<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11853
ARGOSY GAMING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 37-1304247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ 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: 28,160,089 shares
of Common Stock, $.01 par value per share, as of August 9, 1999.
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<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF ARGOSY GAMING COMPANY
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 4
Condensed Consolidated Statements of Stockholders' Equity 5
Notes to Condensed Consolidated Financial Statements 6
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 14
Condensed Statements of Income 15
Condensed Statements of Cash Flows 17
Notes to Condensed Financial Statements 18
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 19
Condensed Statements of Operations 20
Condensed Statements of Cash Flows 22
Notes to Condensed Financial Statements 23
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 24
Condensed Consolidated Statements of Operations 25
Condensed Consolidated Statements of Cash Flows 27
Notes to Condensed Consolidated Financial Statements 28
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 30
Condensed Statements of Operations 31
Condensed Statements of Cash Flows 33
Notes to Condensed Financial Statements 34
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 35
Condensed Statements of Operations 36
Condensed Statements of Cash Flows 38
Notes to Condensed Financial Statements 39
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 41
Condensed Consolidated Statements of Income 42
Condensed Consolidated Statements of Cash Flows 44
Notes to Condensed Consolidated Financial Statements 45
</TABLE>
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 47
Condensed Statements of Income 48
Condensed Statements of Cash Flows 50
Notes to Condensed Financial Statements 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 52
PART II
Item 1 Legal Proceedings 61
Item 2 Changes in Securities 63
Item 3 Defaults upon Senior Securities 63
Item 4 Submission of Matters to a Vote of Security Holders 64
Item 5 Other Information 64
Item 6 Exhibits and Reports on Form 8-K 64
</TABLE>
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 51,134 $ 89,857
Restricted cash 26,681 -
Other current assets 7,982 9,399
----------- ------------
Total current assets 85,797 99,256
----------- ------------
NET PROPERTY AND EQUIPMENT 392,292 395,920
----------- ------------
OTHER ASSETS:
Goodwill and other intangible assets, net 50,766 51,817
Other, net 17,531 15,759
----------- ------------
Total other assets 68,297 67,576
----------- ------------
TOTAL ASSETS $546,386 $562,752
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 57,789 $ 57,130
Other current liabilities 34,655 14,255
----------- ------------
Total current liabilities 92,444 71,385
----------- ------------
LONG-TERM DEBT 391,021 412,360
OTHER LONG-TERM OBLIGATIONS 2,157 2,144
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 38,653 30,660
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE - 5,340
10,000,000 SHARES AUTHORIZED, 547 SHARES ISSUED
AND OUTSTANDING AT DECEMBER 31, 1998
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 281 258
28,140,324 shares issued and outstanding at June 30, 1999;
25,830,313 shares issued and outstanding at December 31, 1998
Capital in excess of par 79,884 74,484
Retained deficit (58,054) (33,879)
----------- ------------
Total stockholders' equity 22,111 40,863
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $546,386 $562,752
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $265,048 $224,873
Admissions 8,956 7,200
Food, beverage and other 27,672 23,565
----------- -----------
301,676 255,638
Less promotional allowances (19,684) (15,481)
----------- -----------
Net revenues 281,992 240,157
----------- -----------
COSTS AND EXPENSES:
Casino 120,434 107,372
Food, beverage and other 19,879 19,710
Other operating expenses 13,251 13,303
Selling, general and administrative 57,052 48,360
Depreciation and amortization 17,091 16,371
----------- -----------
227,707 205,116
----------- -----------
Income from operations 54,285 35,041
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 1,703 1,642
Interest expense (27,786) (28,487)
----------- -----------
(26,083) (26,845)
----------- -----------
Income before minority interests, income taxes 28,202 8,196
and extraordinary item
Minority interests (16,390) (10,224)
Income tax expense (1,200) (250)
----------- -----------
Net income (loss) before extraordinary item 10,612 (2,278)
Extraordinary loss on extinguishment of debt (34,760) -
----------- -----------
NET LOSS (24,148) (2,278)
Preferred stock dividends and accretion (27) (15)
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(24,175) $ (2,293)
----------- -----------
----------- -----------
BASIC INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS 0.38 (0.09)
Extraordinary loss (1.26) -
----------- -----------
BASIC INCOME (LOSS) PER SHARE (0.88) (0.09)
----------- -----------
----------- -----------
DILUTED INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS 0.38 (0.09)
Extraordinary loss (1.22) -
----------- -----------
DILUTED INCOME (LOSS) PER SHARE $ (0.84) $ (0.09)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 135,920 $ 116,550
Admissions 4,678 4,009
Food, beverage and other 14,079 12,432
--------- ----------
154,677 132,991
Less promotional allowances (10,076) (8,534)
--------- ----------
Net revenues 144,601 124,457
--------- ----------
COSTS AND EXPENSES:
Casino 60,984 54,749
Food, beverage and other 10,242 10,361
Other operating expenses 6,663 6,685
Selling, general and administrative 28,400 24,969
Depreciation and amortization 8,618 8,303
--------- ----------
114,907 105,067
--------- ----------
Income from operations 29,694 19,390
--------- ----------
OTHER INCOME (EXPENSE):
Interest income 796 832
Interest expense (13,652) (14,195)
--------- ----------
(12,856) (13,363)
--------- ----------
Income before minority interests, income taxes 16,838 6,027
and extraordinary item
Minority interests (8,547) (5,618)
Income tax expense (600) (150)
--------- ----------
Net income before extraordinary item 7,691 259
Extraordinary loss on extinguishment of debt (34,760) -
--------- ----------
NET (LOSS) INCOME (27,069) 259
Preferred Stock dividends and accretion - (15)
--------- ----------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (27,069) $ 244
========== ==========
BASIC INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.27 $ 0.01
Extraordinary loss (1.24) -
--------- ----------
Basic income (loss) per share $ (0.97) $ 0.01
========= ==========
DILUTED INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.27 $ 0.01
Extraordinary loss (1.21) -
--------- ----------
DILUTED (LOSS) INCOME PER SHARE $ (0.94) $ 0.01
========= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (24,148) $ (2,278)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary loss 5,691 -
Depreciation 15,754 15,164
Amortization 2,289 2,163
Compensation expense recognized on issuance of stock 56 132
Minority interests 16,390 10,224
Changes in operating assets and liabilities:
Other current assets 1,129 136
Accounts payable and other current liabilities 2,102 7,556
--------- --------
Net cash provided by operating activities 19,263 33,097
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,113) (25,887)
Decrease in restricted cash held by trustees - 11,593
Other - (1,603)
--------- --------
Net cash used in investing activities (12,113) (15,897)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts (4,540) (3,290)
Repayment of partner loans (8,639) (10,384)
Partnership equity distributions (7,019) (3,774)
Proceeds (net of issuance costs) from sale of
Preferred Stock and Warrants - 7,365
Repayment of partner capital contribution (289) -
Increase in restricted cash held in escrow (26,681) -
Proceeds from issuance of subordinated notes 200,000 -
Proceeds from line of credit 25,000 -
Repayment of long-term debt (212,758) -
Payment of preferred equity return to partner (2,535) (1,159)
(Increase) decrease in other assets (8,412) 8
--------- --------
Net cash used in financing activities (45,873) (11,234)
--------- --------
Net (decrease) increase in cash and cash equivalents (38,723) 5,966
Cash and cash equivalents, beginning of period 89,857 59,354
--------- --------
Cash and cash equivalents, end of period $ 51,134 $ 65,320
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
TOTAL
COMMON CAPITAL IN RETAINED STOCKHOLDERS'
SHARES STOCK EXCESS OF PAR DEFICIT EQUITY
--------- -------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 25,830,313 $ 258 $ 74,484 $ (33,879) $ 40,863
Restricted Stock
compensation expense - - 56 - 56
Preferred Stock conversion 2,310,011 23 5,344 $ - 5,367
Net loss for the six months
ended June 30, 1999 - - - (24,148) (24,148)
Preferred Stock dividends and accretion - - - (27) (27)
--------- -------- ------------- --------- -------------
Balance, June 30, 1999 28,140,324 $ 281 $ 79,884 $ (58,054) $ 22,111
--------- -------- ------------- --------- -------------
--------- -------- ------------- --------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<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 or joint
ventures, operates riverboat casinos in Alton, Illinois; Lawrenceburg, Indiana;
Riverside, Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa. Indiana
Gaming Company, L.P., ("Indiana Partnership") is a limited partnership which
owns the casino in Lawrenceburg, Indiana. The Company is the sole general
partner, holds a 57.5% interest and manages the Indiana Partnership.
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, 1998, included in the Company's Annual
Report on Form 10-K (File No. 1-11853). The accompanying unaudited condensed
consolidated financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals. Certain 1998 amounts have been reclassified to
conform to the 1999 financial statement presentation.
As of June 30, 1999 the Company is in a net operating loss position and,
therefore, has recorded a valuation allowance of $22,200 against its deferred
tax assets.
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
--------------------------- ----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
--------- ------------ ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) $ 10,612 $ (2,278) $ 7,691 $ 259
Preferred stock dividends and accretion (27) (15) - (15)
------------- ------------- ------------ -------------
Numerator for basic earnings per share - 10,585 (2,293) 7,691 224
Income (loss) attributable to Common
Stockholders
Effect of dilutive securities:
Preferred stock dividends and accretion 27 - - -
------------- ------------- ------------ -------------
Numerator for diluted earnings per share - income (loss) available
To Common Stockholders after assumed conversions $ 10,612 $ (2,293) $ 7,691 $ 244
============= ============= ============ =============
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares outstanding 27,578,009 24,333,333 28,041,324 24,333,333
Effect of dilutive securities:
Restricted stock 81,941 - 85,515 89,677
Employee stock options 296,850 - 399,954 49,904
Preferred stock 537,533 - - -
Warrants 89,570 - 132,129 -
------------- ------------- ------------ -------------
Dilutive potential common shares 1,005,894 - 617,598 139,581
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 28,583,903 24,333,333 28,658,922 24,472,914
============= ============= ============= =============
BASIC INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.38 $ (0.09) $ 0.27 $ 0.01
Extraordinary loss (1.26) - (1.24) -
------------- ------------- ------------- -------------
BASIC (LOSS) INCOME PER SHARE $ (0.88) $ (0.09) $ (0.97) $ 0.01
============= ============= ============= =============
DILUTED INCOME (LOSS) PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.38 $ (0.09) $ 0.27 $ 0.01
Extraordinary loss (1.22) - (1.21) -
------------- ------------- ------------- -------------
DILUTED (LOSS) INCOME PER SHARE $ (0.84) $ (0.09) $ (0.94) $ 0.01
============= ============= ============= =============
</TABLE>
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Additional employee and directors stock options to purchase 648,000 and
873,000 shares of common stock at prices ranging from $7.06 to $16.75 were not
included in the computation of quarter-to-date and year-to-date diluted earnings
per share, respectively, because the options exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
anti-dilutive.
