<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
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: 28,392,757 shares of Common
Stock, $.01 par value per share, as of November 6, 2000.
================================================================================
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 49,585 $ 47,090
Restricted cash in escrow -- 25,244
Other current assets 7,828 28,083
--------- ---------
Total current assets 57,413 100,417
--------- ---------
NET PROPERTY AND EQUIPMENT 395,861 405,205
--------- ---------
OTHER ASSETS:
Goodwill and other intangible assets, net 63,769 58,543
Other, net 2,732 2,695
--------- ---------
Total other assets 66,501 61,238
--------- ---------
TOTAL ASSETS $ 519,775 $ 566,860
========= =========
CURRENT LIABILITIES:
Accounts payable $ 12,766 $ 17,894
Other current liabilities 75,654 54,528
Current maturities of long-term debt 10,426 32,668
--------- ---------
Total current liabilities 98,846 105,090
--------- ---------
LONG-TERM DEBT 263,525 346,705
DEFERRED INCOME TAXES 7,402 9,945
OTHER LONG-TERM OBLIGATIONS 231 219
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 58,055 46,656
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized;
28,392,757 and 28,325,106 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 284 283
Capital in excess of par 80,681 80,362
Retained earnings (deficit) 10,751 (22,400)
--------- ---------
Total stockholders' equity 91,716 58,245
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 519,775 $ 566,860
========= =========
</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>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 502,428 $ 412,314
Admissions 14,772 14,013
Food, beverage and other 50,348 42,938
--------- ---------
567,548 469,265
Less promotional allowances (37,633) (30,703)
--------- ---------
Net revenues 529,915 438,562
--------- ---------
COSTS AND EXPENSES:
Casino 218,988 186,044
Selling, general and administrative 105,344 87,105
Food, beverage and other 35,151 30,491
Other operating expenses 22,615 20,364
Depreciation and amortization 26,923 25,719
Write down of assets 6,800 --
--------- ---------
415,821 349,723
--------- ---------
Income from operations 114,094 88,839
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 1,160 2,386
Interest expense (27,417) (38,518)
--------- ---------
(26,257) (36,132)
--------- ---------
Income before income taxes and minority interests 87,837 52,707
Minority interests (30,994) (25,977)
Income tax expense (22,538) (1,800)
--------- ---------
Net income before extraordinary item 34,305 24,930
Extraordinary loss on extinguishment of debt (1,154) (38,420)
--------- ---------
Net income (loss) 33,151 (13,490)
Preferred stock dividends and accretion -- (27)
--------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 33,151 $ (13,517)
========= =========
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 1.22 $ 0.90
Extraordinary loss (0.04) (1.39)
--------- ---------
BASIC INCOME (LOSS) PER SHARE $ 1.18 $ (0.49)
========= =========
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 1.18 $ 0.87
Extraordinary loss (0.04) (1.34)
--------- ---------
DILUTED INCOME (LOSS) PER SHARE $ 1.14 $ (0.47)
========= =========
</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
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 172,152 $ 147,267
Admissions 5,068 5,057
Food, beverage and other 17,614 15,265
--------- ---------
194,834 167,589
Less promotional allowances (13,160) (11,020)
--------- ---------
Net revenues 181,674 156,569
--------- ---------
COSTS AND EXPENSES:
Casino 75,201 65,610
Selling, general and administrative 36,814 30,053
Food, beverage and other 12,421 10,612
Other operating expenses 7,659 7,113
Depreciation and amortization 8,874 8,628
--------- ---------
140,969 122,016
--------- ---------
Income from operations 40,705 34,553
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 229 684
Interest expense (7,905) (10,732)
--------- ---------
(7,676) (10,048)
--------- ---------
Income before income taxes and minority interests 33,029 24,505
Minority interests (10,756) (9,587)
Income tax expense (9,138) (600)
--------- ---------
Net income before extraordinary item 13,135 14,318
Extraordinary loss on extinguishment of debt -- (3,660)
--------- ---------
NET INCOME (LOSS) $ 13,135 $ 10,658
========= =========
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.46 $ 0.51
Extraordinary loss -- (0.13)
--------- ---------
BASIC INCOME (LOSS) PER SHARE $ 0.46 $ 0.38
========= =========
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.45 $ 0.49
Extraordinary loss -- (0.12)
--------- ---------
DILUTED INCOME (LOSS) PER SHARE $ 0.45 $ 0.37
========= =========
</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>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 33,151 $ (13,490)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss 1,154 38,420
Depreciation 24,623 23,728
Amortization 2,826 3,289
Compensation expense recognized on issuance of stock 39 85
Write down of assets 6,800 --
Minority interests 30,994 25,977
Gain on sale of assets -- (198)
Deferred income taxes 13,519 --
Changes in operating assets and liabilities:
Other current assets 9,663 332
Accounts payable and other current liabilities 11,872 16,192
--------- ---------
Net cash provided by operating activities 134,641 94,335
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (22,465) (18,088)
Purchase of Minority Interest in Partnership (9,058) --
Other (713) 515
--------- ---------
Net cash used in investing activities (32,236) (17,573)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt, installment contracts and other (3,844) (5,926)
Repayment of partner loans (16,535) (14,334)
Partnership equity distributions (12,816) (10,919)
Repayment of partner capital contribution (3,964) (1,668)
Decrease (increase) in restricted cash held in escrow 25,244 (26,664)
Proceeds from issuance of subordinated notes -- 200,000
(Repayment of) proceeds from line of credit, net (62,800) 102,000
Repayment of long-term debt (23,716) (327,738)
Premiums paid on extinguishment of debt -- (30,585)
Costs to tender and retire debt -- (894)
Payment of preferred equity return to partner (1,548) (3,052)
Other 69 (9,137)
--------- ---------
Net cash used in financing activities (99,910) (128,917)
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,495 (52,155)
Cash and cash equivalents, beginning of period 47,090 89,857
--------- ---------
Cash and cash equivalents, end of period $ 49,585 $ 37,702
========= =========
</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)
<TABLE>
<CAPTION>
CAPITAL RETAINED TOTAL
COMMON IN EXCESS EARNINGS STOCKHOLDERS'
SHARES STOCK OF PAR (DEFICIT) EQUITY
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 28,325,106 $ 283 $ 80,362 $ (22,400) $ 58,245
Stock options exercised 67,651 1 280 -- 281
Restricted Stock
compensation expense -- -- 39 -- 39
Net income for the nine months
ended September 30, 2000 -- -- -- 33,151 33,151
---------- ---------- ---------- ---------- ----------
Balance, September 30, 2000 28,392,757 $ 284 $ 80,681 $ 10,751 $ 91,716
========== ========== ========== ========== ==========
</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, through its 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. Conseco Entertainment, L.L.C., a 29% partner, and Centaur, Inc., a
13.5% partner, in the Indiana Partnership have exercised their rights to sell
their interests in the Indiana Partnership (See Note 6). During July 2000, the
Company completed the purchase of the 30% minority interest in the Belle of
Sioux City Casino.
