Argosy Gaming (AGY) 10-Q 2001 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549

FORM 10-Q

ý	Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2001.
	or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-11853

ARGOSY GAMING COMPANY
(Exact name of Registrant as Specified in its Charter)

Delaware	37-1304247
(State or other jurisdiction	(I.R.S. Employer
of incorporation)	Identification No.)

219 Piasa Street
Alton, Illinois 62002
(618) 474-7500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

    Indicate by 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 ý    No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

    Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:  28,758,270 shares of Common Stock, $.01 par value per share, as of  August 10, 2001.

ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
			June 30,		December 31,
			2001		2000
			(unaudited)
Current assets:
	Cash and cash equivalents		$	40,745	$	59,374
	Accounts receivable, net		2,439		2,444
	Deferred income taxes		7,650		4,849
	Other current assets		5,713		5,527
		Total current assets	56,547		72,194
Net property and equipment			394,929		397,989
Other assets:
	Deferred finance costs, net		13,179		7,767
	Goodwill and other intangible assets, net		350,945		56,681
	Other, net		2,573		2,605
		Total other assets	366,697		67,053
Total assets			$	818,173	$	537,236
Current liabilities:
	Accounts payable		$	15,026	$	15,304
	Accrued payroll and related expenses		13,217		11,677
	Other accrued liabilities		50,210		54,934
	Current maturities of long-term debt		1,446		23,775
		Total current liabilities	79,899		105,690
Long-term debt			589,907		252,561
Deferred income taxes			14,677		10,762
Other long-term obligations			245		236
Minority interests in equity of consolidated subsidiaries			-		64,035
Stockholders' equity:
	Common stock, $.01 par; 60,000,000 shares authorized; 28,758,270 and 28,394,423 shares issued and outstanding at June 30, 2001 and December 31, 2000, respectively		288		284
	Capital in excess of par		81,918		80,693
	Retained earnings		51,239		22,975
		Total stockholders' equity	133,445		103,952
Total liabilities and stockholders' equity			$	818,173	$	537,236
See accompanying notes to condensed consolidated financial statements.

ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
		Six Months Ended
		June 30,			June 30,
		2001			2000
		(unaudited)			(unaudited)
Revenues:
	Casino	$	338,262		$	330,276
	Admissions	9,111			9,704
	Food, beverage and other	35,230			32,734
		382,603			372,714
	Less promotional allowances	(45,903		)	(46,536		)
Net revenues		336,700			326,178
Costs and expenses:
	Casino	128,234			121,724
	Selling, general and administrative	67,962			68,530
	Food, beverage and other	26,063			22,730
	Other operating expenses	16,020			14,956
	Depreciation and amortization	21,229			18,049
	Write down of assets	-			6,800
		259,508			252,789
Income from operations		77,192			73,389
Other income (expense):
	Interest income	625			931
	Interest expense	(25,827		)	(19,512		)
		(25,202		)	(18,581		)
Income before income taxes, minority interests and extraordinary item		51,990			54,808
Minority interests		(4,086		)	(20,238		)
Income tax expense		(19,640		)	(13,400		)
Income before extraordinary item		28,264			21,170
Extraordinary loss on extinguishment of debt		-			(1,154		)
Net income		$	28,264		$	20,016
Basic income per share before extraordinary loss		$	0.99		$	0.75
Extraordinary loss		-			(0.04		)
Basic income per share		$	0.99		$	0.71
Diluted income per share before extraordinary loss		$	0.97		$	0.73
Extraordinary loss		-			(0.04		)
Diluted income per share		$	0.97		$	0.69
See accompanying notes to condensed consolidated financial statements.

ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
		Three Months Ended
		June 30,			June 30,
		2001			2000
		(unaudited)			(unaudited)
Revenues:
	Casino	$	166,482		$	164,749
	Admissions	4,472			4,716
	Food, beverage and other	18,063			16,237
		189,017			185,702
	Less promotional allowances	(23,052		)	(23,795		)
Net revenues		165,965			161,907
Costs and expenses:
	Casino	63,704			60,525
	Selling, general and administrative	32,648			34,845
	Food, beverage and other	13,485			11,671
	Other operating expenses	7,968			7,386
	Depreciation and amortization	11,156			9,213
	Write down of assets	-			6,800
		128,961			130,440
Income from operations		37,004			31,467
Other income (expense):
	Interest income	139			449
	Interest expense	(13,945		)	(9,405		)
		(13,806		)	(8,956		)
Income before income taxes, minority interests and extraordinary item		23,198			22,511
Minority interests		-			(9,860		)
Income tax expense		(9,517		)	(4,900		)
Income before extraordinary item		13,681			7,751
Extraordinary loss on extinguishment of debt		-			(1,154		)
Net income		$	13,681		$	6,597
Basic income per share before extraordinary loss		$	0.48		$	0.27
Extraordinary loss		-			(0.04		)
Basic income per share		$	0.48		$	0.23
Diluted income per share before extraordinary loss		$	0.47		$	0.27
Extraordinary loss		-			(0.04		)
Diluted income per share		$	0.47		$	0.23
See accompanying notes to condensed consolidated financial statements.

ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
				Six Months Ended
				June 30,			June 30,
				2001			2000
				(unaudited)			(unaudited)
Cash flows from operating activities:
	Net income			$	28,264		$	20,016
	Adjustments to reconcile net income to net cash provided by operating activities:
	Extraordinary loss			-			1,154
	Depreciation			17,026			16,782
	Amortization			4,889			1,920
	Compensation expense recognized on issuance of stock			-			39
	Write down of assets			-			6,800
	Minority interests			4,086			20,238
	Deferred income taxes			(259		)	10,195
	Changes in operating assets and liabilities:
		Accounts receivable and other current assets		(182		)	3,910
		Accounts payable and other current liabilities		(3,169		)	(5,789		)
			Net cash provided by operating activities	50,655			75,265
Cash flows from investing activities:
	Purchases of property and equipment			(14,089		)	(17,960		)
	Purchases of Minority Interests in Partnership			(366,699		)	(7,000		)
	Other			(1,831		)	-
			Net cash used in investing activities	(382,619		)	(24,960		)
Cash flows from financing activities:
	Proceeds (repayment) of line of credit, net			179,800			(30,100		)
	Proceeds from issuance of subordinated notes			159,000			-
	Payments on long-term debt and installment contracts			(14,414		)	(2,808		)
	Repurchase of First Mortgage Notes			-			(23,716		)
	Decrease in restricted cash held in escrow			-			25,244
	Payments of deferred finance costs			(6,386		)	-
	Repayment of partner loans			(266		)	(9,167		)
	Partnership equity distributions			(5,199		)	(8,523		)
	Repayment of partner capital contribution			-			(1,890		)
	Payment of preferred equity return and dividends to partner			(456		)	(1,165		)
	Proceeds from stock option exercises			1,229			-
	Other			27			42
			Net cash provided by (used in) financing activities	313,335			(52,083		)
Net decrease in cash and cash equivalents				(18,629		)	(1,778		)
Cash and cash equivalents, beginning of period				59,374			47,090
Cash and cash equivalents, end of period				$	40,745		$	45,312
See accompanying notes to condensed consolidated financial statements.

ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
									Total
			Common		Capital in		Retained		Stockholders'
		Shares	Stock		Excess of Par		Earnings		Equity
Balance, December 31, 2000		28,394,423	$	284	$	80,693	$	22,975	$	103,952
	Stock options exercised	363,847	4		1,225		-		1,229
	Net income for the six months ended June 30, 2001	-	-		-		28,264		28,264
Balance, June 30, 2001		28,758,270	$	288	$	81,918	$	51,239	$	133,445
See accompanying notes to condensed consolidated financial statements.

ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands, Except Share and Per Share Data)

1.         Basis of Presentation

            Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or "Company") is engaged in the business of providing casino style gaming and related entertainment to the public, through its riverboat casinos in Alton, Illinois; Lawrenceburg, Indiana; Riverside, Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa.

            The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they 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.  For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2000, included in the Company's Annual Report on Form 10-K (File No. 1-11853).  The accompanying unaudited condensed 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.  Certain 2000 amounts have been reclassified to conform to the 2001 financial statement presentation.

            The Financial Accounting Standards Board recently issued FASB Statement 142, Accounting for Goodwill and Intangible Assets.  Upon adoption of the statement, amortization of the remaining book value of goodwill will cease as of January 1, 2002 and will be tested for impairment at least annually.  The provisions of the statement are effective for fiscal years beginning after December 15, 2001.  Goodwill and intangible assets acquired in transactions completed after June 30, 2001, will follow the new requirements immediately.  Based on the Company’s preliminary review, application of the non-amortization provisions of the statement would have increased diluted income per share by $0.04 and $0.07 for the three months and six months ended June 30, 2001, respectively.  The diluted income per share effect for the three months and six months ended June 30, 2000, would have been less than $0.01 for each period, respectively.  During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002, and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.

            The Company adopted new accounting guidance (EITF 00-14 and EITF 00-22) issued in, and effective beginning with the first quarter 2001, which requires that the cost of the cash-back component of the Company’s ‘Argosy Preferred Card’ customer loyalty program, including promotional coupons, be treated as a reduction of revenues.  These costs had previously been treated as a casino expense.  The new guidance impacts only the classification of these costs on Argosy’s income statement.  It does not impact operating profit or EBITDA.  The prior year’s results have been reclassified to reflect the impact of implementing this new guidance.

2.  Long-Term Debt

            Long-term debt consists of the following:

	June 30,		December 31,
	2001		2000
Senior Subordinated Notes including unamortized premium of $8,712 at June 30, 2001, due June 2009, interest payable semi-annually at 10.75%	$	358,712	$	200,000
Senior secured line of credit, expires June 2004, interest payable at least quarterly at either LIBOR or prime plus a margin	227,200		47,400
Notes payable, principal and interest payments due quarterly through September 2015, discounted at 10.5%	5,441		5,831
Notes payable, principal and interest payments due monthly, interest payable at prime + 1%, secured by gaming vessel and certain equipment	-		14,024
Loans from partner, principal due in annual installments, interest payable at prime + 6%	-		9,081
	591,353		276,336
Less:  current maturities	1,446		23,775
Long-term debt, less current maturities	$	589,907	$	252,561

            On February 1, 2001, the Company issued $150,000 of additional Senior Subordinated Notes (“Subordinated Notes”) due 2009.  Prior to this issuance, the Company had $200,000 of outstanding Subordinated Notes.  On March 2, 2001, the Company entered into an amended and restated Senior Secured Line of Credit Agreement (“Credit Facility”), increasing the Company’s available line of credit from $195,000 to $400,000.  The Credit Facility is secured by liens on substantially all of the Company’s assets and the Company’s subsidiaries are co-borrowers.  Substantially all of the Company’s wholly-owned operating subsidiaries guarantee the Subordinated Notes.  The Subordinated Notes rank junior to all of the senior indebtedness of the Company, including borrowings under the Credit Facility.

            The Subordinated Notes and the Credit Facility contain certain restrictions on the payment of dividends on the Company’s common stock and the incurrence of additional indebtedness, as well as other customary debt covenants.  In addition, the Credit Facility requires the Company to maintain certain financial ratios.

3.  Earnings Per Share

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

		Six Months Ended					Three Months Ended
		June 30,		June 30,			June 30,		June 30,
		2001		2000			2001		2000
		(unaudited)		(unaudited)			(unaudited)		(unaudited)
Numerator:
Numerator for basic and diluted earnings per share -
	Net Income before extraordinary item	$	28,264	$	21,170		$	13,681	$	7,751
Denominator:
Denominator for basic earnings per share -
	Weighted-average shares outstanding	28,512,489		28,269,972			28,568,892		28,307,027
Effect of dilutive securities (computed using the treasury stock method):
	Restricted stock	-		69,165			-		39,330
	Employee and directors stock options	688,355		726,810			654,014		743,185
	Warrants	76,359		67,639			77,477		69,349
Dilutive potential common shares		764,714		863,614			731,491		851,864
Denominator for diluted earnings per share - adjusted
	Weighted-average shares and assumed conversions	29,277,203		29,133,586			29,300,383		29,158,891
Basic income per share before extraordinary loss		$	0.99	$	0.75		$	0.48	$	0.27
Extraordiary loss		-		(0.04		)	-		(0.04		)
Basic income per share		$	0.99	$	0.71		$	0.48	$	0.23
Diluted earnings per share before extraordinary loss		$	0.97	$	0.73		$	0.47	$	0.27
Extraordinary loss		-		(0.04		)	-		(0.04		)
Diluted earnings per share		$	0.97	$	0.69		$	0.47	$	0.23

4.         Lawrenceburg Acquisition

             On February 22, 2001, Argosy Gaming Company completed its purchase of a 29% limited partnership interest in the Argosy Casino and Hotel in Lawrenceburg, Indiana ( the “Lawrenceburg Casino”) from Conseco Entertainment, L.L.C. (“Conseco”).  The purchase price for the 29% minority interest was $260 million and included the repayment of Conseco’s preferred equity interest and outstanding partner loans.  The Company and Conseco also settled all pending litigation between the partners.

                On March 8, 2001, the Company completed its purchase of the remaining 13.5% limited partnership interest in the Lawrenceburg Casino from Centaur, Inc. (“Centaur”).  The purchase price for the 13.5% minority interest was $105 million.

                As a result of these acquisitions, the Company now owns 100% of the Lawrenceburg casino.

                The purchase prices for the minority interests were determined based upon estimates of future cash flows and evaluations of the net worth of the assets acquired.  The purchases are being accounted for under the purchase method.  The allocation of the purchase price resulted in approximately $296 million in goodwill, which is being amortized over a 40-year life.  The purchases were funded with approximately $155 million of net proceeds received by the Company from issuance of additional 10¾% senior subordinated notes and borrowings of approximately $210 million under the Company’s amended and restated senior credit facility.

                The following unaudited pro forma consolidated financial information for the Company has been prepared assuming acquisitions of Conseco and Centaur minority interests in our Lawrenceburg property had occurred on the first day of the period.

	For the six months ended				For the three months ended
	June 30, 2001		June 30, 2000		June 30, 2001		June 30, 2000
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net revenues	$	336,700	$	326,178	$	165,965	$	161,907
Income from operations	$	77,302	$	73,065	$	37,004	$	31,263
Net income	$	28,170	$	21,172	$	13,681	$	7,107
Diluted net income per share	$	0.97	$	0.73	$	0.47	$	0.25

                These unaudited pro forma results are presented for comparative purposes only.  The pro forma results are not necessarily indicative of what our actual results would have been had the acquisitions been completed as of the beginning of the period, or of future results.

5.     Commitments and Contingent Liabilities

             The Company has agreed to provide up to $40,000 as part of our agreement to develop and operate a proposed casino in Kenosha, Wisconsin.  The proposed casino would be owned by the Menominee Indian Tribe of Wisconsin.  Of this $40,000 commitment, Argosy has advanced $1,600 during 2001 and is obligated to provide up to an additional $3,400 upon the tribe receiving approval from the United States Bureau of Indian Affairs to place the proposed casino property in federal trust for the benefit of the tribe.  The Company’s obligation to provide the next $30,000 of our commitment will be made as a subordinated note concurrent with, and conditioned upon, the tribe successfully completing an institutional debt offering to finance the majority of the costs of the project.  Finally, the Company has agreed to provide a $5,000 completion guarantee on the construction of the proposed facility.