12% Convertible Debentures (convertible into 6,497,175 shares of common
stock at $17.70 per share) were outstanding at June 30, 1999 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.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ----------
<S> <C> <C>
First Mortgage Notes due June 1, 2004,
interest payable semi-annually at 13.25% $ 22,242 $235,000
Convertible subordinated notes due
June 1, 2001, convertible into common
stock at $17.70 per share, interest payable
semi-annually at 12% 115,000 115,000
Senior secured line of credit, expires June 2004, 25,000 -
interest payable at least quarterly at either LIBOR
or prime plus a margin
Senior subordinated notes due June 1, 2009,
interest payable semi-annually at 10.75% 200,000 -
Notes payable, principal and interest
payments due quarterly through
September 2015, discounted at 10.5% 6,780 7,097
Notes payable, principal and interest payments due
monthly through December 2001, interest
payable at prime + 1%, secured by gaming vessel
and certain equipment 19,522 21,707
Loans from partner, principal due in annual
installments through 2004, interest payable
at prime + 6% 36,556 45,196
-------- --------
425,100 424,000
Less: current maturities 34,079 11,640
-------- --------
Long-term debt, less current maturities $391,021 $412,360
======== ========
</TABLE>
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
On June 8, 1999, the Company issued $200,000 of Senior Subordinated Notes
due 2009 ("Subordinated Notes") and entered into a five year $200,000 Senior
Secured revolving bank credit agreement ("Credit Facility"). The Credit
Facility is secured by liens on substantially all of the Company's assets and
the Company's subsidiaries are co-borrowers. The Company's joint-venture
subsidiaries that operate the Argosy Casino Lawrenceburg and the Belle of
Sioux City casino are not co-borrowers. All of the Company's wholly-owned
operating subsidiaries guarantee the Subordinated Notes. The Company's
joint-venture subsidiaries that operate the Argosy Casino Lawrenceburg and
the Belle of Sioux City Casino do not guarantee the Subordinated Notes. The
Subordinated Notes rank junior to all of the senior indebtedness of the
Company, including borrowings under the Credit Facility and the subsidiary
guarantees will rank junior to the senior indebtedness of the subsidiary
guarantors.
The Subordinated Notes and the Credit Facility contain certain
restrictions on the payment of dividends on the Company's common stock and
the occurrence of additional indebtedness, as well as other typical debt
covenants. In addition, the Credit Facility requires the Company to maintain
certain financial ratios.
The Company used the proceeds from the issuance of the Subordinated
Notes, $25,000 in borrowings under the Credit Facility and approximately
$51,000 of cash on hand to tender for and retire $212,732 of its outstanding
13 1/4% First Mortgage Notes due 2004 ("Mortgage Notes"). Under terms of the
Credit Facility, the Company will be required to redeem the remaining $22,242
of Mortgage Notes on June 1, 2000. The Company has placed $26,681 in escrow
to fund the remaining interest payments and June 2000 redemption premium for
the untendered $22,242 Mortgage Notes.
In connection with this early extinguishment of the Mortgage Notes, the
Company recorded an extraordinary loss of $34,760. No tax benefit was
recorded on the extraordinary loss due to the uncertainty of realization.
On July 7, 1999, the Company redeemed all of its outstanding 12%
Convertible Subordinated Notes dues 2001 ("Convertible Notes"). The Company
used borrowings of $105,000 under the Credit Facility and approximately
$13,700 of cash to redeem the Convertible Notes.
In the third quarter of 1999, in connection with this early
extinguishment of the Convertible Notes, the Company will record an
extraordinary loss of approximately $3,600. No tax benefit will be recorded
on this extraordinary loss due the uncertainty of realization.
9
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
4. CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A Convertible
Preferred Stock ("Preferred Shares"), together with warrants to purchase an
additional 292,612 shares of Common Stock at $3.89 per share. The Preferred
Shares mature in 2005, and the Company had the right to force conversion
and/or redemption at maturity. A portion of the proceeds was allocated to the
warrants and this discount was to be accreted over seven years. The warrants
expire in 2003.
The Preferred Shares provided 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.
The Preferred Shares were convertible at the lower of the fixed initial
strike price ($3.89 per share) or a floating price. The floating price is
based on the market price of the Company's common stock. The warrants may be
exercised at the fixed strike price subject to the same adjustment provisions.
Through June 30, 1999, all 800 Preferred Shares had been converted into
3,641,991 shares of common stock. As of June 30, 1999 no warrants had yet
been converted.
5. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA--Under terms of the Lawrenceburg partnership
agreement, after December 10, 1999, each limited partner has the right to
sell its interest to the other partners (pro rata in accordance with their
respective percentage interests). In the event of this occurrence, if the
partners cannot agree on a selling price, the Indiana Partnership will be
sold in its entirety.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result
of a certain shareholder loan transaction, could be subject to federal and
certain state income taxes (plus interest and penalties, if any) if it is
determined that it failed to satisfy all of the requirements of the
S-Corporation provisions of the Internal Revenue Code ("Code") relating to
the prohibition concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has identified the S-Corporation status as one of the
issues, although the IRS has yet to make a formal claim of deficiency. 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 $14,100, including interest through
June 30, 1999, but excluding penalties, if any. 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. No provision has been made for this contingency in the
accompanying condensed consolidated financial statements.
10
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
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.
6. SUBSIDIARY GUARANTORS
The Mortgage Notes are unconditionally guaranteed, on a joint and
several basis, by the following wholly-owned subsidiaries of the Company:
Alton Gaming Company, The Missouri Gaming Company, The St. Louis Gaming
Company, Iowa Gaming Company, Jazz Enterprises, Inc., Argosy of Louisiana,
Inc., Catfish Queen Partnership in Commendam and The Indiana Gaming Company
(the "Guarantors"). The Mortgage Notes are secured, subject to certain prior
liens, by a first lien on (i) substantially all of the assets of the Company
including the assets used in the Company's Alton, Riverside, Baton Rouge and
Sioux City operations, (ii) a pledge of all the capital stock of, and
partnership interests in, the Company's subsidiaries, excluding the Company's
partnership interest in its Sioux City property, (iii) a pledge of the
intercompany notes payable to the Company from its subsidiaries and (iv) an
assignment of the proceeds of the management agreement relating to the
Lawrenceburg Casino project. The collateral for the Mortgage Notes does not
include assets of the Indiana Partnership.
The Credit Facility is secured by liens on substantially all of the
Company's assets and the Company's subsidiaries are co-borrowers. The
Company's joint-venture subsidiaries that operate the Argosy Casino
Lawrenceburg and the Belle of Sioux City casino are not co-borrowers. All of
the Company's wholly-owned operating subsidiaries guarantee the Subordinated
Notes. The Company's joint-venture subsidiaries that operate the Argosy
Casino Lawrenceburg and the Belle of Sioux City Casino do not guarantee the
Subordinated Notes. The Subordinated Notes rank junior to all of the senior
indebtedness of the Company, including borrowings under the Credit Facility
and the subsidiary guarantees will rank junior to the senior indebtedness of
the subsidiary guarantors.
