and $2.4 million, respectively, for the quarter ended
June 30, 2000 and $55.3 million and $2.8 million, respectively, for the quarter
ended June 30, 1999. Casino revenue per day increased approximately 9% in the
quarter ended June 30, 2000 to $662,000 from $607,000 for the comparable 1999
period.
Operating income before corporate expenses for the quarter ended June
30, 2000 was $17.9 million compared to $16.2 million for the quarter ended June
30, 1999. The operating margin for the quarter ended June 30, 2000 was 29% of
net revenues compared to 28% for the quarter ended June 30, 1999. The increase
in operating margins is primarily attributable to the increase in slot volume,
but partially offset by a 12% increase in complimentaries in the second quarter
of 2000.
Horseshoe Bossier City
Horseshoe Bossier City contributed net revenues of $68.4 million for
the quarter ended June 30, 2000 and $60.7 million for the quarter ended June 30,
1999. The increase in net revenues was primarily due to an increase in slot
volume. This volume increase can partially be contributed 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 $62.3 million and $6.1 million,
respectively, for the quarter ended June 30, 2000 and $55.0 million and $5.7
million, respectively, for the quarter ended June 30, 1999. Casino revenue per
day increased approximately 13% in the quarter ended June 30, 2000 to $685,000
from $604,000 for the comparable 1999 period. Non-casino revenues include a
$707,000 gain on the sale of an off-site hotel in the second quarter of 2000.
Operating income before corporate expenses and asset write-down for the
quarter ended June 30, 2000 was $13.4 million compared to $8.9 million for the
quarter ended June 30, 1999. The operating margin for the quarter ended June 30,
2000 was 20% of net revenues, compared with 15% for the quarter ended June 30,
1999. The increase in operating income is primarily the result of increased slot
revenues coupled with a 4% decline in complimentaries in the second quarter of
2000 as compared to the second quarter of 1999.
Hotel revenue at Horseshoe Bossier City decreased 19% in the quarter
ended June 30, 2000 as compared to the second quarter of 1999 primarily due to a
reduction in the direct mail programs that were in effect in the prior year
period coupled with a decrease in the average daily room rate.
11
<PAGE> 12
Empress Joliet
Empress Joliet contributed net revenues of $62.5 million for the
quarter ended June 30, 2000 versus $49.3 million for the comparable 1999
quarter. Net revenues include casino revenues and non-casino revenues of $59.4
million and $3.1 million, respectively, for the quarter ended June 30, 2000 and
$46.0 million and $3.3 million, respectively, for the quarter ended June 30,
1999. Casino revenue per day increased approximately 29% to $653,000 for the
quarter ended June 30, 2000 from $506,000 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
quarter ended June 30, 2000 was $16.5 million compared to $10.5 million for the
quarter ended June 30, 1999. The operating margin for the quarter ended June 30,
2000 was 26% of net revenues, compared to 21% for the quarter ended June 30,
1999.
Empress Hammond
Empress Hammond contributed net revenues of $60.0 million for the
quarter ended June 30, 2000 as compared to $63.0 million for the quarter ended
June 30, 1999. Net revenues include casino revenues and non-casino revenues of
$58.0 million and $2.0 million, respectively, for the quarter ended June 30,
2000 and $60.0 million and $3.0 million, respectively, for the quarter ended
June 30, 1999. Casino revenue per day decreased approximately 3% to $637,000 for
the quarter ended June 30, 2000 from $659,000 per day in the comparable 1999
period.
Empress Hammond's operating income before corporate expenses for the
quarter ended June 30, 2000 was $11.2 million compared to $16.2 million for the
quarter ended June 30, 1999. The operating margin for the quarter ended June 30,
2000 was 19% of net revenues compared to 26% for the quarter ended June 30,
1999. Empress Hammond results were impacted late in the second quarter of 2000
by construction disruption associated with the reconfiguration of the gaming
floor. Renovations at the Empress Hammond property are scheduled to be completed
in the fourth quarter of 2000. In addition, operating margins in the second
quarter of 2000 have been affected by additional expenditures to bring the
recently acquired Empress properties up to the Company's operating standards and
service levels.
Other
Corporate expenses increased approximately $5.9 million in the second
quarter of 2000 as compared to the second quarter of 1999, primarily due to
increased legal and professional fees and charges related to the relocation of
the corporate headquarters to Joliet, Illinois, including the expansion of the
corporate staff to accommodate the Empress acquisition.
Deferred compensation expense increased approximately $4.9 million for
the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999 due
to an increase in the valuation of ownership interests as a result of the
Empress acquisition.
