Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2000
Commission file number: 0-21122

ARGOSY GAMING COMPANY
(Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code: (618) 474-7500
Securities registered pursuant to Section 12(b) of the Act:

    Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

    As of February 13, 2001, the aggregate market value of the registrant's Common Stock held by non-affiliates was $505,949,580. The closing price of the Common Stock on February 13, 2001 as reported on the New York Stock Exchange, was $22.25.

    As of February 13, 2001, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 28,500,589.

DOCUMENTS INCORPORATED BY REFERENCE

    Part III of this 10-K incorporates information by reference from the registrant's 2001 definitive proxy statement which will be filed no later than 120 days after December 31, 2000.

PART I

ITEM 1. BUSINESS

    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.

The Company

    We are a leading owner and operator of five riverboat casinos located in emerging gaming markets of the central United States. We pioneered riverboat gaming in St. Louis, Kansas City, Baton Rouge and Sioux City by opening the first casino in each of those markets. Our riverboat casino that serves the Cincinnati market from Lawrenceburg, Indiana is one of the largest revenue producing riverboats in the United States gaming industry. We operate the Lawrenceburg casino through a joint venture subsidiary of which we currently own a 57.5% interest. In December 2000 and January 2001, we agreed to purchase our minority partners' collective 42.5% interest in the Lawrenceburg casino for an aggregate of $365 million. Our acquisition of the Lawrenceburg casino minority interests is subject to the receipt of all necessary regulatory approvals and will occur in one or two separate transactions. The transactions will be financed with the net proceeds from our recent Senior Subordinated Notes offering and additional borrowings under our planned amendment and restatement of the senior credit facility.

    We are a Delaware corporation. Our principal executive offices are located at 219 Piasa Street, Alton, Illinois 62002 and our telephone number is (618) 474-7500. You may obtain additional information about us at our website, www.argosycasinos.com.

    The following summarizes our casino properties:

    Over the past several years, we have been implementing a strategic plan that has helped transform us from a company focused on developing casino properties to one recognized for achieving superior operational performance. Our strategy emphasizes increasing revenues and profits through expanding direct marketing programs, investing in state-of-the-art gaming products, such as new slot machines and player tracking systems, and improving cost controls.

    Our initiatives have had the greatest impact at our four western casinos in Alton, Kansas City, Baton Rouge and Sioux City. For the year ended December 31, 2000, net revenues at the western casinos combined increased 25% to $326 million, while EBITDA (earnings before interest, taxes, depreciation and amortization) increased 49% to $86 million. At Lawrenceburg, net revenues for the year ended December 31, 2000 grew 11% to $368 million while EBITDA increased 8% to $133 million. Overall, we reported record results for the year ended December 31, 2000 with a 17% increase in net revenues to $695 million and a 24% increase in EBITDA to $194 million.

Business Strategy

    By capitalizing on the extensive gaming industry experience of our management team, we have developed a strategy to maximize the performance of our operating assets and improve financial results. We continue to implement changes at each of our properties to improve our competitive

1

position, increase gaming revenues and enhance profitability. The key elements of our business strategy include: (1) utilizing direct marketing to encourage repeat business and foster customer loyalty; (2) enhancing the gaming product at our casinos by investing in state-of-the-art gaming equipment; (3) renovating our properties to create more exciting gaming environments; and (4) increasing our financial flexibility to enable us to pursue future business opportunities.

•

Marketing efforts focused on direct marketing.  Our primary marketing focus is through direct and relationship marketing to encourage repeat business and foster customer loyalty. At each of our properties we use sophisticated player tracking systems to identify and reward premium players and our most loyal customers. Based on a player's gaming activity, we create targeted promotions including exclusive direct mail offers and "members' only" concerts, parties, tournaments, sweepstakes and special entertainment events.



•

Invest in new gaming equipment.  Because slot machines represent 82% of our casino revenues, we regularly and systematically upgrade our gaming product with state-of-the-art slot machines. We believe that regularly replacing slot machines with the most popular products creates a more exciting gaming experience and increases profitability. At our western casinos, the upgraded machines increased the average daily revenue over the older machines they replaced. At Lawrenceburg, additional new slot product helped us take advantage of increased market demand. Going forward we expect to replace an average of 15-20% of our gaming equipment annually.



•

Renovate our riverboat and dockside entertainment facilities.  To maintain a fresh and exciting gaming experience for our customers, we have developed a prudent capital investment plan to systematically renovate our casino and entertainment facilities. During 1999, we completed a $18 million project at Alton that replaced the existing entertainment pavilion with a newly renovated barge that was originally used as the Lawrenceburg temporary landing facility and an additional new barge. The Alton renovation significantly enhanced the facility's restaurant and entertainment amenities and added an additional 130 slot machines. During 2000, we spent an additional $2 million to improve the Alton casino landing and added an additional 100 slot machines. We plan to spend an additional $2.5 million in 2001 to enhance the Alton riverboat. In June 1999, we completed a $5 million renovation and retheming of our Baton Rouge riverboat. The renovation of the Baton Rouge riverboat's third deck features approximately 200 of the newest and most popular video poker machines and gaming product upgrades to target the video poker market. In July 1999, we began construction of a $23 million, 300 room convention hotel adjacent to the Baton Rouge riverboat casino which opened on February 5, 2001.



•

Increase financial flexibility and pursue strategic opportunities.  In June 1999, we completed a refinancing that has allowed us to lower our overall cost of capital, reduce our annual borrowing cost by approximately $13 million and provide the flexibility to take advantage of growth opportunities as they arise. In the future, we will look to invest in growth opportunities that add shareholder value and maintain the proper capital structure. These opportunities include the purchase of the minority interests in our Lawrenceburg casino as well as possible acquisitions of complementary businesses and other strategic opportunities.

Casino Properties

Argosy Casino Lawrenceburg

    Property:  The Lawrenceburg casino is located on the Ohio River in Lawrenceburg, Indiana approximately 15 miles west of Cincinnati and is the closest casino to the Cincinnati metropolitan area. The Lawrenceburg casino is one of the largest riverboats in the United States with 74,300 square feet of gaming space on three levels with 2,100 slot machines and 100 table games. The vessel can

2

accommodate 4,000 passengers; however, to enhance our customers' comfort and enjoyment, we operate at a self-imposed capacity of 3,600 passengers. We typically conduct 9 two-hour cruises seven days a week, with an additional cruise on Friday and Saturday evenings, for a total of 65 cruises per week. Each cruise lasts two hours including a 30 minute boarding time and during peak periods we charge admission fees. Approximately 50% of our weekend cruises are sold out. Indiana gaming law permits dockside gaming only when inclement weather or water conditions prevent a riverboat from cruising. At such times, the Lawrenceburg casino remains dockside and operates on its normal schedule.

    The complex also includes a 300 room hotel, which was completed in June 1998, a 200,000 square foot land-based entertainment pavilion and support facility featuring a 350 seat buffet restaurant, two specialty restaurants, an entertainment lounge and a 1,800 space parking garage. Employee and overflow parking is provided at a 1,400 space remote lot that is accessed by shuttle bus. We opened the Lawrenceburg casino on December 10, 1996 and, through September 30, 1997, operated from a temporary site utilizing a leased vessel and entertainment and support barge that featured approximately 1,275 gaming positions. Parking for the temporary facility was provided by a 1,400 space remote lot from which we operated a shuttle to and from the casino. On October 1, 1997, the Lawrenceburg casino commenced operations from its permanent riverboat vessel, which it used on a limited capacity basis at the temporary site. On December 9, 1997, the Lawrenceburg casino moved to its permanent site and became fully operational in June 1998 with the completion of its hotel.

    We are the sole general partner of, and hold a 57.5% general partnership interest in, Indiana Gaming Company, L.P., our joint-venture subsidiary that operates the Lawrenceburg casino. Conseco Entertainment L.L.C. ("Conseco"), an indirect subsidiary of Conseco, Inc., holds a 29.0% limited partnership interest and Centaur, Inc. ("Centaur") holds the remaining 13.5% limited partnership interest in the Lawrenceburg partnership. We manage the operations of the Lawrenceburg casino and receive a management fee of 7.5% of EBITDA, while Conseco receives a financial advisory fee of 5.0% of EBITDA.

    In December 2000 and January 2001, we reached agreements with our minority partners in the Lawrenceburg casino to purchase their 42.5% limited partnership interests for $365 million, including the repayment of Conseco's preferred equity interest and outstanding partner loans. In connection with the December agreement, we agreed to settle all pending litigation between Conseco and us upon purchase of their minority interest. The purchases of these minority interests are subject to receipt of all necessary regulatory approvals and satisfaction of customary closing conditions.

    Capital Improvements:  In 2000, we spent approximately $6 million on capital improvements including $3.1 million on slot machines and related systems.