The following tables present summarized balance sheet information of the
Company as of June 30, 1999 and December 31, 1998 and summarized operating
statement information for the six and three months ended June 30, 1999 and
1998. 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 casinos in Sioux
City, Iowa 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 June 30, 1999 and December 31,
1998 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 84,375 $ 22,816 $ 22,489 $ (43,883) $ 85,797
Non-current assets 308,329 355,980 225,304 (429,024) 460,589
--------- --------- --------- ---------- ---------
$ 392,704 $ 378,796 $ 247,793 $(472,907) $ 546,386
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
LIABILITIES AND EQUITY:
Current liabilities $ 30,593 $ 74,768 $ 53,869 $ (66,786) $ 92,444
Non-current liabilities 340,000 215,068 86,757 (209,994) 431,831
Stockholders' equity 22,111 88,960 107,167 (196,127) 22,111
--------- --------- --------- ---------- ---------
$ 392,704 $ 378,796 $ 247,793 $(472,907) $ 546,386
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 55,896 $ 22,236 $ 29,585 $ (8,461) $ 99,256
Non-current assets 347,441 360,354 227,439 (471,738) 463,496
--------- --------- --------- ---------- ---------
$ 403,337 $ 382,590 $ 257,024 $(480,199) $ 562,752
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
LIABILITIES AND EQUITY:
Current liabilities $ 7,134 $ 47,507 $ 59,116 $ (42,372) $ 71,385
Non-current liabilities 350,000 269,878 111,208 (285,922) 445,164
Convertible preferred stock 5,340 - - - 5,340
Stockholders' equity 40,863 65,205 86,700 (151,905) 40,863
--------- --------- --------- ---------- ---------
$ 403,337 $ 382,590 $ 257,024 $(480,199) $ 562,752
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
</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 six and three months
ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,401 $ 128,589 $ 174,419 $ (22,417) $ 281,992
Costs and expenses 8,349 93,749 127,457 (1,848) 227,707
Net interest expense (income) 18,782 (776) 8,077 - 26,083
Net (loss) income attributable (24,175) 20,162 36,307 (56,469) (24,175)
to common shareholders
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,086 $ 112,041 $ 140,116 $ (13,086) $ 240,157
Costs and expenses 5,100 98,379 102,263 (626) 205,116
Net interest expense (income) 19,031 (2,640) 9,796 658 26,845
Net (loss) income attributable (2,293) 9,828 21,324 (31,152) (2,293)
to common shareholders
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 736 $ 66,037 $ 89,582 $ (11,754) $ 144,601
Costs and expenses 3,324 47,149 65,416 (982) 114,907
Net interest expense (income) 9,044 (72) 3,884 - 12,856
Net (loss) income (27,069) 10,395 19,029 (29,424) (27,069)
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 385 $ 56,421 $ 74,888 $ (7,237) $ 124,457
Costs and expenses 2,227 49,935 52,758 147 105,067
Net interest expense (income) 9,495 (1,335) 4,896 307 13,363
Net income (loss) attributable 244 5,281 11,903 (17,184) 244
to common shareholders
</TABLE>
13
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,341 $ 4,383
Other current assets 1,679 1,727
------- -------
Total current assets 7,020 6,110
DUE FROM AFFILIATES 9,836 10,046
NET PROPERTY AND EQUIPMENT 27,050 26,808
OTHER ASSETS 2 2
------- -------
TOTAL ASSETS $43,908 $42,966
------- -------
------- -------
CURRENT LIABILITIES:
Accounts payable $ 1,377 $ 1,597
Other accrued liabilities 6,717 4,624
------- -------
Total current liabilities 8,094 6,221
------- -------
OTHER LONG-TERM OBLIGATIONS 214 201
DEFERRED INCOME TAXES 2,910 3,201
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 32,433 33,086
------ ------
Total stockholder's equity 32,690 33,343
------ ------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $43,908 $42,966
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
14
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 38,019 $ 34,317
Food, beverage and other 3,073 3,339
----------- -----------
41,092 37,656
Less promotional allowances (1,322) (1,208)
----------- -----------
Net revenues 39,770 36,448
COSTS AND EXPENSES
Casino 17,348 16,051
Food, beverage and other 2,388 2,964
Other operating expenses 2,848 2,692
Selling, general and administrative 5,853 5,719
Depreciation and amortization 2,047 1,943
Management fees - related party 1,336 1,007
----------- -----------
31,820 30,376
----------- -----------
Income from operations 7,950 6,072
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 95 41
Interest expense (53) (7)
----------- -----------
42 34
----------- -----------
Income before income taxes 7,992 6,106
Income tax expense (3,128) (2,390)
----------- -----------
Net income $ 4,864 $ 3,716
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
15
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data))
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
June 30, June 30,
1999 1998
----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 19,910 $ 17,288
Food, beverage and other 1,579 1,706
----------- ---------
21,489 18,994
Less promotional allowances (712) (604)
----------- ---------
Net revenues 20,777 18,390
----------- ---------
COSTS AND EXPENSES
Casino 8,939 8,102
Food, beverage and other 1,239 1,461
Other operating expenses 1,419 1,345
Selling, general and administrative 2,855 2,817
Depreciation and amortization 1,021 979
Management fees - related party 702 345
----------- ---------
16,175 15,049
----------- ---------
Income from operations 4,602 3,341
----------- ---------
OTHER INCOME (EXPENSE)
Interest income 62 16
Interest expense (24) (3)
----------- ---------
38 13
----------- ---------
Income before income taxes 4,640 3,354
Income tax expense (1,817) (1,321)
----------- ---------
Net income $ 2,823 $ 2,033
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
16
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
June 30, June 30,
1999 1998
----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,864 $ 3,716
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,047 1,943
Deferred income taxes (291) (94)
Changes in operating assets and liabilities:
Other current assets 48 (338)
Accounts payable (220) 1,053
Income taxes payable to affiliate 981 2,487
Other accrued liabilities 1,112 571
----- ------
Net cash provided by operating activities 8,541 9,338
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,289) (2,161)
------- -------
Net cash used in investing activities (2,289) (2,161)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates 210 (7,989)
Payment of dividend (5,517) -
Increase in other long-term obligations - related party 13 7
------- -------
Net cash used in financing activities (5,294) (7,982)
------- -------
Net increase (decrease) in cash and cash equivalents 958 (805)
Cash and cash equivalents, beginning of period 4,383 3,807
----- ------
Cash and cash equivalents, end of period $ 5,341 $ 3,002
------- --------
------- --------
</TABLE>
See accompanying notes to condensed financial statements.
17
<PAGE>
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Alton Gaming Company ("Company"), an Illinois
Corporation and a wholly-owned subsidiary of Argosy Gaming Company ("Argosy"),
is engaged in the business of providing casino-style gaming and related
entertainment to the public through the operation of the Alton Belle Casino in
Alton, Illinois.
The accompanying unaudited condensed financial statements have been prepared
in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Interim results may not necessarily be indicative of results which may be
expected for any other interim period or for the year as a whole. For further
information refer to the financial statements and footnotes thereto for the year
ended December 31, 1998 included in Argosy's Annual Report on Form 10-K (File
No. 1-11853). 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.
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 identified the S-Corporation status as one of the issues,
although the IRS has yet to make a formal claim of deficiency. 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 $14.1 million, including interest through June 30,
1999, but excluding penalties, if any. 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. No provision has been made for this contingency in the accompanying
condensed 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. As part of a
refinancing, in June 1999, Argosy validly tendered $212.7 million of its
Mortgage Notes. At June 30, 1999, $22.2 million of the Mortgage Notes remain
outstanding. On June 8, 1999, Argosy issued $200 million of Senior Subordinated
Notes due 2009 ("Subordinated Notes") and entered into a five year, $200 million
Senior Secured revolving bank credit agreement. The Company is a named borrower
under the Credit Facility and borrowings are secured by substantially all the
assets of the Company. The Company is a guarantor, under the terms of the
Subordinated Notes. The Subordinated Notes rank junior to all of the senior
indebtedness of Argosy, including borrowings under the Credit Facility.
18
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,118 $ 3,905
Other current assets 1,500 1,671
----------- ------------
Total current as 6,618 5,576
NET PROPERTY AND EQUIPMENT 64,823 66,819
OTHER ASSETS 1,039 1,134
----------- ------------
TOTAL ASSETS $72,480 $73,529
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 517 $ 1,405
Other accrued liabilities 7,277 4,414
----------- ------------
Total current liabilities 7,794 5,819
----------- ------------
DUE TO AFFILIATES 44,545 49,056
DEFERRED INCOME TAXES 1,903 2,260
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares authorized
issued and outstanding
Capital in excess of par 5,000 5,000
Retained earnings 13,238 11,394
----------- ------------
Total stockholder's equity 18,238 16,394
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 72,480 $ 73,529
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
19
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 39,995 $ 35,355
Food, beverage and other 5,537 5,993
-------- --------
45,532 41,348
Less promotional allowances (3,109) (3,488)
--------- ---------
Net revenues 42,423 37,860
--------- ---------
COSTS AND EXPENSES
Casino 20,040 19,275
Food, beverage and other 4,049 4,643
Other operating expenses 2,164 2,196
Selling, general and administrative 8,010 7,340
Depreciation and amortization 2,904 3,031
------ ------
37,167 36,485
------ ------
Income from operations 5,256 1,375
------ ------
OTHER INCOME (EXPENSE):
Interest income 14 25
Interest expense (2,268) (2,338)
------- -------
(2,254) (2,313)
------- -------
Income (loss) before income taxes 3,002 (938)
Income tax (expense) benefit (1,158) 353
------- -------
Net income (loss) $ 1,844 $ (585)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
20
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 20,797 $ 16,996
Food, beverage and other 2,778 2,940
----------- ------------
23,575 19,936
Less promotional allowances (1,567) (1,690)
----------- ------------
Net revenues 22,008 18,246
----------- ------------
COSTS AND EXPENSES
Casino 10,094 9,174
Food, beverage and other 2,059 2,281
Other operating expenses 1,060 1,091
Selling, general and administrative 4,129 3,385
Depreciation and amortization 1,445 1,554
----------- ------------
18,787 17,485
----------- ------------
Income from operations 3,221 761
----------- ------------
OTHER INCOME (EXPENSE):
Interest income 8 8
Interest expense (1,379) (1,130)
----------- ------------
(1,371) (1,122)
----------- ------------
Income (loss) before income taxes 1,850 (361)
Income tax (expense) benefit (718) 192
----------- ------------
Net income (loss) $ 1,132 $ (169)
=========== ============
</TABLE>
See accompanying notes to condensed financial statements.
21
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
-----------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,844 $ (585)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation 2,824 2,951
Amortization 80 80
Deferred income taxes (415) 300
Changes in operating assets and liabilities:
Other current assets (326) 168
Accounts payable (888) (484)
Other accrued liabilities 3,039 1,264
Other assets 570 576
----------- -----------
Net cash provided by operating activities 6,728 4,270
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (828) (1,104)
----------- -----------
Net cash used in investing activities (828) (1,104)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (176) -
Due to affiliates (4,511) (2,099)
----------- -----------
Net cash used in financing activities (4,687) (2,099)
----------- -----------
Net increase in cash and cash equivalents 1,213 1,067
Cash and cash equivalents, beginning of period 3,905 3,629
----------- -----------
Cash and cash equivalents, end of period $ 5,118 $ 4,696
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
22
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Missouri Gaming Company ("Company") (a Missouri corporation and a
wholly owned subsidiary of Argosy Gaming Company, ("Argosy")) owns and
operates a riverboat casino and related facilities in Riverside, Missouri.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year
as a whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1998 included in
Argosy's Annual Report on Form 10-K (File No. 1-11853). 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 1998 amounts have been reclassified to conform to the 1999
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. As part of a refinancing, in June 1999, Argosy validly
tendered $212.7 million of its Mortgage Notes. At June 30, 1999, $22.2
million of the Mortgage Notes remain outstanding. On June 8, 1999, Argosy
issued $200 million of Senior Subordinated Notes due 2009 ("Subordinated
Notes") and entered into a five year, $200 million Senior Secured
revolving bank credit agreement. The Company is a named borrower under the
Credit Facility and borrowings are secured by substantially all the assets
of the Company. The Company is a guarantor, under the terms of the
Subordinated Notes. The Subordinated Notes rank junior to all of the
senior indebtedness of Argosy, including borrowings under the Credit
Facility.