             The Illinois Gaming Board imposed a condition on its approval of our recent acquisition of Empress Casino Joliet which requires the Company to take all steps necessary to economically disassociate ourselves from our Kenosha casino development agreement partner by no later than October 1, 2001.  If Argosy is unable to comply with these conditions, the Company will be subject to disciplinary action by the Illinois Gaming Board that could include a substantial monetary penalty and/or revocation of the Empress Casino Joliet gaming license.  Any disciplinary action imposed upon the Company could, and the loss of the Empress Casino Joliet would, materially and adversely affect our business and financial condition and would constitute an event of default under all of our indebtedness.

             This Kenosha project and our funding commitment are subject to numerous regulatory approvals.  Further financial obligations to our partner are conditioned upon obtaining the requisite regulatory approvals and the tribe raising the remaining project costs through an institutional debt offering in an amount of $150,000.  If these approvals and outside financing for the project are not obtained by September 30, 2001, our development agreement and related obligations will automatically terminate.  The nature and magnitude of the issues and obstacles that our Kenosha partners face lead us to believe that they will not be able to obtain the necessary approvals in a timely manner.  Consequently, the Company believes we will economically disassociate from our partner by October 1, 2001.

        The Company is subject to, from time to time, various legal and regulatory proceedings in the ordinary course of its business.  The Company believes that current proceedings will not have a material effect on the financial condition of the Company or the results of its operations.

6.          Subsidiary Guarantors

             The Credit Facility is secured by a first lien on substantially all of the Company’s assets and the Company’s subsidiaries are co-borrowers.  The Subordinated Notes are fully and unconditionally guaranteed, on a joint and several basis, by substantially all of the Company’s subsidiaries.  The Subordinated Notes rank junior to all of the senior indebtedness of the Company, including borrowings under the Credit Facility.

             The Company’s subsidiary which operates the Lawrenceburg Casino & Hotel is now a guarantor.  Prior to the Company’s acquisition of the minority interests in Lawrenceburg, the subsidiary was a non-guarantor.  As such, previous financial statements have been reclassified to reflect this subsidiary as a guarantor.

             Condensed balance sheets as of June 30, 2001, and December 31, 2000, are as follows:

						June 30, 2001
						Parent Company		Guarantors		Eliminations			Consolidated
Current assets:
	Cash and cash equivalents					$	4,163	$	36,582	$	-		$	40,745
	Other current assets						7,132	8,670		-			15,802
		Total current assets				11,295		45,252		-			56,547
Net property and equipment						2,792		392,137		-			394,929
Other assets:
	Goodwill and other intangible assets, net					13,179		350,945		-			364,124
	Investment in subsidiaries					708,309		-		(708,309		)	-
	Other, net					237		2,336		-			2,573
			Total other assets			721,725		353,281		(708,309		)	366,697
Total assets						$	735,812	$	790,670	$	(708,309	)	$	818,173
Current liabilities:
	Accounts payable					$	2,202	$	12,824	$	-		$	15,026
	Other current liabilities					10,127		53,300		-			63,427
	Current maturities of long-term debt					776		670		-			1,446
				Total current liabilities		13,105		66,794		-			79,899
Long-term debt						585,136		4,771		-			589,907
Intercompany advances and investments, net						-		305,564		(305,564		)	-
Deferred income taxes						4,126		10,551		-			14,677
Other long-term obligations						-		245		-			245
Stockholders' equity:
	Common stock, $.01 par; 60,000,000 shares authorized; 28,758,270 shares issued and outstanding at June 30, 2001					288		1		(1		)	288
	Capital in excess of par					81,918		5,256		(5,256		)	81,918
	Retained earnings					51,239		397,488		(397,488		)	51,239
					Total stockholders' equity	133,445		402,745		(402,745		)	133,445
Total liabilities and stockholders' equity						$	735,812	$	790,670	$	(708,309	)	$	818,173

			December 31, 2000
			Parent
			Company		Guarantors		Eliminations			Consolidated
Current assets:
	Cash and cash equivalents		$	3,476	$	55,898	$	-		$	59,374
	Other current assets		4,842		7,978		-			12,820
		Total current assets	8,318		63,876		-			72,194
Net property and equipment			2,181		395,808		-			397,989
Other assets:
	Goodwill and other intangible assets, net		7,657		56,791		-			64,448
	Investment in subsidiaries		343,751		-		(343,751		)	-
	Other, net		271		2,334		-			2,605
		Total other assets	351,679		59,125		(343,751		)	67,053
Total assets			$	362,178	$	518,809	$	(343,751	)	$	537,236
Current liabilities:
	Accounts payable		$	1,960	$	13,344	$	-		$	15,304
	Other current liabilities		7,283		59,328		-			66,611
	Current maturities of long-term debt		-		23,775		-			23,775
		Total current liabilities	9,243		96,447		-			105,690
Long-term debt			247,400		5,161		-			252,561
Intercompany advances and
investments, net			-		102,241		(102,241		)	-
Deferred income taxes			1,583		9,179		-			10,762
Other long-term obligations			-		236		-			236
Minority interests in equity
of consolidated subsidiaries			-		-		64,035			64,035
Stockholders' equity:
	Common stock, $.01 par; 60,000,000 shares
	authorized; 28,394,423 shares issued and
	outstanding at December 31, 2000		284		1		(1		)	284
	Capital in excess of par		80,693		5,256		(5,256		)	80,693
	Retained earnings		22,975		300,288		(300,288		)	22,975
		Total stockholders' equity	103,952		305,545		(305,545		)	103,952
Total liabilities and stockholders' equity			$	362,178	$	518,809	$	(343,751	)	$	537,236

             Condensed statements of income for the six and three months ended June 30, 2001 and 2000, are as follows

		Six Months ended June 30, 2001
		Parent
		Company			Guarantors			Eliminations			Consolidated
Revenues:
	Casino	$	-		$	338,262		$	-		$	338,262
	Admissions	-			9,111			-			9,111
	Food, beverage and other	2,028			35,230			(2,028		)	35,230
		2,028			382,603			(2,028		)	382,603
	Less promotional allowances	(4		)	(45,899		)	-			(45,903		)
Net revenues		2,024			336,704			(2,028		)	336,700
Costs and expenses :
	Casino	-			128,234			-			128,234
	Selling, general and administrative	9,219			60,771			(2,028		)	67,962
	Food, beverage and other	-			26,063			-			26,063
	Other operating expenses	121			15,899			-			16,020
	Depreciation and amortization	176			21,053			-			21,229
		9,516			252,020			(2,028		)	259,508
Income (loss) from operations		(7,492		)	84,684			-			77,192
Other income (expense):
	Interest income	2,554			954			(2,883		)	625
	Interest expense	(12,518		)	(16,192		)	2,883			(25,827		)
		(9,964		)	(15,238		)	-			(25,202		)
Income (loss) before income taxes, minority interests and equity in net income of consolidated subsidiaries		(17,456		)	69,446			-			51,990
Equity in net income of consolidated subsidiaries		32,532			-			(32,532		)	-
Minority interests		-			(4,086		)	-			(4,086		)
Income tax (expense) benefit		13,188			(32,828		)	-			(19,640		)
Net income		$	28,264		$	32,532		$	(32,532	)	$	28,264

