<PAGE>
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 SEPTEMBER 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21122
ARGOSY GAMING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 37-1304247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 24,498,333 shares of Common
Stock, $.01 par value per share, as of October 30, 1998.
<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 4
Notes to Condensed Consolidated Financial Statements 5
FINANCIAL STATEMENTS OF GUARANTOR SUBSIDIARIES OF THE COMPANY'S FIRST
MORTGAGE NOTES PROVIDED PURSUANT TO RULE 3-10 OF REGULATION S-X.
FINANCIAL STATEMENTS OF ALTON GAMING COMPANY
Condensed Balance Sheets 11
Condensed Statements of Income 12
Condensed Statements of Cash Flows 14
Notes to Condensed Financial Statements 15
FINANCIAL STATEMENTS OF THE MISSOURI GAMING COMPANY
Condensed Balance Sheets 16
Condensed Statements of Operations 17
Condensed Statements of Cash Flows 19
Notes to Condensed Financial Statements 20
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 21
Condensed Consolidated Statements of Operations 22
Condensed Consolidated Statements of Cash Flows 24
Notes to Condensed Consolidated Financial Statements 25
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 26
Condensed Statements of Operations 27
Condensed Statements of Cash Flows 29
Notes to Condensed Financial Statements 30
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 31
Condensed Statements of Operations 32
Condensed Statements of Cash Flows 34
Notes to Condensed Financial Statements 35
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 36
Condensed Consolidated Statements of Income 37
Condensed Consolidated Statements of Cash Flows 39
Notes to Condensed Consolidated Financial Statements 40
<PAGE>
TABLE OF CONTENTS (CONTINUED)
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 42
Condensed Statements of Income 43
Condensed Statements of Cash Flows 45
Notes to Condensed Financial Statements 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 48
PART II
Item 1 Legal Proceedings 56
Item 2 Changes in Securities 57
Item 3 Defaults upon Senior Securities 57
Item 4 Submission of Matters to a Vote of Security Holders 57
Item 5 Other Information 57
Item 6 Exhibits and Reports on Form 8-K 57
</TABLE>
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 87,207 $ 59,354
Other current assets 10,189 10,629
------------- -------------
Total current assets 97,396 69,983
------------- -------------
PROPERTY AND EQUIPMENT, NET 401,562 390,343
------------- -------------
OTHER ASSETS:
Restricted cash and cash equivalents 11,041 25,545
Other, net 68,603 73,985
------------- -------------
Total other assets 79,644 99,530
------------- -------------
TOTAL ASSETS $ 578,602 $ 559,856
------------- -------------
------------- -------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 69,736 $ 47,780
Other current liabilities 19,556 21,219
------------- -------------
Total current liabilities 89,292 68,999
------------- -------------
LONG-TERM DEBT 418,321 436,442
OTHER LONG-TERM OBLIGATIONS 2,644 4,133
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 26,286 17,619
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 shares authorized, 800 shares issued and
outstanding 7,710
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 72,001 72,038
Retained deficit (37,897) (39,620)
------------- -------------
Total stockholders' equity 34,349 32,663
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 578,602 $ 559,856
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- ---------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 349,203 $ 234,337
Admissions 11,781 5,376
Food, beverage and other 37,345 25,717
----------------- ---------------
398,329 265,430
Less promotional allowances (24,639) (13,075)
----------------- ---------------
Net revenues 373,690 252,355
COSTS AND EXPENSES:
Casino 165,307 120,077
Food, beverage and other 30,183 21,526
Other operating expenses 20,150 21,104
Selling, general and administrative 72,070 52,151
Development costs 419 516
Depreciation and amortization 24,823 25,231
Severance expense 1,750
----------------- ---------------
Income from operations 60,738 10,000
OTHER INCOME (EXPENSE):
Interest income 2,575 4,733
Interest expense (43,114) (34,891)
----------------- ---------------
(40,539) (30,158)
----------------- ---------------
Income (loss) before minority interests and income taxes 20,199 (20,158)
Minority interests (17,921) (4,578)
Income tax (expense) benefit (445) 1,831
----------------- ---------------
NET INCOME (LOSS) 1,833 (22,905)
Preferred Stock dividends and accretion (110)
----------------- ---------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 1,723 $ (22,905)
----------------- ---------------
----------------- ---------------
Basic income (loss) per share $ 0.07 $ (0.94)
----------------- ---------------
----------------- ---------------
Diluted income (loss) per share $ 0.07 $ (0.94)
----------------- ---------------
----------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 124,330 $ 76,753
Admissions 4,581 1,911
Food, beverage and other 13,780 8,556
------------- -------------
142,691 87,220
Less promotional allowances (9,158) (4,869)
------------- -------------
Net revenues 133,533 82,351
COSTS AND EXPENSES:
Casino 57,935 40,491
Food, beverage and other 10,473 7,443
Other operating expenses 6,847 7,352
Selling, general and administrative 23,977 17,110
Development costs 152 193
Depreciation and amortization 8,452 8,829
------------- -------------
Income from operations 25,697 933
OTHER INCOME (EXPENSE):
Interest income 933 1,898
Interest expense (14,627) (11,676)
------------- -------------
(13,694) (9,778)
------------- -------------
Income (loss) before minority interests and income taxes 12,003 (8,845)
Minority interests (7,697) (1,298)
Income tax (expense) benefit (195) 520
------------- -------------
NET INCOME (LOSS) 4,111 (9,623)
Preferred Stock dividends and accretion (95)
------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 4,016 $ (9,623)
------------- -------------
------------- -------------
Basic income (loss) per share $ 0.17 $ (0.39)
------------- -------------
------------- -------------
Diluted income (loss) per share $ 0.15 $ (0.39)
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to Common Shareholders $ 1,723 $ (22,905)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 23,021 23,691
Amortization 3,227 2,981
Accrued Preferred Stock dividends 110
Compensation expense recognized on issuance of stock 198 107
Deferred income taxes (1,831)
Minority interests 17,921 4,578
Changes in operating assets and liabilities:
Income taxes receivable 9,144
Other current assets 1,130 1,681
Deposits (1,673)
Accounts payable and other current liabilities 22,849 13,786
-------------- --------------
Net cash provided by operating activities 70,179 29,559
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (30,980) (82,864)
Decrease in restricted cash held by trustees 14,504 36,447
Decrease in long term obligations (3,750) (4,307)
Decrease (increase) in other assets 919 (826)
-------------- --------------
Net cash used in investing activities (19,307) (51,550)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts (5,219) (3,890)
(Repayment of) proceeds from partner loans (15,032) 34,778
Partnership equity distributions (7,438) (838)
Proceeds (net of issuance costs) from sale of
Preferred Stock and Warrants 7,365
Payment of preferred equity return to partner (2,709) (764)
Decrease (increase) in other assets 14 (225)
-------------- --------------
Net cash (used in) provided by financing activities (23,019) 29,061
-------------- --------------
Net increase in cash and cash equivalents 27,853 7,070
Cash and cash equivalents, beginning of period 59,354 38,284
-------------- --------------
Cash and cash equivalents, end of period $ 87,207 $ 45,354
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public 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.
As of September 30, 1998 the Company is in a net operating loss position
and, therefore, has recorded a valuation allowance of $13.2 million against its
deferred tax assets.
2. SALE OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A Convertible
Preferred Stock, together with warrants to purchase an additional 292,612 shares
of Common Stock. The Convertible Preferred Shares mature in seven years and the
Company has the right to force conversion and/or redeem the Holders at maturity.
The warrants expire in five years.
The Convertible Preferred Shares provide for a 4% dividend per annum,
payable in cash and/or in kind, at the time of conversion or maturity, at the
Company's option.
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Convertible Preferred Shares are convertible at the lower
of the fixed initial strike price or a floating price. The fixed strike price
may be reset downward on March 13, 1999 depending on market conditions and is
subject to adjustment upon the occurrence of certain events. The floating price
is based on the market price of the Company's Common Stock. The Convertible
Preferred Shares will be convertible in increments beginning October 14, 1998
and in full on January 12, 1999. The warrants may be exercised at the fixed
stock price subject to the same adjustment provisions.
This transaction provides for put and call options which, subject to
certain restrictions and limitations, allows for up to an additional $8,000 of
Convertible Preferred Shares and Warrants to be issued.