23
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,196 $ 3,025
Other current assets 2,180 1,595
------------- ------------
Total current assets 5,376 4,620
NET PROPERTY AND EQUIPMENT 40,731 39,670
OTHER ASSETS 1,650 1,713
------------- ------------
TOTAL ASSETS $ 47,757 $ 46,003
============= ============
CURRENT LIABILITIES:
Accounts payable $ 1,208 $ 595
Due to affiliates 6,549 3,149
Other accrued liabilities 4,617 4,653
Accrued interest - related party 3,005 2,304
Current maturities of long-term debt-related party 13,349 13,349
------------- ------------
Total current liabilities 28,728 24,050
------------- ------------
LONG-TERM DEBT-RELATED PARTY 34,709 34,709
DEFERRED INCOME TAXES 432 432
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 1,196 1,484
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares authorized
issued and outstanding 1 1
Accumulated deficit (17,309) (14,673)
------------- ------------
Total stockholder's deficit (17,308) (14,672)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 47,757 $ 46,003
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
24
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 24,315 $ 24,285
Food, beverage and other 2,422 3,333
----------- ------------
26,737 27,618
Less promotional allowances (1,537) (2,075)
----------- ------------
Net revenues 25,200 25,543
----------- ------------
COST AND EXPENSES
Casino 14,560 14,736
Food, beverage and other 2,158 3,005
Other operating expenses 2,378 2,564
Selling, general and administrative 5,565 6,150
Depreciation and amortization 2,790 2,606
----------- ------------
27,451 29,061
----------- ------------
Loss from operations (2,251) (3,518)
Interest (expense) income net:
Interest to related party (701) (701)
Other 28 34
----------- ------------
Loss before minority interest (2,924) (4,185)
Minority interest 288 407
----------- ------------
Net loss $ (2,636) $ (3,778)
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
25
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 11,736 $ 12,181
Food, beverage and other 1,125 1,649
------------ ------------
12,861 13,830
Less promotional allowances (687) (991)
------------ ------------
Net revenues 12,174 12,839
------------ ------------
COST AND EXPENSES
Casino 7,121 7,264
Food, beverage and other 1,041 1,507
Other operating expenses 1,167 1,174
Selling, general and administrative 2,790 2,828
Depreciation and amortization 1,419 1,313
------------ ------------
13,538 14,086
------------ ------------
Loss from operations (1,364) (1,247)
Interest (expense) income net:
Interest to related party (350) (350)
Other 18 14
------------ ------------
Loss before minority interest and income taxes (1,696) (1,583)
Minority interest 167 153
------------ ------------
Net loss $ (1,529) $ (1,430)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
26
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,636) $(3,778)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 2,736 2,552
Amortization 54 54
Loss on disposal of fixed assets 127 -
Minority interest (288) (407)
Changes in operating assets and liabilities:
Other current assets (585) (166)
Accounts payable 613 (149)
Accrued interest to related parties 701 701
Other accrued liabilities 37 508
----------- -----------
Net cash provided by (used in) operating activities 759 (685)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,924) (583)
----------- -----------
Net cash used in investing activities (3,924) (583)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (73) -
Increase in due to affiliates 3,400 795
Decrease in other assets 9 -
----------- -----------
Net cash provided by financing activities 3,336 795
----------- -----------
Net increase (decrease) in cash and cash equivalents 171 (473)
Cash and cash equivalents, beginning of period 3,025 3,429
----------- -----------
Cash and cash equivalents, end of period $ 3,196 $ 2,956
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
27
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 is the 90% general partner of the Partnership, along with the 10%
partner in commendam Jazz. Both the Company and Jazz are wholly owned
subsidiaries of Argosy Gaming Company ("Argosy").
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, 1998 included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed consolidated financial statements contain all adjustments which
are, in the opinion of management, necessary to present fairly the
financial position and the results of operations for the periods indicated.
Such adjustments include only normal recurring accruals. Certain 1998
amounts have been reclassified to conform to the 1999 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 actual
construction of a hotel commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if required,
for the initial five-year certification term approved by the Louisiana
Riverboat Gaming Commission. Through June 30, 1999, the Company has paid
all admission payments due under the above agreements.
Argosy announced on July 29, 1999, plans for a $20 million, 300 room
convention hotel in downtown Baton Rouge. Concurrent with the announcement,
the Company began construction on the hotel and the additional head tax of
$2.50 per passenger ceased.
28
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
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. As part of a refinancing, in June 1999, Argosy validly
tendered $212.7 million of its Mortgage Notes. At June 30, 1999, $22.2
million of the Mortgage Notes remain outstanding. On June 8, 1999, Argosy
issued $200 million of Senior Subordinated Notes due 2009 ("Subordinated
Notes") and entered into a five year, $200 million Senior Secured revolving
bank credit agreement. The Company is a named borrower under the Credit
Facility and borrowings are secured by substantially all the assets of the
Company. The Company is a guarantor, under the terms of the Subordinated
Notes. The Subordinated Notes rank junior to all of the senior indebtedness
of Argosy, including borrowings under the Credit Facility.
29
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,196 $ 3,025
Other current assets 1,349 764
------------- ------------
Total current assets 4,545 3,789
NET PROPERTY AND EQUIPMENT 40,731 39,670
OTHER ASSETS 1,650 1,713
------------- ------------
TOTAL ASSETS $46,926 $45,172
============= ============
CURRENT LIABILITIES:
Accounts payable $ 1,208 $ 595
Other accrued liabilities 4,511 4,591
Accrued interest-related party 3,005 2,304
Due to affiliates 6,549 3,149
Notes payable and current maturities of long-term
debt-related party 13,349 13,349
------------- ------------
Total current liabilities 28,622 23,988
LONG-TERM DEBT-RELATED PARTY 6,022 6,022
PARTNERS' EQUITY 12,282 15,162
------------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $46,926 $45,172
============= ============
</TABLE>
See accompanying notes to condensed financial statements.
30
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 24,315 $ 24,285
Food, beverage and other 2,422 3,333
----------- -----------
26,737 27,618
Less promotional allowances (1,537) (2,075)
----------- -----------
Net revenues 25,200 25,543
----------- -----------
COSTS AND EXPENSES
Casino 14,560 14,736
Food, beverage and other 2,158 3,005
Other operating expenses 2,378 2,564
Selling, general and administrative 5,520 6,024
Depreciation and amortization 2,790 2,606
----------- -----------
27,406 28,935
----------- -----------
Loss from operations (2,206) (3,392)
INTEREST (EXPENSE) INCOME (NET):
Related parties (701) (701)
Other 27 30
----------- -----------
(674) (671)
----------- -----------
Net loss $ (2,880) $ (4,063)
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
31
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 11,736 $ 12,181
Food, beverage and other 1,125 1,649
----------- -----------
12,861 13,830
Less promotional allowances (687) (991)
----------- -----------
Net revenues 12,174 12,839
----------- -----------
COSTS AND EXPENSES
Casino 7,121 7,263
Food, beverage and other 1,041 1,507
Other operating expenses 1,167 1,174
Selling, general and administrative 2,768 2,763
Depreciation and amortization 1,419 1,313
----------- -----------
13,516 14,020
----------- -----------
Loss from operations (1,342) (1,181)
INTEREST (EXPENSE) INCOME:
Related parties (350) (350)
Other 17 10
----------- -----------
(333) (340)
----------- -----------
Net loss $ (1,675) $ (1,521)
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
32
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,880) $(4,063)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 2,736 2,552
Amortization 54 54
Loss on disposal of fixed assets 127 -
Changes in operating assets and liabilities:
Other current assets (585) (162)
Accounts payable 613 (149)
Accrued interest to related parties 701 701
Other accrued liabilities (7) 415
----------- -----------
Net cash provided by (used in) operating activities 759 (652)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,924) (583)
----------- -----------
Net cash used in investing activities (3,924) (583)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (73) -
Increase in due to affiliates 3,400 762
Decrease in other assets 9 -
----------- -----------
Net cash provided by financing activities 3,336 762
----------- -----------
Net increase (decrease) in cash and cash equivalents 171 (473)
Cash and cash equivalents, beginning of period 3,025 3,429
----------- -----------
Cash and cash equivalents, end of period $ 3,196 $ 2,956
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
33
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Catfish Queen Partnership in Commendam ("Partnership")
provides riverboat gaming and related entertainment in Baton Rouge, Louisiana.
The Partnership is comprised of a 90% general partner, Argosy of Louisiana, Inc.
("General Partner"), and a 10% partner in commendam, Jazz Enterprises, Inc.
("Jazz") both wholly owned subsidiaries of Argosy Gaming Company ("Argosy").
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, 1998, included in the Argosy's Annual Report on Form
10-K (File No. 1-11853). 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.
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 actual construction of a hotel commences by Jazz or another
Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if required, for
the initial five-year certification term approved by the Louisiana Riverboat
Gaming Commission. Through June 30, 1999, the Partnership has paid all admission
payments due under the above agreements.
Argosy announced on July 29, 1999, plans for a $20 million, 300 room
convention hotel in downtown Baton Rouge. Concurrent with the announcement, the
Company began construction on the hotel and the additional head tax of $2.50 per
passenger ceased.
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. As
part of a refinancing, in June 1999, Argosy validly tendered $212.7 million of
its Mortgage Notes. At June 30, 1999, $22.2 million of the Mortgage Notes remain
outstanding. On June 8, 1999, Argosy issued $200 million of Senior Subordinated
Notes due 2009 ("Subordinated Notes") and entered into a five year, $200 million
Senior Secured revolving bank credit agreement. The Partnership is a named
borrower under the Credit Facility and borrowings are secured by substantially
of the assets of the Partnership. The Partnership is a guarantor, under the
terms of the Subordinated Notes. The Subordinated Notes rank junior to all of
the senior indebtedness of Argosy, including borrowings under the Credit
Facility.
34
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7 $ -
Other current assets 23 110
----------- ------------
Total current assets 30 110
NET PROPERTY AND EQUIPMENT 51,681 52,733
GOODWILL, NET 19,027 19,325
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 1,366 1,636
----------- ------------
TOTAL ASSETS $ 73,996 $ 75,696
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,068 $ 2,843
Current maturities of long-term debt 545 545
----------- ------------
Total current liabilities 3,613 3,388
----------- ------------
LONG-TERM DEBT 6,234 6,552
LONG-TERM DEBT - RELATED PARTY 75,799 75,625
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares authorized,
200 shares issued and outstanding - -
Accumulated deficit (11,650) (9,869)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 73,996 $ 75,696
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
35
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue $ 1,463 $ 1,477
Rent revenue 184 178
----------- -----------
1,647 1,655
----------- -----------
COSTS AND EXPENSES:
Operating expenses 568 611
Selling, general and administrative 812 1,828
Depreciation and amortization 1,350 1,266
----------- -----------
2,730 3,705
----------- -----------
Loss from operations (1,083) (2,050)
OTHER EXPENSE:
Interest expense (410) (436)
Equity in loss of unconsolidated partnership (288) (406)
----------- -----------
Net loss $(1,781) $(2,892)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
36
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue $ 706 $ 723
Rent revenue 64 89
----------- -----------
770 812
----------- -----------
COSTS AND EXPENSES:
Operating expenses 291 351
Selling, general and administrative 413 1,432
Depreciation and amortization 675 614
----------- -----------
1,379 2,397
----------- -----------
Loss from operations (609) (1,585)
OTHER EXPENSE:
Interest expense (204) (216)
Equity in loss of unconsolidated partnership (167) (152)
----------- -----------
Net loss $ (980) $(1,953)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
37
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,781) $(2,892)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 1,052 878
Amortization 298 388
Equity in loss of unconsolidated partnership 288 406
Other current assets 87 (114)
Accounts payable and accrued liabilities 225 133
----------- -----------
Net cash provided by (used in) operating activities 169 (1,201)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (113)
----------- -----------
Net cash used in investing activities - (113)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (318) (252)
Advances from affiliate 174 651
(Increase) decrease in other assets (18) 895
----------- -----------
Net cash (used in) provided by financing activities (162) 1,294
----------- -----------
Net increase (decrease) in cash and cash equivalents 7 (20)
Cash and cash equivalents, beginning of period - 20
----------- -----------
Cash and cash equivalents, end of period $ 7 $ -
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
38
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Jazz Enterprises, Inc., ("Jazz" or "the Company") a
Louisiana corporation and a wholly owned subsidiary of Argosy Gaming Company
("Argosy") 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 entered into a partnership ("Partnership") with Argosy of
Louisiana, Inc. (a wholly owned subsidiary of 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, 1998, included in the
Argosy's Annual Report on Form 10-K (File No. 1-11853). 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.
