<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 033-74870
EMPRESS ENTERTAINMENT, INC. ("COMPANY")
EMPRESS CASINO HAMMOND CORPORATION ("EMPRESS HAMMOND")
EMPRESS CASINO JOLIET CORPORATION ("EMPRESS JOLIET")
EMPRESS RIVER CASINO FINANCE CORPORATION ("EMPRESS FINANCE")
HAMMOND RESIDENTIAL, L.L.C. ("HAMMOND RESIDENTIAL")
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3932031
Indiana 36-3865868
Illinois 36-3740765
Delaware 36-3929804
Indiana ----
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 Empress Drive, Joliet, Illinois 60436
------------------------------------ -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 744-9400
Not Applicable
-----------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by checkmark 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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practical date.
Company: Voting Common Stock, $0.01 Par Value - 1,745.32 Shares as of November
13, 1998; Non-Voting, Common Stock, $0.01 Par Value - 164.04 Shares as of
November 13, 1998
Empress Hammond: Common Stock, $0.01 Par Value - 1,000 Shares as of November 13,
1998
Empress Joliet: Common Stock, $0.01 Par Value - 1,000 Shares as of November 13,
1998
Empress Finance: Common Stock, $0.01 Par Value - 1,000 Shares as of November 13,
1998
Hammond Residential: 100% Interest
<PAGE>
EMPRESS ENTERTAINMENT, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1998
(unaudited) December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40,769,081 $ 73,257,022
Marketable securities, at fair value which approximates cost - 10,010,028
Accounts receivable, less allowance for doubtful accounts
of $2,579,000 and $1,762,000, respectively 2,625,370 3,789,455
Interest receivable - 499,957
Inventories 689,866 1,005,622
Prepaid expenses 1,790,942 1,887,110
U.S. Treasuries held for defeasance 161,099,000 -
Premium on U.S. Treasuries, net of accumulated
amortization of $309,953 598,595 -
------------ ------------
Total current assets 207,572,854 90,449,194
Long-term investments:
Investment in non-consolidated affiliates 9,210,000 -
Property and equipment:
Land 11,905,079 9,139,658
Building and improvements 71,318,158 69,407,747
Riverboat 63,541,811 53,768,016
Leasehold improvements 45,416,048 45,416,048
Furniture, fixtures and equipment 57,292,837 49,857,048
Construction in progress 2,934,308 2,709,009
------------ ------------
252,408,241 230,297,526
Less: Accumulated depreciation (57,813,680) (44,386,127)
------------ ------------
Property and equipment, net 194,594,561 185,911,399
Noncompete agreement, less accumulated amortization of
$3,750,000 and $3,055,556, respectively - 694,444
Deferred financing costs, less accumulated amortization of
$3,421,907 and $2,646,916, respectively 8,654,878 3,018,341
Other assets, less accumulated amortization
of $1,764,987 and $1,236,619, respectively 11,716,599 11,468,794
------------ ------------
Total assets $431,748,893 $291,542,172
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,894,321 $ 3,535,636
Accrued payroll and related expenses 6,619,905 7,356,407
Other accrued liabilities 15,074,987 12,193,675
Interest payable 11,843,791 4,073,953
Current portion of long-term debt 182,000,000 18,523,788
------------ ------------
222,433,005 45,683,459
Total current liabilities
Long-term debt:
8 1/8% Senior Subordinated Notes 150,000,000 -
10 3/4% Senior Notes - 150,000,000
Credit Facility - 40,000,000
------------ ------------
150,000,000 190,000,000
Stockholders' equity:
Common stock; $.01 par value; 6,000 and 3,000 shares authorized;
1,909.364 and 1,150 shares issued and outstanding, respectively 11,653,012 11,500,012
Common stock in treasury (at cost); 17.381 shares (4,666,667) -
Additional paid-in capital 4,894,605 5,047,605
Retained earnings 47,434,938 39,311,096
------------ ------------
59,315,888 55,858,713
------------ ------------
Total liabilities and stockholders' equity $431,748,893 $291,542,172
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Casino $ 94,959,062 $ 87,859,558 $ 276,549,714 $ 262,529,866
Food and beverage 5,999,351 5,705,816 16,652,219 15,750,337
Hotel 453,078 411,236 1,251,881 1,115,092
Admissions and parking 366,554 364,310 940,983 1,050,616
Gift shop 452,046 583,469 1,209,746 1,552,251
Other 545,374 547,053 1,779,231 1,680,724
-------------- -------------- -------------- --------------
102,775,465 95,471,442 298,383,774 283,678,886
Less: Promotional allowances (1,674,649) (1,259,084) (4,558,070) (3,635,299)
-------------- -------------- -------------- --------------
101,100,816 94,212,358 293,825,704 280,043,587
Operating expenses
Casino 15,149,968 17,723,664 45,159,891 48,510,076
Gaming and admission taxes 32,266,779 28,034,934 92,430,406 81,424,379
Food and beverage 6,555,452 7,044,646 19,037,788 19,686,895
Admissions, parking and gift shop 945,187 1,087,879 2,716,002 3,618,350
Hotel 265,851 204,669 731,905 690,978
Advertising and sales 5,266,513 5,624,956 14,376,381 14,139,119
General and administrative 7,714,651 8,290,264 23,316,386 23,309,991
Security and surveillance 1,787,131 2,012,247 5,283,777 5,659,024