The Convertible Preferred Shares are required to be redeemed by the Company
if certain triggering events occur.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------------ ------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) $ 1,833 $ (22,905) $ 4,111 $ (9,623)
Preferred stock dividends (110) (95)
----------------- ----------------- ----------------- -----------------
Numerator for basic earnings per share - 1,723 (22,905) 4,016 (9,623)
Income (loss) attributable to common shareholders
Effect of dilutive securities:
Preferred stock dividends 95
----------------- ----------------- ----------------- -----------------
Numerator for diluted earnings per share -
Income (loss) attributable to common shareholders $ 1,723 $ (22,905) $ 4,111 $ (9,623)
after assumed conversions
DENOMINATOR:
Denominator for basic earnings per share -
Weighted-average shares outstanding 24,333,333 24,333,333 24,333,333 24,333,333
Effect of dilutive securities:
Restricted stock 105,828 90,717
Preferred Stock 2,847,500
----------------- ----------------- ----------------- -----------------
Dilutive potential common shares 105,828 2,938,217
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 24,439,161 24,333,333 27,271,550 24,333,333
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Basic earnings per share $ 0.07 $ (0.94) $ 0.17 $ (0.39)
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Diluted earnings per share $ 0.07 $ (0.94) $ 0.15 $ (0.39)
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
9
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Employee and directors stock options to purchase 1,740,679 shares of common
stock at prices ranging from $3.313 to $19.375 were not included in the
computation of diluted earnings per share because the options exercise price was
greater than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.
Warrants to purchase 292,612 shares of common stock at $3.89 per share were
outstanding at September 30, 1998 but were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
anti-dilutive.
Convertible Preferred Stock (convertible into 1,117,870 shares of common
stock at September 30, 1998) were issued during the three months ended June 30,
1998 but were not included in the computation of year-to-date diluted earnings
as the amount of dividend and accretion recognized during the period per common
share obtainable on conversion, exceeded year-to-date basic earnings per share
thus the effect would be anti-dilutive.
12% Convertible Debentures (convertible into 6,497,175 shares of common
stock at $17.70 per share) were outstanding at September 30, 1998 but were not
included in the computation of diluted earnings per share as the net interest
expense per common share obtainable on conversion exceeded basic earnings per
share, thus the effect would be anti-dilutive.
4. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA DEVELOPMENT--On December 10, 1996 the Indiana
Partnership was awarded a gaming license and commenced operations. Under
terms of the Lawrenceburg partnership agreement, after the third anniversary
date of commencement of operations at the Lawrenceburg casino, each limited
partner has the right to sell its interest to the other partners (pro rata in
accordance with their respective percentage interests). In the event of this
occurrence, if the partners cannot agree on a selling price, the Indiana
Partnership will be sold in its entirety.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result of
a certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
10
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has proposed certain adjustments with respect to the Company
and the Predecessor for the 1992 and 1993 tax years principally regarding the S
Corporation status. If the IRS successfully challenges the Predecessor's
S-Corporation status, the Company would be required to pay federal and certain
state income taxes on the Predecessor's taxable income from the commencement of
its operations until February 25, 1993 (plus interest and penalties, if any,
thereon until the date of payment). If the Predecessor was required to pay
federal and state income taxes on its taxable earnings through February 25,
1993, such payments could amount to approximately $13.2 million, including
interest through September 30, 1998, but excluding penalties, if any. The
Company intends to protest these proposed adjustments to the Appeals Office of
the IRS and vigorously contest these proposed adjustments. While the Company
believes the Predecessor has legal authority for its position that it is not
subject to federal and certain state income taxes because it met the
S-Corporation requirements, no assurances can be given that the Predecessor's
position will be upheld. This contingent liability could have a material
adverse effect on the Company's results of operations, financial condition and
cash flows. No provision has been made for this contingency in the accompanying
condensed consolidated financial statements.
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the financial condition
of the Company.
5. SUBSIDIARY GUARANTORS
The Company has issued $235 million First Mortgage Notes, due 2004,
("Mortgage Notes"). The Mortgage Notes rank senior in right of payment to all
existing and future indebtedness of the Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and several
basis, by the following wholly-owned subsidiaries of the Company: Alton Gaming
Company, The Missouri Gaming Company, The St. Louis Gaming Company, Iowa Gaming
Company, Jazz Enterprises, Inc., Argosy of Louisiana, Inc., Catfish Queen
Partnership in Commendam and The Indiana Gaming Company (the "Guarantors"). The
Mortgage Notes are secured, subject to certain prior liens, by a first lien on
(i) substantially all of the assets of the Company including the assets used in
the Company's Alton, Riverside, Baton Rouge and Sioux City operations, (ii) a
pledge of all the capital stock of, and partnership interests in, the Company's
subsidiaries, excluding the Company's partnership interest in its Sioux City
property, (iii) a pledge of the intercompany notes payable to the Company from
its subsidiaries and (iv) an assignment of the proceeds of the management
agreement relating to the Lawrenceburg Casino project. The collateral for the
Mortgage Notes does not include the assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of September 30, 1998 and December 31, 1997 and summarized operating
statement information for the nine and three months ended September 30, 1998 and
1997. The column labeled "Parent Company" represents the holding company for
each of the Company's direct subsidiaries, the column labeled "Guarantors"
represents each of the Company's direct subsidiaries, all of which are
wholly-owned by the parent company, and the column labeled "Non-Guarantors"
represents the partnerships which operate the Company's casino in Sioux City and
Lawrenceburg, Indiana. The Company believes that separate financial statements
and other disclosures regarding the Guarantors, except as otherwise required
under Regulation S-X, are not material to investors.
11
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Summarized balance sheet information as of September 30, 1998 and December 31,
1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 51,889 $ 22,027 $ 33,944 $ (10,464) $ 97,396
Non-current assets 340,647 376,746 229,184 (465,371) 481,206
---------- ---------- ---------- ----------- ----------
$ 392,536 $ 398,773 $ 263,128 $ (475,835) $ 578,602
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
LIABILITIES AND EQUITY:
Current liabilities $ 477 $ 42,058 $ 66,852 $ (20,095) $ 89,292
Non-current liabilities 350,000 304,531 125,305 (332,585) 447,251
Convertible Preferred Stock 7,710 7,710
Stockholders' equity 34,349 52,184 70,971 (123,155) 34,349
---------- ---------- ---------- ----------- ----------
$ 392,536 $ 398,773 $ 263,128 $ (475,835) $ 578,602
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 10,106 $ 27,874 $ 44,581 $ (12,578) $ 69,983
Non-current assets 381,368 387,009 222,577 (501,081) 489,873
---------- ---------- ---------- ----------- ----------
$ 391,474 $ 414,883 $ 267,158 $ (513,659) $ 559,856
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
LIABILITIES AND EQUITY:
Current liabilities $ 8,811 $ 20,595 $ 57,088 $ (17,495) $ 68,999
Non-current liabilities 350,000 348,504 169,605 (409,915) 458,194
Stockholders' equity 32,663 45,784 40,465 (86,249) 32,663
---------- ---------- ---------- ----------- ----------
$ 391,474 $ 414,883 $ 267,158 $ (513,659) $ 559,856
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
12
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Summarized operating statement information for the nine and three months
ended September, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,582 $ 158,662 $ 224,291 $ (10,845) $ 373,690
Costs and expenses 8,012 139,777 166,987 (1,824) 312,952
Net interest expense (income) 28,722 (3,875) 15,033 659 40,539
Net income (loss) attributable
to common shareholders $ 1,723 $ 6,358 $ 37,984 $ (44,342) $ 1,723
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 4,634 $ 146,983 $ 110,255 $ (9,517) $ 252,355
Costs and expenses 11,622 140,962 96,214 (6,443) 242,355
Net interest expense (income) 23,692 (395) 3,400 3,461 30,158