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, if required,
for the initial five-year certification term approved by the Louisiana
Riverboat Gaming Commission. Through June 30, 1999, the partnership has paid
all admission payments due under the above agreements.
Argosy announced on July 29, 1999, plans for a $20 million, 300 room
convention hotel in downtown Baton Rouge. Concurrent with the announcement, the
Company began construction on the hotel and the additional head tax of $2.50 per
passenger ceased.
39
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes"). The assets of the Company are pledged as collateral, and the
Company is a guarantor, under the terms of Mortgage Notes. As part of a
refinancing, in June 1999, Argosy validly tendered $212.7 million of its
Mortgage Notes. At June 30, 1999, $22.2 million of the Mortgage Notes remain
outstanding. On June 8, 1999, Argosy issued $200 million of Senior Subordinated
Notes due 2009 ("Subordinated Notes") and entered into a five year, $200 million
Senior Secured revolving bank credit agreement. The Company is a named borrower
under the Credit Facility and borrowings are secured by substantially all the
assets of the Company. The Company is a guarantor, under the terms of the
Subordinated Notes. The Subordinated Notes rank junior to all of the senior
indebtedness of Argosy, including borrowings under the Credit Facility.
40
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,981 $ 25,491
Other current assets 1,663 1,603
--------------- --------------
Total current assets 19,644 27,094
--------------- --------------
NET PROPERTY AND EQUIPMENT 192,167 194,731
--------------- --------------
OTHER ASSETS:
Deposits 118 -
Intangible assets, net 28,821 29,566
Deferred income taxes 37 722
--------------- --------------
Total other assets 28,976 30,288
--------------- --------------
TOTAL ASSETS $240,787 $ 252,113
--------------- --------------
--------------- --------------
CURRENT LIABILITIES:
Accounts payable $ 3,635 $ 1,974
Accrued interest and dividends payable-related parties 641 2,183
Other accrued liabilities 21,626 26,393
Current maturities of long-term debt 11,292 11,095
Income taxes payable 35,955 24,534
--------------- --------------
Total current liabilities 73,149 66,179
--------------- --------------
LONG-TERM DEBT 74,942 118,933
MINORITY INTERESTS 38,181 30,516
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares authorized
issued and outstanding - -
Retained earnings 54,515 36,485
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $240,787 $252,113
--------------- --------------
--------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
41
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 30,
1999 1998
------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Casino $ 150,014 $ 120,065
Admissions 8,956 7,200
Food, beverage and other 15,659 9,722
-------------- ---------------
174,629 136,987
Less promotional allowances (13,340) (8,176)
-------------- ---------------
Net revenues 161,289 128,811
-------------- ---------------
COST AND EXPENSES:
Casino 61,840 50,924
Food, beverage and other 10,509 8,270
Other operating expenses 4,143 4,103
Selling, general and administrative 24,821 20,357
Depreciation and amortization 6,761 5,947
Management fees-related parties 2,999 2,176
-------------- ---------------
111,073 91,777
-------------- ---------------
Income from operations 50,216 37,034
-------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 157 765
Interest expense (4,169) (5,214)
-------------- ---------------
(4,012) (4,449)
-------------- ---------------
Income before minority interests and income taxes 46,204 32,585
Minority interests (16,064) (10,177)
Income tax expense (12,110) (8,999)
-------------- ---------------
NET INCOME $ 18,030 $ 13,409
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
42
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Casino $ 76,935 $ 64,495
Admissions 4,678 4,009
Food, beverage and other 8,136 5,535
-------------- ---------------
89,749 74,039
Less promotional allowances (6,929) (4,979)
-------------- ---------------
Net revenues 82,820 69,060
-------------- ---------------
COST AND EXPENSES:
Casino 31,472 26,892
Food, beverage and other 5,503 4,687
Other operating expenses 2,120 2,112
Selling, general and administrative 12,948 11,441
Depreciation and amortization 3,433 3,053
Management fees-related parties 1,539 1,115
-------------- ---------------
57,015 49,300
-------------- ---------------
Income from operations 25,805 19,760
-------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 58 319
Interest expense (1,997) (2,536)
-------------- ---------------
(1,939) (2,217)
-------------- ---------------
Income before minority interests and income taxes 23,866 17,543
Minority interests (8,371) (5,557)
Income tax expense (6,230) (4,888)
-------------- ---------------
NET INCOME $ 9,265 $ 7,098
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
43
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1999 1998
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,030 $ 13,409
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,016 5,256
Amortization 745 691
Deferred income taxes 685 663
Minority interests 16,064 10,177
Changes in operating assets and liabilities:
Other current assets (60) (704)
Accounts payable 1,661 (2,197)
Accrued interest payable to related parties (98) (1,627)
Income taxes payable 11,421 7,982
Accrued liabilities (2,979) 7,975
-------------- ---------------
Net cash provided by operating activities 51,485 41,625
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow - 10,100
Purchases of property and equipment (3,452) (22,124)
Payments under development agreement and other
infrastructure improvements - (2,500)
-------------- ---------------
Net cash used in investing activities (3,452) (14,524)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (1,788) (1,108)
Repayment of long-term debt (35,155) (22,170)
Repayment of partner loans (8,639) (10,384)
Payment of preferred equity return to partner (2,535) (1,159)
Partnership equity distributions (7,019) (3,774)
Repayment of partner capital contribution (289) -
Increase in other assets (118) -
-------------- ---------------
Net cash used in financing activities (55,543) (38,595)
-------------- ---------------
Net decrease in cash and cash equivalents (7,510) (11,494)
Cash and cash equivalents, beginning of period 25,491 41,257
-------------- ---------------
Cash and cash equivalents, end of period $ 17,981 $ 29,763
-------------- ---------------
-------------- ---------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
44
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-The Indiana Gaming Company, a wholly owned
subsidiary of Argosy Gaming Company ("Argosy") (collectively with its
controlled partnership Indiana Gaming Company L.P. ("Partnership") "the
Company") was formed effective April 11, 1994 to provide riverboat gaming and
related entertainment in Lawrenceburg, Indiana. The Company is a 57.5%
general partner in the Partnership, together with, three limited partners
including, Conseco Entertainment, L.L.C., ("Conseco") a 29% limited partner,
Centaur, Inc., a 9.5% limited partner and RJ Investments, Inc., a 4% limited
partner.
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, 1998, included in Argosy's Annual Report on Form 10-K (File No. 1-11853).
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations for the
periods indicated. Such adjustments include only normal recurring accruals.
Certain 1998 amounts have been reclassified to conform to the 1999 financial
statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of a Development Agreement, the Company 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 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.
BONDING OBLIGATION-The Company is required, by Indiana Gaming Statute, to
post a bond in favor of the Indiana Gaming Commission to collateralize
certain obligations to the City of Lawrenceburg under the Development
Agreement, and to the State of Indiana. This bond is collateralized by
certain real estate of the Company.
TERMINATION OF LAWRENCEBURG PARTNERSHIP-Under the terms of the
partnership agreement, after December 10, 1999, 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.
45
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
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. As part of a refinancing, in
June 1999, Argosy validly tendered $212.7 million of its Mortgage Notes. At June
30, 1999, $22.2 million of the Mortgage Notes remain outstanding. On June 8,
1999, Argosy issued $200 million of Senior Subordinated Notes due 2009
("Subordinated Notes") and entered into a five year, $200 million Senior Secured
revolving bank credit agreement. The Company is a named borrower under the
Credit Facility and borrowings are secured by the interest in the Partnership.
The Company is a guarantor, under the terms of the Subordinated Notes. The
Subordinated Notes rank junior to all of the senior indebtedness of Argosy,
including borrowings under the Credit Facility.
46
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,981 $ 25,491
Other current assets 1,410 1,349
------------ ------------
Total current assets 19,391 26,840
------------ ------------
NET PROPERTY AND EQUIPMENT 190,931 193,469
------------ ------------
OTHER ASSETS:
Deposits and other assets 118 -
Intangible assets, net 28,821 29,566
------------ ------------
Total other assets 28,939 29,566
------------ ------------
TOTAL ASSETS $239,261 $249,875
------------ ------------
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 3,635 $ 2,744
Accrued interest and dividends payable-related parties 1,462 4,475
Other accrued liabilities 21,424 25,450
Due to affiliates 970 945
Current maturities of long-term debt 21,674 21,478
------------ ------------
Total current liabilities 49,165 55,092
------------ ------------
LONG-TERM DEBT 85,011 107,722
PARTNERS' EQUITY:
General partner 66,957 56,592
Limited partners 38,128 30,469
------------ ------------
Total partners' equity 105,085 87,061
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $239,261 $249,875
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
47
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1999 1998
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 150,014 $ 120,065
Admissions 8,956 7,200
Food, beverage and other 15,659 9,722
----------- ------------
174,629 136,987
Less promotional allowances (13,340) (8,176)
----------- ------------
Net revenues 161,289 128,811
----------- ------------
COST AND EXPENSES:
Casino 61,840 50,924
Food, beverage and other 10,509 8,270
Other operating expenses 4,143 4,103
Selling, general and administrative 24,821 20,357
Depreciation and amortization 6,735 5,919
Management fees-related parties 7,497 5,645
----------- ------------
115,545 95,218
----------- ------------
Income from operations 45,744 33,593
----------- ------------
OTHER INCOME (EXPENSE):
Interest income 157 765
Interest expense (8,104) (10,412)
----------- ------------
(7,947) (9,647)
----------- ------------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 37,797 23,946
Preferred equity return (2,578) (2,780)
----------- ------------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 35,219 $ 21,166
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed financial statements.