Facility and property 4,886,649 5,464,160 14,503,764 15,685,237
Depreciation and amortization 5,126,161 4,622,888 14,682,214 14,051,990
-------------- -------------- -------------- --------------
79,964,342 80,110,307 232,238,514 226,776,039
-------------- -------------- -------------- --------------
Income from operations 21,136,474 14,102,051 61,587,190 53,267,548
Other income (expense)
Interest expense (7,948,914) (5,390,776) (18,839,673) (15,963,857)
Interest income 2,375,038 854,333 4,362,543 2,402,540
-------------- -------------- -------------- --------------
Income before state income taxes 15,562,598 9,565,608 47,110,060 39,706,231
Provision for state income taxes 127,293 35,704 320,821 191,352
-------------- -------------- -------------- --------------
Net income $ 15,435,305 $ 9,529,904 $ 46,789,239 $ 39,514,879
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998 September 30, 1997
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 46,789,239 $ 39,514,879
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 15,735,309 14,583,108
Bad debt provision 817,495 633,643
Other - 124,928
Changes in operating assets and liabilities:
Accounts and interest receivable 846,547 809,160
Inventories 315,756 (60,593)
Prepaid expenses 96,168 1,404,690
Accounts payable 3,358,685 (473,146)
Interest payable 7,769,838 4,584,933
Accrued payroll and related expenses (736,502) 837,524
Other accrued liabilities 2,881,312 (2,819,122)
------------- ------------
Net cash provided by operating activities 77,873,848 59,140,004
Cash flows from investing activities:
Purchase of investments (20,959,566) (57,550,163)
Sale of investments 30,969,594 61,532,949
Investment in non-consolidated affiliates (9,210,000) -
Purchase of property and equipment (22,110,715) (8,974,719)
Purchase of U.S. Treasuries held for defeasance (162,007,548) -
Increase in other assets (776,173) (464,376)
------------- ------------
Net cash used in investing activities (184,094,408) (5,456,309)
Cash flows from financing activities:
Proceeds from borrowings 182,000,000 28,125,000
Payments on borrowings (58,523,788) (32,755,221)
Cost of debt issuance (6,411,528) -
Purchase of treasury stock (4,666,667) -
Stockholder distributions (38,665,397) (37,275,008)
------------- ------------
Net cash provided by (used in) financing activities 73,732,620 (41,905,229)
Net increase (decrease) in cash and cash equivalents (32,487,941) 11,778,466
Cash and cash equivalents, beginning of period 73,257,022 45,464,963
------------- ------------
Cash and cash equivalents, end of period $ 40,769,081 $ 57,243,429
============= ============
Supplemental disclosure of cash flow information
Interest paid $ 10,144,417 $ 10,791,035
Income taxes paid $ 798,257 $ 475,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
Empress Entertainment, Inc.
Notes to Consolidated Financial Statements
September 30, 1998
(unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Empress Entertainment, Inc. (the
"Company") include the accounts of its wholly-owned subsidiaries, Empress River
Casino Finance Corporation ("Empress Finance") incorporated January 7, 1994,
Empress Casino Hammond Corporation ("Empress Hammond") incorporated on November
25, 1992, Empress Casino Joliet Corporation ("Empress Joliet") incorporated on
December 26, 1990, and Empress Opportunities, Inc. ("Empress Opportunities")
incorporated on July 14, 1998. All significant intercompany transactions have
been eliminated. The investment in the non-consolidated affiliates is accounted
for using the equity method.
The Company is engaged in the business of providing riverboat gaming and
related entertainment to the public. Empress Joliet was granted a three-year
operating license from the Illinois Gaming Board on July 9, 1992, which was
renewed in July 1998 and must be renewed each year thereafter, to operate the
Empress I and Empress II riverboat casinos located on the Des Plaines River in
Joliet, Illinois. Empress Hammond was granted a five-year operating license,
with annual renewals thereafter, from the Indiana Gaming Commission on June 21,
1996 to operate the Empress III riverboat casino located on Lake Michigan in
Hammond, Indiana. Empress III commenced operations on June 28, 1996. The
majority of the Company's customers reside in the Chicago metropolitan area.
Empress Opportunities was formed as an unrestricted subsidiary to serve as
a holding company, under which the Company is pursuing certain business
opportunities other than the Company's gaming operations in Hammond, Indiana and
Joliet, Illinois. Empress Racing, Inc. ("Empress Racing") was formed as an
Unrestricted Subsidiary of Empress Opportunities to hold a 50% ownership
interest in Kansas Racing, LLC, which has acquired certain outstanding secured
indebtedness of Sunshine Racing, Inc., the owner of the Woodlands Racetrack in
Kansas City, Kansas, and which intends, subject to certain regulatory approvals,
to ultimately bid to purchase the Woodlands Racetrack in an auction pursuant to
a proceeding under Chapter 7 of the U.S. Bankruptcy Code.