    Gaming Market:  The Lawrenceburg casino draws from a population of approximately 1.6 million residents in the Cincinnati metropolitan area and an additional 5.4 million people who reside within 100 miles of Lawrenceburg, including the major metropolitan markets of Dayton and Columbus, Ohio and, to a lesser extent, Indianapolis, Indiana and Lexington, Kentucky.

    In the Cincinnati market, the Lawrenceburg casino directly competes with two other riverboat casinos. The three riverboat casinos operating in the Cincinnati market generated $511 million of gaming revenues in 2000, a 13% increase from 1999. The Lawrenceburg casino represented 44% of gaming position capacity in the Cincinnati market, and captured 67% of the market's gaming revenues.

    Our closest competitor is located approximately 15 miles further south of Lawrenceburg in Rising Sun, Indiana. The newest competitor, which opened in October 2000, is located 40 miles from Lawrenceburg in Switzerland County, Indiana. Secondarily, we compete with a riverboat casino in Bridgeport, Indiana in the Louisville, Kentucky area approximately 100 miles from Lawrenceburg.

3

    Regulatory Update:  Indiana gaming law currently limits the number of gaming licenses to be issued in the state to a total of 11, including a maximum of 5 licenses along the Ohio River and a limit of one license per county. Casino gaming is not currently permitted under the laws of either Ohio or Kentucky. Our Indiana gaming license is subject to renewal in 2001 and on an annual basis thereafter. Indiana gaming law does not restrict the size of a licensee's gaming facility or place limits on customer losses or betting levels.

    On January 25, 2001, the Indiana House of Representatives approved a bill that if enacted would, among other things, significantly increase the amount of taxes we pay on gaming revenues generated by our Lawrenceburg casino. The proposed legislation calls for a graduated tax structure on gaming revenues with a top bracket tax of 32.5% on gaming revenues above $125 million. The bill also calls for an increase in the per person admission tax for riverboat operations from $3 to $4. In addition to the tax increases, the proposed legislation would allow us to conduct dockside gaming operations at Lawrenceburg and eliminate existing restrictions on owning more than one Indiana casino. The bill is currently in committee in the Indiana Senate and is not expected to reach the Senate floor until March 2001. If the bill is enacted into law in its current form, it would have a material adverse effect on our future operating results. For example, assuming the legislation was effective January 1, 2000, the Lawrenceburg casino's 2000 EBITDA would have been reduced by approximately $41 million. This estimated impact gives no effect to additional gaming revenues that could be generated through dockside operations. In our experience, early stage bills are subject to numerous changes as they proceed through the legislative process. As a result, we are unable to predict whether the House bill will be enacted into law, if at all, in its current form or with significant modifications.

Alton Belle Casino

    Property:  The Alton Belle Casino is located on the Mississippi River in Alton, Illinois approximately 20 miles northeast of downtown St. Louis. We commenced operations in Alton, Illinois in September 1991 as the first gaming facility in Illinois and the St. Louis metropolitan market. Following the success of our original Alton riverboat casino, we built and opened a larger three-deck contemporary style cruise liner. The cruise liner features 26,500 square feet of gaming space, 950 slot machines and 30 table games. In June 1999, Illinois passed a law permitting casinos to offer continuous dockside gaming. As a result, the Alton Belle Casino remains dockside and offers its customers unlimited ingress and egress during its hours of operation.

    During 1999, we replaced our existing 37,000 square foot entertainment pavilion with a newly-renovated barge that was originally used as the Lawrenceburg temporary landing facility and an additional new barge. The new entertainment pavilion is approximately 60,000 square feet and features a newly designed entrance, 130 additional slot machines, larger and improved food and beverage venues and a new 400 seat main showroom. Parking is available at an adjacent city-owned surface parking facility and at two sites in the city of Alton, to and from which we provide valet parking as well as free shuttle service.

    Capital Improvements:  During 2000, we spent an additional $2 million to improve the Alton landing and added an additional 100 slot machines. We plan to spend an additional $2.5 million to enhance the Alton riverboat in 2001.

    Gaming Market:  The Alton Belle Casino generally draws from a population of approximately 2.5 million within the St. Louis metropolitan area and an additional 1.2 million within a 100-mile radius of the City of St. Louis. The target customers of the Alton Belle Casino are drawn largely from the northern and eastern regions of the greater St. Louis metropolitan area, as well as portions of central and southern Illinois.

    The Alton Belle Casino faces competition from five other riverboat casino companies currently operating in the St. Louis area and expects the level of competition to remain intense in the future. As

4

an Illinois licensee, the Alton Belle Casino is not subject to Missouri's $500 loss limit and therefore has a competitive advantage in attracting high-end customers over competitors operating under Missouri licenses. The riverboat casinos operating in the St. Louis market generated $684 million of gaming revenues in 2000, a 10% increase from 1999. The Alton Belle Casino represented approximately 11% of gaming position capacity in the St. Louis market, and captured approximately 16% of the market's gaming revenues.

    Regulatory Update:  Illinois gaming law currently limits the number of gaming licenses to be issued in the state to 10. Each license permits the operation of up to two boats as part of a single riverboat gaming operation with a combined maximum of 1,200 gaming positions. Our Illinois gaming license is subject to annual renewal in October 2001.

    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. In addition to legalizing dockside gaming, the amendment authorized the grant of a gaming license to certain persons to develop and operate a casino in Rosemont, Illinois. A group of plaintiffs 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 dockside gaming, would be invalidated. In such event, we would be required to resume cruising and suspend our dockside gaming activities at our Alton casino until such time as the Illinois legislature passed a law reauthorizing dockside gaming. On January 25, 2001, the court dismissed the lawsuit concluding that the plaintiffs lacked standing and on January 30, 2001, the Illinois Gaming Board denied the Rosemont group's applications for an Illinois gaming license. Because we anticipate that both groups will appeal these rulings, we are unable to determine what the ultimate resolution of these matters will be. The loss of dockside gaming at our Alton casino, however would adversely affect our financial results.

Argosy Casino of Greater Kansas City

    Property:  The Argosy Casino of Greater Kansas City is located on the Missouri River in Riverside, Missouri on a 55-acre site approximately five miles from downtown Kansas City. The riverboat features approximately 36,000 square feet of gaming space, 1,110 slot machines and 35 table games. The Kansas City casino began operations in Kansas City, Missouri on June 22, 1994 as the first gaming facility to open in the Kansas City market. During November 1999, Missouri adopted open boarding, allowing customers unlimited ingress and egress, eliminating the two hour mock cruising requirements.

    The Kansas City casino is complemented by an 85,000 square foot land-based entertainment facility featuring specialty and buffet restaurants, a sports/entertainment lounge and 8,000 square feet of banquet/conference facilities. A parking garage and surface parking areas with 2,027 spaces are located adjacent to the pavilion.

    Capital Improvements:  During 2000, we spent $2.1 million on maintenance capital, including $0.7 million on slot machines and related equipment.

    Gaming Market:  The Kansas City casino draws from a population of approximately 1.6 million in the greater Kansas City metropolitan area and an additional 900,000 within a 100-mile radius of Kansas City. The Kansas City casino site offers convenient access from two major highways. The Kansas City casino primarily attracts customers who reside in the northern and western regions of the Kansas City metropolitan area.

    We currently face competition from three other casinos in the Kansas City area. The four riverboat casinos operating in the Kansas City market generated $535 million of gaming revenues in 2000, an 8%

5

increase from 1999. Our Kansas City casino represented 15% of gaming position capacity in the Kansas City market, and captured 18% of the market's gaming revenues.

    Regulatory Update:  Our Missouri gaming license is subject to renewal in June 2002 and again every two years thereafter.

Argosy Casino—Baton Rouge

    Property:  The Argosy Casino—Baton Rouge is located on the Mississippi River in downtown Baton Rouge, Louisiana. The riverboat features approximately 28,000 square feet of gaming space, 790 slot machines and 40 table games. The Baton Rouge casino began operations in September 1994 as the first riverboat gaming facility in the Baton Rouge market. The Baton Rouge casino is a three-level riverboat casino that typically conducts eight 3-hour cruises seven days a week. Louisiana gaming law provides that a gaming vessel need not cruise if there is inclement weather or if the river conditions endanger the passengers or crew. During such times that the riverboat is prevented from cruising it operates on an unlimited ingress and egress schedule.

    The riverboat casino is complemented by our adjacent real estate development known as Catfish Town. Catfish Town is located next to Baton Rouge's convention complex, the Centroplex, which has a 12,000-seat arena and a 30,000-square foot exhibition hall. Catfish Town includes a 50,000 square foot glass-enclosed atrium, entertainment/sports lounge, buffet/coffee shop, conference facilities and approximately 150,000 square feet of retail space that is currently available for lease. On February 5, 2001, we opened our newly constructed, 300 room convention hotel in Catfish Town. The Argosy Casino—Baton Rouge provides parking at a 733-space parking garage and a 271-space surface parking lot.