Net (loss) income $ (22,905) $ 2,743 $ 6,508 $ (9,251) $ (22,905)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,502 $ 46,621 $ 84,175 $ 1,235 $ 133,533
Costs and expenses 2,912 41,398 64,724 (1,198) 107,836
Net interest expense (income) 9,691 (1,235) 5,237 1 13,694
Net income (loss) attributable
to common shareholders $ 4,016 $ (3,470) $ 16,660 $ (13,190) $ 4,016
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,276 $ 46,010 $ 37,647 $ (2,582) $ 82,351
Costs and expenses 2,647 47,423 33,329 (1,981) 81,418
Net interest expense (income) 7,720 (930) 1,314 1,674 9,778
Net (loss) income $ (9,623) $ (937) $ 1,612 $ (675) $ (9,623)
</TABLE>
13
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash $ 3,105 $ 3,807
Other current assets 1,383 1,450
------------- ------------
Total current assets 4,488 5,257
DUE FROM AFFILIATES 22,229 10,405
NET PROPERTY AND EQUIPMENT 27,341 27,447
OTHER ASSETS 3 6
------------- ------------
TOTAL ASSETS $ 54,061 $ 43,115
------------- ------------
------------- ------------
CURRENT LIABILITIES:
Accounts payable $ 1,538 $ 799
Income taxes payable to affiliate 4,270 214
Other accrued liabilities 5,542 4,395
------------- ------------
Total current liabilities 11,350 5,408
------------- ------------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY 197 186
DEFERRED INCOME TAXES 3,250 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 39,007 33,519
------------- ------------
Total stockholder's equity 39,264 33,776
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 54,061 $ 43,115
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
14
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 51,540 $ 46,905
Food, beverage and other 5,006 5,613
------------- -------------
56,546 52,518
Less promotional allowances (1,752) (1,523)
------------- -------------
Net revenues 54,794 50,995
COSTS AND EXPENSES:
Casino 24,140 23,944
Food, beverage and other 4,399 5,299
Other operating expenses 4,099 4,170
Selling, general and administrative 8,607 8,528
Management fees - related party 1,491 1,766
Depreciation and amortization 2,956 3,237
------------- -------------
Income from operations 9,102 4,051
OTHER INCOME (EXPENSE):
Interest income 53 48
Interest expense (33) (11)
------------- -------------
20 37
------------- -------------
Income before income taxes 9,122 4,088
Income tax expense (3,634) (1,635)
------------- -------------
NET INCOME $ 5,488 $ 2,453
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
15
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 17,223 $ 14,850
Food, beverage and other 1,668 2,000
-------------- -------------
18,891 16,850
Less promotional allowances (545) (540)
-------------- -------------
Net revenues 18,346 16,310
COSTS AND EXPENSES:
Casino 8,090 8,096
Food, beverage and other 1,434 1,876
Other operating expenses 1,407 1,433
Selling, general and administrative 2,889 3,268
Management fees - related party 484 478
Depreciation and amortization 1,012 1,128
-------------- -------------
Income from operations 3,030 31
-------------- -------------
OTHER INCOME (EXPENSE):
Interest income 12 25
Interest expense (25) (4)
-------------- -------------
(13) 21
-------------- -------------
Income before income taxes 3,017 52
Income tax expense (1,244) (23)
-------------- -------------
NET INCOME $ 1,773 $ 29
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
16
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,488 $ 2,453
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization 97
Depreciation 2,859 3,237
Deferred income taxes (422) 175
Changes in operating assets and liabilities:
Other current assets (100) (79)
Accounts payable 739 (644)
Income taxes payable to affiliate 4,056 1,460
Other accrued liabilities 1,147 640
------------- -------------
Net cash provided by operating activities 13,864 7,242
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,753) (1,382)
------------- -------------
Net cash used in investing activities (2,753) (1,382)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates (11,824) (5,726)
Increase in other long-term obligations - related party 11 13
------------- -------------
Net cash used in financing activities (11,813) (5,713)
------------- -------------
Net (decrease) increase in cash and cash equivalents (702) 147
Cash and cash equivalents, beginning of period 3,807 3,563
------------- -------------
Cash and cash equivalents, end of period $ 3,105 $ 3,710
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE>
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. 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 $13.2 million, including interest through September 30, 1998,
but excluding penalties, if any. The Company intends to protest these
proposed adjustments to the Appeals Office of the IRS and vigorously contest
these proposed adjustments. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and
certain state income taxes because it met the S-Corporation requirements, no
assurances can be given that the Predecessor's position will be upheld. This
contingent liability could have a material adverse effect on the Company's
results of operations, financial condition and cash flows. No provision has
been made for this contingency in the accompanying financial statements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes"). The assets of the Company are pledged as collateral, and
the Company is a guarantor, under the terms of the Mortgage Notes.
18
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash $ 3,783 $ 3,629
Income taxes receivable from affiliate 94 94
Other current assets 1,853 1,897
-------------- -------------
Total current assets 5,730 5,620
NET PROPERTY AND EQUIPMENT 68,039 70,878
OTHER ASSETS 1,328 2,198
-------------- -------------
TOTAL ASSETS $ 75,097 $ 78,696
-------------- -------------
-------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 927 $ 1,352
Other accrued liabilities 5,380 3,692
-------------- -------------
Total current liabilities 6,307 5,044
-------------- -------------
DUE TO AFFILIATES 51,011 56,007
DEFERRED INCOME TAXES 2,109 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 10,670 10,794
-------------- -------------
Total stockholder's equity 15,670 15,794
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 75,097 $ 78,696
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
19
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 53,067 $ 46,412
Food, beverage and other 8,514 7,233
----------------- -----------------
61,581 53,645
Less promotional allowances (4,818) (3,706)
----------------- -----------------
Net revenues 56,763 49,939
COSTS AND EXPENSES:
Casino 28,432 24,916
Food, beverage and other 6,527 6,244
Other operating expenses 3,383 2,978
Selling, general and administrative 10,707 8,508
Depreciation and amortization 4,478 4,462
----------------- -----------------
Income from operations 3,236 2,831
OTHER INCOME (EXPENSE):
Interest income 38 201
Interest expense (3,405) (4,006)
----------------- -----------------
(3,367) (3,805)
----------------- -----------------
Loss before income taxes (131) (974)
Income tax benefit 7 361
----------------- -----------------
NET LOSS $ (124) $ (613)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
20
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 17,712 $ 14,745
Food, beverage and other 2,521 2,297
----------------- -----------------
20,233 17,042
Less promotional allowances (1,330) (1,278)
----------------- -----------------
Net revenues 18,903 15,764
COSTS AND EXPENSES:
Casino 9,157 8,124
Food, beverage and other 1,883 2,093
Other operating expenses 1,187 1,104
Selling, general and administrative 3,368 2,695
Depreciation and amortization 1,447 1,724
----------------- -----------------
Income from operations 1,861 24
OTHER INCOME (EXPENSE):
Interest income 13 107
Interest expense (1,067) (1,248)
----------------- -----------------
(1,054) (1,141)
----------------- -----------------
Income (loss) before income taxes 807 (1,117)
Income tax (expense) benefit (346) 443
----------------- -----------------
NET INCOME (LOSS) $ 461 $ (674)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
21
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (124) $ (613)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 4,358 4,296
Amortization 120 166
Deferred income taxes 227 261
Changes in operating assets and liabilities:
Income taxes receivable from affiliate (624)
Other current assets 76 827
Accounts payable (382) (1,665)
Other accrued liabilities 1,099 151
Other assets 749 (136)
----------------- -----------------
Net cash provided by operating activities 6,123 2,663
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,140) (876)
----------------- -----------------
Net cash used in investing activities (1,140) (876)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (118) (94)
Due to affiliates (4,711) (3,802)
----------------- -----------------
Net cash used in financing activities (4,829) (3,896)
----------------- -----------------
Net increase in cash and cash equivalents 154 (2,109)
Cash and cash equivalents, beginning of period 3,629 6,143
----------------- -----------------
Cash and cash equivalents, end of period $ 3,783 $ 4,034
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
22
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
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.