The accompanying unaudited consolidated financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results, which may be expected for any other
interim period or for the year as a whole. The accompanying unaudited
consolidated financial statements contain all adjustments, which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals.
Impairment of Long-Lived Assets
When events or circumstances indicate that the carrying amount of long-
lived assets to be held and used might not be recoverable, the expected future
undiscounted cash flows from the assets are estimated and compared with the
carrying amount of the assets. If the sum of the estimated undiscounted cash
flows is less than the carrying amount of the assets, an impairment is recorded.
The impairment loss is measured by comparing the fair value of the assets with
their carrying amount. Long-lived assets that are held for disposal are reported
at the lower of the assets' carrying amount or fair value less costs related to
the assets' disposition. The Company performs an annual evaluation to identify
potential impairment of long-lived assets.
4
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Revenue and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
The retail value of food, beverage and other services, which were provided
to customers without charge has been included in the respective revenue
classifications and then deducted as a promotional allowances.
Revenues from food, beverage, gift shop and related services are recognized
at the time the related service is performed.
2. Commitments
In June 1996, the Company executed a number of agreements, which secure its
rights to operate in the City of Hammond at the Hammond marina. These
commitments include, but are not limited to, the financial obligations of the
Company outstanding as of September 30, 1998:
An annual payment to the City of Hammond of the greater of $3.0 million or
certain percentages of adjusted gross receipts as follows:
-- 4.0% up to $125.0 million
-- 6.0% over $125.0 million to $200.0 million; and
-- 4.0% in excess of $200.0 million.
. A passenger payment to the Hammond Port Authority in the sum of $1.00
per passenger.
. An annual payment to the City of Hammond for police and fire purposes
of $1.0 million.
. Contributions to the City of Whiting and civic organizations in
Whiting for public safety and to promote economic development in the
total sum of $1.25 million. Payments to be made in equal installments
over five years commenced June 1996.
. Construction of a 200-room hotel and conference center with an
estimated cost of $10.0 million. No amounts have been expended as of
September 30, 1998.
. Commercial development within the greater Hammond area with an
estimated cost of $10.0 million to be completed within 5 years of the
date of the Certificate of Suitability. No amounts have been expended
as of September 30, 1998.
. Renovation of existing housing and construction of new market rate
housing in the greater Hammond area with an estimated cost of $5.0
million to be completed within 5 years of the date of the Certificate
of Suitability. As of September 30, 1998 $1.0 million had been
expended.
5
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30 December 31
---------------------------------
1998 1997
------------ -------------
<S> <C> <C>
10 3/4% Senior Notes............... $150,000,000 $150,000,000
8 1/8% Senior Subordinated Notes... 150,000,000 ----
Revolving Credit Facility.......... 32,000,000 56,000,000
Other.............................. ---- 2,523,788
------------ -------------
$332,000,000 $208,523,788
Current portion of long-term debt.. 32,000,000 18,523,788
------------ -------------
$300,000,000 $190,000,000
============ =============
</TABLE>
The Company entered into a refinancing, the components of which included a
covenant defeasance of the $150.0 million 10 3/4% Senior Notes and the issuance
of $150.0 million 8 1/8% Senior Subordinated Notes (the "Notes").
The Company issued the Notes pursuant to a private 144A offering ("the
Offering") on June 18, 1998. On November 6, 1998, the Company completed an
exchange of the unregistered Notes for identical Notes registered under the
Securities Act of 1933. The Notes are jointly, severally and unconditionally
guaranteed on an unsecured senior subordinated basis by all existing and future
Restricted Subsidiaries.
Interest on the Notes is payable semiannually on January 1 and July 1 of
each year. The Notes are due and payable on July 1, 2006. The Company and all of
its future subsidiaries may be required to repay all or a portion of the Notes
upon the occurrences of certain repurchase events.
In June 1998, the Company entered into a $100.0 million reducing revolving
credit facility (the "Credit Agreement") which will expire June 18, 2003. Under
the terms of the Credit Agreement, the Company is required to meet certain
financial and other covenants. Interest shall accrue on the entire outstanding
principal balance of the Credit Agreement at a rate per annum equal to the
higher of (a) the Prime Rate in effect on such date and (b) the Federal Funds
Rate in effect on such date plus one-half of one percent. As of September 30,
1998, $32.0 million was outstanding at the rate of 6.8125% per annum.
4. Recent Developments
On September 2, 1998, the Company entered into an Agreement and Plan of
Merger with Horseshoe Gaming (Midwest), Inc. ("Horseshoe Midwest") and certain
of its affiliates which, if consummated, would result in the acquisition by
Horseshoe Midwest of all of the outstanding stock of Empress Hammond and Empress
Joliet via two simultaneous merger transactions (the "Proposed Mergers").