    Capital Improvements:  During 2000, we spent approximately $1.9 million in capital improvements including approximately $0.9 million in slot machines and related upgrades. We also spent $14.1 million for Hotel construction during 2000.

    Gaming Market:  The Baton Rouge casino draws from a population of approximately 540,000 in the Baton Rouge metropolitan area. The Baton Rouge casino faces competition from one casino located in downtown Baton Rouge, a nearby Native American casino and operators of video poker machines in non-casino locations in certain Baton Rouge parishes. The two riverboat casinos operating in the Baton Rouge market generated approximately $164 million of gaming revenues in 2000, an 18% increase from 1999. The Argosy Casino—Baton Rouge represented 47% of gaming position capacity in the Baton Rouge market, and generated 44% of the market's gaming revenues.

    The casino benefited from the elimination of video poker machines in non-casino locations in more heavily populated Baton Rouge parishes as of July 1, 1999. In June 1999, we completed a renovation of the Argosy Casino—Baton Rouge's facilities to aggressively pursue the approximately $80 million portion of the video poker market that was eliminated.

    Regulatory Update:  Our Louisiana license is currently up for renewal. We are currently waiting for the Louisiana Gaming Board to schedule a hearing date for the renewal. After renewal our Louisiana license will be subject to renewal in five years.

    Jazz Enterprises:  Jazz Enterprises, Inc. owns and operates the Catfish Town development adjacent to the riverboat casino. The development of the historic Catfish Town riverfront warehouse district into a retail/entertainment district was an integral element in obtaining a Louisiana gaming license for the Argosy Casino—Baton Rouge. Our original intent was to develop and operate the casino and our joint-venture partner would develop and manage the Catfish Town real estate and hotel. In 1995 our real estate partner experienced financial difficulties, and to preserve our gaming license, we purchased Jazz Enterprises, Inc.

6

    Pursuant to a development agreement, Jazz Enterprises, Inc. had certain obligations to the City of Baton Rouge, including the obligation to construct a convention size hotel or collect and pay to the City an incremental head tax of $2.50 per passenger, fund a transportation system connecting downtown Baton Rouge and Catfish Town and to develop the Catfish Town facility to accommodate restaurants, retail space and entertainment and restaurant facilities. During July 1999, we began construction of a $23 million 300-room hotel in Baton Rouge to fulfill our obligations under the development agreement. The hotel opened on February 5, 2001. Cash flows at Baton Rouge benefited by $3.1 million in 2000 due to the elimination of the incremental head tax.

Belle of Sioux City

    Property:  The Belle of Sioux City is located on the Missouri River in downtown Sioux City, Iowa. The riverboat features 12,500 square feet of gaming space, 430 slot machines and 20 table games. The Belle of Sioux City typically conducts one two-hour cruise each day for 100 days per year. At all other times the Belle of Sioux City remains dockside and operates with unlimited ingress and egress. The casino is complemented by adjacent barge facilities featuring buffet dining facilities, meeting space and administrative support offices.

    We became the manager of the Belle of Sioux City on October 4, 1994 and on December 1, 1994 began operating the Belle of Sioux City through a partnership in which we were a 70% general partner and Sioux City Riverboat Corp., Inc. was a 30% limited partner. As manager of the casino we receive a management fee of 4.5% based upon the facility's adjusted gross gaming revenues (as defined in the management agreement). In July 2000, we purchased the 30% minority interest in the Belle of Sioux City Casino from Sioux City Riverboat Corp., Inc. for $9.2 million.

    Capital Improvements:  In 2000, we spent approximately $0.7 million to enhance our customers' gaming experience at the Belle of Sioux City. Specifically, we spent $0.5 million on slot machines.

    Gaming Market:  The Belle of Sioux City draws from a population of approximately 80,000 in Sioux City and an estimated 100,000 residents within a 40-mile radius of Sioux City. The Belle of Sioux City competes primarily with land-based Native American casinos that are not required to report gaming revenues and other operating statistics, therefore market comparisons cannot be made. We also compete with certain providers and operators of video gaming in the neighboring state of South Dakota. In addition, we compete with slot machines at a pari-mutual race track in Council Bluffs, Iowa and from two riverboat casinos in the Council Bluffs/Omaha, Nebraska market.

    Regulatory Update:  Our Iowa gaming license is subject to annual renewal each March. In addition, Iowa law stipulates that a referendum must be held in 2002 to reaffirm gaming in each county that has gaming and further stipulates that similar referenda be held every eight years thereafter.

Proposed Kenosha, Wisconsin Casino

    Development Agreement:  In December 2000, we entered into an agreement with Nii-Jii Entertainment, LLC ("Nii-Jii") to serve as the developer and operator of a proposed casino in Kenosha, Wisconsin. Nii-Jii separately has entered into an agreement with the Menominee Indian Tribe of Wisconsin to serve as the manager of the casino project proposed at the Dairyland Greyhound Race Track site in Kenosha. The proposed casino project is subject to numerous regulatory approvals, including receiving approval from the United States Bureau of Indian Affairs for placing in federal trust the proposed casino site for the benefit of the tribe. Under our agreement with Nii-Jii, we have committed to provide up to $40 million of financing for the project. Our financing commitment is conditioned upon obtaining the requisite regulatory approvals for all parties and the tribe raising the remaining project costs through an institutional debt offering.

7

Insurance

    We carry property and casualty insurance on our land-based assets and our vessels, generally in the amount of their replacement costs, with a nominal deductible with respect to our land-based assets and a deductible equal to 2% of the replacement value of the vessels. Our land-based assets are covered by flood insurance. Our general liability insurance with respect to land-based operations has a limit of $1 million per occurrence and $2 million as an annual aggregate with a $50,000 deductible. Our general liability insurance with respect to our marine operations has a $100,000 per occurrence deductible with per occurrence coverage up to a $75 million limit. With respect to worker's compensation we have a $250,000 per occurrence deductible with a $1 million per occurrence limit. We carry business interruption insurance at our properties which carry a deductible ranging from 14 to 30 days depending on the location and maximum coverage up to $35 million.

Competition

    The U.S. gaming industry is intensely competitive and features many participants, including riverboat casinos, dockside casinos, land-based casinos, video lottery and poker machines not located in casinos, Native American gaming and other forms of gambling in the United States. Gaming competition is particularly intense in each of the markets where we operate. Historically, we have been an early entrant in each of our markets; however, as competing properties have opened, our operating results in each of these markets have been negatively affected. Many of our competitors have more gaming industry experience, are larger and have significantly greater financial and other resources. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions in terms of:

•

amenities offered at the gaming facility and the related support and entertainment facilities;



•

convenient parking facilities;



•

a location more favorably situated to the population base of a market and ease of accessibility to the casino site; and



•

favorable tax or regulatory factors.

    There could be further competition in our markets as a result of the upgrading or expansion of facilities by existing market participants, the entrance of new gaming participants into a market or legislative changes. We expect each market in which we participate, both current and prospective, to be highly competitive.

Marketing

    We have changed our marketing focus from mass marketing to direct and relationship marketing in order to encourage repeat business and foster customer loyalty. We have designed an overall marketing strategy to attain our objective of utilizing direct marketing as our primary means of communicating with our customers. Although the marketing plan for each of our properties is tailored to the specific needs of the site, the overall strategic components are relatively constant:

•

further refine and enhance our database marketing efforts;



•

create a full-service player development program to service our premium customers;



•

aggressively market our gaming product and facility improvements;



•

refine, enhance and expand the schedule of parties, events and entertainment; and



•

utilize public relations as a tool to increase awareness, and reinforce marketing efforts by publicizing winners.

8

    A key tactic in implementing our overall strategy is the effective use of the information we obtain regarding our customers' playing activity. At each of our properties, we encourage patrons to join the Argosy Preferred Club. We then track the member's level of play through the use of sophisticated player tracking systems. As of December 31, 2000, we had over 1,200,000 Preferred Club members and we are adding, on average, over 20,000 new members each month. Utilizing the information from our database, we create targeted promotions including exclusive direct mail offers and "members only" parties, tournaments, sweepstakes and special entertainment events.

Regulatory

    Regulatory Licensing and Regulation by Gaming and Local Authorities.  The ownership and operation of casino gaming facilities are subject to extensive state and local regulation. These regulations apply not only to us, but also to our subsidiaries, stockholders and officers and directors. The Illinois Gaming Board, the Indiana Gaming Commission, the Iowa Racing and Gaming commission, the Louisiana Gaming Control Board and the Missouri Gaming Commission (herein collectively referred to as "Applicable Gaming Commissions") have broad discretion to, among other things, limit, condition, suspend, fail to renew or revoke a gaming license or approval to own an equity interest in us or our subsidiaries, for any cause they deem reasonable. The suspension, failure to renew or revocation of any of our licenses or the levy on us of substantial fines or forfeiture of assets would have a material adverse effect on our business.