23
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 2,583 $ 3,429
Other current assets 1,836 1,655
----------------- -----------------
Total current assets 4,419 5,084
NET PROPERTY AND EQUIPMENT 41,055 43,896
OTHER ASSETS 1,740 1,821
----------------- -----------------
TOTAL ASSETS $ 47,214 $ 50,801
----------------- -----------------
----------------- -----------------
CURRENT LIABILITIES:
Accounts payable $ 418 $ 771
Due to affiliates 2,862 1,795
Other accrued liabilities 7,057 5,013
Current maturities of long-term debt-related party 10,268 10,268
----------------- -----------------
Total current liabilities 20,605 17,847
----------------- -----------------
LONG-TERM DEBT-RELATED PARTY 37,788 37,842
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 2,060 2,672
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares authorized
issued and outstanding 1 1
Accumulated deficit (13,240) (7,561)
----------------- -----------------
Total stockholder's deficit (13,239) (7,560)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 47,214 $ 50,801
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
24
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 35,812 $ 37,856
Food, beverage and other 4,733 5,487
----------------- -----------------
40,545 43,343
Less promotional allowances (2,960) (3,302)
----------------- -----------------
Net revenues 37,585 40,041
COSTS AND EXPENSES:
Casino 22,058 22,236
Food, beverage and other 4,372 5,120
Other operating expenses 3,759 3,892
Selling, general and administrative 8,759 9,765
Depreciation and amortization 3,932 4,178
----------------- -----------------
Loss from operations (5,295) (5,150)
INTEREST (EXPENSE) INCOME NET:
Interest to related party (1,055) (1,202)
Other 59 69
----------------- -----------------
Loss before minority interest and income taxes (6,291) (6,283)
Minority interest 612 608
Income tax benefit 490
----------------- -----------------
NET LOSS $ (5,679) $ (5,185)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
25
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 11,527 $ 11,660
Food, beverage and other 1,400 1,801
----------------- -----------------
12,927 13,461
Less promotional allowances (885) (1,064)
----------------- -----------------
Net revenues 12,042 12,397
COST AND EXPENSES:
Casino 7,322 7,155
Food, beverage and other 1,367 1,658
Other operating expenses 1,189 1,340
Selling, general and administrative 2,616 3,205
Depreciation and amortization 1,326 1,389
----------------- -----------------
Loss from operations (1,778) (2,350)
INTEREST (EXPENSE) INCOME NET:
Interest to related party (354) (400)
Other 24 22
----------------- -----------------
Loss before minority interest and income taxes (2,108) (2,728)
Minority interest 206 266
Income tax benefit (82) (107)
----------------- -----------------
NET LOSS $ (1,984) $ (2,569)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
26
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,679) $ (5,185)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,851 3,819
Amortization 81 359
Minority interest (612) (608)
Deferred income taxes (491)
Changes in operating assets and liabilities:
Other current assets (181) 369
Accounts payable (353) (567)
Other accrued liabilities 1,971 1,152
----------------- -----------------
Net cash used in operating activities (922) (1,152)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (776) (307)
----------------- -----------------
Net cash used in investing activities (776) (307)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (161)
Increase in due to affiliates 1,067 1,168
Payments on long term debt-related party (54)
----------------- -----------------
Net cash provided by financing activities 852 1,168
----------------- -----------------
Net decrease in cash and cash equivalents (846) (291)
Cash and cash equivalents, beginning of period 3,429 3,051
----------------- -----------------
Cash and cash equivalents, end of period $ 2,583 $ 2,760
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
27
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
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
September 30, 1998, the Company has paid all admission payments due under
the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of the
Mortgage Notes.
28
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 2,583 $ 3,429
Other current assets 1,005 802
----------------- -----------------
Total current assets 3,588 4,231
NET PROPERTY AND EQUIPMENT 40,738 43,579
OTHER ASSETS 1,740 1,821
----------------- -----------------
TOTAL ASSETS $ 46,066 $ 49,631
----------------- -----------------
----------------- -----------------
CURRENT LIABILITIES:
Accounts payable $ 418 $ 771
Other accrued liabilities 4,861 4,071
Accrued interest-related party 1,954 902
Due to affiliates 2,862 1,795
Notes payable and current maturities of long-term
debt-related party 10,268 10,268
----------------- -----------------
Total current liabilities 20,363 17,807
LONG-TERM DEBT-RELATED PARTY 9,103 9,103
PARTNERS' EQUITY 16,600 22,721
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 46,066 $ 49,631
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
29
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 35,812 $ 37,856
Food, beverage and other 4,733 5,487
----------------- -----------------
40,545 43,343
Less promotional allowances (2,960) (3,302)
----------------- -----------------
Net revenues 37,585 40,041
COSTS AND EXPENSES:
Casino 22,058 22,236
Food, beverage and other 4,372 5,120
Other operating expenses 3,759 3,892
Selling, general and administrative 8,579 9,562
Depreciation and amortization 3,932 4,178
----------------- -----------------
Loss from operations (5,115) (4,947)
INTEREST (EXPENSE) INCOME:
Related parties (1,055) (1,202)
Other 49 70
----------------- -----------------
(1,006) (1,132)
----------------- -----------------
NET LOSS $ (6,121) $ (6,079)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
30
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 11,527 $ 11,660
Food, beverage and other 1,400 1,801
----------------- -----------------
12,927 13,461
Less promotional allowances (885) (1,064)
----------------- -----------------
Net revenues 12,042 12,397
COSTS AND EXPENSES:
Casino 7,322 7,155
Food, beverage and other 1,367 1,658
Other operating expenses 1,189 1,340
Selling, general and administrative 2,556 3,137
Depreciation and amortization 1,326 1,389
----------------- -----------------
Loss from operations (1,718) (2,282)
INTEREST (EXPENSE) INCOME:
Related parties (354) (400)
Other 14 23
----------------- -----------------
(340) (377)
----------------- -----------------
NET LOSS $ (2,058) $ (2,659)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
31
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,121) $ (6,079)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,851 3,819
Amortization 81 359
Changes in operating assets and liabilities:
Other current assets (203) 29
Accounts payable (353) (567)
Accrued interest to related parties 1,052 702
Other accrued liabilities 717 464
----------------- -----------------
Net cash used in operating activities (976) (1,273)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (776) (307)
----------------- -----------------
Net cash used in investing activities (776) (307)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (161)
Increase in due to affiliates 1,067 1,289
----------------- -----------------
Net cash provided by financing activities 906 1,289
----------------- -----------------
Net decrease in cash and cash equivalents (846) (291)
Cash and cash equivalents, beginning of period 3,429 3,051
----------------- -----------------
Cash and cash equivalents, end of period $ 2,583 $ 2,760
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
32
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. 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
September 30, 1998, the Partnership has paid all admission payments due under
the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes") . The assets of the Partnership are pledged as collateral,
and the Partnership is a guarantor, under the terms of the Mortgage Notes.
33
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ - $ 20
Other current assets 355 137
----------------- -----------------
Total current assets 355 157
----------------- -----------------
NET PROPERTY AND EQUIPMENT 53,295 54,593
GOODWILL, NET 19,474 19,922
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 1,763 3,390
----------------- -----------------
TOTAL ASSETS $ 76,779 $ 79,954
----------------- -----------------
----------------- -----------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,269 $ 3,000
Current maturities of long-term debt 491 491
----------------- -----------------
Total current liabilities 3,760 3,491
----------------- -----------------
LONG-TERM DEBT 6,744 7,165
LONG-TERM DEBT - RELATED PARTY 74,960 74,072
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares authorized, 200 shares
issued and outstanding
Retained deficit (8,685) (4,774)
----------------- -----------------
Total stockholders's deficit (8,685) (4,774)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 76,779 $ 79,954
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
34
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue - related party $ 2,174 $ 2,271
Rent revenue 262 303
----------------- -----------------
2,436 2,574
COSTS AND EXPENSES:
Operating expenses 834 705
Selling, general and administrative 2,396 956
Depreciation and amortization 1,854 1,766
----------------- -----------------
Loss from operations (2,649) (853)
OTHER EXPENSE:
Interest expense (650) (684)
Equity in loss of unconsolidated partnership (612) (608)
----------------- -----------------
NET LOSS $ (3,911) $ (2,145)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
35
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue - related party $ 692 $ 700
Rent revenue 88 119
----------------- -----------------
780 819
COSTS AND EXPENSES:
Operating expenses 222 260
Selling, general and administrative 569 321
Depreciation and amortization 588 589
----------------- -----------------
Loss from operations (599) (351)
OTHER EXPENSE:
Interest expense (213) (224)
Equity in loss of unconsolidated partnership (206) (266)
----------------- -----------------
NET LOSS $ (1,018) $ (841)
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
36
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,911) $ (2,145)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation 1,317 1,318
Amortization 537 448
Equity in loss of unconsolidated partnership 612 608
Changes in operating assets and liabilities:
Other current assets (218) (76)
Accounts payable and accrued liabilities 269 622
----------------- -----------------
Net cash (used in) provided by operating activities (1,394) 775
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15) (785)
----------------- -----------------
Net cash used in investing activities (15) (785)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (421) (298)
Advances from affiliate 888 1,217
Decrease (increase) in other assets 922 (826)
----------------- -----------------
Net cash provided by financing activities 1,389 93
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (20) 83
Cash and cash equivalents, beginning of period 20
----------------- -----------------
Cash and cash equivalents, end of period $ - $ 83
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
37
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. 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 September 30, 1998, the
partnership has paid all admission payments due under the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes"). The assets of the Company are pledged as collateral, and
the Company is a guarantor, under the terms of the Mortgage Notes.