The increase in consolidated depreciation and amortization expense of
$10.1 million in the second quarter of 2000 as compared to the second quarter of
1999 is primarily attributable to both depreciation on the two new Empress
properties and the amortization of the goodwill associated with the Empress
acquisition. In addition, interest expense increased $9.8 million in the second
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 second quarter of 1999, the Company recorded an additional
$8.0 million charge to adjust the carrying value of a riverboat held for sale to
an estimated net realizable value of $4.0 million. This additional charge was
made to reflect the current market conditions for idle riverboats and was based
on recent market information concerning riverboat sales.
12
<PAGE> 13
Six months ended June 30, 2000 and 1999
Net revenues for the six months ended June 30, 2000 were $512.7
million, compared to $240.1 million for the comparable period in 1999. Operating
income increased to $89.4 million for the six months ended June 30, 2000, from
$44.5 million for the comparable 1999 period. The operating margin decreased in
the six months ended June 30, 2000 to 17% of net revenue from 18% 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 and deferred compensation expenses totaled 5% of net
revenues in the first six months of 2000 while these items plus the write-down
of the riverboat, amounted to 4% of net revenues in the comparable 1999 period.
The Company's net revenues include casino revenues and non-casino
revenues of $484.1 million and $28.6 million, respectively, for the six months
ended June 30, 2000 and $222.9 million and $17.2 million, respectively, for the
six months ended June 30, 1999. Casino revenue per day increased approximately
116% in 2000 to $2.6 million from $1.2 million in 1999. Excluding the Empress
properties, casino revenue per day increased approximately 9% in the first six
months of 2000 to $1.3 million from $1.2 million in the first six months of
1999.
Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $127.4 million for the six
months ended June 30, 2000 and $117.5 million for the quarter ended June 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 $122.2 million and $5.2 million, respectively, for the six months
ended June 30, 2000 and $112.4 million and $5.1 million, respectively, for the
six months ended June 30, 1999. Casino revenue per day increased approximately
8% in the six months ended June 30, 2000 to $672,000 from $621,000 for the
comparable 1999 period.
Operating income before corporate expenses for the six months ended
June 30, 2000 was $38.3 million compared to $32.4 million for the six months
ended June 30, 1999. The operating margin for the six months ended June 30, 2000
was 30% of net revenues compared to 28% for the six months ended June 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 $133.7 million for
the six months ended June 30, 2000 and $121.4 million for the six months ended
June 30, 1999. The increase in net revenues was primarily due to an increase in
slot volume. This volume increase can partially be contributed 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 $122.1 million and $11.6
million, respectively, for the six months ended June 30, 2000 and $110.5 million
and $10.9 million, respectively, for the six months ended June 30, 1999. Casino
revenue per day increased approximately 10% in the six months ended June 30,
2000 to $671,000 from $611,000 for the comparable 1999 period. Non-casino
revenues include a $707,000 gain on the sale of an off-site hotel in the first
half of 2000.
Operating income before corporate expenses and asset write-down for the
six months ended June 30, 2000 was $25.8 million compared to $20.4 million for
the six months ended June 30, 1999. The operating margin for the six months
ended June 30, 2000 was 19% of net revenues, compared with 17% for the six
months ended June 30, 1999. The increase in operating income is primarily the
result of increased slot revenues coupled with a 15% decline in complimentaries
in the first half of 2000 as compared to the first half of 1999.
Hotel revenue at Horseshoe Bossier City decreased 20% in the first half
of 2000 as compared to the first half of 1999 primarily due to a reduction in
the direct mail programs that were in effect in the prior year period coupled
with a decrease in the average daily room rate.
13
<PAGE> 14
Empress Joliet
Empress Joliet contributed net revenues of $125.5 million for the six
months ended June 30, 2000 versus $93.3 million for the comparable 1999 period.
Net revenues include casino revenues and non-casino revenues of $119.1 million
and $6.4 million, respectively, for the six months ended June 30, 2000 and $87.3
million and $6.0 million, respectively, for the six months ended June 30, 1999.
Casino revenue per day increased approximately 36% to $654,000 for the six
months ended June 30, 2000 from $483,000 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 six
months ended June 30, 2000 was $33.5 million compared to $20.5 million for the
six months ended June 30, 1999. The operating margin for the six months ended
June 30, 2000 was 27% of net revenues, compared to 22% for the six months ended
June 30, 1999.