    To date, we have obtained all governmental licenses, registrations, permits and approvals necessary for the operation of our current gaming activities. Gaming licenses and related approvals are deemed to be privileges under the laws of our licensing states. We cannot assure you that the Applicable Gaming Commissions will renew or not revoke our existing licenses or that they will grant us any new licenses, permits or approvals that may be required in the future. In addition, the loss of a license in one jurisdiction could trigger the loss of a license or affect our eligibility for a license in another jurisdiction.

    Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have gaming operations are subject to change and could impose additional operating, financial or other burdens on the way we conduct our business. Moreover, legislation to prohibit or limit gaming may be introduced in the future in states where gaming has been legalized. The enactment of any such legislation or adverse regulatory changes in jurisdictions where we operate gaming facilities could have a material adverse effect on our business.

    We believe that the prospect of significant additional tax revenue is one of the primary reasons why new jurisdictions have legalized gaming. As a result, gaming operators are typically subject to significant taxes and fees in addition to normal federal and state corporate income taxes. These taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations and will likely incur similar burdens in any other jurisdiction in which we conduct gaming operations in the future. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.

    Federal and Non-gaming Regulations.  We are subject to certain federal, state and local safety and health laws, regulations and ordinances that apply to businesses generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act, Resource Conservation Recovery Act and Comprehensive Environmental Response, Compensation and Liability Act. We have not made, and do not anticipate making, material expenditures with respect to such environmental laws and regulations. However, the coverage and attendant compliance costs associated with such laws, regulations and ordinances may result in additional costs to us. For example, in 1990 the U.S. Congress enacted the Oil Pollution Act to consolidate and reconcile mechanisms under various oil spill response laws. The Department of Transportation has proposed regulations requiring owners and operators of certain

9

vessels to establish through the U.S. Coast Guard evidence of financial responsibility in the amount of $5.5 million for clean-up of oil pollution. This requirement would be satisfied by either proof of adequate insurance (including self-insurance) or the posting of a surety bond or guaranty.

    All vessels operated by us must comply with U.S. Coast Guard requirements as to safety and must hold a Certificate of Seaworthiness or must be approved by the American Bureau of Shipping ("ABS") for stabilization and flotation, and may also be subject to local zoning and building codes. These requirements set limits on the operation of the vessels and require individual licensing of all personnel involved with the operation of the vessel. Loss of the Certificate of Seaworthiness of a vessel would preclude its use as a riverboat. Every five years, the outside of the hull of the vessels must be inspected. The U.S. Coast Guard has developed a pilot program which utilizes underwater equipment to complete a hull inspection while the vessel remains in service. This procedure was utilized to inspect the Alton casino in February 1998. If the procedure is ever disapproved by the U. S. Coast Guard, we would be required to remove a riverboat from service and seek to lease another riverboat casino or discontinue operations for the inspection period.

    All of our shipboard employees employed on U.S. Coast Guard regulated vessels, including those who have nothing to do with the actual operation of the vessel, such as dealers, waiters and security personnel, may be subject to the Jones Act which, among other things, exempts these employees from state limits on workers' compensation awards.

    We are subject to the provisions of the Americans With Disabilities Act but do not anticipate incurring significant expenses to bring our facilities or procedures into compliance with such Act.

    The Bank Secrecy Act (the "BSA"), enacted by Congress in 1985, requires banks, other financial institutions and casinos to monitor receipts and disbursements of currency in excess of $10,000 and report them to the United States Department of the Treasury (the "Treasury"). In management's opinion, the BSA may have resulted in a reduction in the volume of play by high level wagerers. The Treasury has proposed tentative amendments to the BSA which would apply solely to casinos and their reporting of currency transactions. The most significant proposed change in the BSA is a reduction in the threshold at which customer identification data must be obtained and documented by the casino, from $10,000 to $3,000 (which may include the aggregation of smaller denomination transactions). Additionally, the amendments would substantially increase the record-keeping requirements imposed upon casinos relating to customer data, currency and non-currency transactions. Management believes the proposed amendments, if enacted in their current form, could result in a further reduction in the volume of play by upper- and middle-level wagerers while adding operating costs associated with the more extensive record-keeping requirements. However, we do not expect that the effect on our operations would be material.

Employees

    As of December 31, 2000, we employed approximately 4,517 full-time and 759 part-time employees. Approximately 2,778 employees, located throughout our properties, are represented by the Seafarers International Union of North America. We have collective bargaining agreements with that union which expire at various times between June 2003 and June 2004. In Alton, 10 of our employees are represented by the International Brotherhood of Electrical Workers and approximately 83 employees are represented by the United Plant Guard Workers of America. In addition, 34 employees located throughout our properties except Alton are represented by American Maritime Officers Union.

    We have not experienced any work stoppages and believe our labor relations are generally satisfactory.

10

LAWRENCEBURG CASINO PARTNERSHIP AGREEMENT

    General.  Through our wholly-owned subsidiary, The Indiana Gaming Company, we are the majority partner in Indiana Gaming Company L.P., the Indiana partnership that owns and operates the Lawrenceburg casino. The Indiana Gaming Company, is the sole manager of the partnership and receives a fee of 7.5% of EBITDA (as defined in the partnership agreement). The Indiana Gaming Company's management of the casino is subject only to certain actions or major decisions which require the consent of a majority in interest of the limited partners. The largest minority partner, Conseco, receives a financial advisory fee of 5.0% of EBITDA.

    Partner Distributions.  After principal and interest on capital loans is repaid, cash flow is distributed to the partners as follows:

•

first, to the partners pro rata for tax payments in an amount equal to their taxable net income for such period;



•

second, to the partners as a prepayment of principal on capital loans to be applied in the inverse order of maturity, up to 75% of the remaining cash flow;



•

third, in payment of a preferred return of 14% on any preferred equity contributed by the partners;



•

fourth, as a return of the preferred equity contributed by the partners;



•

fifth, as a return of common equity contributed by the partners; and



•

sixth, to the partners in accordance with their respective percentage interests.

    These distributions are required to be made no less frequently than quarterly, but historically, they have been made monthly. The partnership agreement provides that the net cash proceeds from a sale or refinancing are distributed by the general partner in the same order as cash flow except that the proceeds will be used to repay 100% of outstanding capital loans by the partners.

    Partnership Interest Buy-Sell Obligations.  Through our wholly-owned subsidiary, The Indiana Gaming Company, we are the 57.5% majority partner in Indiana Gaming Company L.P., the Indiana partnership that owns and operates the Lawrenceburg casino. Conseco Entertainment, L.L.C. ("Conseco") holds a 29% limited partnership interest in the partnership and Centaur, Inc. ("Centaur") holds a 13.5% limited partnership interest. Under the terms of the Lawrenceburg partnership agreement, after December 10, 1999, each of Conseco and Centaur had the right to sell its entire interest in the partnership to the remaining partners. On April 28, 2000, Conseco exercised its put rights with respect to its 29% interest. On September 18, 2000, Centaur also exercised its put rights for its 13.5% interest.

    The Lawrenceburg partnership agreement provides that after a partner gives its sale notice, the other partners have 60 days to attempt in good faith to negotiate a purchase price for the selling partner's interest. If, at the end of the 60-day period, the parties are unable to agree upon a purchase price, the partnership agreement requires that the purchase price be determined by an appraisal process.

    We were unable to agree upon a purchase price with Conseco within the 60-day time period and commenced the appraisal process. The appraisal process was characterized by numerous disputes that culminated in multiple lawsuits being filed in Indiana and Illinois by both Conseco and us. These disputes continued through December 2000, when we reached an agreement with Conseco to purchase its 29% limited partnership interest for $260 million, including the repayment of Conseco's preferred equity interest and outstanding partner loans. In connection with the December agreement, we agreed to settle all pending litigation between Conseco and us upon purchase of their minority interest.

11

    In January 2001, we reached an agreement with Centaur to purchase its 13.5% limited partnership interest for $105 million. In connection with the purchase of Conseco's and Centaur's limited partnership interest, we are in the process of amending and restating our existing credit facility to, among other things, increase borrowing availability to $400 million. Funds available from the net proceeds of our recent $150 million Senior Subordinated Notes offering and from borrowings under the amended and restated credit facility will be used to finance the purchase of Conseco's and Centaur's limited partnership interests. The purchase of these minority interests is subject to, and will be consummated in one or two separate transactions promptly following, receipt of all necessary regulatory approvals and satisfaction of customary closing conditions.

    In addition, the partnership agreement provides all partners with a right of first refusal on transfers of any partnership interest. A foreclosure by a secured creditor, such as the lenders under the credit facility, would constitute a transfer of our partnership interest and under the partnership agreement provides all partners a right of first refusal on that partnership interest.