38
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 29,907 $ 41,257
Other current assets 1,509 1,635
----------------- -----------------
Total current assets 31,416 42,892
----------------- -----------------
NET PROPERTY AND EQUIPMENT 196,253 176,407
----------------- -----------------
OTHER ASSETS:
Deposits 530
Cash and cash equivalents-restricted 13,114
Other, net 29,808 30,844
Deferred income taxes 1,295 2,785
----------------- -----------------
Total other assets 31,103 47,273
----------------- -----------------
TOTAL ASSETS $ 258,772 $ 266,572
----------------- -----------------
----------------- -----------------
CURRENT LIABILITIES:
Accounts payable $ 2,953 $ 5,936
Accrued interest and dividends payable-related parties 2,692 5,260
Other accrued liabilities 44,275 17,951
Current maturities of long-term debt 13,097 12,856
Current maturities of other long-term obligations 2,333 4,583
----------------- -----------------
Total current liabilities 65,350 46,586
----------------- -----------------
LONG-TERM DEBT 139,211 195,405
OTHER LONG-TERM OBLIGATIONS 500 2,000
MINORITY INTERESTS 26,218 17,656
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares authorized
issued and outstanding
Retained earnings 27,493 4,925
----------------- -----------------
Total stockholder's equity 27,493 4,925
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 258,772 $ 266,572
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
39
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 192,101 $ 87,775
Admissions 11,781 5,376
Food, beverage and other 17,294 4,620
----------------- -----------------
221,176 97,771
Less promotional allowances (14,295) (3,685)
----------------- -----------------
Net revenues 206,881 94,086
COSTS AND EXPENSES:
Casino 81,011 39,438
Food, beverage and other 13,586 3,568
Other operating expenses 6,236 9,654
Selling, general and administrative 30,669 15,637
Management fees-related parties 3,687 1,289
Depreciation and amortization 9,270 8,324
----------------- -----------------
Income from operations 62,422 16,176
OTHER INCOME (EXPENSE):
Interest income 1,015 1,056
Interest expense (7,867) (1,977)
----------------- -----------------
(6,852) (921)
----------------- -----------------
Income before minority interests and income taxes 55,570 15,255
Minority interests (17,815) (4,712)
Income tax expense (15,187) (3,585)
----------------- -----------------
NET INCOME $ 22,568 $ 6,958
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
40
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 72,036 $ 30,357
Admissions 4,581 1,911
Food, beverage and other 7,571 1,639
----------------- -----------------
84,188 33,907
Less promotional allowances (6,118) (1,690)
----------------- -----------------
Net revenues 78,070 32,217
COSTS AND EXPENSES:
Casino 30,086 13,969
Food, beverage and other 5,316 1,362
Other operating expenses 2,132 3,324
Selling, general and administrative 10,313 5,171
Management fees-related parties 1,511 420
Depreciation and amortization 3,323 2,934
----------------- -----------------
Income from operations 25,389 5,037
OTHER INCOME (EXPENSE):
Interest income 250 459
Interest expense (2,653) (807)
----------------- -----------------
(2,403) (348)
----------------- -----------------
Income before minority interests and income taxes 22,986 4,689
Minority interests (7,638) (1,350)
Income tax expense (6,189) (1,032)
----------------- -----------------
NET INCOME $ 9,159 $ 2,307
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
41
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,568 $ 6,958
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 8,234 921
Amortization 1,036 7,403
Deferred income taxes 1,603 (1,840)
Minority interests 17,815 4,712
Changes in operating assets and liabilities:
Other current assets 13 (70)
Accounts payable (2,983) (2,259)
Accrued interest payable to related parties (1,674) 13
Accrued liabilities 26,637 10,053
----------------- -----------------
Net cash provided by operating activities 73,249 25,891
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow 13,114 (7,111)
Purchases of property and equipment (25,801) (79,904)
Payments under development agreement and other
infrastructure improvements (3,750) (4,307)
----------------- -----------------
Net cash used in investing activities (16,437) (91,322)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (2,111) (3,497)
(Repayment of) proceeds from long-term debt (55,904) 74,388
Payment of preferred equity return to partner (2,709) (764)
Partnership equity distributions to partners (7,438) (838)
Other (60)
----------------- -----------------
Net cash (used in) provided by financing activities (68,162) 69,229
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (11,350) 3,798
Cash and cash equivalents, beginning of period 41,257 9,216
----------------- -----------------
Cash and cash equivalents, end of period $ 29,907 $ 13,014
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
42
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The Indiana Gaming Company, a wholly owned subsidiary of Argosy Gaming
Company ("Argosy") (collectively with its controlled partnership Indiana Gaming
Company L.P. ("Partnership") "the Company") was formed effective April 11, 1994
to provide riverboat gaming and related entertainment in Lawrenceburg, Indiana.
The Company is a 57 1/2% general partner in the Partnership, together with,
three limited partners. On December 10, 1996, the Company commenced operations
at a temporary site and ceased being in the development stage. The Partnership
opened its permanent pavilion on December 10, 1997.
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. 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.
Included in other long term obligations at September 30, 1998 is $2,833
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 $833 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.
43
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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.
44
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 29,907 $ 41,257
Other current assets 1,548 1,561
----------------- -----------------
Total current assets 31,455 42,818
----------------- -----------------
NET PROPERTY AND EQUIPMENT 194,976 175,030
----------------- -----------------
OTHER ASSETS:
Deposits 589
Cash and cash equivalents-restricted 13,114
Other, net 29,808 30,844
----------------- -----------------
Total other assets 29,808 44,547
----------------- -----------------
TOTAL ASSETS $ 256,239 $ 262,395
----------------- -----------------
----------------- -----------------
CURRENT LIABILITIES:
Accounts payable $ 2,953 $ 5,936
Accrued interest and dividends payable-related parties 6,472 12,486
Other accrued liabilities 24,447 11,800
Due to affiliates 1,639 1,182
Current maturities of long-term debt 26,073 25,832
Current maturities of other long-term obligations 2,333 4,583
----------------- -----------------
Total current liabilities 63,917 61,819
----------------- -----------------
LONG-TERM DEBT 120,237 148,934
OTHER LONG-TERM OBLIGATIONS 500 2,000
PARTNERS' EQUITY:
General partner 45,419 32,031
Limited partners 26,166 17,611
----------------- -----------------
Total partners' equity 71,585 49,642
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 256,239 $ 262,395
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
45
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 192,101 $ 87,775
Admissions 11,781 5,376
Food, beverage and other 17,294 4,620
----------------- -----------------
221,176 97,771
Less promotional allowances (14,295) (3,685)
----------------- -----------------
Net revenues 206,881 94,086
COST AND EXPENSES:
Casino 81,011 39,438
Food, beverage and other 13,586 3,568
Other operating expenses 6,236 9,654
Selling, general and administrative 30,669 15,637
Management fees-related parties 9,422 3,224
Depreciation and amortization 9,229 8,324
----------------- -----------------
Income from operations 56,728 14,241
OTHER INCOME (EXPENSE):
Interest income 1,015 1,056
Interest expense (15,826) (4,209)
----------------- -----------------
(14,811) (3,153)
----------------- -----------------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 41,917 11,088
Preferred equity return (4,287) (4,134)
----------------- -----------------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 37,630 $ 6,954
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
46
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 72,036 $ 30,357
Admissions 4,581 1,911
Food, beverage and other 7,571 1,639
----------------- -----------------
84,188 33,907
Less promotional allowances (6,118) (1,690)
----------------- -----------------
Net revenues 78,070 32,217
COST AND EXPENSES:
Casino 30,086 13,969
Food, beverage and other 5,316 1,362
Other operating expenses 2,132 3,324
Selling, general and administrative 10,313 5,171
Management fees-related parties 3,778 1,049
Depreciation and amortization 3,310 2,934
----------------- -----------------
Income from operations 23,135 4,408
OTHER INCOME (EXPENSE):
Interest income 251 459
Interest expense (5,413) (1,690)
----------------- -----------------
(5,162) (1,231)
----------------- -----------------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 17,973 3,177
Preferred equity return (1,508) (1,393)
----------------- -----------------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 16,465 $ 1,784
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
47
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,630 $ 6,954
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 8,193 921
Amortization 1,036 7,403
Accrued preferred equity return 4,287 4,134
Changes in operating assets and liabilities:
Due from affiliates 506
Other current assets 12 (70)
Accounts payable (2,983) (2,530)
Accrued interest payable to related parties (6,014) 3
Accrued liabilities 15,046 5,486
----------------- -----------------
Net cash provided by operating activities 57,713 22,301
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow 13,115 (7,111)
Purchases of property and equipment (25,801) (79,645)
Payments under development agreement and other
infrastructure improvements (3,750) (4,307)
----------------- -----------------
Net cash used in investing activities (16,436) (91,063)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (2,111) (3,497)
Partnership equity distributions (17,500) (1,973)
Payment of preferred return to partners (6,372) (1,798)
(Payments on) proceeds from long-term debt and partners' equity (28,457) 79,788
Partner equity contributions 1,813
Other (60)
----------------- -----------------
Net cash (used in) provided by financing activities (52,627) 72,560
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (11,350) 3,798
Cash and cash equivalents, beginning of period 41,257 9,216
----------------- -----------------
Cash and cash equivalents, end of period $ 29,907 $ 13,014
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
48
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Indiana Gaming Company, L.P. ("Partnership"), an Indiana limited
partnership, provides riverboat gaming and related entertainment in
Lawrenceburg, Indiana. The Partnership is comprised of a 57.5% general partner,
The Indiana Gaming Company ("General Partner"), a wholly owned subsidiary of
Argosy Gaming Company, ("Argosy"), and three limited partners. Net income
(loss) is allocated to the partners based on their respective ownership
interests. On December 10, 1996, the Partnership commenced operations at a
temporary site and ceased being in the development stage. The Partnership opened
its permanent pavilion on December 10, 1997.