		Six months ended June 30, 2000
		Parent
		Company			Guarantors			Eliminations			Consolidated
Revenues:
	Casino	$	-		$	330,276		$	-		$	330,276
	Admissions	-			9,704			-			9,704
	Food, beverage and other	2,071			32,534			(1,871		)	32,734
		2,071			372,514			(1,871		)	372,714
	Less promotional allowances	(6		)	(46,530		)	-			(46,536		)
Net revenues		2,065			325,984			(1,871		)	326,178
Costs and expenses :
	Casino	-			121,724			-			121,724
	Selling, general and administrative	7,073			63,328			(1,871		)	68,530
	Food, beverage and other	-			22,730			-			22,730
	Other operating expenses	154			14,802			-			14,956
	Depreciation and amortization	186			17,863			-			18,049
	Write down of assets	6,800			-						6,800
		14,213			240,447			(1,871		)	252,789
Income (loss) from operations		(12,148		)	85,537			-			73,389
Other income (expense):
	Interest income	3,263			2,958			(5,290		)	931
	Interest expense	(16,398		)	(8,404		)	5,290			(19,512		)
		(13,135		)	(5,446		)	-			(18,581		)
Income (loss) before income taxes, minority interests, extraordinary item and equity in net income of consolidated subsidiaries		(25,283		)	80,091			-			54,808
Equity in net income of consolidated subsidiaries		37,007			-			(37,007		)	-
Minority interests		-			(20,238		)	-			(20,238		)
Income tax (expense) benefit		9,446			(22,846		)	-			(13,400		)
Extraordinary loss on extinguishment of debt		(1,154		)	-			-			(1,154		)
Net income		$	20,016		$	37,007		$	(37,007	)	$	20,016

		Three months ended June 30, 2001
		Parent
		Company			Guarantors			Eliminations			Consolidated
Revenues:
	Casino	$	-		$	166,482		$	-		$	166,482
	Admissions	-			4,472			-			4,472
	Food, beverage and other	1,075			18,063			(1,075		)	18,063
		1,075			189,017			(1,075		)	189,017
	Less promotional allowances	(2		)	(23,050		)	-			(23,052		)
Net revenues		1,073			165,967			(1,075		)	165,965
Costs and expenses :
	Casino	-			63,704			-			63,704
	Selling, general and administrative	4,294			29,429			(1,075		)	32,648
	Food, beverage and other	-			13,485			-			13,485
	Other operating expenses	66			7,902			-			7,968
	Depreciation and amortization	92			11,064			-			11,156
		4,452			125,584			(1,075		)	128,961
Income (loss) from operations		(3,379		)	40,383			-			37,004
Other income (expense):
	Interest income	1,126			376			(1,363		)	139
	Interest expense	(5,292		)	(10,016		)	1,363			(13,945		)
		(4,166		)	(9,640		)	-			(13,806		)
Income (loss) before income taxes, minority interests and equity in net income of consolidated subsidiaries		(7,545		)	30,743			-			23,198
Equity in net income of consolidated subsidiaries		13,962			-			(13,962		)	-
Minority interests		-			-			-			-
Income tax (expense) benefit		7,264			(16,781		)	-			(9,517		)
Net income		$	13,681		$	13,962		$	(13,962	)	$	13,681

		Three months ended June 30, 2000
		Parent
		Company			Guarantors			Eliminations			Consolidated
Revenues:
	Casino	$	-		$	164,749		$	-		$	164,749
	Admissions	-			4,716			-			4,716
	Food, beverage and other	853			16,237			(853		)	16,237
		853			185,702			(853		)	185,702
	Less promotional allowances	(2		)	(23,793		)	-			(23,795		)
Net revenues		851			161,909			(853		)	161,907
Costs and expenses :
	Casino	-			60,525			-			60,525
	Selling, general and administrative	3,498			32,200			(853		)	34,845
	Food, beverage and other	-			11,671			-			11,671
	Other operating expenses	47			7,339			-			7,386
	Depreciation and amortization	91			9,122			-			9,213
	Write down of assets	6,800			-			-			6,800
		10,436			120,857			(853		)	130,440
Income (loss) from operations		(9,585		)	41,052			-			31,467
Other income (expense):
	Interest income	1,530			1,389			(2,470		)	449
	Interest expense	(7,938		)	(3,937		)	2,470			(9,405		)
		(6,408		)	(2,548		)	-			(8,956		)
Income (loss) before income taxes, minority interests, extraordinary item and equity in net income of consolidated subsidiaries		(15,993		)	38,504			-			22,511
Equity in net income of consolidated subsidiaries		17,445			-			(17,445		)	-
Minority interests		-			(9,860		)	-			(9,860		)
Income tax (expense) benefit		6,299			(11,199		)	-			(4,900		)
Extraordinary loss on extinguishment of debt		(1,154		)	-			-			(1,154		)
Net income		$	6,597		$	17,445		$	(17,445	)	$	6,597

             Condensed statements of cash flows for the six months ended June 30, 2001 and 2000, are as follows:

				Six months ended June 30, 2001
				Parent
				Company			Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities				$	(1,552	)	$	52,207		$	-		$	50,655
Cash flows from investing activities:
	Purchases of property and equipment			(752		)	(13,337		)	-			(14,089		)
	Purchase of minority interests in Partnership			1,373			(303,010		)	(65,062		)	(366,699		)
	Investments in and advances from (to) subsidiaries			(332,025		)	266,963			65,062			-
	Other			-			(1,831		)	-			(1,831		)
		Net cash used in investing activities		(331,404		)	(51,215		)	-			(382,619		)
Cash flows from financing activities :
	Proceeds from line of credit, net			179,800			-			-			179,800
	Proceeds from issuance of subordinated notes			159,000			-			-			159,000
	Payments on long-term debt			-			(14,414		)	-			(14,414		)
	Payments of deferred finance costs			(6,386		)	-			-			(6,386		)
	Repayment of partner loans			-			(266		)	-			(266		)
	Partnership equity distributions			-			(5,199		)	-			(5,199		)
	Payment of preferred equity return and dividends to partner						(456		)	-			(456		)
	Proceeds from stock option exercises			1,229			-			-			1,229
	Other			-			27			-			27
			Net cash provided by (used in) financing activities	333,643			(20,308		)	-			313,335
Net (decrease) increase in cash and cash equivalents				687			(19,316		)	-			(18,629		)
Cash and cash equivalents, beginning of period				3,476			55,898			-			59,374
Cash and cash equivalents, end of period				$	4,163		$	36,582		$	-		$	40,745

			Six months ended June 30, 2000
			Parent
			Company			Guarantors			Eliminations		Consolidated
Net cash provided by (used in) operating activities			$	(3,944	)	$	79,209		$	-	$	75,265
Cash flows from investing activities:
	Purchases of property and equipment		(757		)	(17,203		)	-		(17,960		)
	Purchase of minority interest in partnership		(7,000		)	-			-		(7,000		)
	Investments in and advances (to) from subsidiaries		39,994			(39,994		)	-		-
		Net cash (used in) provided by investing activities	32,237			(57,197		)	-		(24,960		)
Cash flows from financing activities :
	Repayment of line of credit, net		(30,100		)	-			-		(30,100		)
	Payments on long-term debt and
	installment contracts		-			(2,808		)	-		(2,808		)
	Repurchase of First Mortgage Notes		(23,716		)	-			-		(23,716		)
	Decrease in restricted cash held in escrow		25,244			-			-		25,244
	Repayment of partner loans		-			(9,167		)	-		(9,167		)
	Partnership equity distributions		-			(8,523		)	-		(8,523		)
	Repayment of partner capital contribution		-			(1,890		)	-		(1,890		)
	Payment of preferred equity return and
	dividends to partner		-			(1,165		)	-		(1,165		)
	Other		91			(49		)	-		42
		Net cash used in financing activities	(28,481		)	(23,602		)	-		(52,083		)
Net (decrease) in cash and cash equivalents			(188		)	(1,590		)	-		(1,778		)
Cash and cash equivalents, beginning of  period			531			46,559			-		47,090
Cash and cash equivalents, end of period			$	343		$	44,969		$	-	$	45,312

7.                       Subsequent Event – Acquisition of Empress Casino Joliet

             On July 31, 2001, the Company completed the acquisition of the Empress Casino Joliet Corporation for approximately $465 million.  This acquisition was funded through the issuance of $200 million of 9.0% Senior Subordinated Notes due 2011 and a $275 million Term Loan through our new amended and restated Credit Facility dated July 31, 2001.

ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

                           Except where otherwise noted, the words, “we,” “us,” “our” and similar terms, as well as references to “Argosy” or the “Company” refer to Argosy Gaming Company and all of its subsidiaries.

Overview

             Through our subsidiaries, we own and operate the Alton Belle Casino, in Alton, Illinois; the Argosy Casino in Riverside, Missouri; the Argosy Casino in Baton Rouge, Louisiana; the Belle of Sioux City Casino in Sioux City, Iowa; and the Argosy Casino in Lawrenceburg, Indiana.  In the first quarter of 2001, the Company became the sole owner of the Argosy Casino in Lawrenceburg, Indiana, through the purchase of the 42.5% minority interests in the property.  Prior to this acquisition, we were the majority owner of the Lawrenceburg casino and, as such, our historical consolidated financial statements included the assets, liabilities and results of operations for the Lawrenceburg casino on a consolidated basis.  As a result, we have allocated the entire purchase price on a preliminary basis to goodwill.  On February 5, 2001, we opened our 300-room hotel at our Baton Rouge location.  On July 31, 2001, we completed our acquisition of the Empress Casino Joliet.

Recent Developments

             Property Overview: The Empress Casino Joliet is located in Joliet, Illinois on a 300-acre site approximately 40 miles southwest of Chicago and approximately two miles from the intersection of Interstate 55 and Interstate 80. For the twelve months ending March 31, 2001, the Empress Casino Joliet generated $248.4 million in net revenue and $73.8 million in EBITDA. The casino consists of two adjacent riverboat vessels providing a combined 36,300 square feet of gaming space with 1,110 slot machines and 35 table games. Both riverboats remain dockside and offer customers unlimited ingress and egress. The dockside complex features a 150,000 square foot Egyptian themed pavilion with three restaurants, an entertainment lounge and banquet/conference facilities. The pavilion also contains an off-track pari-mutuel betting parlor. The property includes a 102-room hotel, surface parking areas with approximately 2,350 spaces and an 80-space recreational vehicle park.

             Empress Casino Joliet Gaming Market: The Empress Casino Joliet draws from a population of approximately eight million people who reside within 50 miles of Joliet, including the southern and western regions of the greater Chicago metropolitan area, as well as portions of north central Illinois. The Empress Casino Joliet competes against eight other casinos in the Chicago gaming market, which has the largest local population of any state-licensed gaming market and is the third largest gaming market in the United States. The nine riverboat casinos operating in the Chicago market generated over $2 billion of gaming revenues during the twelve months ending March 31, 2001, an 8% increase from the prior comparable twelve month period. The Empress Casino Joliet had 9% of the gaming positions in the Chicago market as of December 31, 2000 and captured 12% of the market's gaming revenues in 2000.

             The Chicago market comprises four casinos in northern Illinois and five casinos in Indiana on Lake Michigan. Empress Casino Joliet's closest competitor is located in downtown Joliet approximately five miles from the Empress Casino Joliet. This competitor is currently constructing a new barge casino to replace its existing riverboat facilities, which is expected to be completed in the third quarter of 2001.  Illinois licensees within the Chicago market offer dockside gaming providing customers with unlimited casino access. Conversely, casinos in the East Chicago market operating under an Indiana license are required to cruise, which restricts boarding times. Entrance into the market is limited by the fixed number of gaming licenses available in Illinois and Indiana. A maximum of ten licenses are permitted in Illinois, of which nine have been issued and a maximum of eleven licenses are permitted in Indiana, of which ten have been issued.

             Challenge to 1999 Amendment to Illinois Riverboat Gambling Act. Because we already hold an Illinois gaming license, our acquisition of the Empress Casino Joliet would not have been permitted prior to the 1999 amendment to the Illinois Riverboat Gambling Act. In June 1999, Illinois passed an amendment to the Illinois Riverboat Gambling Act to permit casinos to offer continuous dockside gaming with unlimited ingress and egress and to permit the ownership of multiple gaming licenses. The amendment also authorized gaming in Cook County, Illinois and the transfer of a dormant gaming license from East Dubuque, Illinois to the Cook County Village of Rosemont. A group of plaintiffs who sought a gaming license for Lake County, Illinois filed a lawsuit requesting the court to declare that the 1999 amendment violates the Illinois and U.S. constitutions because the grant of the Rosemont license amounted to "special legislation." If a court invalidates the grant of the Rosemont license, all of the provisions of the 1999 amendment, including the provisions legalizing the ownership of multiple licenses, would also be invalidated under the terms of the 1999 amendment. On January 25, 2001, the court dismissed the lawsuit concluding that the plaintiffs lacked standing and failed to exhaust their administrative remedies. Consequently, the court did not consider the merits of the plaintiffs' lawsuit. The plaintiffs have appealed the lower court's ruling. If the appeal is successful, it is likely that the case would be remanded to the lower court to initiate proceedings regarding the merits of the plaintiffs' claims. A ruling of the lower court on the merits would likely follow the lengthy process associated with discovery, fact-finding and trial. Thereafter, the lower court's decision would be subject to appeal to an appellate court and potentially to the Illinois Supreme Court.

             Transfer of Ownership Agreement. In connection with its approval of our proposed acquisition of the Empress Casino Joliet, the Illinois Gaming Board required us to enter into a transfer of ownership agreement.  This agreement, which is similar to an agreement entered into by another Illinois multiple-license owner, is designed to permit the continuous operation of two Illinois casinos by a single owner in the event the 1999 amendment provisions relating to multiple license ownership were invalidated. Under this agreement, if the relevant provisions of the amendment to the Illinois Riverboat Gambling Act are invalidated by a final, non-appealable judicial ruling, we will be obligated to transfer all of our shares of the Empress Casino Joliet Corporation to a trustee to hold in trust and use our best efforts to effectuate a sale of the shares at fair market value. During this time, we would manage the Empress Casino Joliet for a fee and be permitted to make distributions for attributable taxes and debt service. If we do not sell the shares within one year, or such longer time as agreed to by the Illinois Gaming Board, the Empress Casino Joliet would be required to immediately relinquish its gaming license. In this event, we would be obligated to pay the Illinois Gaming Board an amount equal to ninety percent (90%) of the operating profits of the Empress Casino Joliet earned during the period the shares were in trust.

             The transfer of ownership agreement provides that the trust will terminate upon legislative action that causes the Illinois Riverboat Gambling Act to permit the ownership of multiple gaming licenses or following a corporate reorganization by us that permits us to comply with the provisions of the Illinois Riverboat Gambling Act.

             The placement in trust of our stock in the Empress Casino Joliet pursuant to the agreement would constitute an event of default under the indenture governing our 10-3/ 4 % senior subordinated notes due 2009 and under our senior credit facility. Because the challenge to the 1999 amendment is in the early stages of litigation and our obligation to put the stock in trust is not triggered until a final, non-appealable judgment invalidating the 1999 amendment is entered, we believe we would have sufficient notice and time to negotiate appropriate amendments to or refinance our 10-3/ 4 % senior subordinated notes due 2009 and senior credit facility to avoid such an event of default. In the event that we are unable to satisfactorily amend or refinance these debt instruments, all of our indebtedness, including our recently issued 9% senior subordinated notes, would be in default and our business and financial condition would be materially adversely affected. If the provisions of the 1999 amendment legalizing dockside gaming were invalidated we would be required to resume cruising and suspend our dockside gaming activities at the Empress Casino Joliet until such time as the Illinois legislature passed a law reauthorizing dockside gaming. The loss of dockside gaming would adversely affect our financial results.