Consummation of the Plan of Merger constitutes a "Change of Control" under
the Indenture and will trigger Horseshoe Midwest's obligation to make an
irrevocable offer to purchase Notes (the "Change of Control Offer") at a cash
price equal to 101% of the principle amount plus accrued and unpaid interest.
Holders of the Notes will have the option of tendering all or any portion of
their Notes for redemption, or they may retain the Notes. The Company and/or
Horseshoe Midwest intend to comply with the provisions of the Indenture. The
Change of Control Offer must commence within 10 business days following the
consummation of the transactions contemplated by the Plan of Merger and must
remain open for at least 20 business days. Horseshoe Midwest must complete
repurchase of any Notes tendered in response to the Change of Control Offer no
more than 30 business days after the consummation of the transactions as
contemplated in the Plan of Merger.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the consolidated financial condition and results of operations of the Company.
The discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto.
On October 7, 1998, the registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act was declared effective. The Registration Statement registered under the
Securities Act $150.0 million in 8 1/8% Senior Subordinated Notes due 2006,
which have been issued in exchange for identical but unregistered notes
previously issued by the Company. As a result, the Company has become subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
On September 2, 1998, the Company entered into an Agreement and Plan of
Merger with Horseshoe Gaming (Midwest), Inc. ("Horseshoe Midwest") and certain
of its affiliates which, if consummated, would result in the acquisition by
Horseshoe Midwest of all of the outstanding stock of Empress Hammond and Empress
Joliet via two simultaneous merger transactions (the "Proposed Mergers").
Results of Operations
The following discussion is based upon the combined operating results of the
Company.
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net revenues for the three months ended September 30, 1998 increased to
approximately $101.1 million, an increase of approximately $6.9 million, or
7.3% compared to net revenues of approximately $94.2 million for the three
months ended September 30, 1997. The increase in net revenues was primarily
attributable to increased casino revenue. Empress Hammond's net revenues
increased from $56.3 million to $58.6 million and Empress Joliet's net revenues
increased from $37.9 million to $42.5 million.
Casino revenues were approximately $95.0 million for the three months ended
September 30, 1998 compared to approximately $87.9 million for the three months
ended September 30, 1997, an increase of approximately $7.1 million, or 8.1%.
Empress Hammond's casino revenues increased from $53.0 million to $55.3 million
primarily due to increased admissions and Empress Joliet's casino revenues
increased from $34.9 million to $39.7 million due to an increase in win per
admission.
Revenues from non-gaming operations, consisting primarily of food and
beverage, parking, gift shop and hotel revenues, were approximately $7.8 million
for the three months ended September 30, 1998 compared to approximately $7.6
million for the three months ended September 30, 1997, an increase of
approximately $.2 million, or 2.7%. The increase in revenues from non-gaming
operations was primarily attributable to an increase in food and beverage
revenues at Empress Hammond, partially offset by a decrease in gift shop
revenues at Empress Hammond and a decrease in food and beverage revenues at
Empress Joliet. Empress Hammond's non-gaming revenues increased from $4.2
million to $4.4 million and Empress Joliet's non-gaming revenues remained
approximately the same.
Promotional allowances increased approximately $0.4 million for the three
months ended September 30, 1998 compared to the three months ended September 30,
1997. Empress Hammond's promotional allowances increased from $0.9 million to
$1.1 million and Empress Joliet's promotional allowances increased from $0.4
million to $0.6 million.
7
<PAGE>
Casino expenses totaled approximately $15.1 million for the three months
ended September 30, 1998, a decrease of 14.7% or approximately $2.6 million
compared to $17.7 million for the three months ended September 30, 1997. This
decrease was principally due to a decrease in casino marketing and promotional
expenses. Empress Hammond's casino expenses decreased from $8.6 million to $7.5
million and Empress Joliet's casino expenses decreased from $9.1 million to $7.6
million.
Gaming and admission taxes increased from approximately $4.2 million to
approximately $32.3 million for the three months ended September 30, 1998
compared to the three months ended September 30, 1997. Gaming and admission
taxes at Empress Hammond increased from $19.2 million to $19.6 million. Gaming
and admission taxes at Empress Joliet increased from $8.9 million to $12.7
million as a result of increased casino revenue and the implementation on
January 1, 1998 of a graduated gaming tax in Illinois.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the three months ended September 30, 1998 totaled
approximately $32.5 million, a decrease of 5.5% or approximately $1.8 million
compared to the three months ended September 30, 1997. Expenses relating to non-
gaming operations for Empress Hammond increased from $17.9 million to $19.0
million. This increase was offset by a decrease in expenses relating to non-
gaming operations at Empress Joliet, which decreased from $16.5 million to $13.7
million, primarily due to a decrease in general and administration and
advertising and sales expenses.
