<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21122
ARGOSY GAMING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 37-1304247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 24,498,333 shares
of Common Stock, $.01 par value per share, as of August 13, 1998.
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<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL STATEMENTS OF ARGOSY GAMING COMPANY
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
FINANCIAL STATEMENTS OF GUARANTOR SUBSIDIARIES OF THE COMPANY'S FIRST MORTGAGE
NOTES PROVIDED PURSUANT TO RULE 3-10 OF REGULATION S-X.
FINANCIAL STATEMENTS OF ALTON GAMING COMPANY
Condensed Balance Sheets 11
Condensed Statements of Income 12
Condensed Statements of Cash Flows 14
Notes to Condensed Financial Statements 15
FINANCIAL STATEMENTS OF THE MISSOURI GAMING COMPANY
Condensed Balance Sheets 16
Condensed Statements of Operations 17
Condensed Statements of Cash Flows 19
Notes to Condensed Financial Statements 20
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 21
Condensed Consolidated Statements of Operations 22
Condensed Consolidated Statements of Cash Flows 24
Notes to Condensed Consolidated Financial Statements 25
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 26
Condensed Statements of Operations 27
Condensed Statements of Cash Flows 29
Notes to Condensed Financial Statements 30
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 31
Condensed Statements of Operations 32
Condensed Statements of Cash Flows 34
Notes to Condensed Financial Statements 35
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 36
Condensed Consolidated Statements of Income 37
Condensed Consolidated Statements of Cash Flows 39
Notes to Condensed Consolidated Financial Statements 40
</TABLE>
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 42
Condensed Statements of Income 43
Condensed Statements of Cash Flows 45
Notes to Condensed Financial Statements 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 48
PART II
Item 1 Legal Proceedings 56
Item 2 Changes in Securities 58
Item 3 Defaults upon Senior Securities 59
Item 4 Submission of Matters to a Vote of Security Holders 59
Item 5 Other Information 60
Item 6 Exhibits and Reports on Form 8-K 60
</TABLE>
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $65,320 $59,354
Other current assets 10,984 10,629
-------- --------
Total current assets 76,304 69,983
-------- --------
PROPERTY AND EQUIPMENT, NET 402,728 390,343
-------- --------
OTHER ASSETS:
Restricted cash and cash equivalents 13,952 25,545
Other, net 69,849 73,985
-------- --------
Total other assets 83,801 99,530
-------- --------
TOTAL ASSETS $562,833 $559,856
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $55,351 $47,780
Other current liabilities 19,809 21,219
-------- --------
Total current liabilities 75,160 68,999
-------- --------
LONG-TERM DEBT 423,758 436,442
OTHER LONG-TERM OBLIGATIONS 3,142 4,133
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 22,892 17,619
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 shares authorized, 800 shares issued and outstanding 7,615
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized;
24,498,333 shares issued and outstanding 245 245
Capital in excess of par 71,934 72,038
Retained deficit (41,913) (39,620)
-------- --------
Total stockholders' equity 30,266 32,663
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $562,833 $559,856
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1998 1997
--------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 224,873 $ 157,584
Admissions 7,200 3,465
Food, beverage and other 23,565 17,161
--------- ----------
255,638 178,210
Less promotional allowances (15,481) (8,206)
--------- ----------
Net revenues 240,157 170,004
--------- ----------
COSTS AND EXPENSES:
Casino 107,372 79,586
Food, beverage and other 19,710 14,083
Other operating expenses 13,303 13,752
Selling, general and administrative 48,093 35,041
Depreciation and amortization 16,371 16,402
Development costs 267 323
Severance expense 1,750
--------- ----------
205,116 160,937
--------- ----------
Income from operations 35,041 9,067
--------- ----------
OTHER INCOME (EXPENSE):
Interest income 1,642 2,835
Interest expense (28,487) (23,215)
--------- ----------
(26,845) (20,380)
--------- ----------
Income (loss) before minority interests and income taxes 8,196 (11,313)
Minority interests (10,224) (3,314)
Income tax (expense) benefit (250) 1,345
--------- ----------
NET LOSS (2,278) (13,282)
Preferred Stock dividends (15)
--------- ----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (2,293) $ (13,282)
--------- ----------
--------- ----------
Basic loss per share $ (0.09) $ (0.54)
--------- ----------
--------- ----------
Diluted loss per share $ (0.09) $ (0.54)
--------- ----------
--------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $116,550 $81,292
Admissions 4,009 1,854
Food, beverage and other 12,432 8,799
-------- -------
132,991 91,945
Less promotional allowances (8,534) (4,436)
-------- -------
Net revenues 124,457 87,509
-------- -------
COSTS AND EXPENSES:
Casino 54,749 40,365
Food, beverage and other 10,361 7,192
Other operating expenses 6,685 6,778
Selling, general and administrative 24,828 17,400
Depreciation and amortization 8,303 8,508
Development costs 141 160
-------- -------
105,067 80,403
-------- -------
Income from operations 19,390 7,106
-------- -------
OTHER INCOME (EXPENSE):
Interest income 832 1,393
Interest expense (14,195) (11,313)
-------- -------
(13,363) (9,920)
-------- -------
Income (loss) before minority interests and income taxes 6,027 (2,814)
Minority interests (5,618) (2,450)
Income tax (expense) benefit (150) 999
-------- -------
NET INCOME (loss) 259 (4,265)
Preferred Stock dividends (15)
-------- -------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $244 $(4,265)
-------- -------
-------- -------
Basic income (loss) per share $0.01 $(0.17)
-------- -------
-------- -------
Diluted income (loss) per share $0.01 $(0.17)
-------- -------
-------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to Common Shareholders $(2,293) $(13,282)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 15,164 15,367
Amortization 2,163 2,017
Accrued Preferred Stock dividends 15
Compensation expense recognized on issuance of stock 132
Deferred income taxes (1,345)
Minority interests 10,224 3,314
Changes in operating assets and liabilities:
Income taxes receivable 9,144
Other current assets 96 1,530
Deposits 40 (917)
Accounts payable and other current liabilities 7,556 720
--------- --------
Net cash provided by operating activities 33,097 16,548
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (25,887) (46,486)
Decrease in restricted cash held by trustees 11,593 17,983
Decrease in long term obligations (2,500) (3,015)
Decrease (increase) in other assets 897 (381)
--------- --------
Net cash used in investing activities (15,897) (31,899)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts (3,290) (3,184)
(Repayment of) proceeds from partner loans (10,384) 26,125
Partnership equity distributions (3,774)
Proceeds (net of issuance costs) from sale of
Preferred Stock and Warrants 7,365
Payment of preferred equity return to partner (1,159) (489)
Decrease (increase) in other assets 8 (231)
--------- --------
Net cash (used in) provided by financing activities (11,234) 22,221
--------- --------
Net increase in cash and cash equivalents 5,966 6,870
Cash and cash equivalents, beginning of period 59,354 38,284
--------- --------
Cash and cash equivalents, end of period $65,320 $45,154
--------- --------
--------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public and, through its subsidiaries, 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, opened a
riverboat casino and related entertainment and support facilities at a
temporary site in Lawrenceburg, Indiana on December 10, 1996. The Indiana
Partnership opened its permanent pavilion on December 10, 1997.
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 of fair value less costs related to the assets'
disposition.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information, refer to
the financial statements and footnotes thereto for the year ended December
31, 1997, included in the Company's Annual Report on Form 10-K (File No.
0-21122). The accompanying unaudited condensed consolidated financial
statements contain all adjustments which are, in the opinion of management,
necessary to present fairly the financial position and the results of
operations for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1997 amounts have been reclassified to conform
to the 1998 financial statement presentation.
As of June 30, 1998 the Company is in a net operating loss position and,
therefore, has recorded a valuation allowance of $14,900 against its deferred
tax assets.
2. SALE OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A Convertible
Preferred Stock, together with warrants to purchase an additional 292,612
shares of Common Stock. The Convertible Preferred Shares mature in seven
years and the Company has the right to force conversion and/or redeem the
Holders at maturity. The warrants expire in five years.
The Convertible Preferred Shares provide for a 4% dividend per annum,
payable in cash and/or in kind, at the time of conversion or maturity, at the
Company's option.
5
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Both the Convertible Preferred Shares and Warrants have a fixed initial
strike price, which may be reset downward in 270 days depending on market
conditions and is subject to adjustment upon the occurrence of certain
events. The Convertible Preferred Shares will be convertible in increments in
120 days and in full in 210 days, at a floating price.
This transaction provides for put and call options which, subject to
certain restrictions and limitations, allows for up to an additional $8,000
of Convertible Preferred Shares and Warrants to be issued.
The Convertible Preferred Shares are required to be redeemed by the
Company if certain triggering events occur.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
-------------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR:
Net (loss) income $ (2,278) $ (13,282) $ 259 $ (4,265)
Preferred stock dividends (15) (15)
----------- ----------- ---------- ----------
Numerator for basic and diluted earnings per share -
(Loss) income attributable to common shareholders $ (2,293) $ (13,282) $ 244 $ (4,265)
DENOMINATOR:
Denominator for basic earnings per share -
Weighted-average shares outstanding 24,333,333 24,333,333 24,333,333 24,333,333
Effect of dilutive securities:
Restricted stock 89,677
Employee stock options 49,904
----------- ----------- ---------- ----------
Dilutive potential common shares 139,581
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 24,333,333 24,333,333 24,472,914 24,333,333
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Basic earnings per share $ (0.09) $ (0.54) $ 0.01 $ (0.17)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Diluted earnings per share $ (0.09) $ (0.54) $ 0.01 $ (0.17)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Additional employee and directors stock options to purchase 1,201,183
shares of common stock at prices ranging from $3.625 to $19.375 were not
included in the computation of diluted earnings per share because the options
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be anti-dilutive.
Warrants to purchase 292,612 shares of common stock at $3.89 per share
were outstanding at June 30, 1998 but were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
anti-dilutive.
Convertible Preferred Stock (convertible into 2,473,195 shares of common
stock at June 30, 1998) were issued during the three months ended June 30,
1998 but were not included in the computation of diluted earnings as the
amount of dividend and accretion recognized during the period per common
share obtainable on conversion, exceeded basic earnings per share thus the
effect would be anti-dilutive.