             Conditions of Illinois Gaming Board Approval. The Illinois Gaming Board imposed two conditions on its approval of our acquisition of Empress Casino Joliet. First, we are required to take all steps necessary to economically disassociate ourselves from our Kenosha casino development agreement partner by no later than October 1, 2001. Second, we are required to develop and fully implement a comprehensive due diligence plan to ensure the integrity and accountability of the persons or entities with whom we conduct business. If we are unable to comply with these conditions, we will be subject to disciplinary action by the Illinois Gaming Board that could include a substantial monetary penalty and/or revocation of the Empress Casino Joliet gaming license. Any disciplinary action imposed upon us could, and the loss of the Empress Casino Joliet license would, materially and adversely affect our business and financial condition and would constitute an event of default under all of our indebtedness, including the notes.

             To date, we believe that we have satisfied all of our obligations under the Kenosha casino development agreements. Our further financial obligations to our partner are conditioned upon obtaining the requisite regulatory approvals and the tribe raising the remaining project costs through an institutional debt offering in an amount of $150 million. The proposed Kenosha casino project requires, among other things, approval from the United States Bureau of Indian Affairs to place in federal trust the proposed casino site for the benefit of the tribe. If these approvals and outside financing for the project are not obtained by September 30, 2001, our development agreement and related obligations will automatically terminate. The nature and magnitude of the issues and obstacles that our Kenosha partners face lead us to believe that they will not be able to obtain the necessary approvals in a timely manner. Consequently, we believe we will satisfy our condition to economically disassociate from Nii-Jii by October 1, 2001. To satisfy the second condition, we have commenced developing a due diligence plan that we will submit to the Illinois Gaming Board for approval and implementation. This comprehensive due diligence plan will improve our overall internal control procedures and we believe that we will satisfy the second Illinois Gaming Board condition.

			For the six months ended						For the three months ended
			June 30,			June 30,			June 30,			June 30,
			2001			2000			2001			2000
			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Casino Revenues
	Alton Belle Casino		$	61,576		$	56,376		$	30,489		$	28,187
	Argosy Casino - Riverside		49,269			48,351			23,894			23,522
	Argosy Casino - Baton Rouge		38,553			35,977			19,499			18,303
	Belle of Sioux City Casino		17,968			17,621			9,099			8,626
	Argosy Casino - Lawrenceburg		170,896			171,951			83,501			86,111
		Total	$	338,262		$	330,276		$	166,482		$	164,749
Net Revenues (1)
	Alton Belle Casino		$	59,239		$	54,110		$	29,299		$	26,908
	Argosy Casino - Riverside		47,214			46,205			22,823			22,388
	Argosy Casino - Baton Rouge		38,373			34,101			19,803			17,119
	Belle of Sioux City Casino		17,504			17,022			8,872			8,298
	Argosy Casino - Lawrenceburg		174,155			174,405			85,086			87,111
	Other		215			335			82			83
		Total (1)	$	336,700		$	326,178		$	165,965		$	161,907
Income (loss) from Operations(2)
	Alton Belle Casino		$	18,458		$	16,356		$	8,958		$	7,922
	Argosy Casino - Riverside		10,519			8,449			4,689			3,732
	Argosy Casino - Baton Rouge		4,559			6,370			2,438			2,990
	Belle of Sioux City Casino		3,722			3,090			1,867			1,540
	Argosy Casino - Lawrenceburg		55,582			56,264			27,002			27,263
	Corporate		(12,427		)	(7,220		)	(6,330		)	(3,637		)
	Jazz Enterprises, Inc. (5)		(2,500		)	(2,585		)	(1,257		)	(1,261		)
	Other		(721		)	(535		)	(363		)	(282		)
		Total (6)	$	77,192		$	80,189		$	37,004		$	38,267
EBITDA(2)(3)
	Alton Belle Casino		$	21,351		$	19,411		$	10,413		$	9,424
	Argosy Casino - Riverside		12,624			11,188			5,770			5,116
	Argosy Casino - Baton Rouge		7,517			8,633			4,012			4,202
	Belle of Sioux City Casino		4,501			3,858			2,257			1,941
	Argosy Casino - Lawrenceburg		63,853			66,829			30,656			32,608
	Lawrenceburg financial advisory fee (4)		(927		)	(3,342		)	-			(1,630		)
	Corporate		(9,345		)	(7,034		)	(4,363		)	(3,546		)
	Jazz Enterprises, Inc. (5)		(1,124		)	(1,235		)	(569		)	(586		)
	Other		(29		)	(70		)	(16		)	(49		)
		Total (6)	$	98,421		$	98,238		$	48,160		$	47,480

(1)	New accounting guidance issued in, and effective beginning with the first quarter 2001 requires that the cost of the cash-back component of the Company’s ‘Argosy Preferred Card’ customer loyalty program, including promotional coupons, be treated as a reduction of revenues.  These costs had previously been treated as a casino expense.  The new guidance impacts only the classification of these costs on Argosy’s income statement.  It does not impact operating profit or property EBITDA.  The prior year’s results have been reclassified to reflect the impact of implementing this new guidance.
(2)	Income from operations and EBITDA exclude (i) consideration of any management fee paid to us, (ii) 42.5% minority interest in our Lawrenceburg casino for periods prior to our February 2001 acquisition of Conseco Entertainment, L.L.C.’s 29.0% minority interest and our March 2001, acquisition of Centaur, Inc.’s 13.5% minority interest and (iii) the 30% minority interest in our Sioux City casino for the period prior to our July 2000 acquisition of this interest.
(3)	“EBITDA” is defined as earnings before interest, taxes, depreciation and amortization and is presented before any management fees paid to Argosy.  EBITDA should not be construed as an alternative to operating income, or net income (as determined in accordance with generally accepted accounting principles) as an indicator of our operating performance, or as an alternative to cash flows generated by operating, investing and financing activities (as an indicator of cash flow or a measure of liquidity).  EBITDA is presented solely as a supplemental disclosure because management believes that it is a widely used measure of operating performance in the gaming industry and for companies with a significant amount of depreciation and amortization.  EBITDA may not be comparable to similarly titled measures reported by other companies.  We have other significant uses of cash flows, including debt service and capital expenditures, which are not reflected in EBITDA.
(4)	The Lawrenceburg partnership paid a financial advisory fee equal to 5.0% of its EBITDA to a minority partner prior to our acquisition of Conseco’s minority interest in February, 2001.
(5)	Jazz Enterprises, Inc. is a wholly-owned subsidiary that owns and operates the Catfish Town real estate development adjacent to the Company’s Baton Rouge casino.
(6)	Excludes a $6.8 million pretax charge related to the write-off of assets for the three and six months ended June 30, 2000.

Six months ended June 30, 2001 compared to six months ended June 30, 2000

             Casino—Casino revenues for the six months ended June 30, 2001, increased $8.0 million, or 2.4%, to $338.3 million from $330.3 million for the six months ended June 30, 2000.  The western properties (Alton, Riverside, Sioux City and Baton Rouge) reported an aggregate 5.7% increase in casino revenues from $158.3 million to $167.4 million. In particular, Alton casino revenues increased from $56.4 million to $61.6 million, Riverside casino revenues increased from $48.4 million to $49.3 million, Sioux City casino revenues increased from $17.6 million to $18.0 million, and Baton Rouge casino revenues increased from $36.0 million to $38.6 million. Lawrenceburg casino revenues decreased $1.1 million, or 0.6%, to $170.9 million for the six months ended June 30, 2001, from $172.0 million for the six months ended June 30, 2000.  Each of our casinos reported increases in the average win per passenger for the six months ended June 30, 2001, versus the six months ended June 30, 2000.