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, 1999, 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 1999 amounts have been reclassified to
conform to the 2000 financial statement presentation.
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Senior Subordinated Notes due June 2009,
interest payable semi-annually at 10.75% $200,000 $200,000
Senior secured line of credit, expires June 2004,
interest payable at least quarterly at either
LIBOR or prime plus a margin 41,000 103,800
First Mortgage Notes due June 2004,
interest payable semi-annually at 13.25% -- 22,242
Loans from partner, principal due in annual
installments through 2004, interest payable
at prime + 6% 12,376 28,911
Notes payable, principal and interest payments
due monthly through December 2001, interest
payable at prime + 1%, secured by gaming vessel
and certain equipment 14,568 17,933
Notes payable, principal and interest payments due
quarterly through September 2015, discounted
at 10.5% 6,007 6,487
-------- --------
273,951 379,373
Less: current maturities 10,426 32,668
-------- --------
Long-term debt, less current maturities $263,525 $346,705
======== ========
</TABLE>
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 subsidiary
that operates the Argosy Casino Lawrenceburg is not a co-borrower nor are the
assets of the subsidiary pledged. All of the Company's wholly-owned operating
subsidiaries guarantee the Subordinated Notes. The Company's joint-venture
subsidiary that operates the Argosy Casino Lawrenceburg does 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.
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
The Subordinated Notes and the Credit Facility contain certain restrictions
on the payment of dividends on the Company's common stock and the inccurrence of
additional indebtedness, as well as other customary debt covenants. In addition,
the Credit Facility requires the Company to maintain certain financial ratios.
During June 2000, the Company redeemed the remaining outstanding $22.2
million 13 1/4% First Mortgage Notes due 2004. As required by the Credit
Facility, the Company had placed $26.7 million in escrow to fund the remaining
interest payments and June 2000 redemption. In connection with this early
extinguishment of the Mortgage Notes, the Company recorded an extraordinary loss
of $1.2 million. The extraordinary loss is net of an income tax benefit of $0.8
million.
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR:
Net income before extraordinary items $ 34,305 $ 24,930 $ 13,135 $ 14,318
Preferred stock dividends and accretion -- (27) -- --
------------ ------------ ------------ ------------
Numerator for basic earnings per share -
Income attributable to common shareholders 34,305 24,903 13,135 14,318
Effect of dilutive securities:
Preferred stock dividends -- 27 -- --
------------ ------------ ------------ ------------
Numerator for diluted earnings per share -
Income available to common
stockholders after assumed conversions $ 34,305 $ 24,930 $ 13,135 $ 14,318
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares outstanding 28,306,336 27,740,541 28,379,063 28,055,269
Effect of dilutive securities:
Restricted stock 46,110 90,659 -- 93,799
Employee and directors stock options 689,700 477,521 605,664 696,782
Preferred stock -- 360,260 -- --
Warrants 65,807 148,526 61,140 192,200
------------ ------------ ------------ ------------
Dilutive potential common shares 801,617 1,076,966 666,804 982,781
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 29,107,953 28,817,507 29,045,867 29,038,050
============ ============ ============ ============
Basic income per share before extraordinary item $ 1.22 $ 0.90 $ 0.46 $ 0.51
Extraordinary item (0.04) (1.39) -- (0.13)
------------ ------------ ------------ ------------
Basic earnings (loss) per share - including
extraordinary item $ 1.18 $ (0.49) $ 0.46 $ 0.38
============ ============ ============ ============
Diluted income per share before extraordinary item $ 1.18 $ 0.87 $ 0.45 $ 0.49
Extraordinary item (0.04) (1.34) -- (0.12)
------------ ------------ ------------ ------------
Diluted earnings (loss) per share - including
extraordinary item $ 1.14 $ (0.47) $ 0.45 $ 0.37
============ ============ ============ ============
</TABLE>
9
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
4. SUBSIDIARY GUARANTORS
The Company has outstanding at September 30, 2000, $41.0 million under a
$200 million Credit Facility ("Credit Facility"). The Company also has
outstanding $200 million of Senior Subordinated Notes due 2009 ("Subordinated
Notes").