12% Convertible Debentures (convertible into 6,497,175 shares of common
stock at $17.70 per share) were outstanding at June 30, 1998 but were not
included in the computation of diluted earnings per share as the net interest
expense per common share obtainable on conversion exceeded basic earnings per
share, thus the effect would be anti-dilutive.
4. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA DEVELOPMENT--On December 10, 1996 the Indiana
Partnership was awarded a gaming license and commenced operations. Under
terms of the Lawrenceburg partnership agreement, after the third anniversary
date of commencement of operations at the Lawrenceburg casino, each limited
partner has the right to sell its interest to the other partners (pro rata in
accordance with their respective percentage interests). In the event of this
occurrence, if the partners cannot agree on a selling price, the Indiana
Partnership will be sold in its entirety.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result
of a certain shareholder loan transaction, could be subject to federal and
certain state income taxes (plus interest and penalties, if any) if it is
determined that it failed to satisfy all of the requirements of the
S-Corporation provisions of the Internal Revenue Code ("Code") relating to
the prohibition concerning a second class of stock.
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has proposed certain adjustments with respect to the
Company and the Predecessor for the 1992 and 1993 tax years principally
regarding the S Corporation status. If the IRS successfully challenges the
Predecessor's S-Corporation status, the Company would be required to pay
federal and certain state income taxes on the Predecessor's taxable income
from the commencement of its operations until February 25, 1993 (plus
interest and penalties, if any, thereon until the date of payment). If the
Predecessor was required to pay federal and state income taxes on its taxable
earnings through February 25, 1993, such payments could amount to
approximately $12,900, including interest through June 30, 1998, but
excluding penalties, if any. The Company intends to protest these proposed
adjustments to the Appeals Office of the IRS and vigorously contest these
proposed adjustments. While the Company believes the Predecessor has legal
authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no
assurances can be given that the Predecessor's position will be upheld. This
contingent liability could have a material adverse effect on the Company's
results of operations, financial condition and cash flows. No provision has
been made for this contingency in the accompanying condensed consolidated
financial statements.
The Company is subject, from time to time, to various legal and
regulatory proceedings, in the ordinary course of business. The Company
believes that current proceedings will not have a material effect on the
financial condition of the Company.
5. SUBSIDIARY GUARANTORS
The Company has issued $235 million First Mortgage Notes, due 2004,
("Mortgage Notes"). The Mortgage Notes rank senior in right of payment to
all existing and future indebtedness of the Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and
several basis, by the following wholly-owned subsidiaries of the Company:
Alton Gaming Company, The Missouri Gaming Company, The St. Louis Gaming
Company, Iowa Gaming Company, Jazz Enterprises, Inc., Argosy of Louisiana,
Inc., Catfish Queen Partnership in Commendam and The Indiana Gaming Company
(the "Guarantors"). The Mortgage Notes are secured, subject to certain prior
liens, by a first lien on (i) substantially all of the assets of the Company
including the assets used in the Company's Alton, Riverside, Baton Rouge and
Sioux City operations, (ii) a pledge of all the capital stock of, and
partnership interests in, the Company's subsidiaries, excluding the Company's
partnership interest in its Sioux City property, (iii) a pledge of the
intercompany notes payable to the Company from its subsidiaries and (iv) an
assignment of the proceeds of the management agreement relating to the
Lawrenceburg Casino project. The collateral for the Mortgage Notes does not
include the assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of June 30, 1998 and December 31, 1997 and summarized operating
statement information for the six and three months ended June 30, 1998 and
1997. The column labeled "Parent Company" represents the holding company for
each of the Company's direct subsidiaries, the column labeled "Guarantors"
represents each of the Company's direct subsidiaries, all of which are
wholly-owned by the parent company, and the column labeled "Non-Guarantors"
represents the partnerships which operate the Company's casino in Sioux City
and Lawrenceburg, Indiana. The Company believes that separate financial
statements and other disclosures regarding the Guarantors, except as
otherwise required under Regulation S-X, are not material to investors.
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized balance sheet information as of June 30, 1998 and December
31, 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 28,381 $ 24,730 $ 34,094 $ (10,901) $ 76,304
Non-current assets 367,947 355,373 230,574 (467,365) 486,529
-------- -------- -------- --------- --------
$396,328 $380,103 $264,668 $(478,266) $562,833
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
LIABILITIES AND EQUITY:
Current liabilities $ 8,447 $ 33,790 $ 66,619 $ (33,696) $ 75,160
Non-current liabilities 350,000 295,207 135,118 (330,533) 449,792
Convertible Preferred Stock 7,615 7,615
Stockholders' equity 30,266 51,106 62,931 (114,037) 30,266
-------- -------- -------- --------- --------
$396,328 $380,103 $264,668 $(478,266) $562,833
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 10,106 $ 27,874 $ 44,581 $ (12,578) $ 69,983
Non-current assets 381,368 387,009 222,577 (501,081) 489,873
-------- -------- -------- --------- --------
$391,474 $414,883 $267,158 $(513,659) $559,856
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
LIABILITIES AND EQUITY:
Current liabilities $ 8,811 $ 20,595 $ 57,088 $ (17,495) $ 68,999
Non-current liabilities 350,000 348,504 169,605 (409,915) 458,194
Stockholders' equity 32,663 45,784 40,465 (86,249) 32,663
-------- -------- -------- --------- --------
$391,474 $414,883 $267,158 $(513,659) $559,856
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
9
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized operating statement information for the six and three months
ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 80 $112,041 $140,116 $(12,080) $240,157
Costs and expenses 5,100 98,379 102,263 (626) 205,116
Net interest expense (income) 19,031 (2,640) 9,796 658 26,845
Net (loss) income (2,293) 9,828 21,324 (31,152) (2,293)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,358 $100,973 $72,608 $(6,935) $170,004
Costs and expenses 8,975 93,539 62,885 (4,462) 160,937
Net interest expense 15,972 535 2,086 1,787 20,380
Net (loss) income $(13,282) $ 3,680 $ 4,896 $(8,576) $(13,282)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ (87) $56,421 $74,888 $(6,765) $124,457
Costs and expenses 2,227 49,935 52,758 147 105,067
Net interest expense (income) 9,495 (1,335) 4,896 307 13,363
Net income (loss) 244 5,281 11,903 (17,184) 244
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,500 $52,143 $39,596 $(5,730) $87,509
Costs and expenses 3,251 46,821 33,170 (2,839) 80,403
Net interest expense 7,905 (19) 727 1,307 9,920
Net (loss) income $(4,265) $ 2,940 $ 4,321 $(7,261) $(4,265)
</TABLE>
10
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,002 $ 3,807
Other current assets 1,788 1,450
-------- --------
Total current assets 4,790 5,257
DUE FROM AFFILIATES 18,394 10,405
NET PROPERTY AND EQUIPMENT 27,665 27,447
OTHER ASSETS 3 6
-------- --------
TOTAL ASSETS $50,852 $43,115
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 1,852 $ 799
Income taxes payable to affiliate 2,701 214
Other accrued liabilities 4,966 4,395
-------- --------
Total current liabilities 9,519 5,408
-------- --------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY 193 186
DEFERRED INCOME TAXES 3,648 3,745
STOCKHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares authorized,
issued and outstanding 1 1
Capital in excess of par 256 256
Retained earnings 37,235 33,519
-------- --------
Total stockholder's equity 37,492 33,776
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $50,852 $43,115
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed financial statements.
11
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $34,317 $32,055
Food, beverage and other 3,339 3,613
-------- -------
37,656 35,668
Less promotional allowances (1,208) (983)
-------- -------
Net revenues 36,448 34,685
-------- -------
COSTS AND EXPENSES
Casino 16,051 15,848
Food, beverage and other 2,964 3,423
Other operating expenses 2,692 2,737
Selling, general and administrative 5,719 5,260
Depreciation and amortization 1,943 2,109
Management fees - related party 1,007 1,288
-------- -------
30,376 30,665
-------- -------
Income from operations 6,072 4,020
-------- -------
OTHER INCOME (EXPENSE)
Interest income 41 23
Interest expense (7) (7)
-------- -------
34 16
-------- -------
Income before income taxes 6,106 4,036
Income tax expense (2,390) (1,612)
-------- -------
NET INCOME $ 3,716 $ 2,424
-------- -------
-------- -------
</TABLE>
See accompanying notes to condensed financial statements.
12
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $17,288 $15,633
Food, beverage and other 1,706 1,796
-------- --------
18,994 17,429
Less promotional allowances (604) (486)
-------- --------
Net revenues 18,390 16,943
-------- --------
COSTS AND EXPENSES
Casino 8,102 7,709
Food, beverage and other 1,461 1,653
Other operating expenses 1,345 1,285
Selling, general and administrative 2,817 2,529
Depreciation and amortization 979 1,089
Management fees - related party 345 467
-------- --------
15,049 14,732
-------- --------
Income from operations 3,341 2,211
-------- --------
OTHER INCOME (EXPENSE)
Interest income 16 14
Interest expense (3) (4)
-------- --------
13 10
-------- --------
Income before income taxes 3,354 2,221
Income tax expense (1,321) (886)
-------- --------
NET INCOME $ 2,033 $ 1,335
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed financial statements.
13
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,716 $2,424
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,943 2,109
Deferred income taxes (94) 87
Changes in operating assets and liabilities:
Other current assets (338) (186)
Accounts payable 1,053 (1,020)
Income taxes payable to affiliate 2,487 1,528
Other accrued liabilities 571 (88)
------- -------
Net cash provided by operating activities 9,338 4,854
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,161) (1,322)
------- -------
Net cash used in investing activities (2,161) (1,322)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates (7,989) (3,510)
Increase in other long-term obligations - related party 7 7
------- -------
Net cash used in financing activities (7,982) (3,503)
------- -------
Net (decrease) increase in cash and cash equivalents (805) 29
Cash and cash equivalents, beginning of period 3,807 3,563
------- -------
Cash and cash equivalents, end of period $3,002 $3,592
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
14
<PAGE>
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Alton Gaming Company ("Company"), an Illinois
Corporation and a wholly-owned subsidiary of Argosy Gaming Company
("Argosy"), is engaged in the business of providing casino-style gaming and
related entertainment to the public through the operation of the Alton Belle
Casino in Alton, Illinois.