             Casino expenses increased $6.5 million to $128.2 million for the six months ended June 30, 2001, from $121.7 million for the six months ended June 30, 2000.  This increase is due to increased gaming taxes totaling $2.8 million and increases in other casino expenses of $3.7 million to support the overall increased revenues as well as increased payroll related costs at all properties.

             Admissions—Admissions revenues (net of complimentary admissions) decreased to $1.8 million for the six months ended June 30, 2001, from $3.3 million for the six months ended June 30, 2000, due to an increase in complimentary admissions given to customers as part of Lawrenceburg’s marketing program.

             Food, Beverage and Other—Food, beverage and other revenues increased $2.5 million to $35.2 million for the six month period ended June 30, 2001, from $32.7 million for the six month period ended June 30, 2000. Food, beverage and other net profit decreased $0.8 million to $9.2 million for the six months ended June 30, 2001, from $10.0 million for the six months ended June 30, 2000.

             Selling, General and Administrative—Selling, general and administrative expenses decreased $0.5 million to $68.0 million for the six months ended June 30, 2001, from $68.5 million for the six months ended June 30, 2000, due primarily to a decrease in management fees of $2.4 million (due to Argosy’s acquisition of Lawrenceburg’s minority interests in the first quarter 2001), offset by increases in  general and administrative expenses at our properties.

             Other Operating Expenses—Other operating expenses increased by $1.0 million to $16.0 million for the six months ended June 30, 2001, as compared to $15.0 million for the six months ended June 30, 2000, due to increases attributable to the overall increase in revenues.

             Depreciation and Amortization—Depreciation and amortization increased $3.2 million from $18.0 million for the six months ended June 30, 2000, to $21.2 million for the six months ended June 30, 2001, due primarily to $2.9 million in incremental goodwill amortization related to the Lawrenceburg acquisition late in the first quarter 2001.

             Write Down of Assets – For the six months ended June 30, 2000, $6.8 million related to the Alton landing facility was written down.

             Interest Expense—Net interest expense increased $6.6 million to $25.2 million for the six months ended June 30, 2001, from $18.6 million for the six months ended June 30, 2000.  This increase is primarily attributable to additional borrowings under our amended and restated Credit Facility and the issuance of additional Senior Subordinated Notes related to our Lawrenceburg acquisition completed late in the first quarter 2001.

             Minority Interests – Our minority interest expense decreased by $16.1 million to $4.1 million for the six months ended June 30, 2001, as compared to $20.2 million for the six months ended June 30, 2000.  This decrease is attributable to our Lawrenceburg casino minority interest acquisitions during the first quarter 2001, and as the sole owner, we will no longer incur minority interest expense.

             Income Tax Expense – Income tax expense increased by $6.2 million to $19.6 million for the six months ended June 30, 2001, from $13.4 million for the six months ended June 30, 2000.  During the six months ended June 30, 2001 and 2000, we recorded income tax expense at effective rates of 41% and 39%, respectively.

             Extraordinary Loss – We recorded an extraordinary loss of $1.2 million for the six months ended June 30, 2000, related to the completion of the final phase of the early extinguishment of debt in conjunction with the 1999 refinancing.  This extraordinary loss is net of a $0.8 million tax benefit.

             Net Income – Net income was $28.3 million for the six months ended June 30, 2001, compared to $20.0 million for the six months ended June 30, 2000, due primarily to the factors discussed above.

Three months ended June 30, 2001 compared to three months ended June 30,  2000

                Casino—Casino revenues for the three months ended June 30, 2001, increased $1.8 million, or 1.1%, to $166.5 million from $164.7 million for the three months ended June 30, 2000.  The western properties (Alton, Riverside, Sioux City and Baton Rouge) reported an aggregate 5.5% increase in casino revenues from $78.6 million to $83.0 million. In particular, Alton casino revenues increased from $28.2 million to $30.5 million, Riverside casino revenues increased from $23.5 million to $23.9 million, Sioux City casino revenues increased from $8.6 million to $9.1 million, and Baton Rouge casino revenues increased from $18.3 million to $19.5 million. Lawrenceburg casino revenues decreased $2.6 million, or 3.0%, to $83.5 million for the three months ended June 30, 2001, from $86.1 million for the three months ended June 30, 2000.  Each of our casinos reported increases in the average win per passenger for the three months ended June 30, 2001, versus the three months ended June 30, 2000.

                Casino expenses increased $3.2 million to $63.7 million for the three months ended June 30, 2001, from $60.5 million for the three months ended June 30, 2000.  This increase is due to increased gaming taxes totaling $1.1 million and increases in other casino expenses of $2.1 million to support the overall increased revenues as well as increased payroll related costs at all properties.

                Admissions—Admissions revenues (net of complimentary admissions) decreased to $0.8 million for the three months ended June 30, 2001, from $1.6 million for the three months ended June 30, 2000, due to an increase in complimentary admissions given to customers as part of Lawrenceburg’s marketing program.

                Food, Beverage and Other—Food, beverage and other revenues increased $1.9 million to $18.1 million for the three month period ended June 30, 2001, from $16.2 million for the three month period ended June 30, 2000.  Food, beverage and other net profit was $4.6 million for the three months ended June 30, 2001, and for the three months ended June 30, 2000.

                Selling, General and Administrative—Selling, general and administrative expenses decreased $2.2 million to $32.6 million for the three months ended June 30, 2001, from $34.8 million for the three months ended June 30, 2000, due primarily to a decrease in management fees of $1.6 million (due to Argosy’s acquisition of Lawrenceburg’s minority interest in the first quarter 2001) and a  net decrease of $0.6 million in promotions and general administrative costs.

                Other Operating Expenses—Other operating expenses increased by $0.6 million to $8.0 million for the three months ended June 30, 2001, as compared to $7.4 million for the three months ended June 30, 2000, due to increases attributable to the overall increase in revenues.

                Depreciation and Amortization—Depreciation and amortization increased $2.0 million from $9.2 million for the three months ended June 30, 2000, to $11.2 million for the three months ended June 30, 2001, due primarily to $1.9 million in incremental goodwill amortization related to the Lawrenceburg acquisition late in the first quarter 2001.

                Write Down of Assets – For the three months ended June 30, 2000, $6.8 million related to the Alton landing facility was written down.

                Interest Expense—Net interest expense increased $4.8 million to $13.8 million for the three months ended June 30, 2001, from $9.0 million for the three months ended June 30, 2000.  This increase is primarily attributable to additional borrowings under our amended and restated Credit Facility and the issuance of additional Senior Subordinated Notes related to our Lawrenceburg acquisition completed late in the first quarter 2001.

             Minority Interests – We had no minority interest expense for the three months ended June 30, 2001, as compared to $9.9 million for the three months ended June 30, 2000.  This decrease is attributable to our Lawrenceburg casino minority interest acquisitions during the first quarter 2001, and as the sole owner, we no longer incur minority interest expense.

                Income Tax Expense – Income tax expense increased by $4.6 million to $9.5 million for the three months ended June 30, 2001, from $4.9 million for the three months ended June 30, 2000.  During the three months ended June 30, 2001 and 2000, we recorded income tax expense at effective rates of 41% and 39%, respectively.

                Extraordinary Loss – We recorded an extraordinary loss of $1.2 million for the three months ended June 30, 2000, related to completion of the final phase of the early extinguishment of debt in conjunction with the 1999 refinancing.  This extraordinary loss is net of a $0.8 million tax benefit.