The Credit Facility is secured by a first lien on substantially all of the
Company's assets and the Company's subsidiaries are co-borrowers. The Company's
joint-venture subsidiary that operates the Argosy Casino Lawrenceburg is not a
co-borrower nor are the assets of the subsidiary pledged. The Subordinated Notes
are 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, The Indiana
Gaming Company and the Belle of Sioux City Casino (the "Guarantors"). The
Company's joint-venture subsidiary that operates the Argosy Casino & Hotel
Lawrenceburg is not a guarantee of the Subordinated Notes. The Subordinated
Notes rank junior to all of the senior indebtedness of the Company, including
borrowings under the Credit Facility.
In July 2000, the Company purchased the 30% minority interest in the Belle
of Sioux City Casino. At the time of our purchase, the Belle of Sioux City
Partnership became a co-borrower under the Credit Facility and a guarantor of
the Subordinated Notes. The Belle of Sioux City Partnership is presented as a
Guarantor for 2000 and as a Non-Guarantor for 1999 in the following tables.
The following tables present summarized balance sheet information of the
Company as of September 30, 2000 and December 31, 1999 and summarized operating
statement information for the nine and three months ended September 30, 2000 and
1999. 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 Partnership which operates the Company's casino in 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.
10
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Summarized balance sheet information as of September 30, 2000 and December
31, 1999 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 9,107 $ 26,464 $ 29,204 $ (7,362) $ 57,413
Non-current assets 338,723 421,645 206,860 (504,866) 462,362
--------- --------- --------- --------- ---------
$ 347,830 $ 448,109 $ 236,064 $(512,228) $ 519,775
========= ========= ========= ========= =========
LIABILITIES AND EQUITY:
Current liabilities $ 15,114 $ 118,651 $ 56,338 $ (91,257) $ 98,846
Non-current liabilities 241,000 195,690 27,940 (135,417) 329,213
Stockholders' equity 91,716 133,768 151,786 (285,554) 91,716
--------- --------- --------- --------- ---------
$ 347,830 $ 448,109 $ 236,064 $(512,228) $ 519,775
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 46,723 $ 23,161 $ 34,493 $ (3,960) $ 100,417
Non-current assets 348,036 386,193 220,180 (487,966) 466,443
--------- --------- --------- --------- ---------
$ 394,759 $ 409,354 $ 254,673 $(491,926) $ 566,860
========= ========= ========= ========= =========
LIABILITIES AND EQUITY:
Current liabilities $ 30,159 $ 45,410 $ 56,948 $ (27,427) $ 105,090
Non-current liabilities 306,355 236,263 70,852 (209,945) 403,525
Stockholders' equity 58,245 127,681 126,873 (254,554) 58,245
--------- --------- --------- --------- ---------
$ 394,759 $ 409,354 $ 254,673 $(491,926) $ 566,860
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Summarized operating statement information for the nine and three months
ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,123 $ 289,343 $ 281,308 $ (43,859) $ 529,915
Costs and expenses 19,338 196,275 202,920 (2,712) 415,821
Net interest expense 18,624 581 7,052 -- 26,257
Net income (loss) 33,151 58,879 68,436 (127,315) 33,151
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 2,587 $ 203,350 $ 268,806 $ (36,181) $ 438,562
Costs and expenses 11,988 145,009 195,913 (3,187) 349,723
Net interest expense (income) 25,700 (727) 11,159 -- 36,132
Net (loss) income attributable
to common stockholders (13,517) 34,833 57,964 (92,797) (13,517)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,058 $ 98,175 $ 97,566 $ (15,125) $ 181,674
Costs and expenses 5,125 66,454 70,429 (1,039) 140,969
Net interest expense 5,489 357 1,830 -- 7,676
Net income (loss) 13,135 19,779 24,463 (44,242) 13,135
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,186 $ 74,761 $ 94,387 $ (13,765) $ 156,569
Costs and expenses 3,639 51,260 68,456 (1,339) 122,016
Net interest expense 6,918 49 3,081 -- 10,048
Net income (loss) 10,658 14,671 21,657 (36,328) 10,658
</TABLE>
12
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
5. WRITE DOWN OF ASSETS
During December 1999, we replaced our landing facility at our Alton
property. In June 2000, the Company recorded a $6.8 million pre-tax charge to
write down the previous landing facility as it was determined the Company has no
planned use for the landing facility.
6. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA --Under terms of the Lawrenceburg partnership
agreement, effective December 10, 1999, each limited partner has the right ("Put
Rights") to sell its interest to the other partners (pro rata in accordance with
their respective percentage interests). Both Conseco Entertainment, L.L.C., a
29% limited partner and Centaur, Inc., a 13.5% limited partner in the Indiana
Partnership ("Selling Partner"), notified Argosy ("Non-Selling Partners") that
they were exercising their irrevocable Put Rights to sell their limited
partnership interests. Under terms of the partnership agreement, the Partners
have 60 days to negotiate a sales price. When the price is not agreed to within
60 days, the Selling Partners and the Non-Selling Partners each hired appraisers
to determine the purchase price. Upon the conclusion of the appraisal process,
if the Non-Selling Partner elects not to pay appraised value, the Indiana
Partnership must be sold in its entirety.
DEFERRED ACQUISITION COSTS - Included in other assets at September 30, 2000
is approximately $0.7 million of deferred acquisition costs associated with our
efforts to purchase the Indiana Partnership minority interests. Should we be
unable to acquire the minority partnership interests and therefore under the
terms of the Partnership Agreement be required to sell the Indiana Partnership,
these deferred costs would be charged against the proceeds from the sale of our
majority Indiana Partnership interest.
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 or the results of its operations.