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.
49
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
The Partnership has agreed to pay the City of Lawrenceburg $33,848 in
reimbursements for infrastructure improvements and unrestricted grants. These
have been recorded in other assets in the accompanying balance sheets. The
reimbursement for infrastructure improvements and unrestricted city grants are
being amortized over the 28 year term, including extensions, of the Development
Agreement.
Included in other long term obligations at September 30, 1998 is $2,833
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 $833 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.
50
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company owns and operates the Alton Belle Casino, in Alton, Illinois;
the Argosy Casino in Riverside, Missouri; the Belle of Baton Rouge in Baton
Rouge, Louisiana; and the Belle of Sioux City in Sioux City, Iowa. 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 nine and three months ended
September 30, 1998 were favorably impacted by improved performance at
Lawrenceburg due to the opening of the permanent pavilion in December of 1997,
and by improved performance in Alton, Riverside and Sioux City due to focused
marketing efforts and operating efficiencies. The Company's results of
operations were adversely affected by a market decline in Baton Rouge due to
increased competition from other gaming opportunities in nearby locations. Under
the terms of the development agreement with the City of Baton Rouge the Company
is required to pay a head tax of $2.50 per passenger until such time as the
Company commences construction on a hotel near the Company's facility. Once
construction commences on the hotel the head tax ceases and the Company would
save approximately $3.5 million annually. The Company is in negotiations with
several developers pertaining to the construction of a hotel. While the Company
believes it will structure an agreement for the development of the hotel, no
assurances can be given as to the timing of the development of a hotel or as to
the required financial commitment of the Company with respect to the development
of a hotel.
The Company's ability to recover the carrying amount of the long-lived
assets of its Baton Rouge operation is dependent on several things including
achieving anticipated operating results, the competitive environment, and the
hotel development, which would eliminate the $2.50 incremental head tax. If
the Company is unable to develop the hotel or if the Company's operating
results do not improve through cost efficiencies or following the elimination
of video poker at competing outlets, management's evaluation of
recoverability could change and the Company could take a charge amounting to
a substantial portion of its $115 million Baton Rouge investment.
The Company has not recorded any federal tax expense on its 1998 net
income nor any federal tax benefit on its 1997 net loss, as the Company is in
an operating loss carryforward position at September 30, 1998.
51
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
--------------------------------------- ---------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASINO REVENUES
Alton $ 51,540 $ 46,905 $ 17,223 $ 14,850
Riverside 53,067 46,412 17,712 14,745
Baton Rouge 35,812 37,856 11,527 11,660
Sioux City 16,683 15,389 5,832 5,141
Lawrenceburg 192,101 87,775 72,036 30,357
----------------- ----------------- ----------------- -----------------
Total $ 349,203 $ 234,337 $ 124,330 $ 76,753
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
NET REVENUES
Alton $ 54,794 $ 50,995 $ 18,346 $ 16,310
Riverside 56,763 49,939 18,903 15,764
Baton Rouge 37,585 40,041 12,042 12,397
Sioux City 17,410 16,171 6,104 5,431
Lawrenceburg 206,881 94,086 78,070 32,217
Other 257 1,123 68 232
----------------- ----------------- ----------------- -----------------
Total $ 373,690 $ 252,355 $ 133,533 $ 82,351
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
INCOME (LOSS) FROM OPERATIONS(1)
Alton $ 10,593 $ 5,817 $ 3,514 $ 509
Riverside 3,236 2,831 1,861 24
Baton Rouge (2,941) (2,676) (1,026) (1,582)
Sioux City 1,326 493 534 143
Lawrenceburg 62,463 16,176 25,401 5,037
Jazz (4,823) (3,122) (1,291) (1,050)
Corporate (3) (8,017) (9,056) (2,934) (2,532)
Other (1,099) 1,287 (362) 384
----------------- ----------------- ----------------- -----------------
Total $ 60,738 $ 11,750 $ 25,697 $ 933
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
EBITDA(1)(2)
Alton $ 13,549 $ 9,054 $ 4,527 $ 1,637
Riverside 7,714 7,293 3,308 1,748
Baton Rouge 991 1,502 300 (193)
Sioux City 2,130 1,212 824 386
Lawrenceburg 71,692 24,500 28,711 7,971
Jazz (2,969) (1,355) (703) (462)
Corporate(3) (7,466) (7,211) (2,796) (1,941)
Other (80) 1,986 (22) 616
----------------- ----------------- ----------------- -----------------
Total $ 85,561 $ 36,981 $ 34,149 $ 9,762
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
</TABLE>
52
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(1) Income from operations and EBITDA are presented before consideration of any
management fee paid to the Company or intercompany rent charges in Baton
Rouge, and in the case of Sioux City and Lawrenceburg, before the 30% and
42.5% minority interests, respectively.
(2) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or as
an alternative to cash flows generated by operating, investing and
financing activities (as an indicator of cash flow or a measure of
liquidity). EBITDA is presented solely as a supplemental disclosure
because management believes that it is a widely used measure of operating
performance in the gaming industry and for companies with a significant
amount of depreciation and amortization. EBITDA may not be comparable to
similarly titled measures reported by other companies. The Company has
other significant uses of cash flows, including capital expenditures, which
are not reflected in EBITDA.
(3) Excludes severance expenses of approximately $1.8 million for the nine
months ended September 30, 1997.
53
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
CASINO--Casino revenues for the nine months ended September 30, 1998
increased by $114.9 million to $349.2 million from $234.3 million for the nine
months ended September 30, 1997 due primarily to a $104.3 million increase in
casino revenues at the Lawrenceburg casino, which generated total casino
revenues of $192.1 million for the nine months ended September 30, 1998. The
Company's other properties reported an aggregate 7.2% increase in casino
revenues from $146.6 to $157.1 million. In particular, Alton casino revenues
increased from $46.9 to $51.5 million, Riverside casino revenues increased from
$46.4 to $53.1 million, Sioux City casino revenues increased from $15.4 to $16.7
million, offset by a decrease in Baton Rouge casino revenues from $37.9 to $35.8
million.
Casino expenses increased to $165.3 million for the nine months ended
September 30, 1998 from $120.1 million for the nine months ended September 30,
1997. This is primarily due to a $41.6 million increase in Lawrenceburg
casino expenses associated with the overall increase in Lawrenceburg casino
revenues.
ADMISSIONS--Admissions revenue increased $6.4 million to $11.8 million for
the nine months ended September 30, 1998 due to an increased number of customers
at the Lawrenecburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased from
$25.7 million to $37.3 million for the nine month period ended September 30,
1998, due to the expanded food and beverage facilities in Lawrenceburg.
Food, beverage and other net profit improved $3.0 million to $7.2 million for
the nine months ended September 30, 1998, due primarily to this increase in
sales. The Lawrenceburg hotel which opened in May 1998 contributed $2.5
million in cash revenues and $.5 million of operating profit.
OTHER OPERATING EXPENSES--Other operating expenses decreased from $21.1
million to $20.2 million for the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $19.9 million to $72.1 million for the nine months ended
September 30, 1998, due primarily to an increase of $13.7 million at
Lawrenceburg relating to expanded marketing and operating costs of the larger
facility, an increase of $2.2 million at Riverside due to expanded marketing
efforts and a $1.1 million charge related to a writeoff of deferred lease
costs at the Catfish Town real estate project in Baton Rouge, offset by a
one-time cost savings of approximately $1.2 million at Lawrenceburg.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased $.4
million to $24.8 million for the nine months ended September 30, 1998 compared
to the nine months ended September 30, 1997.