48
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1999 1998
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 76,935 $ 64,495
Admissions 4,678 4,009
Food, beverage and other 8,136 5,535
---------- ----------
89,749 74,039
Less promotional allowances (6,929) (4,979)
---------- ----------
Net revenues 82,820 69,060
---------- ----------
COST AND EXPENSES:
Casino 31,472 26,892
Food, beverage and other 5,503 4,687
Other operating expenses 2,120 2,112
Selling, general and administrative 12,948 11,441
Depreciation and amortization 3,420 3,038
Management fees-related parties 3,847 2,991
---------- ----------
59,310 51,161
---------- ----------
Income from operations 23,510 17,899
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 58 319
Interest expense (3,871) (5,142)
---------- ----------
(3,813) (4,823)
---------- ----------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 19,697 13,076
Preferred equity return (1,256) (1,378)
---------- ----------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 18,441 $ 11,698
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
49
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1999 1998
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,219 $ 21,166
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 5,990 5,228
Amortization 745 691
Accrued preferred equity dividends 2,578 2,780
Changes in operating assets and liabilities:
Due from affiliates 25 (452)
Other current assets (61) (684)
Accounts payable 891 (2,216)
Accrued interest payable to related parties (3,013) (3,757)
Accrued liabilities 1,281 8,160
----------- ----------
Net cash provided by operating activities 43,655 30,916
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow - 10,100
Payments under development agreement and
other infrastructure improvements - (2,500)
Purchases of property and equipment (3,452) (22,129)
----------- ----------
Net cash used in investing activities (3,452) (14,529)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (1,788) (1,108)
Payment of preferred return to partners (6,097) (2,726)
Partnership equity distributions (16,516) (8,881)
Repayment of partner's capital contribution (679) -
Payments on long-term debt and partner loans (22,515) (16,979)
Partner equity contributions - 1,813
Increase in other assets (118) -
----------- ----------
Net cash used in financing activities (47,713) (27,881)
----------- ----------
Net decrease in cash and cash equivalents (7,510) (11,494)
Cash and cash equivalents, beginning of period 25,491 41,257
----------- ----------
Cash and cash equivalents, end of period $ 17,981 $ 29,763
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
50
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Indiana Gaming Company, L.P. ("Partnership"), an
Indiana limited partnership was formed to provide riverboat gaming and
related entertainment in Lawrenceburg, Indiana. The Partnership is comprised
of a 57.5% general partner, The Indiana Gaming Company ("General Partner"), a
wholly owned subsidiary of Argosy Gaming Company, ("Argosy"), and three
limited partners including, Conseco Entertainment, L.L.C., ("Conseco") a 29%
limited partner, Centaur, Inc., a 9.5% limited partner and RJ Investments,
Inc., a 4% limited partner. Net income (loss) is allocated to the partners
based on their respective ownership interests.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q 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, 1998, included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). 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 1998 amounts have been reclassified
to conform to the 1999 financial statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance with
the terms of a 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.
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 December 10, 1999, 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.
51
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, through its subsidiaries or joint ventures, owns and operates
the Alton Belle Casino, in Alton, Illinois; the Argosy Casino in Riverside,
Missouri; the Argosy Casino - Baton Rouge in Baton Rouge, Louisiana; the Belle
of Sioux City Casino in Sioux City, Iowa; and the Argosy Casino and Hotel in
Lawrenceburg, Indiana.
The Company's results of operations for the three months ended June 30, 1999
reflect increases in both revenues and operating income at all of its casino
properties except Baton Rouge, over 1998 amounts. This improvement is attributed
to the Company's operating strategy, which has been developed with the goal to
position the Company as the premier riverboat casino operator. This strategy
includes capitalizing on management's significant experience and expertise in
gaming industry operations and marketing, developing the Company's marketing
strategies with an emphasis on direct marketing, and prudently investing in
gaming and gaming-related assets for its properties. The Argosy Casino - Baton
Rouge showed a decrease in both revenues and operating income due to a major
renovation, which closed certain areas of the vessel for most of the three
months ended June 30, 1999.
The results of operations of the Company's Baton Rouge casino were
significantly impacted by the imposition of a head tax. Under the terms of an
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
of a hotel. The Company announced on July 29, 1999 plans for a $20 million, 300
room convention hotel in downtown Baton Rouge. Concurrent with the announcement,
the Company began construction on the hotel and the additional head tax of $2.50
per passenger ceased. The Company's ability to recover the carrying amount of
its long-lived assets in Baton Rouge is dependent on several factors including
achieving anticipated operating results and the competitive environment. If the
Company is unable to complete the hotel or if the Company's operating results do
not improve through cost efficiencies or following the elimination, on July 1,
1999, of video poker at many competing outlets, management's evaluation of
recoverability could change and the Company could record an impairment loss
amounting to a substantial portion of its $111 million Baton Rouge investment.
The Company is in a net operating loss carryforward position at June 30,
1999. The Company utilized approximately $4.8 million and $1.8 million of net
operating loss carryforwards to offset its federal tax liability for the six and
three months ended June 30, 1999. No federal tax benefit was recorded on the
Company's operating loss for the three or six months ended June 30, 1999 or 1998
due to the uncertainty of realization.
52
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
----------------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------- ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASINO REVENUES
Alton Belle Casino $ 38,019 $ 34,317 $ 19,910 $ 17,288
Argosy Casino Riverside 39,995 35,355 20,797 16,996
Argosy Casino - Baton Rouge 24,315 24,285 11,736 12,181
Belle of Sioux City Casino 12,705 10,851 6,542 5,590
Argosy Casino & Hotel in Lawrenceburg 150,014 120,065 76,935 64,495
----------- ----------- ----------- ------------
Total $ 265,048 $ 224,873 $ 135,920 $ 116,550
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
NET REVENUES
Alton Belle Casino $ 39,770 $ 36,448 $ 20,777 $ 18,390
Argosy Casino Riverside 42,423 37,860 22,008 18,246
Argosy Casino - Baton Rouge 25,200 25,543 12,174 12,839
Belle of Sioux City Casino 13,130 11,306 6,761 5,829
Argosy Casino & Hotel in Lawrenceburg 161,289 128,811 82,820 69,060
Other 180 189 61 93
----------- ----------- ----------- ------------
Total $ 281,992 $ 240,157 $ 144,601 $ 124,457
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS(1)
Alton Belle Casino $ 9,286 $ 7,079 $ 5,304 $ 3,686
Argosy Casino Riverside 5,256 1,375 3,221 761
Argosy Casino - Baton Rouge (744) (1,915) (637) (458)
Belle of Sioux City Casino 1,805 792 960 528
Argosy Casino & Hotel in Lawrenceburg 50,242 37,062 25,818 19,775
Corporate (3) (8,352) (5,083) (3,326) (2,220)
Jazz (2,546) (3,533) (1,315) (2,312)
Other (662) (736) (331) (370)
----------- ----------- ----------- ------------
Total $ 54,285 $ 35,041 $ 29,694 $ 19,390
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
EBITDA(1)(2)
Alton Belle Casino $ 11,333 $ 9,022 $ 6,325 $ 4,665
Argosy Casino Riverside 8,160 4,406 4,666 2,315
Argosy Casino - Baton Rouge 2,046 691 782 855
Belle of Sioux City Casino 2,391 1,306 1,266 788
Argosy Casino & Hotel in Lawrenceburg 59,976 45,157 30,777 23,928
Lawrenceburg financial advisory fee (4) (2,999) (2,176) (1,539) (1,115)
Corporate (3) (8,353) (4,670) (3,334) (2,013)
Jazz (1,196) (2,267) (640) (1,698)
Other 18 (57) 9 (32)
----------- ----------- ----------- ------------
Total $ 71,376 $ 51,412 $ 38,312 $ 27,693
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
53
<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 fees paid to the Company 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. 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
debt service and capital expenditures, which are not reflected in EBITDA.
(3) Includes expenses related to a severance package and a settlement agreement
of $1.8 million for the six months ended June 30, 1999.
(4) The Lawrenceburg partnership pays a financial advisory fee equal to 5.0% of
its EBITDA to a minority partner.
54
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
CASINO--Casino revenues for the six months ended June 30, 1999 increased by
$40.2 million to $265.0 million from $224.9 million for the six months ended
June 30, 1998 due primarily to a $29.9 million increase in casino revenues at
the Lawrenceburg casino, which generated total casino revenues of $150.0 million
for the six months ended June 30, 1999. The Company's other properties reported
an aggregate 10% increase in casino revenues from $104.8 to $115.0 million. In
particular, Alton casino revenues increased from $34.3 to $38.0 million,
Riverside casino revenues increased from $35.4 to $40.0 million and Sioux City
casino revenues increased from $10.9 to $12.7 million. Baton Rouge casino
revenues remained flat at $24.3 million due to a major renovation, which closed
certain areas of the vessel for most of the second quarter.
Casino expenses increased to $120.4 million for the six months ended June
30, 1999 from $107.4 million for the six months ended June 30, 1998. This
increase is primarily due to increased Lawrenceburg casino expenses of $10.9
million due to an increase in gaming and admission taxes of $7.6 million as a
result of the overall increase in Lawrenceburg casino revenues of $29.9 million.
Casino expenses at Alton increased $1.3 million due to an $0.8 million increase
in gaming and admission taxes as a result of the overall increase in Alton
casino revenues of $3.7 million.
ADMISSIONS--Admissions revenues (net of complimentary admissions) decreased
slightly by $0.3 million to $3.2 million. Although the number of admissions
increased, more complimentary admissions were given to customers as part of
Lawrenceburg's marketing program.
FOOD, BEVERAGE AND OTHER--Food, beverage and other revenues increased $4.1
million to $27.7 million for the six month period ended June 30, 1999. This
increase is attributable to restaurants and hotel at the Lawrenceburg property
being opened the entire six months in 1999. Food, beverage and other net profit
improved $3.9 million to $7.8 million for the six months ended June 30, 1999.