    Removal as General Partner.  The partnership agreement provides that The Indiana Gaming Company, can be removed as general partner of the partnership by the limited partners under certain limited circumstances, including:

•

a material breach (after notice and expiration of applicable cure periods) of certain material provisions of the partnership agreement dealing with such things as distributions to partners or the failure to obtain the required consent of the limited partners for certain major decisions;



•

if the general partner is convicted of embezzlement or fraud;



•

certain bankruptcy events;



•

if our partnership interest in the Lawrenceburg partnership is less than 40% due to sales or dilution for failure to pay required capital;



•

a final unappealable judgment against The Indiana Gaming Company in excess of $25 million which is uninsured and remains unsatisfied, unreleased or unstayed for 180 days;



•

certain acts by the general partner constituting "gross mismanagement;" and



•

if a secured creditor, such as the lenders under the credit facility, were to foreclose on the pledge of our partnership interest in the Lawrenceburg partnership.

    Upon removal, the general partnership interest becomes a "special limited partner" interest with rights to partner distributions but only limited voting rights on partnership matters. Also, if the reason for the removal is an event described above, other than a less than 40% ownership, the limited partners may acquire all, but not less than all, of The Indiana Gaming Company's interest for fair market value as determined by an appraisal process.

12

ITEM 2. PROPERTIES

    The following is a list of the Company's principal properties as of December 31, 2000. Substantially all of the properties of the Company are subject to the lien of the Company's senior lenders under its $200 million Senior Secured Credit Facility Agreement dated June 8, 1999.

(1)

Owned by a partnership pursuant to which the Company, through a wholly-owned subsidiary, has a 57.5% partnership interest and serves as general partner.

(2)

Renewal options available.

ITEM 3. 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.

Lawrenceburg Partnership Appraisal Litigation

    On December 16, 2000 the Company entered into a Settlement Agreement with Conseco Entertainment, L.L.C. and Conseco, Inc. (collectively "Conseco") settling all pending litigation in Indiana (Hamilton and Tippecanoe County) and Illinois (Madison County) by agreeing to purchase Conseco's entire partnership interest in Lawrenceburg for $260 million. On December 22, 2000, the Company entered into a Purchase Agreement with Conseco which provides the Closing must occur on March 1, 2001 or Conseco is able to seek a judgment against the Company for $260 million.

13

Steven B. Small et al. v. Harrahs et al.

    In November 1997, the Missouri Supreme Court issued a ruling striking down a legislative definition of the Missouri and Mississippi Rivers in the context of a constitutional amendment permitting gaming on the Missouri and Mississippi Rivers. Following the decision of the Missouri Supreme Court, Steven B. Small filed a putative class action against the Missouri Gaming Company and other gaming companies in the Kansas City area in the United States District Court for the Western District of Missouri. State of Missouri, ex. Rel. Steven B. Small, et al., v. Harrah's North Kansas City Corp., et, al. Small asserted that the licenses of the Missouri Gaming Company and the other defendants were invalid and that the defendants were violating federal and state laws, including the Racketeer Influenced Corrupt Organizations Act. Small also asserted that the Missouri Gaming Company and other defendants threatened him in violation of the Hobbs Act. Small also claimed that for a period of time the Missouri Gaming Company's boat cruised into Kansas. Small sought to recover his losses as well as all losses sustained by the putative class plus injunctive relief. Small never obtained certification of a class. In June 1998, the District Court of Missouri dismissed Small's action against the Missouri Gaming Company. Small appealed the decision to the United States Court of Appeals for the Eighth Circuit. The People of the State of Missouri, et al. v. Harrah's—North Kansas City Corporation, et al.. The Eighth Circuit affirmed the District Court's decision. Small failed to timely file a writ of certiorari with the United States Supreme Court. Small has made two requests for extensions to file a writ of certiorari. We believe these requests were not filed on a timely basis.

    On October 30, 1998, Small filed an action seeking declaratory relief in the Circuit Court of the Circuit Court of Cole County, Missouri. The relief sought was a declaration that the gaming operators were conducting illegal games of chance. The Circuit Court of Cole County dismissed Small's action without providing the relief sought. Small has appealed the decision to the Missouri Court of Appeals for the Western District of Missouri. People of the State of Missouri ex. Re. Steven B. Small, Appellant v. Harrah's North Kansas City Corp., et al. The Missouri Court of Appeals affirmed the dismissal of Small's state court action and denied his application to the Missouri Supreme Court. The Missouri Supreme Court also denied a request to review this case.

    Management believes that the claims are without merit and does not expect that the lawsuit will have a material adverse effect on the Company's financial position or results of operations.

Gaming Industry Class Actions

    The Company has been named, along with two gaming equipment suppliers, 41 of the country's largest gaming operators and four gaming distributors (the "Gaming Industry Defendants") in three class action lawsuits pending in Las Vegas, Nevada. The suits allege that the Gaming Industry Defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") by engaging in a course of fraudulent and misleading conduct intended to induce people to play their gaming machines based upon a false belief concerning how those gaming machines actually operate, as well as to the extent to which there is actually an opportunity to win on any given play. The suits seek unspecified compensatory and punitive damages. On January 14, 1997, the Court consolidated all three actions under the case name William H. Poulos, etc. v. Caesars World, Inc., et al. On February 13, 1997 the plaintiffs filed a consolidated amended complaint. The Court subsequently dismissed this complaint, in part, and on January 8, 1998, the plaintiffs filed a second amended complaint. The parties have fully briefed the Plaintiff's motion for class certification and are awaiting a decision from the court. Discovery has been stayed pending the Court's ruling. The Plaintiff's currently are conducting such discovery. The Company is unable to determine what effect, if any, the suit would have on its business or operations.

14

Conservancy District Lease Litigation in Dearborn County, Indiana

    On March 21, 1997, Deborah S. Whitacre filed an action in the Circuit Court of Dearborn County, Indiana as Cause No. 15CO1-9703-CP-073, challenging the validity of a lease to the City by the Conservancy District of Lawrenceburg, Indiana (the "District") of certain land owned by the District, which land has in turn been subleased by the City to the Company's affiliate Indiana Gaming, L.P. and is being used for development and operation of the riverboat gaming facility in the City for which Indiana Gaming, L.P. has been awarded a riverboat owner's license by the Commission. Defendants are the District and its individual directors. In 1998, Indiana Gaming, LP. was permitted to intervene and is now contesting the action. The District and its directors have advised that they are contesting the action and intend to continue to do so. An adverse ruling in this matter could have a material adverse effect on the Company.

Matters Pertaining to Interim Holdings, L.L.C. and Argosy Gaming Company, et al

    On January 6, 2000, the Company was named as a defendant in a lawsuit filed by Interim Holdings, L.L.C., in the Circuit Court of St. Louis County, Missouri, in a case styled Interim Holdings, L.L.C. v. Argosy Gaming Co., et al. The Company removed the lawsuit to the federal district court for the Eastern District of Missouri. On April 13, 2000, the federal district court remanded the lawsuit back to the Circuit Court of St. Louis County. The lawsuit is styled as a "bill in equity." It concerns a purchase agreement and consulting agreement entered into between Argosy and St. Louis Concessions, Inc. ("SLC"), as part of Argosy's attempt to purchase certain assets including assuming a lease for a gaming facility in downtown St. Louis. The lawsuit alleges that Argosy's loans pursuant to the purchase agreement to SLC and consulting payments to WPW Ventures, Inc. ("WPW") defrauded creditors of Floyd C. Warmann, an individual with an ownership interest in SLC and WPW. The Company filed a Motion to Dismiss the lawsuit on July 5, 2000. The Court denied that Motion to Dismiss on August 21, 2000 and ordered the parties to proceed with discovery into the lawsuit. While discovery was proceeding, on December 1, 2000, Warmann, also a defendant in the lawsuit, filed a motion to dismiss the lawsuit. On January 9, 2001, the Court granted Warmann's motion to dismiss and dismissed the entire lawsuit with prejudice. On January 24, 2001, Interim Holdings filed a motion to vacate the dismissal or, in the alternative, allow it to amend its original complaint. The Company filed a response to that motion. On February 5, 2001, the Court denied Interim Holdings' motion. Interim Holdings has the right to appeal to the Missouri Court of Appeals.

    On February 9, 2001, Interim Holdings, L.L.C. filed a new lawsuit in the Circuit Court of St. Louis County, Missouri, naming the Company as a co-defendant. This lawsuit alledges fraud and civil conspiracy pertaining to the purchase and consulting agreements discussed in the preceeding paragraph.

    Management believes that these claims are without merit and that the legal bases for these suits are unsupportable. Further, Management does not expect that these lawsuits will have a material adverse effect on the Company's financial position or results of operations.