                Net Income – Net income was $13.7 million for the three months ended June 30, 2001, compared to $6.6 million for the three months ended June 30, 2000, due primarily to the factors discussed above.

Competition

                Our Alton Casino faces competition from four other riverboat casino operators in the St. Louis area.  Our Riverside Casino faces competition from three casino companies in the Kansas City area.  Our Baton Rouge Casino faces competition from one casino located in downtown Baton Rouge, a nearby Native American casino and multiple casinos throughout Louisiana. We face competition in Sioux City, Iowa from video gaming devices in nearby South Dakota, from two land-based Native American casinos and, to a lesser extent, from slot machines at a pari-mutual race track in Council Bluffs, Iowa and from two riverboat casinos in the Council Bluffs, Iowa/Omaha, Nebraska market.  The Lawrenceburg casino faces competition from two riverboat casinos in the Cincinnati market, the second of which opened in October 2000.  In addition, the Lawrenceburg casino competes with a riverboat casino in the Louisville, Kentucky area approximately 100 miles from our Lawrenceburg facility.  There could be further unanticipated competition in any market which we operate as a result of legislative changes or other events.  We expect each market in which we participate, both current and prospective, to be highly competitive.

Liquidity and Capital Resources

                In the six months ended June 30, 2001, we generated cash flows from operating activities of $50.7 million compared to $75.3 million for the same period in 2000.  This reduction is due primarily to benefitting from the utilization of net operating loss carry forwards which reduced cash tax payments by approximately $12.5 million during the six months ended June 30, 2000.

             In the six months ended June 30, 2001, we used cash flows for investing activities of $382.6 million compared to $25.0 million for the six months ended June 30, 2000.  The increase in the use of funds for the six months ended June 30, 2001, is due primarily to our acquisition of the minority interests in the Lawrenceburg casino requiring the use of $366.7 million in cash.  During the six months ended June 30, 2001, $6.0 million of cash flows was used for construction of the Baton Rouge Hotel.

             During the six months ended June 30, 2001, cash of $313.3 million was provided by financing activities compared to using $52.1 million of cash flows for financing activities for the same period in 2000.  In the first quarter 2001, $159.0 million was provided through the issuance of $150.0 million of additional 10¾% Senior Subordinated Notes, due 2009, at a price of 106% of par.  In addition, as of June 30, 2001, we had additional net borrowings of $179.8 million on our line of credit.  These funds were used to fund the purchase of the Lawrenceburg casino minority interest.  Cash flows in 2001 and 2000 were used for repayment of long-term debt, repayment of partner loans, and distributions related to the Lawrenceburg partnership.

                At June 30, 2001, we had approximately $40.7 million of cash and cash equivalents.  At June 30, 2001, we had outstanding $358.7 million of Senior Subordinated Notes, due June 2009, including $8.7 million of unamortized premium, and $227.2 million on a senior secured revolving credit facility, due June 2004.  The Senior Subordinated Notes bear interest at 10.75%, and the Senior Secured Credit Facility bears interest at LIBOR or prime plus a margin. As of June 30, 2001, availability under the credit facility was approximately $170.9 million.  The Subordinated Notes and the Credit Facility contain certain restrictions on the payment of dividends on the Company’s common stock and the occurrence of additional indebtedness, as well as other typical debt covenants.  In addition, the Credit Facility requires the Company to maintain certain financial ratios as follows:  (1) Total Leverage Ratio of a maximum of 4.0 to 1.0; (2) Senior Leverage Ratio of a maximum of 2.75 to 1.0; and (3) Fixed Charge Ratio of a minimum of 1.25 to 1.0.  As of June 30, 2001, the Company is in compliance with these ratios.

             We have made a significant investment in property and equipment and plan to make significant additional investments at certain of our existing properties.  In the second half of 2001, we expect maintenance capital expenditures primarily related to the purchase of new gaming product and facility enhancements to be approximately $13.3 million, and expenditures related to other project capital expenditures to be approximately $6.1 million.

             On July 31, 2001, we completed our acquisition of the Empress Casino Joliet for approximately $465 million.  This acquisition was funded through the issuance of $200 million of 9.0% Senior Subordinated Notes due 2011 and a $275 million Term Loan under our amended and restated Credit Facility dated July 31, 2001.  We believe that cash on hand, operating cash flows, and funds available under our Credit Facility will be sufficient to fund our current operating, capital expenditure and debt service obligations for the next 12 months.

             Consistent with gaming industry practice, we conduct our operations with a net working capital deficit.  Unlike traditional industrial companies, a gaming company’s balance sheet has limited accounts receivable and inventories.  In addition, casinos generate significant cash on a daily basis.  We generally apply our daily cash flows to pay down indebtedness under our revolving credit facility and pay our current liabilities pursuant to their normal cycles.  Given the significant daily cash flows generated by our operations and the financial flexibility provided by our credit facility, the existence of a working capital deficit has no impact on our ability to operate our business or meet our obligations as they become due.

Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995

        This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  When used in this document, the words "anticipate", "believe", "estimate" and "expect" and similar expressions are generally intended to identify forward-looking statements.  Investors are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of the Company or its management, are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to, (i) competitive and general economic conditions in the markets in which the Company operates, (ii) increased competitive pressures in the markets in which the Company operates, (iii) the effect of future legislation or regulatory changes on the Company's operations and (iv) other risks detailed from time to time in the Company's Securities and Exchange Commission filings.  The Company does not intend to update these forward-looking statements.

ARGOSY GAMING COMPANY
OTHER INFORMATION

PART II.          Other Information

Item 1.  Legal Proceedings -

             The Company is from time to time a party to legal proceedings arising in the ordinary course of business. Other than as disclosed below, the Company is unaware of any legal proceedings, which, even if the outcome were unfavorable to the Company, would have a material adverse impact on either its financial condition or results of operations.

Item 2.  Changes in Securities

             Effective July 26, 2001, 100% of the previously issued (February 1, 2001) private placement Senior Subordinated Notes (“Restricted Notes”) were exchanged by the note holders for registered notes with substantially identical terms.

Item 3.  Defaults Upon Senior Securities - None

Item 4.  Submission of Matters to a Vote of Security Holders

             The Company’s Annual Meeting of Stockholders was held on April 17, 2001.  At the meeting, the stockholders voted on the election of three directors.  Voting on this matter was as follows:

	Votes For	Withheld/ Abstain
John B. Pratt, Sr.	26,198,763	505,328
F. Lance Callis	26,200,483	503,608
Edward F. Brennan	26,200,333	503,758

Item 5.  Other Information-None

Item 6.  Exhibits and reports on Form 8-K

(a)         Exhibits - None

(b)        Reports on Form 8-K

1.	Report on Form 8-K, dated June 21, 2001, filed with the Securities and Exchange Commission, containing the following related to the Company’s agreement (dated April 12, 2001) to acquire all of the outstanding stock of Empress Casino Joliet Corporation.  The Company anticipates closing this acquisition, subject to all required approvals, in the third quarter 2001.
	a.	Financial statements of business acquired.
	b.	Pro forma financial information.
2.	Report on Form 8-K, dated July 24, 2001, filed with the Securities and Exchange Commission, containing a Press Release dated July 24, 2001, announcing the Company’s second quarter operating results for the period ended June 30, 2001.
3.	Report on Form 8-K, dated July 31, 2001, filed with the Securities and Exchange Commission, containing the following related to the Company’s consummation of the acquisition of the Empress Casino Joliet Corporation on July 31, 2001.
	a.	Financial statements of business acquired.
	b.	Pro forma financial information.

ARGOSY GAMING COMPANY
SIGNATURES

Pursuant to the requirement 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.

Date:	August 14, 2001	/s/   Dale R. Black
		Dale R. Black
		Senior Vice President-Chief  Financial Officer