Alton, Riverside and Baton Rouge each reported decreases in food and beverage
revenues and expenses. Alton's decrease was due to the closing of a restaurant
during the entire six months ended June 30, 1999 in conjunction with a major
renovation. Riverside's and Baton Rouge's decreases were primarily due to the
decreased use of food and beverage as a promotional item.
The Lawrenceburg hotel, which opened in May 1998, contributed $1.9 million
in net revenues and $0.8 million of operating profit. The hotel occupancy
percentage was 80% and the average daily room rate was $80.
OTHER OPERATING EXPENSES--Other operating expenses were virtually unchanged
at $13.3 million for the six months ended June 30, 1999 as compared to the six
months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $8.7 million to $57.1 million for the six months ended June
30, 1999 due primarily to an increase of $4.5 million at Lawrenceburg relating
to expanded promotions and additional payments due to the city due to increased
gaming revenue. Baton Rouge selling, general and administrative expenses
decreased by $0.5 million due to the elimination of the group sales department
as a result of cost reduction programs. Corporate expenses increased by $3.3
million due to expenses related to a severance package and settlement
arrangement and expenses related to incentive compensation.
55
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $0.7
million from $16.4 million for the six months ended June 30, 1998 to $17.1
million for the six months ended June 30, 1999, due to depreciation on the
Lawrenceburg hotel which was opened in May 1998.
INTEREST EXPENSE--Net interest expense decreased $0.8 million to $26.1
million for the six months ended June 30, 1999. This decrease is due to a
decrease in interest expense to a minority partner of $1.2 million offset by
capitalized interest of $1.1 million in the first six months of 1998.
56
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
CASINO--Casino revenues for the three months ended June 30, 1999 increased
by $19.4 million to $135.9 million from $116.6 million for the three months
ended June 30, 1998 due primarily to a $12.4 million increase in casino revenues
at the Lawrenceburg casino, which generated total casino revenues of $76.9
million for the three months ended June 30, 1999. The Company's other properties
reported an aggregate 13% increase in casino revenues from $52.1 to $59.0
million. In particular, Alton casino revenues increased from $17.3 to $19.9
million, Riverside casino revenues increased from $17.0 to $20.8 million and
Sioux City casino revenues increased from $5.6 to $6.5 million. Baton Rouge
casino revenues decreased from $12.2 to $11.7 million due to a major renovation,
which closed certain areas of the vessel for most of the second quarter.
Casino expenses increased to $61.0 million for the three months ended June
30, 1999 from $54.7 million for the three months ended June 30, 1998. This
increase is primarily due to increased Lawrenceburg casino expenses of $4.6
million due to an increase in gaming and admission taxes of $3.1 million as a
result of the overall increase in Lawrenceburg casino revenues of $12.4 million.
Casino expenses at Alton and Riverside increased $0.8 million and $0.9 million,
due to an increase in gaming and admission taxes of $0.6 million and $0.8
million, respectively, as a result of the overall increase in Alton and
Riverside casino revenues of $2.6 million and $3.8 million.
ADMISSIONS--Admissions revenues (net of complimentary admissions) remained
approximately the same at $1.7 million. Although the number of admissions
increased, more complimentary admissions were given to customers as part of
Lawrenceburg's marketing program.
FOOD, BEVERAGE AND OTHER--Food, beverage and other revenues increased $1.6
million to $14.1 million for the three month period ended June 30, 1999. Food,
beverage and other net profit improved $1.8 million to $3.8 million for the
three months ended June 30, 1999. Alton, Riverside and Baton Rouge each reported
decreases in food and beverage revenues and expenses. Alton's decrease was due
to the closing of a restaurant during the entire three months ended June 30,
1999 in conjunction with a major renovation. Riverside's and Baton Rouge's
decreases were primarily due to the decreased use of food and beverage as a
promotional item.
The Lawrenceburg hotel, which opened in May 1998, contributed $1.1 million
in net revenues and $0.6 million of operating profit. The hotel occupancy
percentage was 83% and the average daily room rate was $83.
OTHER OPERATING EXPENSES--Other operating expenses were virtually unchanged
at $6.7 million for the three months ended June 30, 1999 as compared to the
three months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $3.4 million to $28.4 million for the three months ended June
30, 1999 due primarily to an increase of $1.5 million at Lawrenceburg relating
to expanded promotions and additional payments due to the city due to increased
gaming revenue. Riverside selling, general and administrative expenses increased
by $0.7 million due to expenses for a management bonus incentive plan and a fine
accessed by the state. Corporate expenses increased by $1.1 million due to
expenses related to incentive compensation.
57
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $0.3
million from $8.3 million for the three months ended June 30, 1998 to $8.6
million for the three months ended June 30, 1999, due to depreciation on the
Lawrenceburg hotel which was opened in May 1998.
INTEREST EXPENSE--Net interest expense decreased $0.5 million to $12.9
million for the three months ended June 30, 1999. This decrease is due to a
decrease in interest expense to a minority partner of $0.6 million offset by
capitalized interest of $0.5 million in the second quarter of 1998.
COMPETITION
The Company's Alton Casino faces competition from five other riverboat
casino operators in the St. Louis area and expects the level of competition to
remain intense in the future. The Company's Riverside Casino faces competition
from three casino companies in the Kansas City area, two of which operate two
gaming vessels each, allowing them to offer more continuous boarding than our
single vessel facility. The Company's Baton Rouge Casino faces competition from
one casino located in downtown Baton Rouge, a nearby Native American casino and
multiple casinos throughout Louisiana. The Company faces competition in Sioux
City, Iowa, from video gaming devices in nearby South Dakota, from two
land-based Native American casinos and, to a lesser extent, from slot machines
at a pari-mutual race track in Council Bluffs, Iowa and from two riverboat
casinos in the Council Bluffs, Iowa/Omaha, Nebraska market. The Indiana
Partnership faces competition from one other riverboat casino in the Cincinnati
market. In addition, a riverboat casino opened 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 six months ended June 30, 1999, the Company generated cash flows from
operating activities of $54.0 million before the effect of an extraordinary loss
compared to $33.1 million for the same period in 1998. This increase is
attributable to improved operations at four of the Company's five casino
locations.
In the six months ended June 30, 1999, the Company used cash flows for
investing activities of $12.1 million versus $15.9 million for the six months
ended June 30, 1998. The primary use of funds in 1999 was for capital
expenditures. The primary use of funds in 1998 was the completion of the
construction of the Lawrenceburg facility and hotel. Overall capital
expenditures have decreased between periods reflecting the completion of the
Lawrenceburg casino.
58
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
During the six months ended June 30, 1999, the Company used $45.9 million in
cash flows for financing activities compared to using $11.2 million of cash
flows for financing activities for the same period in 1998. In 1999, the Company
received proceeds of $200 million from the issuance of subordinated notes and
$25 million from a line of credit. The Company repayed long term debt of $212.8
million, put $26.7 million in funds in an escrow to retire future debt and used
$8.4 million which was capitalized as deferred finance costs in connection with
the refinancing. In 1998, the Company received proceeds of $7.4 million from the
sale of preferred stock and warrants. Cash flows in both 1999 and 1998 were used
to repay loans related to the Company's Lawrenceburg casino, partner equity
distributions related to the Lawrenceburg partnership and for payments on
installment contracts and other long-term obligations.
As of June 30, 1999, the Company had approximately $51.1 million of cash,
cash equivalents, and marketable securities, including approximately $18.0
million held at the Indiana Partnership. In addition, the Company has placed in
escrow $26.7 million to fund the interest payments, redemption premium and
principal for the remaining $22.2 million of Mortgage Notes which were not
tendered in the refinancing but which will be redeemed in June 2000. At June 30,
1999, the Company has outstanding $200 million of Senior Subordinated Notes,
which were issued in June 1999 and are due June 2009 and $25 million on a senior
secured revolving credit facility. On July 7, 1999, the Company redeemed the
$115 million of Convertible Subordinated Notes with an additional draw down of
$105 million on the senior secured revolving credit facility and cash of
approximately $13.7 million. As of August 9, 1999 availability under the Credit
Facility is approximately $77 million.
The Company has made a significant investment in property and equipment and
plans to make significant additional investments at certain of its existing
properties. During 1999, the Company expects to spend approximately $34 million
to fund its capital expenditures program principally related to upgrading its
gaming facilities and purchasing gaming equipment. In addition, the Company
recently began construction of a $20 million 300 room convention hotel next to
the Company's casino in Baton Rouge, Louisiana.
During an ongoing audit, the Internal Revenue Service (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 $14.1 million (excluding penalties) to fund the potential
federal and any state income tax liability. The Company believes it has
substantial legal grounds for its tax position related to this matter and is
vigorously contesting the IRS challenge; however, no assurance can be given that
the Company will not be required to pay some or all of the disputed amount.
The Company believes that cash on hand and operating cash flows will be
sufficient to fund its current operating, capital expenditure and debt service
obligations. While the Company believes that its sources of liquidity are
sufficient to meet its cash obligations during the next 12 months, the Company's
ability to meet its operating and debt service requirements, however, is
substantially dependent upon the success of the Lawrenceburg casino. If the
operating results of the Lawrenceburg casino would deteriorate significantly or
there are any other events that materially impact its sources or uses of cash,
the Company may be unable to meet future debt service payments without obtaining
additional debt or equity financing or without the disposition of assets. No
assurance can be given that the Company would be able to obtain such additional
financing on suitable terms or sell assets on favorable terms, if required.
59
<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 September 1999 target date to complete its implementation efforts.
As of June 30, 1999, the Company has incurred approximately $400,000 of
costs related to Year 2000 issues. The Company estimates it will incur less than
$100,000 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.
60
<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 disclosed below, the Company is
unaware of any legal proceedings which, even if the outcome were unfavorable to
the Company, would have a material adverse impact on either its financial
condition or results of operations.
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. In response, on
August 4, 1998, plaintiff filed a First Amended and Substituted Petition and
added claims for fraudulent misrepresentation, breach of the partnership
agreement, and breach of the management agreement. Defendants filed a motion to
dismiss based on substantially similar grounds and requested a more specific
statement on the claims for breach of contract. On September 25, 1998, the court
denied the motion to dismiss and granted the request for a more specific
statement. Plaintiff subsequently filed a Second Amended Petition on October 14,
1998 and a Third Amended Petition on April 29, 1999. Gamedev withdrew its claim
for an equitable accounting and added a claim for fraudulent nondisclosure. The
parties filed a joint motion for continuance and the court rescheduled the trial
date to May 30, 2000. The discovery cutoff deadline for the parties is April 28,
2000. Gamedev must designate its experts by November 29, 1999, and defendants
must designate their experts by January 31, 2000. Dispositive motions shall be
filed by February 29, 2000, and a settlement conference is set for May 24, 2000.