    On September 13, 2000, the Company filed suit against John C. Foley and the company that he controls, Interim Holdings, L.L.C. (collectively "defendants") in the federal district court for the Southern District of Illinois, in a case styled Argosy Gaming Co. v. Foley, et al. On October 3, 2000, Argosy served discovery requests on the defendants. On October 25, 2000, the defendants filed a Motion to Dismiss the lawsuit, a Motion to Stay the lawsuit pending the outcome of the Missouri lawsuit, and objections to Argosy's discovery requests. The lawsuit alleges six counts against the defendants based on communications that they made to third parties regarding Argosy's actions. The counts allege trade disparagement, fraud, interference with business advantage, deceptive trade practices, defamation, and false light defamation. Argosy seeks a court order restricting the defendants from making further statements impugning Argosy's good name and business reputation. Argosy also seeks unspecified monetary damages. Argosy will be responding to the motions filed by the defendants.

15

Capitol House Preservation Company, L.L.C. v. Jazz Enterprises, Inc. et. al.

    In July 1995, Capitol House Preservation Company, L.L.C. ("Capitol House") filed a cause of action in the U.S. District Court of the Middle District of Louisiana against Jazz, the former shareholders of Jazz ("Former Jazz Shareholders"), Catfish Queen Partnership (the "Partnership"), Argosy of Louisiana, Inc. ("Argosy Louisiana") and the Company alleging that Jazz and Argosy obtained the gaming license for Baton Rouge based upon false and fraudulent pretenses and declarations and financial misrepresentations. The complaint alleges unfair trade practices as well as violations of RICO and seeks damages of $158 million plus court costs and attorneys' fees. The plaintiff was an applicant for a gaming license in Baton Rouge whose application was denied by the Louisiana Gaming Enforcement Division.

    On June 7, 1995, the Company consummated its purchase of all of the outstanding capital stock of Jazz from the Former Jazz Shareholders. The Company intends to seek indemnification from the Former Jazz Shareholders for any liability the Company, Argosy Louisiana or Jazz suffers as a result of such cause of action. As part of the consideration payable by the Company to the Former Jazz Shareholders for the acquisition of Jazz, the Company agreed at the time of such acquisition to annual deferred purchase price payments of $1,350,000 for each of the first ten years after closing and $500,000 for each of the next ten years. Payments are to be made quarterly by the Company. The definitive acquisition documents provide the Company with offset rights against such deferred purchase price payments for indemnification claims of the Company against the Former Jazz Shareholders and for liabilities that the Former Jazz Shareholders contractually agreed to retain. There can be no assurance that the Former Jazz Shareholders will have assets sufficient to satisfy any claim in excess of the Company's offset rights.

    The defendants filed a Motion to Dismiss, or alternatively to abstain and stay the action, pending resolution of certain Louisiana state court claims filed by Capitol House. The trial court decided in favor of the defendants and dismissed the suit without prejudice to the rights of plaintiff to revive the suit after the conclusion of the pending state court matters. The plaintiff appealed this dismissal to the U.S. Fifth Circuit Court of Appeals. While the appeal was pending, several of the Louisiana state court claims were resolved. On March 11, 1997, the U.S. Fifth Circuit Court of Appeals vacated the trial court's dismissal and remanded the case to the district court for further proceedings. The defendants have re-urged the previously filed motion to dismiss. On November 17, 1997, the district court granted the motion and dismissed, with prejudice, all of the federal claims under RICO. The claims of Capitol House that arose under Louisiana state law were dismissed, without prejudice. Capitol House filed an appeal of the district court dismissal on January 9, 1998, with the U.S. Fifth Circuit Court of Appeals. On November 4, 1998, the Fifth Circuit affirmed the district court's dismissal of Capitol House's RICO claims. This matter is now concluded in federal court.

    Additionally, Capitol House filed an amended petition in the Nineteenth Judicial District Court for East Baton Rouge Parish, State of Louisiana, on November 26, 1997, amending its previously filed but unserved suit against Richard Perryman, the person selected by the Louisiana Gaming Division to evaluate and rank the applicants seeking a gaming license for East Baton Rouge Parish, and now adding its state law claims against Jazz, the Former Jazz Shareholders, Argosy Gaming Company, Argosy of Louisiana, Inc. and Catfish Queen Partnership in Commendam, d/b/a the Belle of Baton Rouge Casino. This suit alleges that these parties violated the Louisiana Unfair Trade Practices Act in connection with obtaining the gaming license that was issued to the Company. The suit alleges the same, or substantially similar, facts that formed the basis of the federal claim which was dismissed on November 17, 1997. The defendants have filed a Peremptory Exception of No Cause of Action, Peremption and Prescription and Exception of Lis Pendens in response to Capitol House's state court suit. A hearing on these exceptions was held June 1, 1998. The Court granted the exception and dismissed the suit as to Argosy Gaming Company, Argosy of Louisiana, Inc. and Catfish Queen Partnership in Commendam, d/b/a the Belle of Baton Rouge Casino. The Court denied the exception

16

as to Jazz and the Former Jazz Shareholders. On behalf of Jazz and the Former Jazz Shareholders, a supervisory writ was filed with the First Circuit Court of Appeal, State of Louisiana, seeking a dismissal of the claims. Capitol House has also appealed the dismissal of the claims as to the other parties. On December 10, 1998, the Court of Appeal granted a hearing and then denied the supervisory writs of Jazz and the Former Jazz Shareholders and affirmed the ruling of the trial court. Jazz and the Former Jazz Shareholders filed a Motion for Rehearing before the Court of Appeal, which was ultimately denied. Thereafter, Jazz and the Former Jazz Shareholders filed a writ of certiorari to the Louisiana Supreme Court, which writ was also denied. Jazz and the Former Jazz Shareholders are now conducting discovery and intend to file additional exceptions and/or motions for summary judgment in the trial court. Capitol House's appeal of the trial court's dismissal of Argosy Gaming Company, Argosy of Louisiana, Inc. and Catfish Queen Partnership in Commendam was finally argued before the First Circuit, which reversed the trial court's ruling and overturned the defendants' peremptory exception of no cause of action thereby causing these defendants to return to this litigation. Argosy, Argosy of Louisiana and the Partnership have filed a writ or certiorari with the Louisiana Supreme Court which was eventually denied, and therefore, Argosy, Argosy of Louisiana and the Partnership have rejoined with Jazz and the Former Jazz Shareholders to assert their additional defenses in this matter by various exceptions and/or motions for summary judgment. An adverse ruling in this matter could have a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None

17

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    The Company's Common Stock trades on the New York Stock Exchange under the symbol AGY. On January 31, 2001, the approximate number of stockholders of record of the Company's Common Stock was 700. The following table sets forth the high and low sales prices per share of Common Stock, as reported by the New York Stock Exchange, for the periods indicated. These quotations and sales prices do not include retail mark-ups, mark-downs or commissions.

    On February 13, 2001, the reported last sales price for the Common Stock was $22.25.

    Since the Company's initial public offering in February 1993, the Company has not declared any cash dividends or distributions on its Common Stock. Although the Company currently intends to retain its earnings to finance future growth and therefore has no present intention of paying dividends, this policy will be reviewed quarterly by the Company's Board of Directors in light of, among other things, its results of operations, capital requirements, any restrictions imposed by applicable gaming regulations and restrictions imposed by the Company's indentures and loan documents. At present the Company's Credit Agreement dated June 8, 1999 requires the consent of the lenders in order to declare a dividend.

ITEM 6. SELECTED FINANCIAL DATA

18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

    We, through our subsidiaries or joint ventures, 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 and Hotel in Lawrenceburg, Indiana.

    The results of our operations for the year ended December 31, 2000 reflect increases in both revenues and operating income at all of our casino properties. This improvement is primarily attributable to the successful execution of our operating strategy, which has been developed with the goal to position us as the premier riverboat casino operator. This strategy includes capitalizing on management's significant experience and expertise in gaming industry operations, continued emphasis on database marketing techniques, and prudently investing in gaming and gaming-related assets for its properties. In addition, 1999 and 2000 revenues were favorably impacted by regulatory changes in three of our markets; dockside gaming in Alton, beginning June 26, 1999, the July 1, 1999 elimination of video poker at many non-casino sites in Baton Rouge, and the advent of open boarding in Kansas City on November 15, 1999. In addition, the results of our Baton Rouge casino were favorably impacted by an elimination of an additional head tax of $2.50 per passenger which ceased on July 29, 1999 when we began construction of a $23 million, 300 room convention hotel at its Baton Rouge property. The hotel opened February 5, 2001.

    During 1999, we recorded an extraordinary loss of $24.9 million (net of a $13.5 million tax benefit) related to the early extinguishment of debt. Also, during 1999, we recognized a $10.0 million tax benefit representing prior federal income tax net operating losses.

19

ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In Thousands)

20

(1)

Income from operations and EBITDA are presented before consideration of any management fees paid to us, before the Lawrenceburg 42.5% minority interest and before the Sioux City 30% minority interest for the period prior to our July 2000 acquisition of this minority interest.

(2)

Excludes a $6.8 million pretax charge related to the write-off of assets for the year ended December 31, 2000.