13
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT WHERE OTHERWISE NOTED, THE WORDS, "WE," "US," "OUR" AND SIMILAR
TERMS, AS WELL AS REFERENCES TO "ARGOSY" OR THE "COMPANY" REFER TO ARGOSY GAMING
COMPANY AND ALL OF ITS SUBSIDIARIES.
OVERVIEW
Through our subsidiaries or joint ventures, we own and operate the Alton
Belle Casino, in Alton, Illinois; the Argosy Casino in Riverside, Missouri; the
Argosy Casino in Baton Rouge, Louisiana; the Belle of Sioux City Casino in Sioux
City, Iowa; and the Argosy Casino in Lawrenceburg, Indiana. In July 2000, the
Company completed the purchase of the 30% minority interest in the Belle of
Sioux City Casino at which time the Belle of Sioux City became a wholly-owned
subsidiary.
Our results of operations for the nine and three months ended September 30,
2000 reflect increases in both revenues and operating income at all of our
casino properties over amounts from comparable 1999 periods. This improvement is
attributable to the successful implementation of our operating strategy, which
has been developed with the goal to position us as the premier riverboat casino
operator, and to favorable regulatory changes in Illinois, Louisiana and
Missouri.
During December 1999, we replaced our landing facility at our Alton
property. In June 2000, the Company recorded a $6.8 million pre-tax charge to
write down the previous landing facility as it was determined the Company has no
planned use for the landing facility.
During the second quarter of 2000, the Company recorded an extraordinary
loss of $1.2 million (net of a $0.8 million tax benefit) related to the
redemption of its remaining $22.2 million of outstanding First Mortgage Notes.
14
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
-------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASINO REVENUES
Alton Belle Casino $ 85,761 $ 61,457 $ 29,385 $ 23,438
Argosy Casino - Riverside 72,983 61,680 24,632 21,685
Argosy Casino - Baton Rouge 54,189 38,825 18,212 14,510
Belle of Sioux City Casino 26,450 20,045 8,829 7,342
Argosy Casino - Lawrenceburg 263,045 230,307 91,094 80,292
--------- --------- --------- ---------
Total $ 502,428 $ 412,314 $ 172,152 $ 147,267
========= ========= ========= =========
NET REVENUES
Alton Belle Casino $ 88,509 $ 64,103 $ 30,332 $ 24,333
Argosy Casino - Riverside 76,545 65,282 25,768 22,859
Argosy Casino - Baton Rouge 55,843 40,101 18,770 14,901
Belle of Sioux City Casino 27,232 20,702 9,096 7,572
Argosy Casino - Lawrenceburg 281,307 248,104 97,565 86,815
Other 479 270 143 89
--------- --------- --------- ---------
Total $ 529,915 $ 438,562 $ 181,674 $ 156,569
========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS(1)
Alton Belle Casino $ 24,905 $ 16,465 $ 8,549 $ 7,179
Argosy Casino - Riverside 13,086 8,724 4,637 3,467
Argosy Casino - Baton Rouge 8,940 (269) 2,570 473
Belle of Sioux City Casino 4,961 3,197 1,871 1,392
Argosy Casino - Lawrenceburg 86,021 77,548 29,757 27,305
Corporate (12,346) (11,994) (5,126) (3,641)
Jazz Enterprises, Inc. (3,821) (3,838) (1,236) (1,292)
Other (852) (994) (317) (330)
--------- --------- --------- ---------
Total (2) $ 120,894 $ 88,839 $ 40,705 $ 34,553
========= ========= ========= =========
EBITDA(1)(3)
Alton Belle Casino $ 29,436 $ 19,565 $ 10,025 $ 8,232
Argosy Casino - Riverside 17,230 13,049 6,042 4,888
Argosy Casino - Baton Rouge 12,287 3,862 3,654 1,814
Belle of Sioux City Casino 6,133 4,119 2,275 1,728
Argosy Casino - Lawrenceburg 101,773 92,360 34,944 32,383
Lawrenceburg financial advisory fee (4) (5,089) (4,618) (1,747) (1,619)
Corporate (12,065) (11,991) (5,031) (3,638)
Jazz Enterprises, Inc. (1,795) (1,812) (560) (617)
Other (93) 24 (23) 10
--------- --------- --------- ---------
Total (2) $ 147,817 $ 114,558 $ 49,579 $ 43,181
========= ========= ========= =========
</TABLE>
15
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
(1) Income from operations and EBITDA are presented before consideration of any
management fee paid to us, before the Lawrenceburg 42.5% minority interest
and before the Sioux City 30% minority interest for the period prior to our
July 2000 acquisition of this 30% minority interest.
(2) Excludes a $6.8 million pre-tax charge related to the write-off of assets
for the nine months ended September 30, 2000.
(3) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of our operating performance, or as an
alternative to cash flows generated by operating, investing and financing
activities (as an indicator of cash flow or a measure of liquidity). EBITDA
is presented solely as a supplemental disclosure because management
believes that it is a widely used measure of operating performance in the
gaming industry and for companies with a significant amount of depreciation
and amortization. EBITDA may not be comparable to similarly titled measures
reported by other companies. We have other significant uses of cash flows,
including debt service and capital expenditures, which are not reflected in
EBITDA.
(4) The Lawrenceburg partnership pays a financial advisory fee equal to 5.0% of
its EBITDA to a minority partner.