INTEREST EXPENSE--Net interest expense increased $10.4 million to $40.5
million for the nine months ended September 30, 1998. The increase in interest
expense is primarily attributable to a decrease of $5.0 million in the amount of
interest capitalized due to the completion of the final phase of the
Lawrenceburg project in June 1998, additional loans by the partners of the
Lawrenceburg casino and an equipment loan at the Indiana Partnership.
NET INCOME (LOSS)--The Company reported net income of $1.7 million for the
nine months ended September 30, 1998 as opposed to a net loss of $22.9 million
for the nine months ended September 30, 1997
54
<PAGE>
due primarily to the factors discussed above and approximately $1.8 million in
severance expenses recognized in 1997.
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
CASINO--Casino revenues for the three months ended September 30, 1998
increased to $124.3 million from $76.8 million for the three months ended
September 30, 1997 due primarily to a $41.7 million increase in casino revenues
at the Lawrenceburg casino, which generated total casino revenues of $72.0
million for the three months ended September 30, 1998. The Company's other
properties reported an aggregate 12.7% increase in casino revenues from $46.4 to
$52.3 million. In particular, Alton casino revenues increased from $14.9 to
$17.2 million, Riverside casino revenues increased from $14.7 to $17.7 million,
Sioux City casino revenues increased from $5.1 to $5.8 million, offset by a
decrease in Baton Rouge casino revenues from $11.7 to $11.5 million.
Casino expenses increased to $57.9 million for the three months ended
September 30, 1998 from $40.5 million for the three months ended September 30,
1997. This increase is primarily due to a $16.1 million increase in
Lawrenceburg casino expenses associated with the overall increase in
Lawrenceburg casino revenues.
ADMISSIONS--Admissions revenue increased $2.7 million to $4.6 million for
the three months ended September 30, 1998 due to an increase in the number of
customers at the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $5.2 million
to $13.8 million for the three month period ended September 30, 1998, due to the
increased casino revenues generated by the Lawrenceburg casino. Food, beverage
and other net profit improved $2.2 million to $3.3 million for the three months
ended September 30, 1998, due primarily to the increases in customers at the
Lawrenceburg casino. The Lawrenceburg hotel contributed $1.8 million in cash
revenues and $.4 million net profit.
OTHER OPERATING EXPENSES--Other operating expenses decreased $.5 million to
$6.8 million for the three months ended September 30, 1998 compared to the three
months ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $6.9 million to $24.0 million for the three months ended
September 30, 1998 due primarily to an increase of $4.3 million at Lawrenceburg
relating to expanded marketing and operating costs of the larger facility offset
by a one time cost savings of approximately $1.2 million at Lawrenceburg.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased $.3
million from $8.8 million for the three months ended September 30, 1997 to $8.5
million for the three months ended September 30, 1998.
INTEREST EXPENSE--Net interest expense increased $3.9 million to $13.7
million for the three months ended September 30, 1998. The increase in interest
expense is primarily attributable to a decrease of $2.9 million in the amount of
interest capitalized due to the completion of the final phase of the
Lawrenceburg project in June 1998, additional loans by the partners of the
Lawrenceburg casino, and an equipment loan at the Indiana Partnership.
55
<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 riverboat casino
facilities currently operating in the St. Louis area and expects the level of
competition to remain intense. The most recent casino complex to open
includes two independently owned facilities, each of which operate two
dockside vessels. This casino complex, which increased gaming capacity in
St. Louis by approximately 50%, opened in March of 1997. The Company's
Riverside casino currently faces competition from three casino companies in
the Kansas City area that offer dockside gaming, two of which offer two
gaming vessels each. Until July 1998, there was an additional competitor in
the Kansas City. 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. In addition, a
riverboat casino is expected to open in November 1998 in the Louisville,
Kentucky area approximately 100 miles from the Company's Lawrenceburg
facility and a competing riverboat is expected to open approximately 45 miles
from the Company's Lawrenceburg facility in 2000. 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 nine months ended September 30, 1998, the Company generated cash
flows from operating activities of $70.2 million compared to $29.6 million
for the same period in 1997. Cash flow from operating activities increased
by $49.7 million for the nine months ended September 30, 1998 over the same
period in 1997 when the effect of an income tax receivable of $9.1 million
for 1997 is excluded from total 1997 cash flows. This increase is
attributable to the opening of the Lawrenceburg permanent pavilion in
December 1997 as well as increased cash flows from the Company's Alton ,
Riverside, Baton Rouge and Sioux City properties.
In the nine months ended September 30, 1998, the Company used cash flows
for investing activities of $19.3 million versus $51.6 million for the nine
months ended September 30, 1997. The primary use of funds in both periods was
the investment in the construction of the Lawrenceburg facility. Overall
capital expenditures have decreased between periods reflecting the substantial
completion of the Lawrenceburg casino.
During the nine months ended September 30, 1998, the Company used $23.0
million in cash flows for financing activities compared to generating $29.1
million of cash flows from financing activities for the same period in 1997.
The uses of cash flows in 1998 were to repay loans related to the Company's
Lawrenceburg casino, and for payments on installment contracts and other
long-term debt offset by the net proceeds of $7.4 million from the sale of
Preferred Stock and Warrants in June 1998. In 1997, the Company had net
proceeds from partnership loans of $34.8 million, offset by payments on
long-term debt and installment contracts of $3.9 million.
As of September 30, 1998, the Company had approximately $87.2 million of
cash, cash equivalents, and marketable securities, including approximately
$29.9 million held at the Indiana Partnership. In addition, the Company had
$11.0 of restricted cash, which is in a disbursement account to be used to
fund the
56
<PAGE>
Company's portion of the remaining Lawrenceburg construction costs and which
cannot be used for any other purpose. The Company expects its remaining
payments related to the Lawrenceburg casino to be approximately $6.5 million.
The Company has outstanding $235 million of First Mortgage Notes, which
were issued in June 1996 and are due June 2004. The $235 million First
Mortgage Note Indenture requires the Company to make annual offers to
purchase Notes at 101 % of their original issue value in an amount equal to
50% of certain distributions from Indiana Gaming L.P. when an aggregate of
$20 million of these distributions are reached. The Company is expecting to
reach the aggregate $20 million in the first half of 1999 and will make the
required tender offer to purchase First Mortgage Notes. During the 30 day
period that the tender offer is outstanding, the Company will be required to
place into escrow funds equal to the amount of the tender offer. To the
extent the tender offer is not accepted, the remaining funds will again be
available for general corporate purposes. Additionally, the Company has
outstanding $115 million of Convertible Subordinated Notes which were issued
in June 1994 and are due June 2001.
In June 1998, the Company issued $8 million of convertible preferred
stock together with Warrants to purchase an additional 292,612 shares of
Common Stock. The preferred shares provide for a 4% dividend per annum,
payable in cash or in kind at the time of conversion or maturity at the
Company's option. The convertible preferred shares mature in seven years and
the Company has the right for force conversion and/or redeem the outstanding
convertible preferred shares at maturity. The Warrants expire in five years.
The holders of the convertible preferred shares have a cash put option if
certain triggering events occur. This transaction provides for put and call
options which, subject to certain restrictions and limitations, allows for up
to an additional $8.0 million of Convertible Preferred Shares and Warrants to
be issued.
During an ongoing audit, the IRS has challenged the S-Corporation status
of a predecessor entity of the Company. If the IRS challenge is successful,
the Company currently estimates that it would require up to approximately
$13.2 million (excluding penalties) to fund the potential federal and any
state income tax liability.
The Company believes that cash on hand and operating cash flows will be
sufficient to fund its capital expenditures, including debt service
obligations and operating requirements during the next twelve months.
However, the Company's ability to meet its operating and debt service
requirements is substantially dependent upon the continued success of the
Lawrenceburg casino. If events develop that negatively impact its sources or
uses of cash, such as a significant deterioration in the operating results of
its casino properties (particularly in Lawrenceburg) or an adverse IRS
ruling, the Company may be unable to meet future debt service payments
without obtaining additional debt or additional equity financing or without
the disposition of assets. No assurance can be given that the Company would
be able to obtain such additional financing on suitable terms or sell assets
on favorable terms, if required.