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 of fair value less costs related to the assets'
disposition.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results
which may be expected for any other interim period or for the year as a
whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1997 included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1997 amounts have been
reclassified to conform to the 1998 presentation.
2. COMMITMENTS AND CONTINGENCIES
A predecessor entity to the Company ("Predecessor"), as a result of a
certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has proposed certain adjustments with respect to the
Company and the Predecessor for the 1992 and 1993 tax years principally
regarding the S Corporation status. If the IRS successfully challenges the
Predecessor's S-Corporation status, the Company would be required to pay
federal and certain state income taxes on the Predecessor's taxable income
from the commencement of its operations until February 25, 1993 (plus
interest and penalties, if any, thereon until the date of payment). If the
Predecessor was required to pay federal and certain state income taxes on its
taxable earnings through February 25, 1993, such payments could amount to
approximately $12,900, including interest through June 30, 1998, but
excluding penalties, if any. The Company intends to protest these proposed
adjustments to the Appeals Office of the IRS and vigorously contest these
proposed adjustments. While the Company believes the Predecessor has legal
authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no
assurances can be given that the Predecessor's position will be upheld. This
contingent liability could have a material adverse effect on the Company's
results of operations, financial condition and cash flows. No provision has
been made for this contingency in the accompanying financial statements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes"). The assets of the Company are pledged as collateral, and
the Company is a guarantor, under the terms of the Mortgage Notes.
15
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,696 $ 3,629
Income taxes receivable from affiliate 664 94
Other current assets 1,729 1,897
-------- --------
Total current assets 7,089 5,620
NET PROPERTY AND EQUIPMENT 68,954 70,878
OTHER ASSETS 1,619 2,198
-------- --------
TOTAL ASSETS $77,662 $78,696
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 868 $ 1,352
Other accrued liabilities 5,526 3,692
-------- --------
Total current liabilities 6,394 5,044
-------- --------
DUE TO AFFILIATES 53,908 56,007
DEFERRED INCOME TAXES 2,151 1,851
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1000 shares authorized,
issued and outstanding
Capital in excess of par 5,000 5,000
Retained earnings 10,209 10,794
-------- --------
Total stockholder's equity 15,209 15,794
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $77,662 $78,696
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed financial statements.
16
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $35,355 $31,667
Food, beverage and other 5,993 4,936
------- -------
41,348 36,603
Less promotional allowances (3,488) (2,428)
------- -------
Net revenues 37,860 34,175
------- -------
COSTS AND EXPENSES
Casino 19,275 16,792
Food, beverage and other 4,643 4,151
Other operating expenses 2,196 1,874
Selling, general and administrative 7,340 5,813
Depreciation and amortization 3,031 2,738
------- -------
36,485 31,368
------- -------
Income from operations 1,375 2,807
------- -------
OTHER INCOME (EXPENSE):
Interest income 25 94
Interest expense (2,338) (2,758)
------- -------
(2,313) (2,664)
------- -------
(Loss) income before income taxes (938) 143
Income tax benefit (expense) 353 (82)
------- -------
NET (LOSS) INCOME $ (585) $ 61
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
17
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $16,996 $15,217
Food, beverage and other 2,940 2,439
------- -------
19,936 17,656
Less promotional allowances (1,690) (1,268)
------- -------
Net revenues 18,246 16,388
------- -------
COSTS AND EXPENSES
Casino 9,174 8,034
Food, beverage and other 2,281 2,055
Other operating expenses 1,091 914
Selling, general and administrative 3,385 2,853
Depreciation and amortization 1,554 1,369
------- -------
17,485 15,225
------- -------
Income from operations 761 1,163
------- -------
OTHER INCOME (EXPENSE):
Interest income 8 59
Interest expense (1,130) (1,364)
------- -------
(1,122) (1,305)
------- -------
Loss before income taxes (361) (142)
Income tax benefit 192 55
------- -------
NET LOSS $ (169) $ (87)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
18
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (585) $ 61
Adjustments to reconcile net (loss) income to net cash provided
by operating activities
Depreciation 2,951 2,618
Amortization 80 120
Deferred income taxes 300 7
Changes in operating assets and liabilities:
Income taxes receivable from affiliate (570) 74
Other current assets 168 366
Accounts payable (484) (1,941)
Other accrued liabilities 1,834 268
Other assets 576 (136)
------- -------
Net cash provided by operating activities 4,270 1,437
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,104) (921)
------- -------
Net cash used in investing activities (1,104) (921)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (94)
Due to affiliates (2,099) 61
------- -------
Net cash used in financing activities (2,099) (33)
------- -------
Net increase in cash and cash equivalents 1,067 483
Cash and cash equivalents, beginning of period 3,629 6,143
------- -------
Cash and cash equivalents, end of period $ 4,696 $ 6,626
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
19
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Missouri Gaming Company ("Company") (a Missouri corporation
and a wholly owned subsidiary of Argosy Gaming Company, ("Argosy"))
owns and operates a riverboat casino and related facilities in
Riverside, Missouri.
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 of fair value less costs related to the
assets' disposition.
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole. For further
information refer to the financial statements and footnotes thereto
for the year ended December 31, 1997 included in Argosy's Annual
Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in
the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated.
Such adjustments include only normal recurring accruals. Certain 1997
amounts have been reclassified to conform to the 1998 presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company is restricted from making certain distributions to
Argosy and other affiliates unless approved by state gaming
authorities.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of the
Mortgage Notes.
20
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,956 $ 3,429
Other current assets 1,821 1,655
-------- -------
Total current assets 4,777 5,084
NET PROPERTY AND EQUIPMENT 41,927 43,896
OTHER ASSETS 1,767 1,821
-------- -------
TOTAL ASSETS $ 48,471 $50,801
-------- -------
-------- -------
CURRENT LIABILITIES:
Accounts payable $ 622 $ 771
Due to affiliates 2,557 1,795
Other accrued liabilities 6,222 5,013
Current maturities of long-term debt-related party 10,268 10,268
-------- -------
Total current liabilities 19,669 17,847
-------- -------
LONG-TERM DEBT-RELATED PARTY 37,875 37,842
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 2,265 2,672
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares authorized
issued and outstanding 1 1
Accumulated deficit (11,339) (7,561)
-------- -------
Total stockholder's deficit (11,338) (7,560)
-------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 48,471 $50,801
-------- -------
-------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
21
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $24,285 $26,196
Food, beverage and other 3,333 3,686
------- -------
27,618 29,882
Less promotional allowances (2,075) (2,238)
------- -------
Net revenues 25,543 27,644
------- -------
COST AND EXPENSES
Casino 14,736 15,081
Food, beverage and other 3,005 3,462
Other operating expenses 2,564 2,552
Selling, general and administrative 6,150 6,560
Depreciation and amortization 2,606 2,789
------- -------
29,061 30,444
------- -------
Loss from operations (3,518) (2,800)
Interest (expense) income net:
Interest to related party (701) (802)
Other 34 47
------- -------
Loss before minority interest and income taxes (4,185) (3,555)
Minority interest 407 342
Income tax benefit 597
------- -------
NET LOSS $(3,778) $(2,616)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
22
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $12,181 $13,405
Food, beverage and other 1,649 1,973
------- -------
13,830 15,378
Less promotional allowances (991) (1,247)
------- -------
Net revenues 12,839 14,131
------- -------
COST AND EXPENSES
Casino 7,264 7,750
Food, beverage and other 1,507 1,828
Other operating expenses 1,174 1,228
Selling, general and administrative 2,828 3,546
Depreciation and amortization 1,313 1,397
------- -------
14,086 15,749
------- -------
Loss from operations (1,247) (1,618)
Interest (expense) income net:
Interest to related party (350) (401)
Other 14 27
------- -------
Loss before minority interest and income taxes (1,583) (1,992)
Minority interest 153 192
Income tax benefit 181
------- -------
NET LOSS $(1,430) $(1,619)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
23
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,778) $(2,616)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,552 2,549
Amortization 54 240
Minority interest (407) (342)
Deferred income taxes (597)
Changes in operating assets and liabilities:
Other current assets (166) 185
Accounts payable (149) (643)
Other accrued liabilities 1,209 985
------- -------
Net cash used in operating activities (685) (239)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (583) (258)
------- -------
Net cash used in investing activities (583) (258)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to affiliates 795 896
------- -------
Net cash provided by financing activities 795 896
------- -------
Net (decrease) increase in cash and cash equivalents (473) 399
Cash and cash equivalents, beginning of period 3,429 3,051
------- -------
Cash and cash equivalents, end of period $ 2,956 $ 3,450
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
24
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Argosy of Louisiana, Inc. (collectively with its controlled
partnership Catfish Queen Partnership in Commendam ("Partnership")
"the Company") was formed on July 29, 1993. The Company entered a
partnership agreement with Jazz Enterprises, Inc. ("Jazz") to form the
Partnership to provide riverboat gaming and related entertainment in
Baton Rouge, Louisiana. The Company, a wholly owned subsidiary of
Argosy Gaming Company (Argosy), is the 90% general partner of the
Partnership, along with the 10% partner in commendam Jazz, which
became a wholly owned subsidiary of Argosy in 1995.
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 of fair value less costs related to the
assets' disposition.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. Interim
results may not necessarily be indicative of results which may be
expected for any other interim period or for the year as a whole. For
further information refer to the financial statements and footnotes
thereto for the year ended December 31, 1997 included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying
unaudited condensed consolidated financial statements contain all
adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations
for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1997 amounts have been reclassified to
conform to the 1998 presentation.
2. COMMITMENTS
The City of Baton Rouge and the Parish of East Baton Rouge
(collectively referred to as "City-Parish") and Jazz have an agreement
which requires Jazz and the Company to pay to the City-Parish $2.50 per
passenger. Additionally, Jazz agreed to pay to the City-Parish an
additional passenger fee which is now $2.50 per passenger, until
construction of a hotel commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger. Through June
30, 1998, the Company has paid all admission payments due under the
above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of the
Mortgage Notes.
25
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,956 $ 3,429
Other current assets 964 802
------- -------
Total current assets 3,920 4,231
NET PROPERTY AND EQUIPMENT 41,610 43,579
OTHER ASSETS 1,767 1,821
------- -------
TOTAL ASSETS $47,297 $49,631
------- -------
------- -------
CURRENT LIABILITIES:
Accounts payable $ 622 $ 771
Other accrued liabilities 4,486 4,071
Accrued interest-related party 1,603 902
Due to affiliates 2,557 1,795
Notes payable and current maturities of long-term
debt-related party 10,268 10,268
------- -------
Total current liabilities 19,536 17,807
LONG-TERM DEBT-RELATED PARTY 9,103 9,103
PARTNERS' EQUITY 18,658 22,721
------- -------
TOTAL LIABILITIES AND PARTNERS' EQUITY $47,297 $49,631
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
26
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $24,285 $26,196
Food, beverage and other 3,333 3,686
------- -------
27,618 29,882
Less promotional allowances (2,075) (2,238)
------- -------
Net revenues 25,543 27,644
------- -------
COSTS AND EXPENSES
Casino 14,736 15,081
Food, beverage and other 3,005 3,462
Other operating expenses 2,564 2,552
Selling, general and administrative 6,024 6,425
Depreciation and amortization 2,606 2,789
------- -------
28,935 30,309
------- -------
Loss from operations (3,392) (2,665)
INTEREST (EXPENSE) INCOME:
Related parties (701) (802)
Other 30 47
------- -------
(671) (755)
------- -------
NET LOSS $(4,063) $(3,420)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
27
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1998 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $12,181 $13,405
Food, beverage and other 1,649 1,973
------- -------
13,830 15,378
Less promotional allowances (991) (1,247)
------- -------
Net revenues 12,839 14,131
------- -------
COSTS AND EXPENSES
Casino 7,263 7,750
Food, beverage and other 1,507 1,828
Other operating expenses 1,174 1,228
Selling, general and administrative 2,763 3,478
Depreciation and amortization 1,313 1,397
------- -------
14,020 15,681
------- -------
Loss from operations (1,181) (1,550)
INTEREST (EXPENSE) INCOME:
Related parties (350) (401)
Other 10 27
------- -------
(340) (374)
------- -------
NET LOSS $(1,521) $(1,924)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
28
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,063) $(3,420)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,552 2,549
Amortization 54 240
Changes in operating assets and liabilities:
Other current assets (162) 165
Accounts payable (149) (644)
Accrued interest to related parties 701 302
Other accrued liabilities 415 448
------- -------
Net cash used in operating activities (652) (360)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (583) (258)
------- -------
Net cash used in investing activities (583) (258)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to affiliates 762 1,017
------- -------
Net cash provided by financing activities 762 1,017
------- -------
Net (decrease) increase in cash and cash equivalents (473) 399
Cash and cash equivalents, beginning of period 3,429 3,051
------- -------
Cash and cash equivalents, end of period $2,956 $3,450
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
29
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Catfish Queen Partnership in Commendam ("Partnership") provides riverboat
gaming and related entertainment in Baton Rouge, Louisiana. The Partnership is
comprised of a 90% general partner, Argosy of Louisiana, Inc. ("General
Partner"), a wholly owned subsidiary of Argosy Gaming Company ("Argosy"), and a
10% partner in commendam, Jazz Enterprises, Inc. ("Jazz") which became a wholly
owned subsidiary of Argosy in 1995.
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 of fair value less costs related to the assets' disposition.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as a
whole. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1997, included in the Argosy's Annual
Report on Form 10-K (File No. 0-21122). The accompanying unaudited condensed
financial statements contain all adjustments which are, in the opinion of
management, necessary to present fairly the financial position and the results
of operations for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1997 amounts have been reclassified to conform to
the 1998 financial statement presentation.
2. COMMITMENTS
The City of Baton Rouge and the Parish of East Baton Rouge (collectively
referred to as "City-Parish") and Jazz have an agreement which requires Jazz and
the Company to pay to the City-Parish $2.50 per passenger. Additionally, Jazz
agreed to pay to the City-Parish an additional passenger fee, which is now $2.50
per passenger, until construction of a hotel commences by Jazz or another Argosy
affiliate. Argosy has guaranteed the additional $2.50 per passenger. Through
June 30, 1998, the Partnership has paid all admission payments due under the
above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes") . The assets of the Partnership are pledged as collateral,
and the Partnership is a guarantor, under the terms of the Mortgage Notes.
30
<PAGE>
<TABLE>
<CAPTION>
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ $ 20
Other current assets 251 137
------- -------
Total current assets 251 157
------- -------
NET PROPERTY AND EQUIPMENT 53,827 54,593
GOODWILL, NET 19,624 19,922
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 1,999 3,390
------- -------
TOTAL ASSETS $77,593 $79,954
------- -------
------- -------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $3,132 $ 3,000
Current maturities of long-term debt 491 491
------- -------
Total current liabilities 3,623 3,491
------- -------
LONG-TERM DEBT 6,913 7,165
LONG-TERM DEBT - RELATED PARTY 74,723 74,072
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares authorized, 200 shares
issued and outstanding
Retained deficit (7,666) (4,774)
------- -------
Total stockholders's deficit (7,666) (4,774)
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $77,593 $79,954
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
31
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue - related party $1,477 $1,571
Rent revenue 178 184
------- -------
1,655 1,755
------- -------
COSTS AND EXPENSES:
Operating expenses 611 445
Selling, general and administrative 1,828 635
Depreciation and amortization 1,266 1,177
------- -------
3,705 2,257
------- -------
Loss from operations (2,050) (502)
OTHER EXPENSE:
Interest expense (436) (460)
Equity in loss of unconsolidated partnership (406) (342)
------- -------
NET LOSS $(2,892) $(1,304)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
32
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue - related party $ 723 $ 804
Rent revenue 89 95
------- -----
812 899
------- -----
COSTS AND EXPENSES:
Operating expenses 351 300
Selling, general and administrative 1,432 296
Depreciation and amortization 614 588
------- -----
2,397 1,184
------- -----
Loss from operations (1,585) (285)
OTHER EXPENSE:
Interest expense (216) (230)
Equity in loss of unconsolidated partnership (152) (192)
------- -----
NET LOSS $(1,953) $(707)
------- -----
------- -----
</TABLE>
See accompanying notes to condensed financial statements.
33
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,892) $(1,304)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation 878 878
Amortization 388 299
Equity in loss of unconsolidated partnership 407 342
Changes in operating assets and liabilities:
Other current assets (114) 78
Accounts payable and accrued liabilities 132 743
------- -------
Net cash (used in) provided by operating activities (1,201) 1,036
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (113) (943)
------- -------
Net cash used in investing activities (113) (943)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (252) (89)
Advances from affiliate 651 372
Decrease (increase) in other assets 895 (376)
------- -------
Net cash provided by (used in) financing activities 1,294 (93)
------- -------
Net (decrease) increase in cash and cash equivalents (20)
Cash and cash equivalents, beginning of period 20
------- -------
Cash and cash equivalents, end of period $ $
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
34
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Jazz Enterprises, Inc., ("Jazz" or "the Company") a Louisiana corporation
was incorporated for the purpose of developing a riverboat gaming operation and
an entertainment complex known as "Catfish Town" in Baton Rouge, Louisiana.
The Company is in a partnership with Argosy of Louisiana, Inc. (a wholly
owned subsidiary of Argosy Gaming Company ("Argosy") ("ALI") in which the
Company owns 10% and ALI owns 90%, to operate a riverboat casino in Baton Rouge,
Louisiana.
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 of fair value less costs related to the assets' disposition.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as a
whole. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1997, included in the Argosy's Annual
Report on Form 10-K (File No. 0-21122). The accompanying unaudited condensed
financial statements contain all adjustments which are, in the opinion of
management, necessary to present fairly the financial position and the results
of operations for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1997 amounts have been reclassified to conform to
the 1998 financial statement presentation.
2. COMMITMENTS
The City of Baton Rouge and the Parish of East Baton Rouge (collectively
referred to as "City-Parish") and the Company entered into an agreement which
required the Company and the partnership to pay to the City-Parish $2.50 per
passenger. Additionally, the Company agreed to pay to the City-Parish an
additional passenger fee which is now $2.50 per passenger until construction of
a hotel commences by the Company or another Argosy affiliate. Argosy has
guaranteed the additional $2.50 per passenger. Through June 30, 1998, the
partnership has paid all admission payments due under the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes") The assets of the Company are pledged as collateral, and the
Company is a guarantor, under the terms of the Mortgage Notes.
35
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 29,763 $ 41,257
Other current assets 2,361 1,635
-------- --------
Total current assets 32,124 42,892
-------- --------
NET PROPERTY AND EQUIPMENT 194,106 176,407
-------- --------
OTHER ASSETS:
Deposits 530
Cash and cash equivalents-restricted 3,014 13,114
Other, net 30,153 30,844
Deferred income taxes 2,099 2,785
-------- --------
Total other assets 35,266 47,273
-------- --------
TOTAL ASSETS $261,496 $266,572
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 3,739 $ 5,936
Accrued interest and dividends payable-related parties 3,653 5,260
Other accrued liabilities 33,099 17,951
Current maturities of long-term debt 13,013 12,856
Current maturities of other long-term obligations 3,083 4,583
-------- --------
Total current liabilities 56,587 46,586
-------- --------
LONG-TERM DEBT 162,695 195,405
OTHER LONG-TERM OBLIGATIONS 1,000 2,000
MINORITY INTERESTS 22,880 17,656
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares authorized
issued and outstanding
Retained earnings 18,334 4,925
-------- --------
Total stockholder's equity 18,334 4,925
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $261,496 $266,572
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
36
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $120,065 $57,418
Admissions 7,200 3,465
Food, beverage and other 9,722 2,981
-------- -------
136,987 63,864
Less promotional allowances (8,176) (1,995)
-------- -------
Net revenues 128,811 61,869
-------- -------
COST AND EXPENSES:
Casino 50,924 25,469
Food, beverage and other 8,270 2,206
Other operating expenses 4,103 6,330
Selling, general and administrative 20,357 10,466
Depreciation and amortization 5,947 5,390
Management fees-related parties 2,176 869
-------- -------
91,777 50,730
-------- -------
Income from operations 37,034 11,139
-------- -------
OTHER INCOME (EXPENSE):
Interest income 765 597
Interest expense (5,214) (1,170)
-------- -------
(4,449) (573)
-------- -------
Income before minority interests and income taxes 32,585 10,566
Minority interests (10,177) (3,406)
Income tax expense (8,999) (2,509)
-------- -------
NET INCOME $ 13,409 $ 4,651
-------- -------
-------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
37
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $64,495 $31,698
Admissions 4,009 1,854
Food, beverage and other 5,535 1,580
------- -------
74,039 35,132
Less promotional allowances (4,979) (1,143)
------- -------
Net revenues 69,060 33,989
------- -------
COST AND EXPENSES:
Casino 26,892 13,564
Food, beverage and other 4,687 1,221
Other operating expenses 2,112 3,188
Selling, general and administrative 11,441 5,468
Depreciation and amortization 3,053 2,932
Management fees-related parties 1,115 527
------- -------
49,300 26,900
------- -------
Income from operations 19,760 7,089
------- -------
OTHER INCOME (EXPENSE):
Interest income 319 292
Interest expense (2,536) (426)
------- -------
(2,217) (134)
------- -------
Income before minority interests and income taxes 17,543 6,955
Minority interests (5,557) (2,401)
Income tax expense (4,888) (1,434)
------- -------
NET INCOME $ 7,098 $ 3,120
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
38
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,409 $4,651
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 5,256 4,778
Amortization 691 612
Deferred income taxes 663 (1,345)
Minority interests 10,177 3,406
Changes in operating assets and liabilities:
Other current assets (704) (160)
Deposits (772)
Accounts payable (2,197) (1,780)
Accrued interest payable to related parties (1,627) (151)
Accrued liabilities 15,957 6,930
------- -------
Net cash provided by operating activities 41,625 16,169
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow 10,100 (3,506)
Purchases of property and equipment (22,124) (42,355)
Payments under development agreement and other
infrastructure improvements (2,500) (3,015)
------- -------
Net cash used in investing activities (14,524) (48,876)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (1,108) (2,998)
(Repayment of) proceeds from long-term debt (32,554) 45,066
Payment of preferred equity return to partner (1,159) (489)
Partnership equity distributions to partners (3,774)
Other (60)
------- -------
Net cash (used in) provided by financing activities (38,595) 41,519
------- -------
Net (decrease) increase in cash and cash equivalents (11,494) 8,812
Cash and cash equivalents, beginning of period 41,257 9,216
------- -------
Cash and cash equivalents, end of period $29,763 $18,028
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
39
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-The Indiana Gaming Company, a wholly owned
subsidiary of Argosy Gaming Company ("Argosy") (collectively with its
controlled partnership Indiana Gaming Company L.P. ("Partnership") "the
Company") was formed effective April 11, 1994 to provide riverboat gaming and
related entertainment in Lawrenceburg, Indiana. The Company is a 57 1/2%
general partner in the Partnership, together with, three limited partners.
On December 10, 1996, the Company commenced operations at a temporary site
and ceased being in the development stage. The Partnership opened its
permanent pavilion on December 10, 1997.
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 of fair value less costs related to the assets'
disposition.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information refer to
the financial statements and footnotes thereto for the year ended December
31, 1997, included in Argosy's Annual Report on Form 10-K (File No. 0-21122).
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations for the
periods indicated. Such adjustments include only normal recurring accruals.
Certain 1997 amounts have been reclassified to conform to the 1998 financial
statement presentation.
2. INCOME TAXES
In 1996, the Company recorded a valuation allowance against all of its
deferred tax assets due to the uncertainty of realization. During the six
months ended June 30, 1997, the Company utilized a net operating loss
carryforward of approximately $260.
3. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of the Development Agreement, the Company entered into a lease
with the City of Lawrenceburg for docking privileges for the riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Company. Under the terms of the Development
Agreement, the Company pays an annual fee to the City of Lawrenceburg ranging
from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of
$6 million per year.
40
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company has agreed to pay the City of Lawrenceburg approximately
$33,848 in reimbursements for infrastructure improvements and unrestricted
grants. These have been recorded as an intangible asset in the accompanying
balance sheets. The reimbursement for infrastructure improvements and
unrestricted city grants are being amortized over the 28 year term, including
extensions, of the Development Agreement.
Included in other long term obligations at June 30, 1998 is $4,083
representing the remaining grants and infrastructure payments due by the
Company under the terms of the Riverboat Gaming Development Agreement with
the City of Lawrenceburg ("Development Agreement"). Total remaining is due
$2,083 in 1998 and $2,000 in 1999.
BONDING OBLIGATION-The Company is required, by Indiana Gaming Statute,
to post a bond in favor of the Indiana Gaming Commission to collateralize
certain obligations to the City of Lawrenceburg under the Development
Agreement, and to the State of Indiana. This bond is collateralized by
certain real estate of the Company.
TERMINATION OF LAWRENCEBURG PARTNERSHIP-Under the terms of the
partnership agreement, after the third anniversary date of commencement of
operations each limited partner has the right to sell its interest to the
other partners (pro rata in accordance with their respective percentage
interests). In the event of this occurrence, if the partners cannot agree on
a selling price, the Partnership will be sold in its entirety.
GUARANTY OF PARENT OBLIGATIONS-Argosy has issued $235 million of 13 1/4%
First Mortgage Notes, due 2004 ("Mortgage Notes"). The Company has pledged
its interest in the Partnership, and its rights to certain payments from the
Partnership, as collateral, under the terms of the Mortgage Notes.
Additionally, the Company is a guarantor of the Mortgage Notes.
41
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 29,763 $ 41,257
Other current assets 2,245 1,561
---------- ---------
Total current assets 32,008 42,818
---------- ---------
NET PROPERTY AND EQUIPMENT 192,819 175,030
---------- ---------
OTHER ASSETS:
Deposits 589
Cash and cash equivalents-restricted 3,014 13,114
Other, net 30,153 30,844
---------- ---------
Total other assets 33,167 44,547
---------- ---------
TOTAL ASSETS $ 257,994 $ 262,395
---------- ---------
---------- ---------
CURRENT LIABILITIES:
Accounts payable $ 4,356 $ 5,936
Accrued interest and dividends payable-related parties 8,727 12,571
Other accrued liabilities 19,206 11,715
Due to affiliates 92 1,182
Current maturities of long-term debt 25,991 25,832
Current maturities of other long-term obligations 3,083 4,583
---------- ---------
Total current liabilities 61,455 61,819
---------- ---------
LONG-TERM DEBT 131,798 148,934
OTHER LONG-TERM OBLIGATIONS 1,000 2,000
PARTNERS' EQUITY:
General partner 40,909 32,031
Limited partners 22,832 17,611
---------- ---------
Total partners' equity 63,741 49,642
---------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 257,994 $ 262,395
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
42
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 120,065 $ 57,418
Admissions 7,200 3,465
Food, beverage and other 9,722 2,981
--------- --------
136,987 63,864
Less promotional allowances (8,176) (1,995)
--------- --------
Net revenues 128,811 61,869
--------- --------
COST AND EXPENSES:
Casino 50,924 25,469
Food, beverage and other 8,270 2,206
Other operating expenses 4,103 6,330
Selling, general and administrative 20,357 10,466
Depreciation and amortization 5,919 5,390
Management fees-related parties 5,645 2,175
--------- --------
95,218 52,036
--------- --------
Income from operations 33,593 9,833
--------- --------
OTHER INCOME (EXPENSE):
Interest income 765 597
Interest expense (10,412) (2,519)
--------- --------
(9,647) (1,922)
--------- --------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 23,946 7,911
Preferred equity return (2,780) (2,741)
--------- --------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 21,166 $ 5,170
--------- --------
--------- --------
</TABLE>
See accompanying notes to condensed financial statements.
43
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 64,495 $ 31,698
Admissions 4,009 1,854
Food, beverage and other 5,535 1,580
--------- --------
74,039 35,132
Less promotional allowances (4,979) (1,143)
--------- --------
Net revenues 69,060 33,989
--------- --------
COST AND EXPENSES:
Casino 26,892 13,564
Food, beverage and other 4,687 1,221
Other operating expenses 2,112 3,188
Selling, general and administrative 11,441 5,468
Depreciation and amortization 3,038 2,932
Management fees-related parties 2,991 1,319
--------- --------
51,161 27,692
--------- --------
Income from operations 17,899 6,297
--------- --------
OTHER INCOME (EXPENSE):
Interest income 319 292
Interest expense (5,142) (940)
--------- --------
(4,823) (648)
--------- --------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 13,076 5,649
Preferred equity return (1,378) (1,378)
--------- --------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 11,698 $ 4,271
--------- --------
--------- --------
</TABLE>
See accompanying notes to condensed financial statements.
44
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,166 $ 5,170
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 5,228 4,778
Amortization 691 612
Accrued preferred equity return 2,780 2,741
Changes in operating assets and liabilities:
Due from affiliates (452)
Other current assets (684) (160)
Accounts payable (2,216) (1,868)
Accrued interest payable to related parties (3,757) (336)
Accrued liabilities 8,160 2,244
Deposits (772)
--------- --------
Net cash provided by operating activities 30,916 12,409
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow 10,100 (3,506)
Purchases of property and equipment (22,129) (42,137)
Payments under development agreement and other
infrastructure improvements (2,500) (3,015)
--------- --------
Net cash used in investing activities (14,529) (48,658)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (1,108) (2,998)
Partnership equity distributions (8,881)
Payment of preferred return to partners (2,726) (1,151)
Proceeds from (payments on) long-term debt and partners' equity (16,979) 49,270
Partner equity contributions 1,813
Other (60)
--------- --------
Net cash (used in) provided by financing activities (27,881) 45,061
--------- --------
Net (decrease) increase in cash and cash equivalents (11,494) 8,812
Cash and cash equivalents, beginning of period 41,257 9,216
--------- --------
Cash and cash equivalents, end of period $ 29,763 $ 18,028
--------- --------
--------- --------
</TABLE>
See accompanying notes to condensed financial statements.
45
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Indiana Gaming Company, L.P. ("Partnership"), an
Indiana limited partnership, provides riverboat gaming and related
entertainment in Lawrenceburg, Indiana. The Partnership is comprised of a
57.5% general partner, The Indiana Gaming Company ("General Partner"), a
wholly owned subsidiary of Argosy Gaming Company, ("Argosy"), and three
limited partners. Net income (loss) is allocated to the partners based on
their respective ownership interests. On December 10, 1996, the Partnership
commenced operations at a temporary site and ceased being in the development
stage. The Partnership opened its permanent pavilion on December 10, 1997.
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 of fair value less costs related to the assets'
disposition.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1997, included in Argosy's
Annual Report on Form 10-K (File No.0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1997 amounts have been
reclassified to conform to the 1998 financial statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of the Development Agreement, the Partnership entered into a
lease with the City of Lawrenceburg for docking privileges for its riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Partnership. Under the terms of the Development
Agreement, the Partnership pays an annual fee to the City of Lawrenceburg
ranging from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of
$6 million per year.
46
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Partnership has agreed to pay the City of Lawrenceburg $33,848 in
reimbursements for infrastructure improvements and unrestricted grants. These
have been recorded in other assets in the accompanying balance sheets. The
reimbursement for infrastructure improvements and unrestricted city grants
are being amortized over the 28 year term, including extensions, of the
Development Agreement.
Included in other long term obligations at June 30, 1998 is $4,083
representing the remaining grants and infrastructure payments due by the
Partnership under the terms of the Riverboat Gaming Development Agreement
with the City of Lawrenceburg ("Development Agreement"). Total remaining
payments are due $2,083 in 1998 and $2,000 in 1999.
BONDING OBLIGATION-The Partnership is required, by Indiana Gaming
Statute, to post a bond in favor of the Indiana Gaming Commission to
collateralize certain obligations to the City of Lawrenceburg under the
Development Agreement, and to the State of Indiana. This bond is
collateralized by certain real estate of the Partnership.
TERMINATION OF PARTNERSHIP-Under the terms of the Partnership Agreement,
after the third anniversary date of commencement of operations each limited
partner has the right to sell its interest to the other partners (pro rata in
accordance with their respective percentage interests). In the event of this
occurrence, if the partners cannot agree on a selling price, the Partnership
will be sold in its entirety.
47
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company opened its first riverboat casino, the Alton Belle Casino,
in Alton, Illinois in September 1991. Subsequently, the Company opened the
Argosy Casino in Riverside, Missouri in June 1994; the Belle of Baton Rouge
in Baton Rouge, Louisiana in September 1994; and the Belle of Sioux City in
Sioux City, Iowa in October 1994. In addition, the Company, through its
57.5% equity interest in Indiana Gaming Company, L.P., opened a temporary
casino in Lawrenceburg, Indiana on December 10, 1996, and opened the
permanent pavilion on December 10, 1997.
The Company's results of operations for the six and three months ended
June 30, 1998 were favorably impacted by improved performance at Lawrenceburg
due to the opening of the permanent pavilion in December of 1997 and by
improved performance in Alton and Sioux City due to focused marketing efforts
and operating efficiencies. The Company's results of operations were
adversely affected by increased competition at the Riverside property and by
a market decline in Baton Rouge due to increased competition from other
gaming opportunities in nearby locations. Under the terms of the development
agreement with the City of Baton Rouge the Company is required to pay a head
tax of $2.50 per passenger until such time as the Company commences
construction on a hotel near the Company's facility. Once construction
commences on the hotel the head tax ceases and the Company would save
approximately $3.5 million annually. The Company is in negotiations with
several developers pertaining to the construction of a hotel. While the
Company believes it will structure an agreement for the development of the
hotel no assurances can be given as to the timing of the development of a
hotel or as to the required financial commitment of the Company with respect
to the development of a hotel. These factors have resulted in the Company
reporting increased revenues and operating income at Lawrenceburg, Alton and
Sioux City and decreased operating income at Riverside for the six and three
months ended June 30, 1998. Baton Rouge reported decreased revenues and
increased operating losses for the six months ended June 30, 1998 and
decreased revenues and operating losses for the three months ended June 30,
1998. The Company expects the competitive environment in each of its markets
to remain intense.
The Company is in a net operating loss carryforward position at June 30,
1998 and, as such, the Company has not recorded any federal tax benefits on
its 1998 and 1997 operating losses due to the uncertainty of realization.
48
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------- --------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASINO REVENUES
Alton $ 34,317 $ 32,055 $ 17,288 $ 15,633
Riverside 35,355 31,667 16,996 15,217
Baton Rouge 24,285 26,196 12,181 13,405
Sioux City 10,851 10,248 5,590 5,339
Lawrenceburg 120,065 57,418 64,495 31,698
---------- ---------- ---------- ---------
Total $ 224,873 $ 157,584 $ 116,550 $ 81,292
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
NET REVENUES
Alton $ 36,448 $ 34,685 $ 18,390 $ 16,943
Riverside 37,860 34,175 18,246 16,388
Baton Rouge 25,543 27,644 12,839 14,131
Sioux City 11,306 10,739 5,829 5,607
Lawrenceburg 128,811 61,869 69,060 33,989
Other 189 892 93 451
---------- ---------- ---------- ---------
Total $ 240,157 $ 170,004 $ 124,457 $ 87,509
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
INCOME (LOSS) FROM OPERATIONS(1)
Alton $ 7,079 $ 5,308 $ 3,686 $ 2,678
Riverside 1,375 2,807 761 1,163
Baton Rouge (1,915) (1,094) (458) (746)
Sioux City 792 349 528 365
Lawrenceburg 37,062 11,139 19,775 7,089
Jazz (2,456) (844) (1,737) (477)
Corporate (3) (5,083) (6,521) (2,220) (2,901)
Other (1,813) (327) (945) (65)
---------- ---------- ---------- ---------
Total $ 35,041 $ 10,817 $ 19,390 $ 7,106
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
EBITDA(1)(2)
Alton $ 9,022 $ 7,417 $4,665 $ 3,767
Riverside 4,406 5,545 2,315 2,532
Baton Rouge 691 1,695 855 651
Sioux City 1,306 826 788 606
Lawrenceburg 42,981 16,529 22,813 10,021
Jazz (2,673) (1,239) (1,851) (693)
Corporate(3) (4,670) (5,266) (2,013) (2,243)
Other 349 1,712 121 973
---------- ---------- ---------- ---------
Total $ 51,412 $ 27,219 $ 27,693 $ 15,614
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
49
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(1) Income from operations and EBITDA are presented before consideration of
any management fee paid to the Company or intercompany rent charges in
Baton Rouge and in the case of Sioux City and Lawrenceburg before the 30%
and 42.5% minority interests, respectively.
(2) "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 the Company's 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. The
Company has other significant uses of cash flows, including capital
expenditures, which are not reflected in EBITDA.
(3) Excludes severance expenses of approximately $1.8 million for the six
months ended June 30, 1997.
50
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
CASINO--Casino revenues for the six months ended June 30, 1998 increased
by $67.3 million to $224.9 million from $157.6 million for the six months
ended June 30, 1997 due primarily to a $62.7 million increase in casino
revenues at the Lawrenceburg casino, which generated total casino revenues of
$120.1 million for the six months ended June 30, 1998. The Company's other
properties reported an aggregate 5% increase in casino revenues from $100.2
to $104.8 million. In particular, Alton casino revenues increased from $32.1
to $34.3 million, Riverside casino revenues increased from $31.7 to $35.4
million, Sioux City casino revenues increased from $10.2 to $10.9 million
offset by a decrease in Baton Rouge casino revenues from $26.2 to $24.3
million.
Casino expenses increased to $107.4 million for the six months ended
June 30, 1998 from $79.6 million for the six months ended June 30, 1997.
This is primarily due to an increase in Lawrenceburg casino expenses of
$25.5 million to $50.9 million, attributable to the overall increase in
Lawrenceburg casino revenues of $62.7 million.
ADMISSIONS--Admissions revenue increased $3.7 million to $7.2 million
for the six months ended June 30, 1998 due to an increased number of
customers at the Lawrenecburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $6.4
million to $23.6 million for the six month period ended June 30, 1998, due to
the increased casino revenues generated by the Lawrenceburg casino. Food,
beverage and other net profit improved $0.8 million to $3.9 million for the
six months ended June 30, 1998 due primarily to the increases in customers at
the Lawrenceburg casino.
OTHER OPERATING EXPENSES--Other operating expenses decreased $0.5
million to $13.3 million for the six months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $13.1 million to $48.1 million for the six months ended
June 30, 1998 due primarily to an increase of $9.9 million at Lawrenceburg
relating to expanded marketing and operating costs of the larger facility, an
increase of $1.5 million at Riverside due to expanded marketing efforts and a
$1.0 million charge related to deferred lease costs at the Catfish Town real
estate project in Baton Rouge.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization remained
the same at $16.4 for the six months ended June 30, 1998 compared to the six
months ended June 30, 1997.
INTEREST EXPENSE--Net interest expense increased $6.4 million to $26.8
million for the six months ended June 30, 1998. The increase in interest
expense is primarily attributable to additional loans by the partners of the
Lawrenceburg casino, an equipment loan at the Indiana partnership and a
decrease of $2.1 million in the amount of interest capitalized due to the
completion of the final phase of the Lawrenceburg project.
NET LOSS--Net loss decreased from $13.3 million for the six months ended
June 30, 1997 to $2.3 million for the six months ended June 30, 1998 due
primarily to the factors discussed above and approximately $1.8 million in
severance expenses recognized in 1997.
51
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
CASINO--Casino revenues for the three months ended June 30, 1998
increased by $35.3 million to $116.6 million from $81.3 million for the three
months ended June 30, 1997 due primarily to a $32.8 million increase in
casino revenues at the Lawrenceburg casino, which generated total casino
revenues of $64.5 million for the three months ended June 30, 1998. The
Company's other properties reported an aggregate 5% increase in casino
revenues from $49.6 to $52.1 million. In particular, Alton casino revenues
increased from $15.6 to $17.3 million, Riverside casino revenues increased
from $15.2 to $17.0 million, Sioux City casino revenues increased from $5.3
to $5.6 million offset by a decrease in Baton Rouge casino revenues from
$13.4 to $12.2 million.
Casino expenses increased to $54.7 million for the three months ended
June 30, 1998 from $40.4 million for the three months ended June 30, 1997.
This increase is primarily due to increased Lawrenceburg casino expenses of
$13.3 million to $26.9 million attributable to the overall increase in
Lawrenceburg casino revenues of $32.8 million.
ADMISSIONS--Admissions revenue increased $2.1 million to $4.0 million
for the three months ended June 30, 1998 due to an increase in the number of
customers at the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $3.6
million to $12.4 million for the three month period ended June 30, 1998, due
to the increased casino revenues generated by the Lawrenceburg casino. Food,
beverage and other net profit improved $0.4 million to $2.0 million for the
three months ended June 30, 1998 due primarily to the increases in customers
at the Lawrenceburg casino.
OTHER OPERATING EXPENSES--Other operating expenses remained
approximately the same at $6.7 million for the three months ended June 30,
1998 compared to the three months ended June 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $7.4 million to $24.8 million for the three months ended
June 30, 1998 due primarily to an increase of $6.0 million at Lawrenceburg
relating to expanded marketing and operating costs of the larger facility and
a $1.0 million charge related to deferred lease costs at the Catfish Town
real estate project in Baton Rouge.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased
$0.2 million from $8.5 million for the three months ended June 30, 1997 to
$8.3 million for the three months ended June 30, 1998.
INTEREST EXPENSE--Net interest expense increased $3.5 million to $13.4
million for the three months ended June 30, 1998. The increase in interest
expense is primarily attributable to additional loans by the partners of the
Lawrenceburg casino, an equipment loan at the Indiana partnership and a
decrease of $1.5 million in the amount of interest capitalized due to the
completion of the final phase of the Lawrenceburg project.
52
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
COMPETITION
The Company's Alton Casino faces competition from four other riverboat
casino facilities currently operating in the St. Louis area and expects the
level of competition to remain intense in the future. The most recent casino
complex to open includes two independently owned facilities, each of which
operate two dockside vessels. This casino complex, which increased gaming
capacity in St. Louis by approximately 50%, opened in March of 1997. The
Company's Riverside Casino currently faces competition from three casino
companies in the Kansas City area that offer dockside gaming, two of which
offer two gaming vessels each. Until July 1998, there was an additional
competitor in the Kansas City market which recently closed their facility.
The Company's Baton Rouge Casino faces competition from one casino located in
downtown Baton Rouge, a nearby native American casino and multiple casinos
throughout Louisiana. Currently, the Company faces competition in Sioux
City, Iowa, from two land-based Native American casinos, slot machines at a
pari-mutual race track in Council Bluffs, Iowa and from two riverboat casinos
in the Council Bluffs, Iowa/Omaha, Nebraska market. The Indiana Partnership
faces competition from one other riverboat casino in the Cincinnati market,
which opened in October 1996. There could be further unanticipated
competition in any market which the Company operates as a result of
legislative changes or other events. The Company expects each market in
which it participates, both current and prospective, to be highly competitive.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1998, the Company generated cash flows
from operating activities of $33.1 million compared to $16.5 million for the
same period in 1997. Cash flow from operating activities increased by $25.7
million for the six months ended June 30, 1998 over the same period in 1997
when the effect of an income tax receivable of $9.1 million for 1997 is
excluded from total 1997 cash flows. This increase is attributable to the
opening of the Lawrenceburg permanent pavilion in December 1997 as well as
increased cash flows from the Company's Alton and Sioux City properties.
In the six months ended June 30, 1998, the Company used cash flows for
investing activities of $15.9 million versus $31.9 million for the six months
ended June 30, 1997. The primary use of funds in both periods was the
investment in the construction of the Lawrenceburg facility. Overall capital
expenditures have decreased between periods reflecting the substantial
completion of the Lawrenceburg casino.
During the six months ended June 30, 1998, the Company used $11.2
million in cash flows for financing activities compared to generating $22.2
million of cash flows from financing activities for the same period in 1997.
The uses of cash flows in 1998 were to repay loans related to the Company's
Lawrenceburg casino, and for payments on installment contracts and other
long-term debt offset by the net proceeds of $7.4 million from the sale of
Preferred Stock and Warrants in June 1998. In 1997, the Company had net
proceeds from partnership loans of $26.1 million, offset by payments on
long-term debt and installment contracts of $3.2 million.
As of June 30, 1998, the Company had approximately $65.3 million of
cash, cash equivalents, and marketable securities, including approximately
$29.8 million held at the Indiana Partnership. Approximately $7.9 million of
the cash held at the Indiana Partnership is expected to be used towards the
completion of the Lawrenceburg project. In addition, the Company had $14.0
of restricted cash, $10.9 million of which is in a disbursement account to be
used to fund the Company's portion of the remaining Lawrenceburg construction
costs and which cannot be used for any other purpose. In addition to the
disbursement account, the Indiana Partnership has placed approximately $3.1
million in an escrow account representing unbilled construction costs
53
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
of the permanent Lawrenceburg facility. The Company has outstanding $235
million of First Mortgage Notes which were issued in June 1996 and are due
June 2004. Additionally, the Company has outstanding $115 million of
Convertible Subordinated Notes outstanding which were issued in June 1994 and
are due June 2001.
In June 1998, the Company issued $8 million of Convertible Preferred
Stock together with Warrants to purchase an additional 292,612 shares of
Common Stock. The Preferred Shares provide for a 4% dividend per annum,
payable in cash or in kind at the time of conversion or maturity at the
Company's option. The Convertible Preferred Shares mature in seven years and
the Company has the right for force conversion and/or redeem the Holder at
maturity. The Warrants expire in five years. The Convertible Preferred
Shares are puttable to the Company for cash if certain triggering events
occur. This transaction provides for put and call options which, subject to
certain restrictions and limitations, allows for up to an additional $8.0
million of Convertible Preferred Shares and Warrants to be issued.
The Company estimates that the total construction costs of the
Lawrenceburg casino and entertainment project will approximate $228 million
(excluding capitalized interest). This forward looking statement involves
certain risks and uncertainties and this amount is subject to numerous
factors including weather and other construction risks. As of June 30, 1998,
approximately $210 million has been contributed to the partnership for the
project by all partners. The remaining Lawrenceburg construction costs will
be funded from cash on hand in Lawrenceburg and from the Company from the
disbursement account under provisions of the partnership agreement, as
Conseco has fulfilled its funding obligation as of June 30, 1998. The Company
expects that the restricted cash on hand at June 30, 1998, together with the
$7.9 remaining proceeds from the equipment financing, will be sufficient to
complete the Lawrenceburg project.
As a result of its June 1995 acquisition of Jazz, the Company is now the
developer of the Catfish Town real estate project in Baton Rouge, Louisiana.
The Company estimates that the completion of the Catfish Town project will
cost an additional $2 to $5 million (primarily tenant allowance) as of June
30, 1998. Further, if a Predecessor entity of the Company's status as an
S-Corporation, which has been asserted as an issue by the IRS during an
ongoing audit, is successfully challenged, the Company currently estimates
that it would require up to approximately $12.9 million (excluding penalties)
to fund the potential income tax liability.
The Company believes that cash on hand will be sufficient to fund its
current capital expenditure obligations, including the completion of the
permanent Lawrenceburg casino development, debt service obligations and
operating requirements during the next twelve months. However, the Company's
ability to meet its operating and debt service requirements, however is
substantially dependent upon the success of the Lawrenceburg casino. If
events that negatively impact its sources or uses of cash, such as a
significant deterioration in the operating results of the Company's casino
properties particularly in Lawrenceburg, or an adverse IRS ruling, the
Company may be unable to meet future debt service payments without obtaining
additional debt or additional equity financing or without the disposition of
assets. No assurance can be given that the Company would be able to obtain
such additional financing on suitable terms or sell assets on favorable
terms, if required. In light of the foregoing, the Company recently issued
the $8 million of Convertible Preferred Stock, mentioned above, and is
considering various other long term options with respect to the Company's
capital structure, including additional financings and asset dispositions.
The disposal of assets could result in a significant charge to earnings.
54
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000
The Company has determined that it will need to modify or replace
significant portions of its software so that its computer systems will
function properly with respect to dates in the Year 2000 and beyond. As the
Company is dependent on third party software for all of its major
applications, the Company has initiated discussions with its significant
software vendors and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues. Through these discussions,
the Company has determined that all of the systems that are critical to the
Company's operations are either 2000 compliant or that 2000 compliant
versions exist that can be implemented by the Company.
The next phase in the Company's efforts will be to plan for and
implement the Year 2000 versions of the software into the Company's systems.
The Company has a June 1999 target date to complete its implementation
efforts.
As of June 30, 1998, the Company has incurred less than $25,000 of costs
related to Year 2000 issues. The Company estimates it will incur less than
$250,000 in future expenses to ensure all systems will function properly with
respect to dates in the Year 2000. These expenses are not expected to have a
material impact on the financial position, cash flow or operations of the
Company.
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.
55
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
The Company is from time to time a party to legal proceedings arising
in the ordinary course of business. Other than as described below the Company
is unaware of any legal procedures 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.
CAPITOL HOUSE PRESERVATION COMPANY, L.L.C. VS. 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 tortious conduct 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 Enforcement Division. The Company believes the
allegations of the plaintiff are without merit and intends to vigorously
defend such cause of action.
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 Shareholder 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
off-set rights against such deferred purchase price payments for
indemnification claims of the Company against the Former Jazz Shareholders
and for the liabilities that the Former Jazz Shareholder 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
off-set 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, and the matter will be appealed
to the U. S. Fifth Circuit Court of Appeals. Additionally, Capitol House
filed an amended petition in the Nineteenth Judicial District Court for East
Baton Rouge Parish, State of Louisiana, Suit Number 418,525 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
56
<PAGE>
Baton Rouge Parish, and now adding its state law claims against Jazz, the
former shareholders of Jazz, 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 which was
issued to the Company. This 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, before Judge McDonald. 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 as to Jazz and the
former shareholders of Jazz. On behalf of Jazz and its former shareholders, a
supervisory writ has been filed with the First Circuit Court of Appeal, State
of Louisiana, seeking a dismissal of the claims. Capitol House has appealed
the dismissal of the claims as to the other parties. The appeal and writ
applications are currently pending in the First Circuit. An adverse ruling in
this matter could have a material adverse effect on the Company.
PENDING INTERNAL REVENUE SERVICE MATTER
On November 1, 1994, the Company received a Notice of the beginning of
an Administrative Proceeding from the Internal Revenue Service ("IRS") for
the 1992 and 1993 tax years of Metro Entertainment & Tourism, Inc.
("Metro"). Metro was merged with and into the Company immediately prior to
its initial public offering in February 1993. Metro and J. Connors Group,
Inc. ("Connors") were the partners of Alton Riverboat Gambling Partnership
("ARGP") which until the Company's initial public offering owned and operated
the Alton, Illinois riverboat casino. The IRS has proposed certain
adjustments with respect to the Company for its 1993 tax year in a 30-day
letter. The IRS has also proposed adjustments for ARGP that flow through to
Metro in a 60-day letter. Finally, on March 16, 1998 the IRS issued a 60-day
letter to Metro for its tax years ending December 1992 and February 1993.
The principal issues raised by the IRS in the Metro 60-day letter involve the
status of Metro as an S Corporation and the deductibility of the $8.5 million
accommodation fee paid to William McEnery in 1992 and 1993. The total
Federal tax liability asserted by the IRS against the Company resulting from
these proposed adjustments is approximately $11 million including interest
through June 30, 1998 but excluding penalties, if any. On May 12, 1998, the
Company filed a protest to these proposed adjustments to the Appeals Office
of the IRS and is vigorously contesting these proposed adjustments.
GAMEDEV OF SIOUX CITY, INC., F/K/A SIOUX CITY RIVERBOAT CORP., INC. V. ARGOSY
GAMING COMPANY AND IOWA GAMING COMPANY
This suit was filed on June 11, 1998, in the Iowa District Court in
Woodbury County, Iowa. Gamedev, the limited partner of the limited
partnership, Belle of Sioux City, L.P., seeks monetary damages and an
equitable accounting based on claims of breach of fiduciary duty and
negligent misrepresentation against the defendants. Iowa Gaming Company, a
wholly-owned subsidiary of the Company, is the general partner of the Belle
of Sioux
57
<PAGE>
City, L.P. On July 21, 1998, the defendants responded to the Petition by
filing a motion to dismiss on the grounds that plaintiff's claims are
derivative in nature, and that plaintiff has failed to comply with the demand
requirements under Iowa limited partnership law. Also, plaintiff is not
entitled to an equitable accounting because it has an adequate remedy at law.
Plaintiff's filed its resistance to the motion to dismiss and filed a first
amended and substituted petition alleging additional causes of action of
breaches of contracts and fraudulent misrepresentation on August 4, 1998.
The Company's reply brief in support of the motion to dismiss and its
responsive pleading to the first amended and substituted petition are due in
August. This motion is pending before the court and will be scheduled for
oral argument in the future.
MATTERS CONCERNING H. STEVEN NORTON
In September, 1993, H. Steven Norton, an employee of the Company at the
time, filed a cause of action against John T. Connors, a significant
shareholder of the Company and a former officer of J. Connors Group Inc., a
predecessor entity of the Company ("JCG"), seeking $50 million in damages.
Mr. Norton alleged that Mr. Connors failed to fulfill his promise made in the
summer of 1991 to establish a partnership with Mr. Norton in which each would
have an equal 50% interest in JCG, which had a 25% partnership interest in
the Company's predecessor entity that owned the Alton Belle casino. As a
result of the reorganization effected immediately prior to its initial public
offering, the Company succeeded to all the rights, properties and assets, and
assumed all the liabilities, of all of its predecessor entities, including
JCG. Subsequent to filing the lawsuit, Mr. Connors advised the Company that
his dealings with Mr. Norton, which are the subject of the litigation, were
in his capacity as an officer of JCG, and that the Company should assume the
defense and reimburse Mr. Connors for the approximately $130,000 spent to
date on legal fees, and that any liability resulting from the litigation was
assumed by the Company as a result of the Company's reorganization. The
Company responded to Mr. Connors that it believed that his actions and
dealings with Mr. Norton were solely in his individual capacity as a
shareholder of JCG, and the Company declined to assume the defense or
reimburse him for previously incurred legal fees, and the Company denied that
it has any liability with respect to such matter. If, however, JCG were to
have been found liable to Mr. Norton as a result of the actions of Mr.
Connors, then the Company could under certain circumstances be liable to Mr.
Norton for any damages awarded against JCG.
In April 1995, Messrs. Norton and Connors agreed to voluntarily dismiss
the lawsuit without prejudice. However, on May 22, 1996, Mr. Norton refiled
the suit against Mr. Connors and is again seeking $50 million in damages.
On May 21, 1998 Mr. Connors filed a third party complaint directed
against the Company. In the complaint Connors alleges that the Company
purchased JCG's assets and liabilities and that to the extent Mr. Connors is
held liable the Company must indemnify Mr. Connors for the amount of any
judgement obtained by Mr. Norton, together with other unnamed damages. The
Company has filed a motion to dismiss the third party complaint of Mr.
Connors. That motion is still pending.
There can be no assurance that the lawsuit will not lead to events
having a material adverse effect on the Company.
Item 2. CHANGES IN SECURITIES -
On June 16, 1998, the Company completed an equity financing through a
private placement of Series A Convertible Preferred Stock with proceeds to
the Company of approximately $8.0 million. The Company, subject to certain
conditions, may exercise a put option for up to an additional $8.0 million of
Series A Shares and the investors, subject to certain conditions, may
exercise a call option for up to an additional $8.0 million of Series A
Shares. The Company has filed a registration statement that has not yet
become effective for the resale of the shares of the Company's Common Stock
that may be acquired on conversion of the Series A Shares. The Preferred
Stock carries warrants to purchase an additional 292,612 shares of Common
Stock at $3.89.
CONVERSION
The Series A Shares are convertible into shares of Common Stock at the
election of the holder of such Series A Shares, at a price ("Conversion
Rate") equal to the lower of 120% of the average of the closing bid prices of
the Common Stock for the five consecutive days prior to the issuance date
($3.89 at June 16, 1998) or the average of the five lowest consecutive
closing bid prices during the thirty consecutive trading days immediately
preceding the date a holder delivers notice of his election to convert such
shares. Except upon the occurrence of certain events, the Investor(s) may
convert, in aggregate, only up to a maximum of a specified percentage of the
Series A Shares according to the following schedule:
<TABLE>
<CAPTION>
Days from Issuance Date % of Shares
----------------------- -----------
<S> <C>
1 - 120 days 0%
121 - 165 days 33%
166 - 210 days 66%
211 days and after 100%
</TABLE>
Subject to certain exceptions, any Series A Shares outstanding seven
years after the date such shares were initially issued will be converted into
shares of the Registrant's Common Stock at the then applicable rate or
redeemed for cash at the Company's option. The Warrants expire five years
from the date of issuance.
ADJUSTMENTS TO CONVERSION RATE
The Conversion Rate is subject to proportional adjustment upon any stock
split, stock dividend or other similar change to the capital stock of the
Registrant as well other adjustments upon the issuance, or deemed issuance,
of other shares of Common Stock at a price below the then effective Fixed
Conversion Price. Both the Convertible Preferred Stock Conversion Rate and
the Warrants Exercise Price may be reset downward 270 days after the initial
issuance date if the closing bid price for a certain length of time is lower
than the closing bid price prior to the initial close.
58
<PAGE>
REDEMPTION
The holders of Series A Shares have a right to require the Registrant to
redeem the Series A Shares upon the occurrence of certain events, including a
Major Transaction, or a Triggering Event, as each is defined in the
Certificate of Designation.
LIMITATIONS ON CONVERSION AND EXERCISE
The Purchase Agreement provides that the number of shares of the
Registrant's Common Stock issuable upon conversion of the Series A Shares
cannot exceed 20% of the outstanding shares of the Registrant's Common Stock
without the approval of the stockholders of the Registrant. If the closing
bid price of the Company's Common Stock is $2.75 or less for five consecutive
days then the Preferred Shareholders can force the Company to request
approval of the stockholders. Likewise, the number of shares of the
Registrant's Common Stock issuable to any single Investor cannot exceed 4.99%
or more of the Registrant's outstanding Common Stock.
EFFECT ON RIGHTS OF EXISTING SECURITY HOLDERS
There is no change to the rights, preferences or privileges of the
holders of the Registrant's Common Stock as a result of the transactions
which are the subject of the Purchase Agreement. However, in addition to the
dilutive impact of the issuance of additional shares of Capital Stock, the
Series A Shares have a liquidation preference which entitles the holders
thereof to receive payment upon any dissolution or liquidation of the
Registrant in preference to the holders of Common Stock. The amount of such
preference is equal to $10,000 plus an amount equal to the product of (.04)
(N/365) ($10,000) for each of the Series A Shares where "N" is the number of
days since the initial issuance of such shares.
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
The Company's Annual Meeting of Stockholders was held on April 23, 1998.
At the meeting, stockholders voted on (1) the election of three directors and
(2) an amendment to the Company's Amended and Restated Certificate of
Incorporation. Voting on each matter was as follows:
<TABLE>
<CAPTION>
Votes Votes Withheld/ Broker
For Against Abstain Non-Votes
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
1. Election of Directors
F. Lance Callis 21,242,293 214,595
John B. Pratt Sr. 21,241,173 215,715
Edward Brennan 21,239,193 217,695
2. Amendment to Amended
and Restated Certificate
of Incorporation 21,328,907 86,304 41,677
</TABLE>
59
<PAGE>
Item 5. OTHER INFORMATION-None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
1. Report on Form 8-K and Form 8-K/A-1, dated June 16, 1998,
filed with the Securities and Exchange Commission containing
information regarding the Company's sale of Convertible
Preferred Stock and Warrants.
60
<PAGE>
ARGOSY GAMING COMPANY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Date: August 14, 1998 /s/ Dale R. Black
----------------------- -------------------------------------------
Dale R. Black
Vice President-Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1998 FORM 10-Q OF ARGOSY GAMING COMPANY.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 65,320
<SECURITIES> 0
<RECEIVABLES> 3,612
<ALLOWANCES> 2,064
<INVENTORY> 1,446
<CURRENT-ASSETS> 76,304
<PP&E> 489,409
<DEPRECIATION> 86,681
<TOTAL-ASSETS> 562,833
<CURRENT-LIABILITIES> 75,160
<BONDS> 350,000
7,615
0
<COMMON> 245
<OTHER-SE> 30,021
<TOTAL-LIABILITY-AND-EQUITY> 562,833
<SALES> 0
<TOTAL-REVENUES> 240,157
<CGS> 0
<TOTAL-COSTS> 205,116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 679
<INTEREST-EXPENSE> 28,487
<INCOME-PRETAX> 8,196
<INCOME-TAX> 250
<INCOME-CONTINUING> (2,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,278)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