The parties have exchanged and responded to written discovery. Depositions have
begun. There can be no assurance that the lawsuit will not lead to events having
a material adverse effect on the Company.
GAMING INDUSTRY CLASS ACTIONS
The Company has been named, along with two gaming equipment suppliers, 41 of
the country's largest gaming operators and four gaming distributors (the "Gaming
Industry Defendants") in three class action lawsuits pending in Las Vegas,
Nevada. The suits allege that the Gaming Industry Defendants violated the
Racketeer Influenced and Corrupt Organizations Act ("RICO") by engaging in a
course of fraudulent and misleading conduct intended to induce people to play
their gaming machines based upon a false belief concerning how those gaming
machines actually operate, as well as to the extent to which there is actually
an opportunity to win on any given play. The suits seek unspecified compensatory
and punitive damages. On January 14, 1997, the Court consolidated all three
actions under the case name WILLIAM H. POULOS, ETC. V. CAESARS WORLD, INC., ET
AL. On February 13, 1997 the plaintiffs filed a consolidated amended complaint.
The Court subsequently dismissed this complaint, in part, and on January 8,
1998, the plantiffs filed a second
61
<PAGE>
consolidated amended complaint. The parties have fully briefed the
Plaintiff's motion for class certification and are awaiting a decision from
the court. On June 22, 1999 the Court ordered that the plaintiffs could
conduct limited class discovery on the defendants promotional and advertising
documents. The Company is unable to determine what effect, if any, the suit
would have on its business or operations.
MARION COUNTY, INDIANA GRAND JURY
In March, 1996, the Company, its partners in the Lawrenceburg casino project
and certain other individuals and entities were served with document request
subpoenas issued by the Office of the Prosecuting Attorney of Marion County in
connection with a grand jury investigation (the "Marion County Grand Jury")
entitled: STATE OF INDIANA RE: ORIGINAL INVESTIGATION - OFFICIAL MISCONDUCT. The
subpoena requested a broad range of documents relating to the current and prior
ownership interests in the Company and the partners of the Lawrenceburg
Partnership and certain dealings by the Company and its partners with Samuel
Turpin, an Indiana legislator, and certain Indiana lobbyists. Again in April,
1998, the Company and the Lawrenceburg Partnership were served with two
additional document subpoenas from the Marion County Grand Jury relating to a
lobbyist retained by the Company from time to time and the Indiana Gaming
Association (of which the Company is a member) and its executive director. The
Company believes it has fully complied with the subpoenas, and has been advised
by its Lawrenceburg partners that they have done the same. Due to the
confidential nature of grand jury proceedings, the Company is not aware of the
specific subject matter or matters of the investigation, other than to the
extent revealed by the April 28, 1997, indictments described later herein.
After the receipt of the initial subpoena in March, 1996, the Company
retained a former U.S. Attorney (James Richmond) and his law firm to conduct, as
special independent counsel ("special independent counsel"), an internal
investigation into the activities and actions of the Company and the entities
controlled by the Company or any person employed by the Company, with respect to
(i) the relationship with Samuel Turpin, (ii) matters relating to the Company's
dealings with the City of Lawrenceburg and the awarding of the Certificate of
Suitability by the Indiana Gaming Commission, and (iii) matters relating to the
Company's lobbying efforts in the Indiana legislature. A special committee of
independent directors of the Company's Board of Directors was appointed to
supervise and coordinate the special independent counsel's investigation. The
special independent counsel upon conclusion of its investigation issued a report
indicating it found no evidence of criminal wrongdoing by the Company, any
entity controlled by the Company or person employed by the Company with respect
to the matters investigated by the special independent counsel.
Indiana law requires that at the time a target of an investigation is
determined, that entity or person must be so advised by the Office of the
Prosecuting Attorney. Neither the Company nor to its knowledge any of the
Lawrenceburg partners have been advised by the Marion County Prosecutor that any
of them are targets of the investigation.
On April 28, 1997, the Grand Jury returned felony indictments against (i)
Messrs. Willis Connor and James Wurster, principals of American Consulting
Engineers, Inc. ("ACE"), a major Indiana engineering firm that is engaged in
many state and local governmental funded construction projects and also served
as lead engineer for the Lawrenceburg casino project; (ii) Samuel Turpin, a
former Indiana state legislator and Chairman of the Indiana House Ways and Means
Committee until June 1996 when he resigned and also an employee of Conseco,
Inc., a Lawrenceburg partner, and (iii) Kenneth Cragen, president of and
lobbyist for the Indiana Motor Truck Association ("IMTA").
62
<PAGE>
Connor, Wurster and Turpin were each charged with one count of bribery in
connection with payments made by ACE to Turpin while he served in the Indiana
General Assembly, which payments were stated to be for consulting fees for
duties outside the legislative process, which the indictment charges were in
return for official acts by Turpin that promoted the economic interests of ACE.
The press release by the Marion County Prosecutor at the time of the indictments
described those economic interest as including "the promoting of certain
riverboat gaming interests in which ACE had a financial interest, the diverting
of state funds into highway construction and, which Turpin was a member of the
State Budget Committee, the release of state funds that benefited particular ACE
public works projects." Turpin was also charged with five counts of filing
fraudulent campaign finance reports, and one count of perjury in connection with
a sworn statement to the Indiana Bureau of Motor Vehicles. Wurster was also
charged with one Count, and Cragen with two counts, of unlawful lobbying in
connection with lobbying activities involving IMTA and ACE.
In April, 1999, the Indiana Court of Appeals in the case entitled JAMES
WURSTER, SAMUEL TURPIN AND WILLIS CONNOR V. THE STATE OF INDIANA issued a
unanimous decision dismissing all counts of the indictment of the Marion County
Grand Jury against Messrs. Wurster and Connor and all counts of the indictment
against Turpin, except the counts dealing with reports to the Indiana Election
Commission and the Indiana Bureau of Motor Vehicles. On April 28, 1999 the
Marion County Prosecutor petitioned the Indiana Supreme Court to review the
Court of Appeals decision. On July 28, 1999 the Indiana Supreme Court affirmed
the Court of Appeals ruling to dismiss all counts of the indictments against
Messrs. Wurster and Connor and all counts of the indictment against Turpin
except those relating to fraudulent reporting.
There can be no assurance that the grand jury investigation will not lead to
events having a material adverse effect on the Company.
Item 2. CHANGES IN SECURITIES
As a part of the Company's recently completed refinancing of its
indebtedness, on May 5, 1999 the Company commenced an offer to purchase all of
its $235 million aggregate outstanding 13 1/4% First Mortgage Notes due 2004. In
connection with this tender offer, the Company also solicited consents to permit
it to create additional liens on the collateral securing the Company's
obligations under the First Mortgage Notes and amend the indenture and the
related security documents of the First Mortgage Notes to eliminate the
subsidiary guarantee provisions, substantially all of the restrictive covenants
and certain of the event of default provisions and modify certain other
provisions.
On May 18, 1999, the Company received consents from holders representing
approximately 90% of the outstanding First Mortgage Notes and executed a
supplemental indenture and amendments to the related security documents to give
effect to the foregoing amendments. On June 7, 1999, the Company repurchased all
of the First Mortgage Notes that were tendered pursuant to the offer to
purchase. As of June 30, 1999, the Company has outstanding $22.2 million of
First Mortgage Notes. The Company is required under the terms of is new Credit
Facility to cash collateralize its remaining obligations and call for redemption
all outstanding First Mortgage Notes on the earliest redemption date, June 1,
2000.
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
63
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 22, 1999. At
the meeting, the stockholders voted on the election of two directors. Voting on
the matter was as follows:
<TABLE>
<CAPTION>
Votes Votes Withheld/ Broker
For Against Abstain Non-votes
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
William F. Cellini 26,016,274 73,358
William J. McEnery 25,028,589 61,043
</TABLE>
Item 5. OTHER INFORMATION-None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
1. Report on Form 8-K dated May 5, 1999, filed with the
Securities and Exchange Commission containing information
regarding the Company's intent to issue approximately $200
million principal amount of Senior Subordinated Notes. The
Company intends to use the proceeds from the issuance of
the New Notes to refinance a portion of its outstanding
13 1/4% First Mortgage Notes due 2004.
2. Report on Form 8-K dated May 18, 1999, filed with the
Securities and Exchange Commission, announcing the
expiration of the Company's consent solicitation pursuant
to the offer to purchase its outstanding 13 1/4% First
Mortgage Notes due 2004 and announcing the Company is
pursuing a private placement of $200 million of Senior
Subordinated Notes.
3. Report on Form 8-K, dated June 8, 1999, filed with the
Securities and Exchange Commission, announcing the
expiration of the Company's tender offer pursuant to the
Offer to Purchase its outstanding 13 1/4% First Mortgage
Notes due 2004, the close of the Company's offering of
Senior Subordinated Notes and new credit facility and the
call for redemption of the Company's 12% Convertible Notes
due 2001.
64
<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: August 9, 1999 /s/ Dale R. Black
------------------ ------------------------------------------
Dale R. Black
Vice President-Chief Financial Officer
65
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 51,134
<SECURITIES> 0
<RECEIVABLES> 3,794
<ALLOWANCES> 1,901
<INVENTORY> 897
<CURRENT-ASSETS> 85,797
<PP&E> 507,644
<DEPRECIATION> 115,352
<TOTAL-ASSETS> 546,386
<CURRENT-LIABILITIES> 102,827
<BONDS> 381,764
0
0
<COMMON> 281
<OTHER-SE> 21,830
<TOTAL-LIABILITY-AND-EQUITY> 546,386
<SALES> 0
<TOTAL-REVENUES> 281,992
<CGS> 0
<TOTAL-COSTS> 227,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 675
<INTEREST-EXPENSE> 27,786
<INCOME-PRETAX> 28,202
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 10,612
<DISCONTINUED> 0
<EXTRAORDINARY> (34,760)
<CHANGES> 0
<NET-INCOME> (24,148)
<EPS-BASIC> (.88)
<EPS-DILUTED> (.84)
</TABLE>