Income from operations for the three months ended September 30, 1998
totaled approximately $21.1 million compared to approximately $14.1 million for
the three months ended September 30, 1997, an increase of approximately $7.0
million, or 50.0%. Income from operations at Empress Hammond increased from
$10.9 million to $12.8 million and income from operations at Empress Joliet
increased from $3.9 million to $9.2 million.
Net interest expense for the three months ended September 30, 1998 was
approximately $5.6 million, an increase of approximately $1.0 million compared
to the three months ended September 30, 1997. This increase was a result of the
additional expenses associated with increased borrowings under the Company's
credit facility.
Net income amounted to approximately $15.4 million and $9.5 million for the
three months ending September 30, 1998 and 1997, respectively.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Net revenues for the nine months ended September 30, 1998 were
approximately $293.8 million, an increase of approximately $13.8 million, or
4.9% compared to net revenues of approximately $280.0 million for the nine
months ended September 30, 1997. Empress Hammond's net revenue increased from
$168.0 million to $174.8 million and Empress Joliet's net revenue increased from
$114.1 million to $119.0 million.
Casino revenues were approximately $276.5 million for the nine months ended
September 30, 1998 compared to approximately $262.5 million for the nine months
ended September 30, 1997, an increase of approximately $14.0 million, or 5.3%.
Empress Hammond's casino revenue increased from $159.3 million to $165.3
million, primarily due to increased admissions and Empress Joliet's casino
revenue increased from $103.2 million to $111.2 million due to an increase in
win per admission.
Revenues from non-gaming operations, consisting primarily of food and
beverage, parking, gift shop and hotel revenues, were approximately $21.7
million for the nine months ended September 30, 1998 compared to approximately
$21.1million for the nine months ended September 30, 1997, an increase of
approximately $0.6 million, or 0.2%. Empress Hammond's non-gaming revenues
increased from $11.2 million to $12.5 million, primarily attributable to an
increase in food and beverage and other revenues at Empress Hammond. This
increase was partially offset by a decrease in non-gaming revenues at Empress
Joliet from $10.0 million to $9.4 million, primarily due to a decrease in food
and beverage revenues.
8
<PAGE>
Promotional allowances increased approximately $0.9 million for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997. This increase was primarily attributable to an increase in food and
beverage complimentaries at Empress Joliet and Empress Hammond. Empress
Hammond's promotional allowances increased from $2.5 million to $3.0 million and
Empress Joliet's promotional allowances increased from $1.1 million to $1.5
million.
Casino expenses totaled approximately $45.2 million for the nine months
ended September 30, 1998, a decrease of 6.9% or approximately $3.3 million
compared to $48.5 million for the nine months ended September 30, 1997. Empress
Hammond's casino expenses decreased from $24.1 million to $22.4 million and
Empress Joliet's casino expenses decreased from $24.4 million to $22.8 million.
This decrease was principally due to a decrease in casino marketing and
promotional expenses.
Gaming and admission taxes increased approximately $11.0 million to
approximately $92.4 million for the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997. Empress Hammond's gaming
and admissions taxes increased from $55.5 million to $57.9 million as a result
of increased casino revenue and admissions. Gaming and admissions taxes at
Empress Joliet increased from $25.9 million to $34.5 million as a result of
increased casino revenue and the implementation on January 1, 1998 of a
graduated gaming tax, partially offset by a decline in admissions.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the nine months ended September 30, 1998 totaled approximately
$94.6 million, a decrease of 2.4% or approximately $2.3 million compared to the
nine months ended September 30, 1997. Expenses relating to non-gaming operations
for Empress Hammond increased from $51.4 million to $54.1 million primarily due
to an increase in advertising and sales and facility and property, partially
offset by a decrease in general and administration. This increase was offset by
a decrease in expenses relating to non-gaming operations at Empress Joliet,
which decreased from $45.8 million to $39.8 million primarily due to a decrease
in advertising and sales, food and beverage and admissions, parking and gift
shop.
Income from operations for the nine months ended September 30, 1998 totaled
approximately $61.6 million compared to approximately $53.3 million for the nine
months ended September 30, 1997, an increase of approximately $8.3 million, or
15.6%. Income from operations at Empress Hammond increased from $33.5 million to
$37.2 million and income from operations at Empress Joliet increased from $17.5
million to $23.2 million.
Net interest expense for the nine months ended September 30, 1998 was
approximately $14.5 million, an increase of approximately $.9 million compared
to the nine months ended September 30, 1997. This increase was a result of
additional expenses associated with increased borrowings under the Company's
credit facility.
Net income amounted to approximately $46.8 million and $39.5 million for
the nine months ended September 30, 1998 and September 30, 1997, respectively
due primarily to factors discussed above.
Liquidity and Capital Resources
For the nine months ended September 30, 1998, the Company generated cash
flow from operations of approximately $77.9 million compared to approximately
$59.1 million for the nine months ended September 30, 1997. This increase of
approximately $18.8 million was primarily attributable to an increase in net
income in addition to a decrease in prepaid expenses and an increase in accounts
payable, other accrued liabilities, and interest payable, partially offset by a
decrease in accounts and interest receivable.