(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 pays a financial advisory fee equal to 5.0% of its EBITDA to a minority partner.

(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.

21

Year ended December 31, 2000 compared to year ended December 31, 1999

    Casino—Casino revenues for the year ended December 31, 2000, increased $99.7 million, or 17.8%, to $658.9 million from $559.1 million for the year ended December 31, 1999. The western properties (Alton, Riverside, Sioux City and Baton Rouge) reported an aggregate 25.6% increase in casino revenues from $250.8 million to $314.9 million. In particular, Alton casino revenues increased from $84.7 million to $112.1 million. Riverside casino revenues increased from $84.9 million to $97.0 million. Sioux City casino revenues increased from $28.0 million to $34.8 million, and Baton Rouge casino revenues increased from $53.3 million to $70.9 million. Lawrenceburg casino revenues increased $35.7 million, or 11.6% to $344.0 million for the year ended December 31, 2000, from $308.3 million for the year ended December 31, 1999. We experienced increases in both passengers and the average win per passenger for the year ended December 31, 2000 versus the year ended December 31, 1999. Additionally, the increase in revenues was partially attributable to favorable regulatory changes in Illinois, Missouri and Louisiana, as well as expanded capacity at Alton.

    Casino expenses increased 14.8% to $287.8 million for the year ended December 31, 2000, from $250.6 million for the year ended December 31, 1999. This increase is primarily due to an increase of $23.1 million in gaming taxes as a result of the overall increase in casino revenues.

    Admissions—Admissions revenues (net of complimentary admissions) were $6.1 million for the year ended December 31, 2000, and $7.2 million for the year ended December 31, 1999. Although the number of admissions increased in Lawrenceburg 1.0% in 2000 over 1999, net admission revenue decreased as more customers were given complimentary admissions.

    Food, Beverage, and Other—Food, beverage and other revenues increased from $58.0 million to $66.1 million for the year ended December 31, 2000. This increase is primarily attributable to the overall increase in casino passengers for the year ended December 31, 2000. Food, beverage and other revenues, as a percent of casino revenues, has remained relatively steady at 10.0% in 2000 and 10.4% in 1999. Food, beverage and other net profit improved $3.0 million to $19.5 million for the year ended December 31, 2000. Increases in revenues and net profit came primarily from Alton and Lawrenceburg. Alton increased food and beverage revenues as it reopened one of its restaurants, which was closed during the entire year ended December 31, 1999. Lawrenceburg's increases were primarily due to a slight increase in admissions.

    During 2000, the Lawrenceburg Hotel generated $4.0 million in net revenues and $1.5 million of operating profit. The hotel occupancy percentage was 87.0% and the average daily room rate, including promotional allowances, was $88. In 1999, the Lawrenceburg Hotel generated $4.2 million in net revenues and $1.9 million of operating profit. The hotel occupancy percentage was 83.2% and the average daily room rate, including promotional allowances, was $84 during the months the hotel was open. The decrease in hotel net revenues and operating profit reflects an increase in complimentary rooms to our customers.

    Selling, General and Administrative—Selling, general and administrative expenses increased 15.6% from $117.5 in 1999 to $135.8 million for the year ended December 31, 2000, due primarily to an increase at Lawrenceburg of $2.6 million related to expanded marketing and $5.2 million in additional development payments to the city due to the increased gaming revenues. Marketing expenses increased $8.3 million for the year ended December 31, 2000, remaining relatively flat as a percent of casino revenues at approximately 7.0%.

    Other Operating Expenses—Other operating expenses increased from $27.9 million in 1999 to $30.2 million for the year ended December 31, 2000 due primarily to increased vessel operating costs.

    Depreciation and Amortization—Depreciation and amortization increased slightly to $36.1 million for the year ended December 31, 2000, from $34.1 million in 1999.

22

    Interest Expense—Net interest expense decreased $12.3 million to $33.4 million for the year ended December 31, 2000. The decrease in interest expense is attributable to the repayments on the credit facility in 2000, the refinancing completed during 1999 and the use of escrowed funds in June 2000 to redeem the untendered Mortgage Notes, both of which reduced our debt levels and a decrease of interest to a minority partner of $2.2 million.

    Minority Interests—Our minority interest expense increased by $5.5 million to $40.5 million for the year ending December 31, 2000. This increase is primarily attributable to improved operating results at Lawrenceburg.

    Income Tax Expense—We recorded income tax expense of $31.2 million for the year ended December 31, 2000 compared to income tax expense of $5.9 million for the year ended December 31, 1999. Prior to 2000, our effective tax rate was impacted favorably due to the utilization of net operating loss carryforwards. For the year ended December 31, 1999, income tax expense was offset by the reversal of a $10.0 million valuation allowance related to prior federal income tax net operating losses.

    Net Income Before Extraordinary Item—Net income before extraordinary items was $46.5 million for the year ended December 31, 2000 compared to net income before extraordinary items of $36.4 million in 1999 due primarily to the factors discussed above.

    Extraordinary Loss—We recorded an extraordinary loss of $1.2 million for the year ended December 31, 2000 related to completion of the final phase of the 1999 refinancing. This extraordinary loss is net of a $0.8 million tax benefit. For the year ended December 31, 1999, we recorded an extraordinary loss of $24.9 million, net of a $13.5 million tax benefit, related to the early extinguishment of debt in conjunction with the refinancing.

    Net Income Attributable to Common Stockholders—Net income attributable to common stockholders was $45.4 million for the year ended December 31, 2000 compared to $11.5 million for the year ended December 31, 1999, due primarily to the factors discussed above.

Year ended December 31, 1999 compared to year ended December 31, 1998

    Casino—Casino revenues for the year ended December 31, 1999, increased by 18.1% to $559.1 million from $473.5 million for the year ended December 31, 1998, due in part to a $44.0 million increase in casino revenues at the Lawrenceburg casino, which generated total casino revenues of $308.3 million for the year ended December 31, 1999. Our other properties reported an aggregate 19.9% increase in casino revenues from $209.2 to $250.8 million. This improvement is primarily attributable to the regulatory changes in Illinois, Louisiana and Missouri and to the continued implementation of our operating and marketing strategies. Specifically, Alton casino revenues increased from $67.8 to $84.7 million due in part to dockside gaming effective June 1999; Riverside casino revenues increased from $72.0 to $84.9 million; Sioux City casino revenues increased from $22.6 to $28.0 million and Baton Rouge casino revenues increased from $46.8 to $53.2 million.

    Casino expenses increased 13.0% to $250.6 million for the year ended December 31, 1999, from $221.7 million for the year ended December 31, 1998. This increase is primarily due to an increase of $17.9 million in gaming taxes as a result of the overall increase in casino revenues. Baton Rouge casino expense is net of a $1.6 million decrease in admission taxes due to the elimination of an additional head tax, which commenced when construction began on the Baton Rouge hotel in July 1999.

    Admissions—Admissions revenues (net of complimentary admissions) were $7.2 million for the years ended December 31, 1999 and 1998.

    Food, Beverage, and Other—Food, beverage and other revenues increased from $51.1 million to $58.0 million for the year ended December 31, 1999. This increase is attributable to the restaurants and the hotel at the Lawrenceburg property being open for the entire year in 1999. Food, beverage and other net profit improved $6.0 million to $16.5 million for the year ended December 31, 1999. Alton,

23

Riverside and Baton Rouge each reported relatively the same food and beverage revenues but decreases in food and beverage expenses. Alton's decrease was due to the closing of one of its restaurants during the entire year ended December 31, 1999 in conjunction with a major renovation. Riverside's and Baton Rouge's decreases were primarily due to the decreased use of food and beverage as promotional items.

    The Lawrenceburg hotel contributed $4.2 million in net revenues and $1.9 million of operating profit. The hotel occupancy percentage was 83.2% and the average daily room rate, including promotional allowances, was $84. In 1998, the hotel occupancy percentage was 73.5% and the average daily room rate, including promotional allowances, was $79 during the months the hotel was open.

    Selling, General and Administrative—Selling, general and administrative expenses increased 21.7% to $117.5 million for the year ended December 31, 1999, due primarily to an increase at Lawrenceburg of $3.9 million related to expanded marketing and $4.5 million in additional development payments to the city due to the increased gaming revenues. Corporate expenses increased due to expenses of $1.8 million related to a severance and settlement arrangement and $3.1 million related to incentive compensation. Marketing expenses increased $4.8 million for the year ended December 31, 1999 but remained relatively flat, at approximately 7%, as a percentage of casino revenues.

    Other Operating Expenses—Other operating expenses increased from $26.6 million in 1998 to $27.9 million for the year ended December 31, 1999.

    Depreciation and Amortization—Depreciation and amortization increased slightly to $34.1 million for the year ended December 31, 1999, from $33.4 million in 1998.