57
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000
The Company has determined that it will need to modify or replace
significant portions of its software so that its computer systems will
function properly with respect to dates in the Year 2000 and beyond. As the
Company is dependent on third party software for all of its major
applications the Company has initiated discussions with its significant
software vendors and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues. Through these discussions,
the Company has determined that all of the systems that are critical to the
Company's operations are either 2000 compliant or that 2000 compliant
versions exist that can be implemented by the Company.
The next phase in the Company's efforts will be to plan for and implement
the Year 2000 versions of the software into the Company's systems. The Company
has a June 1999 target date to complete its implementation efforts.
As of September 30, 1998, the Company has incurred less than $25,000 of
costs related to Year 2000 issues. The Company estimates it will incur less
than $250,000 in future expenses to ensure all systems will function properly
with respect to dates in the Year 2000. These expenses are not expected to
have a material impact on the financial position, cash flow or operations of
the Company.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS DOCUMENT,
THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE" AND "EXPECT" AND SIMILAR
EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS, INCLUDING THOSE
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY OR ITS
MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING, BUT NOT
LIMITED TO, (i) GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY
OPERATES, (ii) INCREASED COMPETITIVE PRESSURES IN THE MARKETS IN WHICH THE
COMPANY OPERATES, (iii) THE EFFECT OF FUTURE LEGISLATION OR REGULATORY CHANGES
ON THE COMPANY'S OPERATIONS, AND (iv) OTHER RISKS DETAILED FROM TIME TO TIME IN
THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. THE COMPANY DOES NOT
INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
58
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
The Company is from time to time a party to legal proceedings arising in
the ordinary course of business. Other than as described below the Company is
unaware of any legal procedures which, even if the outcome were unfavorable to
the Company, would have a material adverse impact on either its financial
condition or results of operations.
CAPITOL HOUSE PRESERVATION COMPANY, L.L.C. VS. JAZZ ENTERPRISES, INC., ET AL.
In July 1995, Capitol House Preservation Company, L.L.C. ("Capitol House")
filed a cause of action in the U. S. District Court of the Middle District of
Louisiana against Jazz, the former shareholders of Jazz ("Former Jazz
Shareholders"), Catfish Queen Partnership (the "Partnership"), Argosy of
Louisiana, Inc. ("Argosy Louisiana") and the Company alleging that Jazz and
Argosy obtained the gaming license for Baton Rouge based upon false and
fraudulent pretenses and declarations and financial misrepresentations. The
complaint alleges tortious conduct as well as violations of RICO and seeks
damages of $158 million plus court costs and attorneys' fees. The plaintiff was
an applicant for a gaming license in Baton Rouge whose application was denied by
the Louisiana Enforcement Division. The Company believes the allegations of the
plaintiff are without merit and intends to vigorously defend such cause of
action.
On June 7, 1995, the Company consummated its purchase of all of the
outstanding capital stock of Jazz from the Former Jazz Shareholders. The
Company intends to seek indemnification from the Former Jazz Shareholders for
any liability the Company, Argosy Louisiana or Jazz suffers as a result of such
cause of action. As part of the consideration payable by the Company to the
Former Jazz Shareholder for the acquisition of Jazz, the Company agreed at the
time of such acquisition to annual deferred purchase price payments of
$1,350,000 for each of the first ten years after closing and $500,000 for each
of the next ten years. Payments are to be made quarterly by the Company. The
definitive acquisition documents provide the Company with off-set rights against
such deferred purchase price payments for indemnification claims of the Company
against the Former Jazz Shareholders and for the liabilities that the Former
Jazz Shareholder contractually agreed to retain. There can be no assurance that
the Former Jazz Shareholders will have assets sufficient to satisfy any claim in
excess of the Company's off-set rights.
The defendants filed a Motion to Dismiss, or alternatively to abstain and
stay the action, pending resolution of certain Louisiana state court claims
filed by Capitol House. The trial court decided in favor of the defendants and
dismissed the suit without prejudice to the rights of plaintiff to revive the
suit after the conclusion of the pending state court matters. The plaintiff
appealed this dismissal to the U. S. Fifth Circuit Court of Appeals. While the
appeal was pending, several of the Louisiana state court claims were resolved.
On March 11, 1997, the U. S. Fifth Circuit Court of Appeals vacated the trial
court's dismissal and remanded the case to the district court for further
proceedings. The defendants have re-urged the previously filed motion to
dismiss. On November 17, 1997, the district court granted the motion and
dismissed, with prejudice, all of the federal claims under RICO. The claims of
Capitol House that arose under Louisiana state law were dismissed, without
prejudice. Capitol House filed an appeal of the district court dismissal on
January 9, 1998, and the matter will be appealed to the U. S. Fifth Circuit
Court of Appeals on November 4, 1998.
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
59
<PAGE>
Division to evaluate and rank the applicants seeking a gaming license for East
Baton Rouge Parish, and now adding its state law claims against Jazz, the former
shareholders of Jazz, Argosy Gaming Company, Argosy of Louisiana, Inc. and
Catfish Queen Partnership in Commendam, d/b/a the Belle of Baton Rouge Casino.
This suit alleges that these parties violated the Louisiana Unfair Trade
Practices Act in connection with obtaining the gaming license which was issued
to the Company. This suit alleges the same, or substantially similar, facts
that formed the basis of the federal claim which was dismissed on November 17,
1997. The defendants have filed a Peremptory Exception of No Cause of Action,
Peremption and Prescription and Exception of Lis Pendens in response to Capitol
House's state court suit. A hearing on these exceptions was held June 1, 1998,
before Judge McDonald. The Court granted the exception and dismissed the suit
as to Argosy Gaming Company, Argosy of Louisiana, Inc. and Catfish Queen
Partnership in Commendam, d/b/a the Belle of Baton Rouge Casino. The Court
denied the exception as to Jazz and the former shareholders of Jazz. On behalf
of Jazz and its former shareholders, a supervisory writ has been filed with the
First Circuit Court of Appeal, State of Louisiana, seeking a dismissal of the
claims. Capitol House has appealed the dismissal of the claims as to the other
parties. On October 8, 1998, the Court of Appeal granted the supervisory writs
of Jazz and its former shareholders and scheduled oral argument in this matter
for November 10, 1998. Capitol House's appeal of the trial court's dismissal of
Argosy Gaming Company, Argosy of Louisiana, Inc. and Catfish Queen Partnership
in Commendam is still pending in the First Circuit. An adverse ruling in this
matter could have a material adverse effect on the Company.
GAMEDEV OF SIOUX CITY, INC., F/K/A SIOUX CITY RIVERBOAT CORP., INC. V. ARGOSY
GAMING COMPANY AND IOWA GAMING COMPANY
This suit was filed on June 11, 1998, in the Iowa District Court in
Woodbury County, Iowa. Gamedev of Sioux City, Inc. ("Gamedev"), the limited
partner of the limited partnership, Belle of Sioux City, L.P., seeks monetary
damages and an equitable accounting based on claims of breach of fiduciary duty
and negligent misrepresentation against the defendants. Iowa Gaming Company, a
wholly-owned subsidiary of the Company, is the general partner of the Belle of
Sioux City, L.P. On July 21, 1998, the defendants responded to the Petition by
filing a motion to dismiss on the grounds that Gamedev's claims are derivative
in nature, and that Gamedev has failed to comply with the demand requirements
under Iowa limited partnership law. Also, Gamedev is not entitled to an
equitable accounting because it has an adequate remedy at law. Gamedev filed
its resistance to the motion to dismiss and filed a first amended and
substituted petition alleging additional causes of action of breaches of
contracts and fraudulent misrepresentation on August 4, 1998. The trial court
has instructed the parties to proceed with discovery.
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 - None
60
<PAGE>
ARGOSY GAMING COMPANY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 6, 1998 /s/ Dale R. Black
---------------------------------------------
Dale R. Black
Vice President-Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 87,207
<SECURITIES> 0
<RECEIVABLES> 3,258
<ALLOWANCES> 2,304
<INVENTORY> 1,351
<CURRENT-ASSETS> 97,396
<PP&E> 495,169
<DEPRECIATION> 93,607
<TOTAL-ASSETS> 578,602
<CURRENT-LIABILITIES> 89,292
<BONDS> 350,000
7,710
0
<COMMON> 245
<OTHER-SE> 34,104
<TOTAL-LIABILITY-AND-EQUITY> 578,602
<SALES> 0
<TOTAL-REVENUES> 373,690
<CGS> 0
<TOTAL-COSTS> 312,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,061
<INTEREST-EXPENSE> 43,114
<INCOME-PRETAX> 20,199
<INCOME-TAX> 445
<INCOME-CONTINUING> 1,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,833
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