During the nine months ended September 30, 1998, the Company contributed
$9.2 million to an unrestricted subsidiary, which holds a 50% ownership interest
in a limited liability company. The limited liability company used these funds
to acquire certain outstanding secured indebtedness of Sunshine Racing, Inc.,
the owner of the Woodlands Racetrack in Kansas City, Kansas.
9
<PAGE>
During the nine months ended September 30, 1998, the Company used cash to
purchase approximately $22.1 million of property and equipment, primarily
related to the addition of the fourth deck on Empress III, remodeling of Empress
I and Empress II and interior and exterior renovations to the Joliet pavilion.
During the nine months ended September 30, 1998, proceeds from borrowings were
approximately $182.0 million, and payments on borrowings were approximately
$58.5 million, which included the pay down of the outstanding balance of the
$60.0 million amended and restated credit facility.
During the nine months ended September 30, 1998 and 1997, stockholder
distributions totaled approximately $38.7 million and $37.3 million,
respectively. During the nine months ended September 30, 1998 and 1997,
approximately $28.4 million and approximately $24.1 million, respectively, was
distributed to permit shareholders to pay federal and state income taxes.
As of September 30, 1998, the Company had $32.0 million outstanding under
its $100.0 million senior secured revolving credit facility.
The Company's 1998 operating plan includes capital expenditures totaling
approximately $32.1 million, of which $22.1 million has been expended as of
September 30, 1998. Capital improvements include continued renovation of the
exterior and interior of the Empress Joliet pavilion, including the addition of
a nightclub and renovation of Empress II. Empress anticipates that cash on hand,
and cash flows from operations and the senior secured revolving credit facility
will be sufficient to satisfy the Company's cash requirements as currently
contemplated.
Year 2000
The Year 2000 or "Y2K" problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900, rather than the year 2000. This could result in a
major system failure or miscalculations.
As part of the first phase of the Company's Year 2000 compliance program,
the Company conducted an internal review of its computer systems to identify the
systems that could be affected by the Year 2000 problem, including both
"information technology" systems (such as software that processes financial and
other information) and non-information technology. The Company is in the process
of completing the second phase of its Year 2000 compliance program, which
involves (1) the implementation of its existing remediation plan to resolve the
Company's internal Year 2000 issues, (2) the identification of any potential
Year 2000 issues with the Company's significant vendors and suppliers and (3)
the evaluation of a contingency plan in the event that the Company or its
significant vendors and suppliers are unable to adequately address Year 2000
issues in time. The Company has a July 1999 target date to complete its
implementation efforts.
The Company presently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's internal computer systems as
so modified and converted. However, if such modifications and conversions are
not completed on a timely basis, the year 2000 problem may have a material
adverse impact on the operations of the Company. In addition, in the event that
any of the Company's significant suppliers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected. The Company estimates it will incur less than $300,000 in
expenses to ensure all systems will function properly with respect to dates in
the year 2000. These expenses are not expected to have a material impact on the
financial position, results of operation or liquidity of the Company.
10
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On August 31, 1998, the stockholders of the Company, by unanimous written
consent, voted to approve the Proposed Mergers.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are incorporated by reference into
this Report:
Exhibit No. Exhibit
----------- -------
2.1 Agreement and Plan of Merger, dated June 1, 1998, of New Empress
Joliet, Inc. into Empress Joliet, incorporated by reference to Exhibit
2.1 of the Company's Registration Statement on Form S-4, filed July
31, 1998.
2.2 Articles of Merger, filed June 5, 1998, between New Empress Joliet,
Inc. into Empress Joliet (included in Exhibit 3.5), incorporated by
reference to Exhibit 2.2 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
2.3 Stock Purchase Agreement, dated June 12, 1998, between the Company and
Empress Joliet, incorporated by reference to Exhibit 2.3 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
2.4 Termination of Lease, dated June 17, 1998, between the Company and
Empress Hammond, incorporated by reference to Exhibit 2.4 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
2.5 Bill of Sale for the Empress III, dated June 17, 1998 executed by the
Company incorporated by reference to Exhibit 2.5 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
2.6 Agreement and Plan of Merger, dated as of September 2, 1998, by and
among the Company, Empress Hammond, Empress Joliet and Horseshoe
Gaming, L.L.C., a Delaware limited liability company ("Horseshoe"),
Horseshoe Gaming (Midwest), Inc., a Delaware corporation ("Horseshoe
Midwest"), Empress Acquisition Illinois, Inc., a Delaware corporation
("Empress Illinois"), Empress Acquisition Indiana, Inc., a Delaware
corporation ("Empress Indiana"), incorporated by reference to
Exhibit 2.6 of the Company's Pre-Effective Amendment No. 1 to
Registration Statement on Form S-4, filed September 11, 1998.