16
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
CASINO--Casino revenues for the nine months ended September 30, 2000
increased $90.1 million, or 21.9%, to $502.4 million from $412.3 million for the
nine months ended September 30, 1999. The western properties (Alton, Riverside,
Sioux City and Baton Rouge) reported an aggregate 31.5% increase in casino
revenues from $182.0 to $239.4 million. In particular, Alton casino revenues
increased from $61.5 to $85.8 million, Riverside casino revenues increased from
$61.7 to $73.0 million, Sioux City casino revenues increased from $20.0 to $26.4
million, and Baton Rouge casino revenues increased from $38.8 to $54.2 million.
Lawrenceburg casino revenues increased $32.7 million, or 14.2%, to $263.0
million for the nine months ended September 30, 2000, from $230.3 million over
the nine months ended September 30, 1999. Each of our casinos reported increases
in passengers as well as an increase in the average win per passenger for the
nine months ended September 30, 2000 versus the nine months ended September 30,
1999. This increase in revenues was partially attributable to favorable
regulatory changes in Illinois, Missouri and Louisiana.
Casino expenses increased $33.0 million to $219.0 million for the nine
months ended September 30, 2000 from $186.0 million for the nine months ended
September 30, 1999. This increase is due to increased gaming and admission taxes
at all properties totaling $21.7 million and increases in other casino expenses
of $11.3 million at all properties due to increases in overall revenues and
admissions at all properties.
ADMISSIONS--Admissions revenues (net of complimentary admissions) increased
slightly by $0.8 million to $14.8 million for the nine months ended September
30, 2000 from $14.0 million for the nine months ended September 30, 1999.
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 $7.4
million to $50.3 million for the nine month period ended September 30, 2000 from
$42.9 million for the nine months ended September 30, 1999. This increase is
primarily attributable to a $4.7 million increase at Lawrenceburg and a $1.6
million increase at Alton. Food, beverage and other net profit improved $4.8
million to $17.2 million for the nine months ended September 30, 2000 from $12.4
million for the nine months ended September 30, 1999.
For the nine months ended September 30, 2000, the Lawrenceburg hotel
generated $3.0 million in net revenues and $1.1 million of operating profit. The
hotel occupancy percentage was 90% and the average daily room rate including
promotional allowances was $86. For the nine months ended September 30, 1999,
the Lawrenceburg Hotel generated $3.2 million in net revenues and $1.5 million
of operating profit. The hotel occupancy rate was 83% and the daily room rate
including promotional allowances was $84. The decrease in hotel net revenues and
operating profit reflects an increase in complimentary rooms to our customers.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $18.2 million to $105.3 million for the nine months ended
September 30, 2000 from $87.1 million for the nine months ended September 30,
1999, due primarily to an increase of $8.3 million at Lawrenceburg related to
additional payments required to be paid to the city as a result of increased
gaming revenue and expanded advertising and marketing efforts, a $1.8 million
increase in rent expense in Riverside and $5.9 million of increase costs at our
other properties primarily relating to expanded promotions. Selling, general and
administrative expenses for the nine months ended September 30, 1999 included
$1.8 million due to expenses related to a severance package and settlement
arrangement.
OTHER OPERATING EXPENSES--Other operating expenses increased by $2.2
million to $22.6 million for the nine months ended September 30, 2000 from $20.4
million for the nine months ended September 30, 1999 due to increases
attributable to the overall increase in revenues.
17
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $1.3
million to $27.0 million for the nine months ended September 30, 2000 from $25.7
million for the nine months ended September 30, 1999, due primarily to an
increase of $1.2 million at Alton for depreciation on the new landing facility
placed in service in December 1999.
INTEREST EXPENSE--Net interest expense decreased $9.8 million to $26.3
million for the nine months ended September 30, 2000 from $36.1 million for the
nine months ended September 30, 1999. This decrease is primarily attributable to
a refinancing completed during June 1999, which lowered the average borrowing
rate and increased our flexibility to use cash flows to lower our average
outstanding debt balances. There was also a significant decrease in interest
expense to our minority partner in Lawrenceburg.
MINORITY INTERESTS - Our minority interest expense increased by $5.0
million to $31.0 million for the nine months ended September 30, 2000 from $26.0
million for the nine months ended September 30, 1999. This increase is primarily
attributable to improved income at our Indiana Partnership.
INCOME TAX EXPENSE - Income tax expense increased by $20.7 million to $22.5
million for the nine months ended September 30, 2000 from $1.8 million for the
nine months ended September 30, 1999. During the nine months ended September 30,
2000, and 1999, we recorded income tax expense at effective rates of 40% and
15%, respectively. Income tax expense for the nine months ended September 30,
1999 was significantly reduced by the utilization of net operating loss carry
forwards generated in 1996 and 1997.
EXTRAORDINARY LOSS - The Company recorded an extraordinary loss of $1.2
million for the nine months ended September 30, 2000 related to the completion
of the final phase of the 1999 refinancing. This extraordinary loss is net of a
$0.8 million tax benefit. During the nine months ended September 30, 1999, the
Company recorded an extraordinary loss of $34.8 million related to the early
extinguishment of debt in conjunction with the completion of its June 1999
refinancing. The extraordinary loss in 1999 was not recorded net of a tax
benefit as the Company was in a net operating loss position.
18
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
CASINO--Casino revenues for the three months ended September 30, 2000
increased $24.9 million, or 16.8%, to $172.2 million for the three months ended
September 30, 2000 from $147.3 million for the three months ended September 30,
1999. The western properties (Alton, Riverside, Sioux City and Baton Rouge)
reported an aggregate 21.0% increase in casino revenues from $67.0 to $81.0
million. In particular, Alton casino revenues increased from $23.4 to $29.4
million, Riverside casino revenues increased from $21.7 to $24.6 million, Sioux
City casino revenues increased from $7.4 to $8.8 million, and Baton Rouge casino
revenues increased from $14.5 to $18.2 million. Lawrenceburg casino revenues
increased $10.8 million, or 13.4%, to $91.1 million for the three months ended
September 30, 2000 from $80.3 million for the three months ended September 30,
1999. Each of our casinos reported increases in passengers as well as an
increase in the average win per passenger for the three months ended September
30, 2000 versus the three months ended September 30, 1999. This increase was
partially attributable to favorable regulatory changes in Missouri.
Casino expenses increased $9.6 million to $75.2 million for the three
months ended September 30, 2000 from $65.6 million for the three months ended
September 30, 1999. This increase is due to increased gaming and admission taxes
at all properties totaling $6.0 million and increases in other casino expenses
of $3.6 million at all properties due to increases in overall revenues and
admissions at all properties.
ADMISSIONS--Admissions revenues (net of complimentary admissions) remained
stable at $5.1 million for the three months ended September 30, 2000 and 1999.
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 $2.3
million to $17.6 million for the three month period ended September 30, 2000
from $15.3 million for the three month period ended September 30, 1999. Food,
beverage and other net profit improved $0.5 million to $5.2 million for the
three months ended September 30, 2000 from $4.7 million for the three months
ended September 30, 1999.
For the three months ended September 30, 2000, the Lawrenceburg hotel
generated $1.1 million in net revenues and $0.4 million of operating profit. The
hotel occupancy percentage was 96% and the average daily room rate including
promotional allowances was $88. For the three months ended September 30, 1999,
the Lawrenceburg hotel generated $1.3 million in net revenues and $0.8 million
of operating profit. The hotel occupancy percentage was 89% and the average
daily room rate including promotional allowances was $91. The decrease in hotel
net revenues and operating profit reflects an increase in complimentary rooms to
our customers.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $6.7 million to $36.8 million for the three months ended
September 30, 2000 from $30.1 million for the three months ended September 30,
1999, due primarily to an increase at Lawrenceburg of $1.4 million related to
additional payments required to be paid to the city as a result of increased
gaming revenue and $0.9 million due to expanded advertising and marketing
efforts, a $0.6 million increase in rent expense in Riverside and $1.6 million
of increased costs at our other properties relating to expanded promotions.
OTHER OPERATING EXPENSES--Other operating expenses increased by $0.5
million to $7.6 million for the three months ended September 30, 2000 as
compared to $7.1 million for the three months ended September 30, 1999 due to
increases attributable to the overall increase in revenues.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $0.3
million from $8.6 million for the three months ended September 30, 1999 to $8.9
million for the three months ended September 30, 2000.
19
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
INTEREST EXPENSE--Net interest expense decreased $2.3 million to $7.7
million for the three months ended September 30, 2000 from $10.0 million for the
six months ended September 30, 1999. This decrease is primarily attributable to
a refinancing completed during June 1999, which lowered the average borrowing
rate and increased our flexibility to use cash flows to lower our average
outstanding debt balances. There was also a significant decrease in interest
expense to our minority partner in Lawrenceburg.
MINORITY INTERESTS - Our minority interest expense increased by $0.8
million to $10.8 million for the three months ended September 30, 2000 as
compared to $9.6 million for the three months ended September 30, 1999. This
increase is primarily attributable to improved income at our Indiana
Partnership.
INCOME TAX EXPENSE - Income tax expense increased by $8.5 million to $9.1
million for the three months ended September 30, 2000 from $0.6 million for the
three months ended September 30, 1999. During the three months ended September
30, 2000, and 1999, we recorded income tax expense at effective rates of 41% and
5%, respectively. Income tax expense for the three months ended September 30,
1999 was significantly reduced by the utilization of net operating losses.
EXTRAORDINARY LOSS - The Company recorded an extraordinary loss of $3.7
million for the three months ended September 30, 1999 related to its completion
of the June 1999 refinancing.
COMPETITION
Our Alton Casino faces competition from four other riverboat casino
operators in the St. Louis area. Our Riverside Casino faces competition from
three casino companies in the Kansas City area. Our Baton Rouge Casino faces
competition from one casino located in downtown Baton Rouge, a nearby Native
American casino and multiple casinos throughout Louisiana. We face 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 two riverboat casinos in the Cincinnati
market, the second of which opened in October 2000. In addition, The Indiana
Partnership competes with a riverboat casino in the Louisville, Kentucky area
approximately 100 miles from our Lawrenceburg facility. There could be further
unanticipated competition in any market which we operate as a result of
legislative changes or other events. We expect each market in which we
participate, both current and prospective, to be highly competitive.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 2000, we generated cash flows from
operating activities of $134.6 million compared to $94.3 million for the same
period in 1999. This increase is attributable to improved operations at each of
our five casino locations.
In the nine months ended September 30, 2000, we used cash flows for
investing activities of $32.2 million compared to $17.6 million for the nine
months ended September 30, 1999. In the nine months ended September 30, 2000,
$9.1 million in cash flows were used to purchase the minority interest in the
Sioux City Partnership. The primary use of cash flows in both the nine months
ended September 30, 2000 and 1999 were for purchases of property and equipment.
During the nine months ended September 30, 2000, $9.9 million of cash flows were
used to fund progress payments to construct the Baton Rouge Hotel.
20
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
During the nine months ended September 30, 2000, we used $99.9 million in
cash flows for financing activities compared to using $128.9 million of cash
flows for financing activities for the same period in 1999. During the nine
months ended September 30, 2000, $62.8 million in cash flows were used to make
repayments on the line of credit. Cash flows in both 2000 and 1999 were used for
repayment of long-term debt, repayment of partner loans, and distributions
related to the Lawrenceburg partnership. Sources of cash during the nine months
ended September 30, 1999 included proceeds from the issuance of subordinated
notes and borrowings on the line of credit.
At September 30 , 2000, we had approximately $49.6 million of cash and cash
equivalents, including approximately $28.0 million held at the Indiana
Partnership. During June 2000, the Company redeemed the remaining $22.2 million
of First Mortgage Notes that were not tendered in the June 1999 refinancing. The
Company had previously placed $25.2 million in escrow to fund the June 2000
redemption. At September 30, 2000, we had outstanding $200.0 million of Senior
Subordinated Notes, which were issued in June 1999 and are due in June 2009 and
$41.0 million on a senior secured revolving credit facility. As of November 6,
2000 availability under the credit facility was approximately $169 million.
We have made a significant investment in property and equipment and plan
to make significant additional investments at certain of our existing
properties. In 2000, we expect maintenance capital expenditures primarily
related to the purchase of new gaming product and facility enhancements to be
approximately $19.0 million, and expenditures related to the Baton Rouge
hotel and other project capital expenditures to be approximately $26.0
million.
Both of our partners in the Indiana Partnership have exercised their put
rights under terms of the Lawrenceburg Partnership agreement. Ultimately we will
have the right to purchase the selling partners' interests. If we elect to
purchase the minority interest, a significant portion of this purchase could be
funded through existing credit facilities. However, we will be required to fund
a portion of the purchase by obtaining additional debt or equity financing. No
assurance can be given that we would be able to obtain such additional financing
on favorable terms.
21
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
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.
22
<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.
MATTERS PERTAINING TO INTERIM HOLDINGS, L.L.C. AND ARGOSY GAMING COMPANY, ET AL
On January 6, 2000, the Company was named as a defendant in a lawsuit
filed by Interim Holdings, L.L.C., in the Circuit Court of St. Louis County,
Missouri, in a case styled INTERIM HOLDINGS, L.L.C. V. ARGOSY GAMING CO., ET
AL.. The Company removed the lawsuit to the federal district court for the
Eastern District of Missouri. On April 13, 2000, the federal district court
remanded the lawsuit back to the Circuit Court of St. Louis County. The
lawsuit is styled as a "bill in equity." It concerns a purchase agreement and
consulting agreement entered into between Argosy and St. Louis Concessions,
Inc. ("SLC"), as part of Argosy's attempt to purchase certain assets
including assuming a lease for a gaming facility in downtown St. Louis. The
lawsuit alleges that Argosy's loans pursuant to the purchase agreement to SLC
and consulting payments to WPW Ventures, Inc. ("WPW") defrauded creditors of
Floyd C. Warmann, an individual with an ownership interest in SLC and WPW.
The Company filed a Motion to Dismiss the lawsuit on July 5, 2000. The Court
denied that Motion to Dismiss on August 21, 2000 and ordered the parties to
proceed with discovery into the lawsuit. That discovery is ongoing.
Management believes that the claims are without merit and that the legal
bases for the suit are unsupportable. Further, Management does not expect
that the lawsuit will have a material adverse effect on the Company's
financial position or results of operations.
On September 13, 2000, the Company filed suit against John C. Foley and
the company that he controls, Interim Holdings, L.L.C. (collectively
"defendants") in the federal district court for the Southern District of
Illinois, in a case styled ARGOSY GAMING CO. V. FOLEY, ET AL.. On October 3,
2000, Argosy served discovery requests on the defendants. On October 25,
2000, the defendants filed a Motion to Dismiss the lawsuit, a Motion to Stay
the lawsuit pending the outcome of the Missouri lawsuit, and objections to
Argosy's discovery requests. The lawsuit alleges six counts against the
defendants based on communications that they made to third parties regarding
Argosy's actions. The counts allege trade disparagement, fraud, interference
with business advantage, deceptive trade practices, defamation, and false
light defamation. Argosy seeks a court order restricting the defendants from
making further statements impugning Argosy's good name and business
reputation. Argosy also seeks unspecified monetary damages. Argosy will be
responding to the motions filed by the defendants.
LAWRENCEBURG PARTNERSHIP APPRAISAL LITIGATION
BACKGROUND
Under the terms of the Amended and Restated Partnership Agreement
("Partnership Agreement") for Indiana Gaming Company, L.P. (the
"Partnership") among Conseco Entertainment, L.L.C. ("Conseco") and Centaur,
Inc. ("Centaur"), the limited partners in the Partnership, The Indiana
Gaming Company, the general partner of the Partnership and a wholly-owned
subsidiary of the Company ("Indiana Gaming") after December 10, 1999 each
limited partner of the Partnership has the right to sell its entire interest
in the Partnership to the remaining partners. On April 28, 2000 Conseco
exercised this right and gave its irrevocable notice to Indiana Gaming and
Centaur ("Put Notice").
The Partnership Agreement provides that after Conseco gave its Put
Notice that Conseco (sometimes herein referred to as, a "Selling Partner")
and Indiana Gaming and Centaur (sometimes herein collectively referred to as
"Non-Selling Partners") had 60 days to attempt in good faith to negotiate the
purchase price for the Selling Partner's interest. In the event within such
60 day period the parties could not agree upon a purchase price for the
Selling Partner's interest, the Partnership Agreement provides that the
purchase price of the Selling Partner's interest shall be determined by an
appraisal process. The appraisal process requires that the Selling Partner
and Non-Selling Partners each select an independent nationally recognized
appraisal firm with expertise in the gaming industry. The Selling Partner
selected PricewaterhouseCoopers LLP ("PWC") and the Non-Selling Partners
selected Houlihan Lokey Howard & Zakin ("HLHZ"). If the appraised purchase
prices of the two appraisers are within 10% of one another then the appraisal
price is the average of the two and if the two appraisals are more than 10%
apart then a third independent appraiser is selected by PWC and HLHZ and the
appraisal price is the average of the three appraisals. Once the price is
determined by appraisal (either by the two appraisers or the three
appraisals) the Non-Selling Partners have 60 days to elect to purchase the
Selling Partner's interest at the appraised price. If the Non-Selling
Partners fail to elect to purchase the Selling Partner's interest at the
appraised price THEN the entire Partnership and its assets are to be
auctioned to the highest bidder.