Empress Hammond
Empress Hammond contributed net revenues of $124.9 million for the six
months ended June 30, 2000 as compared to $123.5 million for the six months
ended June 30, 1999. Net revenues include casino revenues and non-casino
revenues of $120.7 million and $4.2 million, respectively, for the six months
ended June 30, 2000 and $117.5 million and $6.0 million, respectively, for the
six months ended June 30, 1999. Casino revenue per day increased approximately
2% to $663,000 for the six months ended June 30, 2000 from $649,000 per day in
the comparable 1999 period.
Empress Hammond's operating income before corporate expenses for the
six months ended June 30, 2000 was $26.8 million compared to $31.3 million for
the six months ended June 30, 1999. The operating margin for the six months
ended June 30, 2000 was 21% of net revenues compared to 25% for the six months
ended June 30, 1999. Empress Hammond results were impacted late in the first
half of 2000 by construction disruption associated with the reconfiguration of
the gaming floor. Renovations at the Empress Hammond property are scheduled to
be complete in the fourth quarter of 2000. In addition, operating margins in the
first six months of 2000 have been affected by additional expenditures to bring
the recently acquired Empress properties up to the Company's operating standards
and service levels.
Other
Corporate expenses increased approximately $11.6 million in the first
half of 2000 as compared to the first half of 1999, primarily due to increased
legal and professional fees and charges related to the relocation of the
corporate headquarters to Joliet, Illinois, including the expansion of the
corporate staff to accommodate the Empress acquisition.
Deferred compensation expense increased approximately $12.8 million for
the six months ended June 30, 2000 compared to the six months ended June 30,
1999 due to an increase in the valuation of ownership interests as a result of
the Empress acquisition.
The increase in consolidated depreciation and amortization expense of
$21.5 million in the first half of 2000 as compared to the first half of 1999 is
primarily attributable to both depreciation on the two new Empress properties
and the amortization of the goodwill associated with the Empress acquisition. In
addition, interest expense increased $24.3 million in the first half 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 half of 1999, the Company recorded an additional $8.0
million charge to adjust the carrying value of a riverboat held for sale to an
estimated net realizable value of $4.0 million. This additional charge was made
to reflect the current market conditions for idle riverboats and was based on
recent market information concerning riverboat sales.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash and cash equivalents of $86.0
million. During the first six months of 2000, cash provided by operating
activities was $96.3 million and net cash used in investing activities was $23.5
million. During the period, the Company had a net repayment of long-term debt of
$230.2 million, received $159.0 million in proceeds from restricted cash and
paid capital distributions of $33.5 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 has received a Notice of Denial of License Renewal from the
Illinois Gaming Board related to its Empress Joliet casino. In response to the
denial, the Company has filed an appeal and submitted a request for an
administrative hearing before an administrative law judge appointed by the IGB.
If the judge upholds the ruling, the Company can take the case to an Illinois
Appellate Court and from there to the state Supreme Court. The Company intends
to vigorously contest the decision of the IGB. During the appeal process, the
Company continues to operate Empress Joliet in a business as usual manner.
Regulators in Louisiana, Mississippi, Indiana and Nevada are currently reviewing
the IGB's decision.
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 operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of June 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.
15
<PAGE> 16
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. Empress Entertainment, Inc. has agreed to
indemnify Empress Hammond with respect to this claim and others up to an
aggregate amount of $7 million. The City of Hammond appealed the decision to the
Indiana Appellate Court, which affirmed the decision on August 8, 2000. The City
of Hammond intends to appeal the decision to the Indiana Supreme Court, and as a
result, 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 denies 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 intends to vigorously contest the remaining allegations in
the complaint. Although Empress Entertainment, Inc. has agreed to indemnify the
company with respect to this claim and others, there can be no assurance that
such indemnity will be adequate or available to the Company.
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 and the Company have demanded
indemnification with respect to this claim from Empress Entertainment, Inc., 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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<PAGE> 17
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.
27* Financial Data Schedule
99.1* Verified Request for Hearing on the Illinois Gaming Board's
July 19, 2000 Notice of Denial of License Renewal for Empress
Casino Joliet
-----------------
# 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
17
<PAGE> 18
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: August 11, 2000 By: /s/ Kirk C. Saylor
-------------------------------------
Kirk C. Saylor
Chief Financial Officer and Treasurer
(Principal Financial Officer)
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1# Certificate of Incorporation of Horseshoe Gaming Holding Corp.
3.2# By-laws of Horseshoe Gaming Holding Corp.
27* Financial Data Schedule
99.1* Verified Request for Hearing on the Illinois Gaming Board's
July 19, 2000 Notice of Denial of License Renewal for Empress
Casino Joliet
--------------
# Filed as an Exhibit to Horseshoe Gaming Holding Corp.'s Form S-4
Registration Statement filed on June 15, 1999.
* Included herein.