    Interest Expense—Net interest expense decreased $8.2 million to $45.7 million for the year ended December 31, 1999. The decrease in interest expense is primarily attributable to the refinancing completed during 1999 and a decrease of interest to a minority partner of $3.0 million. This decrease, however, was offset by a decrease in capitalized interest of $1.0 million.

    Minority Interests—Our minority interest expense increased by $8.8 million to $35.0 million for the year ending December 31, 1999. This increase is primarily attributable to improved income at our Indiana Partnership.

    Income Tax Expense—We recorded income tax expense of $5.9 million for the year ended December 31, 1999 compared to income tax expense of $1.1 million for the year ended December 31, 1998. Our effective tax rate has been impacted favorably in 1999 and 1998 due to the utilization of net operating loss carryforwards. Income tax expense was offset by the reversal of a $10.0 million valuation allowance related to prior federal income tax net operating losses that are expected to be utilized in 2000.

    Net Income Before Extraordinary Item—Net income before extraordinary items increased to $36.4 million for the year ended December 31, 1999 from $6.6 million in 1998 due primarily to the factors discussed above.

    Extraordinary Loss—We recorded an extraordinary loss of $24.9 million for the year ended December 31, 1999 related to the early extinguishment of debt in conjunction with a refinancing. This extraordinary loss is net of a $13.5 million tax benefit.

    Net Income Attributable to Common Stockholders—Net income attributable to common stockholders was $11.5 million for the year ended December 31, 1999 compared to $5.7 million for the year ended December 31, 1998, due primarily to the factors discussed above.

24

Liquidity and Capital Resources

    During 2000, we generated cash flows from operating activities of $158.2 million compared to $126.7 million for 1999. This increase is attributable to the improved operations at each of our five casino locations.

    During 2000, we used cash flows for investing activities of $44.0 million versus $37.1 million for 1999. Capital expenditures in 2000 consisted of $13.6 million in maintenance capital, primarily related to slot machine replacements and $19.6 million for expansion projects, including construction of a 300 room hotel in Baton Rouge. During 2000, $9.2 million in cash flows were used to purchase the minority interest in the Sioux City partnership.

    During 2000, we used $101.5 million in cash flows for financing activities compared to $132.3 million in cash flows for the same period in 1999. During 2000, $56.4 million in cash flows were used to make repayments on the line of credit. Cash flows in both 2000 and 1999 were used to repay loans related to our Lawrenceburg casino, partner equity distributions related to the Lawrenceburg partnership and for payments on installment contracts and other long term debt. In 1999, we received proceeds of $200 million from the issuance of subordinated notes and $161.8 million from a bank credit facility. During 1999, we also repaid long-term debt of $327.7 million, placed $25.2 million in funds in an escrow to retire the First Mortgage Notes, repaid $58.0 million on the credit facility, used $30.6 million to pay premiums to retire existing debt in connection with our refinancing and used $8.7 million to pay fees in connection with the refinancing.

    At December 31, 2000, we had approximately $59.4 million of cash and cash equivalents, including approximately $38.8 million held at the Indiana Partnership. During June 2000, we redeemed the remaining $22.2 million of First Mortgage Notes that were not tendered in the June 1999 refinancing. At December 31, 2000, we had outstanding $200 million of Senior Subordinated Notes, which were issued in June 1999 and are due in June 2009 and $47.4 million on a senior secured revolving credit facility. As of February 13, 2001 availability under the credit facility was approximately $146 million.

    We have made a significant investment in property and equipment and plan to make significant additional investments at our existing properties. In 2001, we expect maintenance capital expenditures primarily related to the purchase of new gaming product and facility enhancements to be approximately $19.1 million and final expenditures related to the Baton Rouge hotel to be approximately $7.3 million.

    Both of our partners in the Indiana partnership have exercised their put rights under the terms of the Lawrenceburg partnership agreement. In December 2000, we reached an agreement with Conseco to purchase its 29% limited partner interest for $260 million, including the repayment of Conseco's preferred equity interest and outstanding partner loans and to settle all pending litigation between us and Conseco. In January 2001, we reached an agreement with Centaur to purchase its 13.5% limited partnership interest for $105 million. We anticipate closing the purchase of the Lawrenceburg casino limited partner interests in one or two separate transactions in the first quarter of 2001 subject to, and promptly following, receipt of all necessary regulatory approvals.

    We have also agreed to provide up to $40 million 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 million commitment, we have advanced $1 million during 2001 and will advance up to an additional $4 million upon the tribe receiving approval from the United States Bureau of Indian Affairs to place the proposed casino property in federal trust. We also have committed to provide a $30 million subordinated note concurrent with, and conditioned upon, the tribe's institutional debt offering that is anticipated to finance the project. In addition, we will provide a $5 million completion guarantee on the construction of the proposed facility. This project and our funding commitment are subject to numerous regulatory approvals.

    To provide funding for our purchase of Conseco's and Centaur's limited partnership interests and our Kenosha casino development commitment, we are in the process of amending and restating our

25

existing credit facility to, among other things, increase borrowing availability to $400 million. We believe that cash on hand, operating cash flows, available capacity under our amended and restated credit facility and the net proceeds from our recent $150 million Senior Subordinated Notes offering, will be sufficient to fund the purchase of Conseco's and Centaur's limited partnership interests, our commitment to develop the Kenosha casino and our current operating, capital expenditure and debt service obligations.

Market Risk—Interest Rate Sensitivity

    The market risk inherent in our financial instruments is the potential loss in fair value arising from adverse changes in interest rates. Currently, we do not use interest rate derivative instruments to manage exposure to interest rate changes as the majority of our indebtedness is financed at fixed rates.

    The following table provides information about our debt obligations that are sensitive to changes in interest rates. The following table presents principal cash flows and related weighted-average interest rates by expected maturity dates and estimated fair value of our debt obligations.

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) 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.

26

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The following consolidated financial statements of Argosy Gaming Company are included in this report:

Consolidated statement of income for each of the three years ended December 31, 2000
Consolidated balance sheet at December 31, 2000 and 1999
Consolidated statement of cash flows for each of the three years ended December 31, 2000
Consolidated statement of shareholders' equity for each of the three years ended December 31, 2000
Notes to consolidated financial statements
Quarterly results (unaudited)
Report of Independent Auditors

27

ARGOSY GAMING COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)

See accompanying notes to consolidated financial statements.

28

ARGOSY GAMING COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)

See accompanying notes to consolidated financial statements.

29

ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share data)

See accompanying notes to consolidated financial statements.

30

ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share and per share data)

See accompanying notes to consolidated financial statements.

31

ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share and per share data)

See accompanying notes to consolidated financial statements.

32

ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)

1. Summary of Significant Accounting Policies

    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 and, through its subsidiaries or joint ventures, operates riverboat casinos in Alton, Illinois; Lawrenceburg, Indiana; Riverside, Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa. Indiana Gaming Company, L.P. ("Indiana Partnership"), a limited partnership in which the Company is general partner and holds a 57.5% partnership interest, operates a casino and hotel in Lawrenceburg, Indiana.

    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Argosy and its controlled subsidiaries and partnerships. All significant intercompany transactions have been eliminated.  Under certain conditions, subsidiaries are required to obtain approval from state gaming authorities before making distributions to Argosy.

    Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation.

    Cash and Cash Equivalents—The Company considers cash and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

    Property and Equipment—Property and equipment are recorded at cost. Leasehold improvements are amortized over the life of the respective lease. Depreciation is computed on the straight-line method over the following estimated useful lives:

    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 is 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 loss 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.

    Deferred Finance Costs—Deferred finance costs are amortized over the life of the respective loans using the effective interest method.

    Goodwill and Other Intangible Assets—Goodwill represents the cost in excess of fair value of net assets acquired, and is amortized over lives up to 40 years. Other intangible assets, primarily payments to cities, are amortized over the lives of the respective leases or development agreements including extensions.

    Revenues and Promotional Allowances—The Company recognizes as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. Admissions, hotel and other revenue is recognized at the time the related service is performed.

    The retail value of admissions, hotel rooms, food, beverage and other items which were provided to customers without charge has been included in revenues, and a corresponding amount has been

33

deducted as promotional allowances. The estimated direct cost of providing promotional allowances has been included in costs and expenses as follows:

    Advertising Costs—The Company expenses advertising costs as incurred. Advertising expense was $9,857, $10,527 and $9,833 in 2000, 1999 and 1998, respectively.

    Development and Preopening Costs—Development costs incurred in an effort to identify and develop new gaming locations are expensed as incurred. Preopening costs are expensed as occurred.

2. Property and Equipment

    Property and equipment consists of the following:

3. Write Down of Assets Held for Sale

    During December 1999, the Company replaced the landing facility at our Alton property. In June 2000, the Company recorded a $6,800 pretax charge to write down the previous landing facility as it was determined the Company had no planned use for the landing facility.

4. Other Accrued Liabilities

    Other accrued liabilities consist of the following: