<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 MARCH 31, 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 May 11, 1998.
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<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<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 3
Notes to Condensed Consolidated Financial Statements 4
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 9
Condensed Statements of Income 10
Condensed Statements of Cash Flows 11
Notes to Condensed Financial Statements 12
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 13
Condensed Statements of Operations 14
Condensed Statements of Cash Flows 15
Notes to Condensed Financial Statements 16
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 17
Condensed Consolidated Statements of Operations 18
Condensed Consolidated Statements of Cash Flows 19
Notes to Condensed Consolidated Financial Statements 20
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 21
Condensed Statements of Operations 22
Condensed Statements of Cash Flows 23
Notes to Condensed Financial Statements 24
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 25
Condensed Statements of Operations 26
Condensed Statements of Cash Flows 27
Notes to Condensed Financial Statements 28
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 29
Condensed Consolidated Statements of Operations 30
Condensed Consolidated Statements of Cash Flows 31
Notes to Condensed Consolidated Financial Statements 32
</TABLE>
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 34
Condensed Statements of Income 35
Condensed Statements of Cash Flows 36
Notes to Condensed Financial Statements 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 39
PART II
Item 1 Legal Proceedings 46
Item 2 Changes in Securities 50
Item 3 Defaults upon Senior Securities 50
Item 4 Submission of Matters to a Vote of Security Holders 50
Item 5 Other Information 50
Item 6 Exhibits and Reports on Form 8-K 50
</TABLE>
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 64,301 $ 59,354
Other current assets 10,380 10,629
----------- ------------
Total current assets 74,681 69,983
----------- ------------
PROPERTY AND EQUIPMENT, NET 398,012 390,343
----------- ------------
OTHER ASSETS:
Restricted cash and cash equivalents 17,403 25,545
Goodwill and other intangible assets, net 54,128 54,689
Other, net 18,802 19,296
----------- ------------
Total other assets 90,333 99,530
----------- ------------
TOTAL ASSETS $ 563,026 $ 559,856
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 58,889 $ 47,780
Other current liabilities 20,933 21,219
----------- ------------
Total current liabilities 79,822 68,999
----------- ------------
LONG-TERM DEBT 430,210 436,442
OTHER LONG-TERM OBLIGATIONS 2,886 4,133
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 19,916 17,619
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 72,104 72,038
Retained deficit (42,157) (39,620)
----------- ------------
Total stockholders' equity 30,192 32,663
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 563,026 $ 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>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 108,323 $ 76,292
Admissions 3,191 4,023
Food, beverage and other 11,133 8,362
----------- -----------
122,647 88,677
Less promotional allowances (6,947) (6,182)
----------- -----------
Net revenues 115,700 82,495
----------- -----------
COSTS AND EXPENSES:
Casino 52,623 39,221
Food, beverage and other 9,349 6,891
Other operating expenses 6,618 6,974
Selling, general and administrative 23,267 17,641
Depreciation and amortization 8,066 7,894
Development and preopening costs 126 163
Severance expense -- 1,750
----------- -----------
100,049 80,534
----------- -----------
Income from operations 15,651 1,961
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 810 1,442
Interest expense (14,292) (11,902)
----------- -----------
(13,482) (10,460)
----------- -----------
Income (loss) before income taxes and minority interests 2,169 (8,499)
Minority interests (4,606) (864)
Income tax (expense) benefit (100) 346
----------- -----------
Net loss $ (2,537) $ (9,017)
----------- -----------
----------- -----------
Net loss per share $ (0.10) $ (0.37)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,537) $ (9,017)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 7,438 7,379
Amortization 1,075 1,037
Compensation expense recognized on issuance of stock 66 --
Deferred income taxes -- (346)
Minority interests 4,606 864
Changes in operating assets and liabilities:
Other current assets 499 7,470
Deposits (270) (170)
Accounts payable and other current liabilities 11,108 15,969
----------- -----------
Net cash provided by operating activities 21,985 23,186
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,107) (16,242)
Decrease in restricted cash held by trustees 8,142 3,926
Decrease in long term obligations (1,247) (1,719)
Increase in other assets -- (379)
----------- -----------
Net cash used in investing activities (8,212) (14,414)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts (6,518) (1,819)
Proceeds from partner loans -- 5,782
Repayment of partner loans (1,714) --
Partnership equity distributions (594) --
Increase in other assets -- (189)
----------- -----------
Net cash (used in) provided by financing activities (8,826) 3,774
----------- -----------
Net increase in cash and cash equivalents 4,947 12,546
Cash and cash equivalents, beginning of period 59,354 38,284
----------- -----------
Cash and cash equivalents, end of period $ 64,301 $ 50,830
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<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.
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. Because the Company is in a
loss position, its restricted common stock and stock options outstanding are
anti-dilutive. The weighted average shares outstanding for basic and diluted
earnings per share for the three months ended March 31, 1998 and 1997 were
24,333,333 shares.
As of March 31, 1998 the Company is in a net operating loss position
and, therefore, has recorded a valuation allowance of $15,233 against its
deferred tax assets.
4
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
2. 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.
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 $12,600, including interest through March 31, 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
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
3. 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 assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of March 31, 1998 and December 31, 1997 and summarized operating
statement information for the three months ended March 31, 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.
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited) continued
(In Thousands, Except Per Share Data)
Summarized balance sheet information as of March 31, 1998 and
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 25,851 $ 25,509 $ 41,226 $ (17,905) $ 74,681
Non-current assets 373,345 366,281 220,945 (472,226) 488,345
--------- ---------- ---------- ------------ ------------
$ 399,196 $ 391,790 $ 262,171 $ (490,131) $ 563,026
--------- ---------- ---------- ------------ ------------
--------- ---------- ---------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities $ 19,004 $ 40,271 $ 62,596 $ (29,074) $ 92,797
Non-current liabilities 350,000 298,869 153,721 (362,553) 440,037
Stockholders' equity 30,192 52,650 45,854 (98,504) 30,192
--------- ---------- ---------- ------------ ------------
$ 399,196 $ 391,790 $ 262,171 $ (490,131) $ 563,026
--------- ---------- ---------- ------------ ------------
--------- ---------- ---------- ------------ ------------
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>
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited) continued
(In Thousands, Except Per Share Data)
Summarized operating statement information for the three months ended
March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 167 $ 55,620 $ 65,228 $ (5,315) $ 115,700
Costs and expenses 2,873 48,444 49,505 (773) 100,049
Net interest expense (income) 9,536 (1,305) 4,900 351 13,482
Net (loss) income (2,537) 4,547 9,421 (13,968) (2,537)
THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,858 $ 48,830 $ 33,012 $ (1,205) $ 82,495
Costs and expenses 5,724 46,718 29,715 (1,623) 80,534
Net interest expense 8,067 554 1,359 480 10,460
Net (loss) income (9,017) 740 575 (1,315) (9,017)
</TABLE>
8
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,793 $ 3,807
Other current assets 1,345 1,450
----------- ------------
Total current assets 5,138 5,257
DUE FROM AFFILIATES 14,177 10,405
NET PROPERTY AND EQUIPMENT 26,674 27,447
OTHER ASSETS 5 6
----------- ------------
TOTAL ASSETS $ 45,994 $ 43,115
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 562 $ 799
Income taxes payable to affiliate 1,245 214
Other accrued liabilities 4,755 4,395
----------- ------------
Total current liabilities 6,562 5,408
----------- ------------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY 189 186
DEFERRED INCOME TAXES 3,784 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 35,202 33,519
----------- ------------
Total stockholder's equity 35,459 33,776
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 45,994 $ 43,115
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
9
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 17,029 $ 16,422
Food, beverage and other 1,633 1,817
----------- -----------
18,662 18,239
Less promotional allowances (604) (497)
----------- -----------
Net revenues 18,058 17,742
COSTS AND EXPENSES
Casino 7,948 8,139
Food, beverage and other 1,503 1,770
Other operating expenses 1,347 1,452
Selling, general and administrative 2,903 2,731
Depreciation and amortization 964 1,020
Management fees - related party 661 821
----------- -----------
15,326 15,933
----------- -----------
Income from operations 2,732 1,809
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 24 9
Interest expense (4) (3)
----------- -----------
20 6
----------- -----------
Income before income taxes 2,752 1,815
Income tax expense 1,069 726
----------- -----------
Net income $ 1,683 $ 1,089
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
10
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,683 $ 1,089
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 964 1,020
Deferred income taxes 39 6
Changes in operating assets and liabilities:
Other current assets 105 (185)
Accounts payable (237) (602)
Income taxes payable to affiliate 1,031 721
Other accrued liabilities 360 411
----------- -----------
Net cash provided by operating activities 3,945 2,460
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (190) (252)
----------- -----------
Net cash used in investing activities (190) (252)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliate (3,772) (2,928)
Increase in other long-term obligations - related party 3 4
----------- -----------
Net cash used in financing activities (3,769) (2,924)
----------- -----------
Net decrease in cash and cash equivalents (14) (716)
Cash and cash equivalents, beginning of period 3,807 3,563
----------- -----------
Cash and cash equivalents, end of period $ 3,793 $ 2,847
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
11
<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.
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 $12,600, including interest through March 31, 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.
12
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,416 $ 3,629
Income taxes receivable from affiliate 340 94
Other current assets 1,874 1,897
----------- ------------
Total current assets 6,630 5,620
NET PROPERTY AND EQUIPMENT 69,551 70,878
OTHER ASSETS 1,908 2,198
----------- ------------
TOTAL ASSETS $ 78,089 $ 78,696
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 1,657 $ 1,352
Other accrued liabilities 4,749 3,692
----------- ------------
Total current liabilities 6,406 5,044
----------- ------------
DUE TO AFFILIATES 54,285 56,007
DEFERRED INCOME TAXES 2,020 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 10,378 10,794
----------- ------------
Total stockholder's equity 15,378 15,794
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 78,089 $ 78,696
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
13
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 18,359 $ 16,450
Food, beverage and other 3,053 2,497
----------- -----------
21,412 18,947
Less promotional allowances (1,798) (1,160)
----------- -----------
Net revenues 19,614 17,787
----------- -----------
COSTS AND EXPENSES
Casino 10,101 8,758
Food, beverage and other 2,362 2,096
Other operating expenses 1,105 960
Selling, general and administrative 3,955 2,960
Depreciation and amortization 1,477 1,369
----------- -----------
19,000 16,143
----------- -----------
Income from operations 614 1,644
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 17 35
Interest expense (1,208) (1,394)
----------- -----------
(1,191) (1,359)
----------- -----------
(Loss) income before income taxes (577) 285
Income tax (benefit) expense (161) 137
----------- -----------
Net (loss) income $ (416) $ 148
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
14
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (416) $ 148
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation 1,437 1,309
Amortization 40 60
Deferred income taxes 85 (249)
Changes in operating assets and liabilities:
Income taxes receivable from affiliate (246) 386
Other current assets 107 3
Accounts payable 305 (1,484)
Other accrued liabilities 1,057 1,208
Other assets 250 250
----------- -----------
Net cash provided by operating activities 2,619 1,631
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (110) (595)
----------- -----------
Net cash used in investing activities (110) (595)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts -- (95)
Due to affiliate (1,722) 1,496
----------- -----------
Net cash (used in) provided by financing
activities (1,722) 1,401
----------- -----------
Net increase in cash and cash equivalents 787 2,437
Cash and cash equivalents, beginning of period 3,629 6,143
----------- -----------
Cash and cash equivalents, end of period $ 4,416 $ 8,580
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
15
<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.
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.
16
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,171 $ 3,429
Other current assets 822 1,655
----------- ------------
Total current assets 3,993 5,084
NET PROPERTY AND EQUIPMENT 43,047 43,896
OTHER ASSETS 1,794 1,821
----------- ------------
TOTAL ASSETS $ 48,834 $ 50,801
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 839 $ 771
Due to affiliates 2,048 1,795
Other accrued liabilities 5,327 5,013
Current maturities of long-term debt-related party 10,268 10,268
----------- ------------
Total current liabilities 18,482 17,847
----------- ------------
LONG-TERM DEBT-RELATED PARTY 37,842 37,842
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 2,418 2,672
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares
authorized issued and outstanding 1 1
Accumulated deficit (9,909) (7,561)
----------- ------------
Total stockholder's deficit (9,908) (7,560)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 48,834 $ 50,801
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 12,104 $ 12,791
Food, beverage and other 1,684 1,713
----------- -----------
13,788 14,504
Less promotional allowances (1,084) (991)
----------- -----------
Net revenues 12,704 13,513
----------- -----------
COST AND EXPENSES
Casino 7,472 7,331
Food, beverage and other 1,498 1,634
Other operating expenses 1,390 1,324
Selling, general and administrative 3,322 3,014
Depreciation and amortization 1,293 1,392
----------- -----------
14,975 14,695
----------- -----------
Loss from operations (2,271) (1,182)
Interest (expense) income net:
Interest to related party (351) (401)
Other 20 20
----------- -----------
Loss before minority interest and income taxes (2,602) (1,563)
Minority interest 254 416
Income tax benefit -- 150
----------- -----------
Net loss $ (2,348) $ (997)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
18
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,348) $ (997)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 1,266 1,272
Amortization 27 120
Minority interest (254) (150)
Deferred income taxes -- (321)
Changes in operating assets and liabilities:
Other current assets 833 (65)
Accounts payable 68 403
Other accrued liabilities 314 (8)
----------- -----------
Net cash (used in) provided by operating
activities (94) 254
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (417) (117)
----------- -----------
Net cash used in investing activities (417) (117)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 253 587
----------- -----------
Net cash provided by financing activities 253 587
----------- -----------
Net (decrease) increase in cash and cash equivalents (258) 724
Cash and cash equivalents, beginning of period 3,429 3,051
----------- -----------
Cash and cash equivalents, end of period $ 3,171 $ 3,775
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
19
<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.
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 March
31, 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.
20
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,171 $ 3,429
Other current assets 708 802
----------- ------------
Total current assets 3,879 4,231
NET PROPERTY AND EQUIPMENT 42,730 43,579
OTHER ASSETS 1,794 1,821
----------- ------------
TOTAL ASSETS $ 48,403 $ 49,631
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 556 $ 771
Other accrued liabilities 4,996 4,071
Accrued interest-related party 1,253 902
Due to affiliates 2,048 1,795
Notes payable and current maturities of long-term
debt-related party 10,268 10,268
----------- ------------
Total current liabilities 19,121 17,807
LONG-TERM DEBT-RELATED PARTY 9,103 9,103
PARTNERS' EQUITY 20,179 22,721
----------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 48,403 $ 49,631
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
21
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 12,104 $ 12,791
Food, beverage and other 1,684 1,713
----------- -----------
13,788 14,504
Less promotional allowances (1,084) (991)
----------- -----------
Net revenues 12,704 13,513
----------- -----------
COSTS AND EXPENSES
Casino 7,472 7,331
Food, beverage and other 1,498 1,634
Other operating expenses 1,390 1,324
Selling, general and administrative 3,262 2,947
Depreciation and amortization 1,293 1,392
----------- -----------
14,915 14,628
----------- -----------
Loss from operations (2,211) (1,115)
INTEREST (EXPENSE) INCOME (NET):
Related parties (351) (401)
Other 20 20
----------- -----------
(331) (381)
----------- -----------
Net loss $ (2,542) $ (1,496)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
22
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,542) $ (1,496)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 1,266 1,272
Amortization 27 120
Changes in operating assets and liabilities:
Other current assets 94 26
Accounts payable (215) 403
Accrued interest to related parties 351 401
Other accrued liabilities 925 (472)
----------- -----------
Net cash (used in) provided by operating
activities (94) 254
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (417) (117)
----------- -----------
Net cash used in investing activities (417) (117)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 253 587
----------- -----------
Net cash provided by financing activities 253 587
----------- -----------
Net (decrease) increase in cash and cash equivalents (258) 724
Cash and cash equivalents, beginning of period 3,429 3,051
----------- -----------
Cash and cash equivalents, end of period $ 3,171 $ 3,775
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
23
<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.
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 March 31, 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.
24
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 20
Other current assets 295 137
----------- ------------
Total current assets 295 157
NET PROPERTY AND EQUIPMENT 54,233 54,593
GOODWILL, NET 19,773 19,922
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 3,074 3,390
----------- ------------
TOTAL ASSETS $ 79,267 $ 79,954
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,241 $ 3,000
Current maturities of long-term debt 491 491
----------- ------------
Total current liabilities 3,732 3,491
----------- ------------
LONG-TERM DEBT 81,248 81,237
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares
authorized, 200 shares issued and
outstanding
Retained deficit (5,713) (4,774)
----------- ------------
Total stockholders's deficit (5,713) (4,774)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 79,267 $ 79,954
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
25
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue $ 754 $ 767
Rent revenue 89 89
----------- -----------
843 856
----------- -----------
COSTS AND EXPENSES:
Operating expenses 260 145
Selling, general and administrative 396 339
Depreciation and amortization 652 589
----------- -----------
1,308 1,073
----------- -----------
Loss from operations (465) (217)
OTHER EXPENSE:
Interest expense (220) (230)
Equity in loss of unconsolidated partnership (254) (150)
----------- -----------
Net loss $ (939) $ (597)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
26
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (939) $ (597)
Adjustments to reconcile net loss provided by
operating activities:
Depreciation 439 439
Amortization 213 150
Equity in loss of unconsolidated partnership 254 150
Other current assets (158) 45
Accounts payable and accrued liabilities 241 337
----------- -----------
Net cash provided by operating activities 50 524
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (81) (745)
----------- -----------
Net cash used in investing activities (81) (745)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (123) (25)
Advances from affiliate 134 639
Increase in other assets -- (378)
----------- -----------
Net cash (used in) provided by financing
activities 11 236
----------- -----------
Net (decrease) increase in cash and cash equivalents (20) 15
Cash and cash equivalents, beginning of period 20 --
----------- -----------
Cash and cash equivalents, end of period $ -- $ 15
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
27
<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.
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 March 31, 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 Mortgage Notes.
28
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,159 $ 41,257
Other current assets 1,644 1,635
----------- ------------
Total current assets 32,803 42,892
----------- ------------
NET PROPERTY AND EQUIPMENT 188,112 176,407
----------- ------------
OTHER ASSETS:
Deposits 800 530
Cash and cash equivalents-restricted 6,628 13,114
Intangible assets, net 30,499 30,844
Deferred income taxes 2,384 2,785
----------- ------------
Total other assets 40,311 47,273
----------- ------------
TOTAL ASSETS $ 261,226 $ 266,572
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 2,438 $ 5,936
Accrued interest and dividends payable-
related parties 2,501 5,260
Other accrued liabilities 25,317 17,951
Current maturities of long-term debt 12,932 12,856
Current maturities of other long-term
obligations 4,583 4,583
----------- ------------
Total current liabilities 47,771 46,586
----------- ------------
LONG-TERM DEBT 181,500 195,405
OTHER LONG-TERM OBLIGATIONS 750 2,000
MINORITY INTERESTS 19,969 17,656
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares
authorized issued and outstanding
Retained earnings 11,236 4,925
----------- ------------
Total stockholder's equity 11,236 4,925
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 261,226 $ 266,572
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
29
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 55,570 $ 25,720
Admissions 3,191 4,023
Food, beverage and other 4,187 1,401
----------- -----------
62,948 31,144
Less promotional allowances (3,197) (3,264)
----------- -----------
Net revenues 59,751 27,880
----------- -----------
COST AND EXPENSES:
Casino 24,032 11,905
Food, beverage and other 3,583 985
Other operating expenses 1,991 3,142
Selling, general and administrative 8,916 4,998
Depreciation and amortization 2,894 2,458
Management fees-related parties 1,061 342
----------- -----------
42,477 23,830
----------- -----------
Income from operations 17,274 4,050
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 445 305
Interest expense (2,677) (744)
----------- -----------
(2,232) (439)
----------- -----------
Income before minority interests and income taxes 15,042 3,611
Minority interests (4,620) (1,005)
Income tax expense (4,111) (1,075)
----------- -----------
Net income $ 6,311 $ 1,531
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
30
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,311 $ 1,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,548 2,154
Amortization 346 304
Deferred income taxes 380 (386)
Minority interests 4,620 1,005
Changes in operating assets and liabilities:
Other current assets 12 (17)
Accounts payable (3,498) (1,519)
Accrued interest payable to related parties (2,759) 981
Accrued liabilities 7,800 3,773
----------- -----------
Net cash provided by operating activities 15,760 7,826
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow 6,486 (492)
Purchases of property and equipment (14,253) (12,757)
Payment of deposit (270) (71)
Payments under development agreement and other
infrastructure improvements (1,250) (1,723)
----------- -----------
Net cash used in investing activities (9,287) (15,043)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (435) (1,699)
(Repayment of) proceeds from long-term debt (13,829) 11,665
Repayment of partnership loans (1,713)
Payment of preferred equity return to partner (594)
----------- -----------
Net cash (used in) provided by financing
activities (16,571) 9,966
----------- -----------
Net (decrease) increase in cash and cash equivalents (10,098) 2,749
Cash and cash equivalents, beginning of period 41,257 9,216
----------- -----------
Cash and cash equivalents, end of period $ 31,159 $ 11,965
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
31
<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
including, Conseco Entertainment, L.L.C., ("Conseco") a 29% limited partner,
Centaur, Inc., a 9.5% limited partner and RJ Investments, Inc., a 4% limited
partner. 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.
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 three
months ended March 31, 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.
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.
32
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Included in other long term obligations at March 31, 1998 is $5,333
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
$3,333 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.
33
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,159 $ 41,257
Due from affiliates 70 --
Other current assets 1,548 1,561
----------- ------------
Total current assets 32,777 42,818
----------- ------------
NET PROPERTY AND EQUIPMENT 186,779 175,030
----------- ------------
OTHER ASSETS:
Deposits and other assets 800 589
Cash and cash equivalents-restricted 6,628 13,114
Intangible assets, net 30,499 30,844
----------- ------------
Total other assets 37,927 44,547
----------- ------------
TOTAL ASSETS $ 257,483 $ 262,395
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 2,992 $ 5,936
Accrued interest and dividends payable-
related parties 10,156 12,571
Other accrued liabilities 15,610 11,715
Due to affiliates -- 1,182
Current maturities of long-term debt 25,909 25,832
Current maturities of other long-term
obligations 4,583 4,583
----------- ------------
Total current liabilities 59,250 61,819
----------- ------------
LONG-TERM DEBT 142,406 157,139
OTHER LONG-TERM OBLIGATIONS 750 2,000
PARTNERS' EQUITY:
General partner 35,156 23,826
Limited partners 19,921 17,611
----------- ------------
Total partners' equity 55,077 41,437
----------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 257,483 $ 262,395
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
34
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 55,570 $ 25,720
Admissions 3,191 4,023
Food, beverage and other 4,187 1,401
----------- -----------
62,948 31,144
Less promotional allowances (3,197) (3,264)
----------- -----------
Net revenues 59,751 27,880
----------- -----------
COST AND EXPENSES:
Casino 24,032 11,905
Food, beverage and other 3,583 985
Other operating expenses 1,991 3,142
Selling, general and administrative 8,916 4,998
Depreciation and amortization 2,880 2,458
Management fees-related parties 2,654 856
----------- -----------
44,056 24,344
----------- -----------
Income from operations 15,695 3,536
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 446 305
Interest expense (5,271) (1,579)
----------- -----------
(4,825) (1,274)
----------- -----------
Net income prior to preferred equity return 10,870 2,262
Preferred equity return (1,402) (1,363)
Net income attributable to common equity partners $ 9,468 $ 899
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
35
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,468 $ 899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,533 2,154
Amortization 346 304
Accrued preferred equity dividends 1,403 1,363
Changes in operating assets and liabilities:
Due from affiliates (1,252) --
Other current assets (199) (88)
Accounts payable (2,944) (1,345)
Accrued interest payable to related parties (3,818) 2,293
Accrued liabilities 4,331 2,121
----------- -----------
Net cash provided by operating activities 9,868 7,701
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow 6,487 (492)
Purchases of property and equipment (14,283) (12,340)
Payments under development agreement and
other infrastructure improvements -- (1,723)
----------- -----------
Net cash used in investing activities (7,796) (14,555)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (435) (1,699)
Partnership equity distributions (4,034) --
Proceeds from (payments on) long-term debt
and Partners' Equity (7,701) 11,302
----------- -----------
Net cash (used in) provided by financing
activities (12,170) 9,603
----------- -----------
Net (decrease) increase in cash and cash
equivalents (10,098) 2,749
Cash and cash equivalents, beginning of period 41,257 9,216
----------- -----------
Cash and cash equivalents, end of period $ 31,159 $ 11,965
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
36
<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 which 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 including, Conseco Entertainment, L.L.C., ("Conseco") a 29%
limited partner, Centaur, Inc., a 9.5% limited partner and RJ Investments,
Inc., a 4% limited partner. 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.
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.
37
<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 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 March 31, 1998 is $5,333
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 $3,333 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.
38
<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 three months ended March 31,
1998 were favorably impacted by improved performance at Lawrenceburg due to
the opening of the permanent pavilion in December of 1997, and adversely
affected by increased competition at the Riverside property and by a market
decline in Baton Rouge. The Company expects the competitive environment in
each of its markets to remain intense. These factors have resulted in the
Company reporting increased revenues and operating income at Lawrenceburg,
decreased operating income at Riverside and decreased revenues and increased
operating losses at Baton Rouge for the three months ended March 31, 1998.
The Company is in a net operating loss carryforward position at March
31, 1998 and, as such, the Company has not recorded any federal tax benefits
on its 1998 operating losses due to the uncertainty of realization.
39
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASINO REVENUES
Alton $ 17,029 $ 16,422
Riverside 18,359 16,450
Baton Rouge 12,104 12,791
Sioux City 5,261 4,909
Lawrenceburg 55,570 25,720
Corporate -- --
Other -- --
----------- -----------
Total $ 108,323 $ 76,292
----------- -----------
----------- -----------
NET REVENUES
Alton $ 18,058 $ 17,742
Riverside 19,614 17,787
Baton Rouge 12,704 13,513
Sioux City 5,477 5,132
Lawrenceburg 59,751 27,880
Corporate 41 354
Other 55 87
----------- -----------
Total $ 115,700 $ 82,495
----------- -----------
----------- -----------
INCOME (LOSS) FROM OPERATIONS(1)
Alton $ 3,393 $ 2,630
Riverside 614 1,644
Baton Rouge(2) (1,457) (348)
Sioux City 264 (16)
Lawrenceburg 17,287 4,050
Corporate(4) (2,863) (3,620)
Other (1,587) (629)
----------- -----------
Total $ 15,651 $ 3,711
----------- -----------
----------- -----------
EBITDA(1)(3)
Alton $ 4,357 $ 3,650
Riverside 2,091 3,013
Baton Rouge(2) (164) 1,044
Sioux City 518 220
Lawrenceburg 20,166 6,508
Corporate(4) (2,657) (3,023)
Other (594) 193
----------- -----------
Total $ 23,717 $ 11,605
----------- -----------
----------- -----------
</TABLE>
40
<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 and in the case of Sioux City and
Lawrenceburg before the 30% and 42.5% minority interests, respectively.
(2) Excludes operating loss of approximately $1,473 and $1,134 for the three
months ended March 31, 1998 and 1997, respectively, primarily
depreciation, amortization and operating expenses related to the Catfish
Town land based development in Baton Rouge.
(3) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of 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. The Company has other
significant uses of cash flows, including capital expenditures, which are
not reflected in EBITDA.
(4) Excludes severance expenses of approximately $1.8 million for the three
months ended March 31, 1997.
41
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
CASINO--Casino revenues for the three months ended March 31, 1998
increased by $32.0 million to $108.3 million from $76.3 million for the three
months ended March 31, 1997 due primarily to a $29.9 million increase in
casino revenues at the Lawrenceburg casino, which generated total casino
revenues of $55.6 million for the three months ended March 31, 1998. The
Company's other properties reported an aggregate 4.2% increase in casino
revenues from $50.6 to $52.7 million. In particular Alton casino
revenues increased from $16.4 to $17.0 million, Riverside casino revenues
increased from $16.4 to $18.4 million and Sioux City casino revenues
increased from $4.9 to 5.3 million. Baton Rouge casino revenues decreased
from $12.8 to $12.1 million.
Casino expenses increased to $52.6 million for the three months ended
March 31, 1997 from $39.2 million for the three months ended March 31, 1997.
This increase is primarily due to increased Lawrenceburg casino expenses of
$12.1 million to $24.0 million attributable to the overall increase in
Lawrenceburg casino revenues of $29.9 million.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $2.8
million to $11.1 million for the three month period ended March 31, 1998, due
to the increased casino revenues generated by the Lawrenceburg casino. Food,
beverage and other net profit improved $.3 million to $1.8 million for the
three months ended March 31, 1998 due primarily to the increases in customers
at the Lawrenceburg casino.
OTHER OPERATING EXPENSES--Other operating expenses decreased $.4 million
to $6.6 million for the three months ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $5.6 million to $23.3 million for the three months ended
March 31, 1998 due primarily to an increase of $3.9 million at Lawrenceburg
relating to expanded marketing and operating costs of the larger facility and
due to an increase of $1.0 million at Riverside due to expanded marketing
efforts.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$.2 million from $7.9 million for the three months ended March 31, 1997 to
$8.1 million for the three months ended March 31, 1998.
INTEREST EXPENSE--Net interest expense increased $3.0 million to $13.5
million for the three months ended March 31, 1998. The increase in interest
expense is primarily attributable to additional loans by the partners of the
Lawrenceburg casino and an equipment loan at the Indiana partnership.
42
<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 faces competition from four casino companies in
the Kansas City area that offer dockside gaming, two of which offer two
gaming vessels each. 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 three months ended March 31, 1998, the Company generated cash
flows from operating activities of $22.0 million compared to $23.2 million
for the same period in 1997. Cash flow from operating activities increased
by $7.9 million for the three months ended March 31, 1998 over the same
period in 1997 when the effect of an income tax receivable decrease of $9.1
million for 1997 is excluded from total 1997 cash flows.
In the three months ended March 31, 1998, the Company used cash flows
for investing activities of $8.2 million versus $14.4 million for the three
months ended March 31, 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 three months ended March 31, 1998, the Company used $8.8
million in cash flows for financing activities compared to generating $3.8
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 obligations. In 1997, the Company had proceeds from partnership
loans of $5.8 million, offset by payments on long-term obligations and other
of $2.0 million.
As of March 31, 1998, the Company had approximately $64.3 million of cash,
cash equivalents, and marketable securities, including approximately $31.1
million held at the Indiana Partnership. Approximately $19.8 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 $17.4
of restricted cash, $10.8 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 $6.6
million in an escrow account representing unbilled construction costs 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.
43
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company has made a significant investment in property and equipment
and plans to make significant additional investments at certain of its
existing properties, particularly Lawrenceburg, Indiana. The Company
currently estimates that the total construction costs of the Lawrenceburg
casino and entertainment project will approximate $225 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 March 31, 1998, approximately
$194 has been contributed to the partnership for the project by all partners.
Of the remaining Lawrenceburg construction costs, approximately $6 will be
funded by the Company from the disbursement account under provisions of the
partnership agreement, as Conseco has fulfilled its funding obligation as of
March 31, 1998. The Company expects that the restricted cash on hand at
March 31, 1998, together with the $13.2 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 March
31, 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 $13.9 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. The company's ability to meet its
operating and debt service requirements, however is substantially dependent
upon the success of the permanent 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 equity financing or without the disposition of assets. No assurance can
be give that the Company would be able to obtain such additional financing on
a suitable terms or sell assets on favorable terms, if required. In light of
the foregoing, the company has retained and has been working with financial
advisory firms to consider various options with respect to the Company's
capital structure, including possible debt and equity financings and asset
dispositions. The disposal of assets could result in a significant charge to
earnings.
44
<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. The
Company also has initiated discussions with its significant suppliers, large
customers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. The Company
is assessing the extent to which its operations are vulnerable should those
organizations fail to properly remediate their computer systems.
The Company's comprehensive Year 2000 initiative is being managed by a
team of internal staff and outside consultants. The team's activities are
designed to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers, and
financial institutions are fully supported. While the Company believes its
planning efforts are adequate to address its Year 2000 concerns, there can be
no guarantee that the systems of other companies on which the Company's
systems and operations rely will be converted on a timely basis and will not
have a material affect on the Company. The cost of the Year 2000 initiative
is not expected to be material to the Company's results of operation or
financial position.
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) DELAYS OR COST-OVERRUNS WITH RESPECT TO THE LAWRENCEBURG CASINO WHICH
COULD SIGNIFICANTLY IMPAIR THE ABILITY OF THE COMPANY TO MEET ITS DEBT
SERVICE REQUIREMENTS, (iv) THE EFFECT OF FUTURE LEGISLATION OR REGULATORY
CHANGES ON THE COMPANY'S OPERATIONS, AND (v) 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.
45
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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. The Company does not believe that the
results of such legal proceedings, 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
46
<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
is set for June 1, 1998.
MARION COUNTY, INDIANA GRAND JURY
On or after March 15, 1996, the Company, its partners in the
Lawrenceburg casino project and certain other individuals and entities were
served with document request subpoenas issued by the Office of the
Prosecuting Attorney of Marion County, Indiana in connection with a grand
jury investigation entitled: STATE OF INDIANA V. ORIGINAL
INVESTIGATION-OFFICIAL MISCONDUCT. Indiana law requires that at the time a
target of an investigation is determined, that entity or person must be so
advised by the Office of the Prosecuting Attorney. On March 23, 1996 the
Company was advised by the Marion County prosecutor that no target subpoenas
had been issued by the grand jury in its investigation as of that date. As
described below, the grand jury has since handed up indictments on April 28,
1997 against four persons, but the Company and the partners of the Indiana
Partnership continue not to have been advised by the Marion County Prosecutor
that any of them is a target of the investigation. However, there can be no
assurance that further targets will not be identified as further information
and documents are obtained and considered by the grand jury. Due to the
confidential nature of grand jury proceedings, the Company is not aware of
the specific subject matter or matters of the investigation, other than to
the extent revealed by the April 28, 1997 indictments. The Company believes
it has fully complied with its subpoena, and has been informed by its
partners that they have done the same.
The subpoenas requested information regarding the current or prior
ownership interest in the Company and the partners of the Indiana Partnership
by the individuals or entities described below. The subpoenas also requested
that the Company and its partners produce a broad category of documents
including documents regarding employment and other agreements, gifts,
payments and correspondence between the Company and any of its partners on
the one hand and several business entities and individuals, including a
then-Indiana state legislator (Samuel Turpin), certain Indiana lobbyists, and
certain Lawrenceburg, Indiana city officials and businessmen on the other
hand. The Company has learned that this legislator (Turpin) has served as an
employee of a subsidiary of Conseco, Inc., the parent company of the 29%
limited partner in the Indiana Partnership since September 1995.
Additionally, the Company has learned that Turpin has served since September
1993 as a consultant to American Consulting Engineers, Inc. ("ACE"), a major
Indiana engineering firm that is engaged in many state and local government
funded construction projects. ACE also serves as lead engineer for the
Lawrenceburg casino project. On May 24, 1996, the Indiana House Legislative
Ethics Committee voted to reprimand, but take no further action against,
Turpin for failing to properly report the foregoing employment and consulting
arrangements on his 1993, 1994 and 1995 statements of economic interests. On
June 27, 1996, Turpin announced his resignation as chairman of the Indiana
House Ways and Means Committee. Turpin did not seek re-election in 1996 and
is no longer a member of the Indiana House of Representatives.
On April 28, 1997, the grand jury made a "First and Partial Report" that
handed up felony indictments against (1) Willis Conner, co-owner of ACE; (2)
Kenneth Cragen, president of and lobbyist for the Indiana Motor Truck
Association ("IMTA"); (3) Turpin; and (4) James Wurster, co-owner of ACE.
Conner, Wurster and Turpin are each charged with one count of bribery in
connection with payments made by ACE to Turpin while he served in the Indiana
General Assembly, which payments were stated to be for consulting fees for
duties outside the legislative process, but which the indictment charges were
in return for official acts by Turpin that promoted the economic interests of
ACE. The press release by the Marion County prosecutor at the time of the
indictments
47
<PAGE>
described those economic interests as including "the promoting of certain
riverboat gaming interests in which ACE had a financial interest, the
diverting of state funds into highway construction and, while Turpin was a
member of the State Budget Committee, the release of state funds that
benefited particular ACE public works projects." Turpin was also charged
with five counts of filing fraudulent campaign finance reports, and one count
of perjury in connection with a sworn statement to the Indiana Bureau of
Motor Vehicles. Wurster was also charged with one count, and Cragen with two
counts, of unlawful lobbying in connection with lobbying activities involving
IMTA and ACE.
The company (including entities controlled by its employees) believes
that it has not engaged in, or been informed by its partners that they have
engaged in, any illegal conduct in the pursuit of or the granting of the
gaming license to the Indiana partnership of Lawrenceburg. Because the grand
jury proceedings were unlikely to be concluded quickly, on March 25, 1996, a
former U.S. Attorney (James Richmond) and his law firm were retained to
conduct, as special independent counsel (the "special independent counsel"),
an internal investigation into the activities and actions of the Company and
the entities controlled by any person employed by the Company with respect to
(i) the hiring by Conseco, Inc. and the Indiana engineering firm of the
then-state legislator, (Turpin) (ii) the endorsement of the Indiana
Partnership by the City of Lawrenceburg and the financial affairs of certain
Lawrenceburg officials with respect to such endorsement and the awarding of
the certificate of suitability by the Indiana Gaming Commission, and (iii)
their lobbying efforts in furtherance of the Indiana legislature's enactment
of legislation authorizing gaming and limiting gaming licenses to one per
county. A special committee of independent directors of the Company was
appointed to supervise and coordinate the special independent counsel's
investigation. The special independent counsel did not investigate Conseco,
Inc. The Company was advised that Conseco, Inc. also retained independent
counsel and such counsel conducted its own internal investigation of matters
that may be the subject of the grand jury proceedings and such investigation
found no wrongdoing by Conseco, Inc. or any person or entity it controls, or
is controlled by.
From March 25 to April 15, 1996, the special independent counsel
conducted its investigation and issued an interim report in which it
concluded that it found no evidence that the Company or any entity controlled
by or person employed by the Company had any involvement in, or knowledge of,
the relationship between the then-state legislator (Turpin) and Conseco, Inc.
or the Indiana engineering firm (ACE), or attempted to improperly influence
any City of Lawrenceburg official, state legislator or Indiana Gaming
Commission member or staff member in connection with the endorsement of the
partnership by the City of Lawrenceburg and the awarding of the certificate
of suitability to the Indiana Partnership with regard to lobbying, including
the lobbying with respect to one gaming license per county legislation. The
special independent counsel found no evidence that the Company or any entity
controlled by or person employed by the Company attempted to unduly influence
any legislator in any way. However, no investigation was made of any
lobbyist's records, activities or expenditures, nor were any outside
lobbyists interviewed. The special independent counsel also audited the
Company's compliance with the lobbying disclosure statute in Indiana and
found only technical errors in the Company's lobbying disclosure statements.
No evidence was found that these technical errors were intentional or
designed to hide any lobbying activity. In conducting its investigation, the
special independent counsel, among other things, reviewed numerous boxes of
documents produced by the executive and Lawrenceburg offices of the Company
and extensively interviewed the nine Company officers and employees most
closely related to the Lawrenceburg Casino project, as well as the principal
of R.J. Investments, Inc., a 4% limited partner of the Indiana Partnership.
Several months after the completion of his investigation, the special
independent counsel (Richmond) was retained as Acting General Counsel of the
Company for the period January 14, 1997 through April 30, 1997.
48
<PAGE>
No assurance can be given, however, that the nature and scope of the
investigation conducted by the special independent counsel for the Company
and Conseco, was sufficient to uncover conduct that might be considered
unlawful. In the event that the Company, any entity controlled by the
Company, any person employed by the Company, the Indiana Partnership or any
of its partners is found by the Marion County prosecutor to have engaged in
unlawful conduct, there is no assurance what effect such action would have on
the Indiana Partnership's gaming license.
In the event that a partner is determined by the Indiana Gaming
Commission to be unsuitable for ownership of a gaming license, the terms of
the Indiana Partnership's partnership agreement provide that the Indiana
Partnership shall redeem 100% of such unsuitable partner's interest for an
amount equal to 90% of the "appraised value" of that partner's interest,
determined in accordance with the terms of the partnership agreement. The
purchase price is payable in five annual installments, only from available
cash flow or sale or financing proceeds of the partnership, and bears
interest at "prime". Also, there can be no assurance that the Indiana Gaming
Commission would not take other actions such as suspending, revoking or
failing to renew the Indiana Partnership's gaming license. There can be no
assurance that the grand jury investigation will not lead to events having a
material adverse effect on the Company.
Since April 1, 1998, the Company has been served with two additional
document subpoenas from the Marion County, Indiana Grand Jury relating to (i)
John Frick & Associates, Inc. and its principal James A. Perucker and (ii)
the Indiana Gaming Association and its Executive Director John Barnett. The
Company has from time to time retained Mr. Perucker and his firm to act as
its lobbyist in the State of Indiana. The Company is, and has been for
years, a member of the Indiana Gaming Association, an industry trade
association which also conducts lobbying activities in the State of Indiana.
Since May 1, 1998, Indiana Gaming Company, L.P., the partnership which owns
and operates the Lawrenceburg, Indiana Casino and which the Company's
subsidiary, Indiana Gaming Company is the general partner, also received a
similar document subpoena relating to the Indiana Gaming Association and its
Executive Director John Barnett. The Company is working with its special
independent counsel to comply with the most recent document subpoenas.
CONSERVANCY DISTRICT LEASE LITIGATION IN DEARBORN COUNTY, INDIANA
On March 21, 1997, Deborah S. Whitacre filed an action in the Circuit
Court of Dearborn County, Indiana as Cause No. 15CO1-9703-CP-073, challenging
the validity of a lease to the City by the Conservancy District of
Lawrenceburg, Indiana (the "District") of certain land owned by the District,
which land has in turn been subleased by the City to the Company's affiliate
Indiana Gaming and is being used for development and operation of the
riverboat gaming facility in the City for which Indiana Gaming has been
awarded a riverboat owner's license by the Commission. Defendants are the
District and its individual directors. In early 1998, Indiana Gaming sought
and obtained permission from the court to intervene to assist in defending
the validity of the challenged lease. The District and its directors have
advised that they are contesting the action and intend to continue to do so
vigorously. Indiana Gaming also intends to contest the action vigorously.
PENDING INTERNAL REVENUE SERVICE AUDIT
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
49
<PAGE>
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 $11.0
million including interest through March 31, 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.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
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, dated March 18, 1998, filed with the
Securities and Exchange Commission containing certain financial
information of the Company for the year ended December 31, 1997.
50
<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.
Date: May 14, 1998 /s/ Dale R. Black
-------------------- ----------------------------------------------
Dale R. Black
Vice President-Chief Financial Officer
(Principal Accounting Officer)
51
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1998 FORM 10-Q OF ARGOSY GAMING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 64301
<SECURITIES> 0
<RECEIVABLES> 3971
<ALLOWANCES> 1882
<INVENTORY> 1312
<CURRENT-ASSETS> 74681
<PP&E> 477228
<DEPRECIATION> 79216
<TOTAL-ASSETS> 563026
<CURRENT-LIABILITIES> 79822
<BONDS> 350000
0
0
<COMMON> 245
<OTHER-SE> 29947
<TOTAL-LIABILITY-AND-EQUITY> 563026
<SALES> 0
<TOTAL-REVENUES> 115700
<CGS> 0
<TOTAL-COSTS> 100049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 362
<INTEREST-EXPENSE> (14292)
<INCOME-PRETAX> (1437)
<INCOME-TAX> (100)
<INCOME-CONTINUING> 15651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2537)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