3.1 Amended Certificate of Incorporation of the Company, as amended as of
May 28, 1998, incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
3.2 By-Laws of the Company incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
11
<PAGE>
3.3 Restated Articles of Incorporation of Empress Hammond as amended as of
March 11, 1996 incorporated by reference to Exhibit 3. of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
3.4 By-Laws of Empress Hammond incorporated by reference to Exhibit 3.4 of
the Company's Registration Statement on Form S-4, filed July 31, 1998.
3.5 Articles of Incorporation of Empress Joliet incorporated by reference
to Exhibit of the Company's Registration Statement on Form S-4, filed
July 31, 1998.
3.6 By-Laws of Empress Joliet incorporated by reference to Exhibit 3.6 of
the Company's Registration Statement on Form S-4, filed July 31, 1998.
3.7 Certificate of Incorporation of Empress Finance incorporated by
reference to Exhibit 3.7 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
3.8 By-Laws of Empress Finance incorporated by reference to Exhibit 3.8 of
the Company's Registration Statement on Form S-4, filed July 31, 1998.
3.9 Certificate of Organization of Hammond Residential as of February 23,
1998 incorporated by reference to Exhibit 3.9 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
3.10 Operating Agreement of Hammond Residential incorporated by reference
to Exhibit 3.10 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
4.1 Indenture, dated June 18, 1998, among the Company, the Guarantors and
U.S. Bank Trust National Association, as Trustee, including forms of
the Old Notes and the New Notes issued pursuant to such Indenture,
incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
4.2 Registration Rights Agreement, dated June 18, 1998, by and among the
Company, the Guarantors, and the Initial Purchasers, incorporated by
reference to Exhibit 4.2 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
4.3 Indenture, dated April 1, 1994, among Empress Finance, the Company
(f/k/a LMC Leasing, Ltd.), Empress Hammond (f/k/a Lake Michigan
Charters, Ltd.), Empress Joliet (f/k/a Empress River Casino
Corporation) and U.S. Bank Trust National Association (f/k/a First
Trust National Association), as Trustee, including a form the Notes,
incorporated by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
4.4 Supplemental Indenture to the 1994 Indenture dated November 6, 1997
among Empress Finance, the Company, Empress Hammond, Empress Joliet,
New Empress Hammond, Inc. and First Trust National Association, as
Trustee, incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
4.5 Supplemental Indenture No. 2 to the 1994 Indenture dated February 23,
1998 among Empress Finance, the Company, Empress Hammond, Empress
Joliet, Hammond Residential and U.S. Bank Trust National Association,
as Trustee, incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
12
<PAGE>
4.6 Supplemental Indenture No. 3 to the 1994 Indenture dated April 29,
1998 among Empress Finance, the Company, Empress Hammond, Empress
Joliet, New Empress Joliet, Inc., Hammond Residential and U.S. Bank
Trust National Association, as Trustee, incorporated by reference to
Exhibit 4.6 of the Company's Registration Statement on Form S-4, filed
July 31, 1998.
4.7 Supplemental Indenture No. 4 to the 1994 Indenture dated June 10, 1998
among Empress Finance, the Company, Empress Hammond, Empress Joliet,
New Empress Joliet, Inc., Hammond Residential and U.S. Bank Trust
National Association, as Trustee, incorporated by reference to Exhibit
4.7 of the Company's Registration Statement on Form S-4, filed July
31, 1998.
4.8 Credit Agreement, dated as of June 17, 1998 by and among the Company,
Empress Hammond, Empress Joliet and Wells Fargo Bank, National
Association ("Wells Fargo"), incorporated by reference to Exhibit
4.8 of the Company's Registration Statement on Form S-4, filed July
31, 1998.
10.1 Tax Reimbursement Agreement, dated June 18, 1998, by and between the
Company and each of the Stockholders of the Company, incorporated by
reference to Exhibit 10.1 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
10.2 Guaranty executed by Empress Hammond in favor of the holders of the
Notes, incorporated by reference to Exhibit 10.2 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.3 Guaranty executed by Empress Joliet in favor of the holders of the
Notes, incorporated by reference to Exhibit 10.3 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.4 Guaranty executed by Empress Finance in favor of the holders of the
Notes, incorporated by reference to Exhibit 10.4 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.5 Guaranty executed by Hammond Residential in favor of the holders of
the Notes, incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.6 Contract dated November 20, 1997 between Empress Joliet and Gas City,
Ltd., incorporated by reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.7 Trademark License Agreement dated June 30, 1997 between Empress
Joliet and Empress Hammond, incorporated by reference to Exhibit 10.7
of the Company's Registration Statement on Form S-4, filed July 31,
1998.
10.8 Consulting Agreement dated January 1, 1998 between Empress Hammond
and William J. Sabo, incorporated by reference to Exhibit 10.8 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.9 Consulting Agreement dated January 1, 1998 between Empress Joliet and
William J. Sabo, incorporated by reference to Exhibit 10.9 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
13
<PAGE>
10.10 Hammond Riverboat Gaming Project Development Agreement by and among
the City of Hammond, Indiana, City of Hammond, Department of
Redevelopment and Empress Casino Hammond Corporation, dated as of
June 21, 1996, incorporated by reference to Exhibit 10.10 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.11 Lease by and between the City of Hammond, Department of
Redevelopment and Empress Hammond, dated as of June 19, 1996,
incorporated by reference to Exhibit 10.11 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.10.12
License Agreement by and between Hammond Port Authority and Empress
Hammond,dated as of June 21, 1996, incorporated by reference to
Exhibit 10.12 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.13 License Agreement by and between Department of Waterworks of the
City of Hammond and the City of Hammond, Indiana and Empress
Hammond, incorporated by reference to Exhibit 10.13 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.14 Employment Agreement dated March 7, 1997 between Empress Hammond and
Peter A. Ferro, Jr., incorporated by reference to Exhibit 10.14 of
the Company's Registration Statement on Form S-4, filed July 31,
1998.
10.15 Employment Agreement dated March 7, 1997 between Empress Joliet and
Peter A. Ferro, Jr., incorporated by reference to Exhibit 10.15 of
the Company's Registration Statement on Form S-4, filed July 31,
1998.
10.16 Allocation Agreement dated March 7, 1997 between Empress Hammond and
Empress Joliet, incorporated by reference to Exhibit 10.16 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.17 Employment Agreement dated June 12, 1997 between Empress Hammond and
Joseph J. Canfora, incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.18 Employment Agreement dated June 12, 1997 between Empress Joliet and
Joseph J. Canfora, incorporated by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.19 Long Term Incentive Bonus Agreement dated June 12, 1997 between
Empress Hammond and Joseph J. Canfora, incorporated by reference to
Exhibit 10.19 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.20 Long Term Incentive Bonus Agreement dated June 12, 1997 between
Empress Joliet and Joseph J. Canfora, incorporated by reference to
Exhibit 10.20 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.21 Allocation Agreement dated June 12, 1997 between Empress Hammond and
Empress Joliet, incorporated by reference to Exhibit 10.21 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.22 Employment Agreement dated March 12, 1998 between Empress Joliet and
John G. Costello, incorporated by reference to Exhibit 10.22 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
14
<PAGE>
10.23 Employment Agreement dated March 12, 1998 between Empress Joliet and
Michael W. Hansen, incorporated by reference to Exhibit 10.23 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.24 Employment Agreement dated March 12, 1998 between Empress Joliet and
David F. Fendrick, incorporated by reference to Exhibit 10.24 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.25 Employment Agreement dated March 12, 1998 between Empress Hammond
and Rick. Mazer, incorporated by reference to Exhibit 10.25 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8K
Up to the date of this report, no reports on Form 8K were filed.
15
<PAGE>
EMPRESS ENTERTAINMENT, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 13, 1998
Empress Entertainment, Inc.
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Empress Casino Hammond Corporation
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Empress Casino Joliet Corporation
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Empress River Casino Finance Corporation
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Hammond Residential, L.L.C.
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001066974
<NAME> EMPRESS ENTERTAINMENT
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1998 JUL-01-1997 JAN-01-1998 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997 SEP-30-1998 SEP-30-1997 DEC-31-1997
<CASH> 40,769 57,243 40,769 57,243 73,257
<SECURITIES> 0 26,259 0 26,259 10,010
<RECEIVABLES> 5,204 3,826 5,204 3,826 5,551
<ALLOWANCES> 2,579 1,950 2,579 1,950 1,762
<INVENTORY> 690 1,372 690 1,372 1,006
<CURRENT-ASSETS> 207,573 89,551 207,573 89,551 90,449
<PP&E> 252,408 223,293 252,408 223,293 230,297
<DEPRECIATION> 57,814 40,274 57,814 40,274 44,386
<TOTAL-ASSETS> 431,749 288,050 431,749 288,050 291,542
<CURRENT-LIABILITIES> 72,433 42,199 72,433 42,199 45,683
<BONDS> 300,000 150,000 300,000 150,000 150,000
0 0 0 0 0
0 0 0 0 0
<COMMON> 11,653 11,500 11,653 11,500 11,500
<OTHER-SE> 47,663 40,351 47,663 40,351 44,359
<TOTAL-LIABILITY-AND-EQUITY> 431,749 288,050 431,749 288,050 291,542
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 101,101 94,212 293,826 280,044 369,644
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 79,964 80,110 232,239 226,776 304,996
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 7,949 5,391 18,840 15,964 21,154
<INCOME-PRETAX> 15,435 9,566 47,110 39,706 46,818
<INCOME-TAX> 127 36 321 191 514
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 15,435 9,530 46,789 39,515 46,304
<EPS-PRIMARY> 8 8 33 34 39
<EPS-DILUTED> 8 8 33 34 39
</TABLE>