On September 18, 2000 Centaur also exercised its put rights for its
partnership interest.
23
<PAGE>
TIPPECANOE COUNTY, INDIANA LITIGATION
CONSECO ENTERTAINMENT, L.L.C., PLAINTIFF V. INDIANA GAMING COMPANY,
L.P., THE INDIANA GAMING COMPANY, CENTAUR, INC. AND RJ INVESTMENTS, INC.,
Defendants filed in the Tippecanoe Superior Court in Tippecanoe County,
Indiana, case no. #79D01-0006-CP-235.
On June 14, 2000 Conseco filed the above-captioned cause of action
seeking a declaratory judgment with respect to certain timing provisions of
the Partnership Agreement relating to the appraisal process. Essentially,
Conseco seeks an interpretation of the Partnership Agreement that the
negotiation period between the parties, the appraisal process and the 60 days
after the appraisal process to elect to purchase the Selling Partner's
interest, and the closing on the sale of the interest if the Non-Selling
Partners elect to purchase must be concluded within 6 months from the date of
the Put Notice or October 28, 2000. The Company's interpretation of the
Partnership Agreement is that the applicable 6 month period within which the
Non-Selling Partners must consummate the purchase of the Selling Partner's
interest begins when the purchase price is determined by the appraisal
process.
Conseco selected PWC to appraise its interest. PWC is also Conseco,
Inc.'s, the parent of Conseco, independent public accounting firm. PWC's
appraisal (a signed and certified copy of which has never been delivered to
the Company) purports to appraise Conseco's interest at $356 million. In the
Illinois litigation discussed below, Indiana Gaming is challenging both the
independence of PWC and the validity of the PWC appraisal. The Illinois
litigation alleges that among the numerous errors in PWC's appraisal is its
assumption that the Partnership adds a fourth floor to the existing
Lawrenceburg facility and PWC uses the earnings of this hypothetical fourth
floor to arrive at its value. PWC fails to recognize that from a structural
and regulatory point of view a fourth deck is probably not feasible. HLHZ,
the appraiser selected by the Non-Selling Partner, appraised Conseco's
interest at $229,513,000. PWC and HLHZ had agreed upon the third appraiser if
one was necessary, however, to date the third appraisal firm which was
selected by PWC and HLHZ has not commenced work.
On October 6, 2000 Conseco filed a petition with the Court in this
action seeking among other things, that the appraised value be determined by
just using the average of the PWC and HLHZ appraised prices rather than
obtain a third appraiser and for the Court to appoint an independent party to
conduct the auction process if necessary, rather than have Indiana Gaming
conduct the process. This petition along with Conseco's motion for summary
judgment was to have been heard by the Tippecanoe County Court on October 26,
2000, however, due to an order issued by the Illinois Supreme Court on
October 25, 2000 in the below described Illinois litigation, the Tippecanoe
County Court declined to hear arguments or take any action on these matters.
On October 27, 2000 the judge in the Tippecanoe County Case decided, on his
own action, to withdraw from the case. A new judge must be selected before
this matter proceeds further. The parties are attempting to agree upon a
judge.
ILLINOIS LITIGATION
THE INDIANA GAMING COMPANY V. CONSECO ENTERTAINMENT, L.L.C., CENTAUR,
INC. AND RJ INVESTMENTS, INC. pending in the Circuit Court for Madison
County, Illinois case no. 00 MR 411.
On September 5, 2000 Indiana Gaming filed the above action seeking a
declaratory judgment that pursuant to the terms of the Partnership Agreement
that Indiana Gaming is an eligible bidder in any auction of the Partnership
in the event the Non-Selling Partners fail to buy the Selling Partner's
interest after the appraisal process. On September 11, 2000 Indiana Gaming
filed an Amended Complaint seeking not only the declaratory judgment but also
alleging a breach of contract claim against Conseco with respect to its
conduct in connection with the appraisal process and seeks, among other
things, to have the PWC appraisal declared invalid. On September 25, 2000
Conseco removed the action from Madison County, Illinois to the United States
District Court, Southern District of Illinois. Indiana Gaming filed a motion
for remand to Madison County, Illinois and on October 10, 2000 the case was
remanded to Madison County, Illinois. Indiana Gaming filed a Motion for a
Preliminary Injunction to enjoin Conseco from prosecuting its petition
referred to above in the Tippecanoe County case. On October 18, 2000 the
Court held a hearing regarding the injunction and entered a preliminary
injunction enjoining Conseco from prosecuting its Indiana petition, but
permitting Conseco to proceed with its declaratory judgment relief as to the
interpretation of the timing provision in the Partnership agreement. The
Madison County Circuit Court then issued a second order requiring Conseco to
withdraw its petition in the Tippercanoe County case. On October 24, 2000
Conseco filed with the Illinois Supreme Court a Motion for Supervisory Order
and an Emergency Motion to Stay Enforcement of the Circuit Court's orders
which was granted by the Illinois Supreme Court that day. On October 25, 2000
Indiana Gaming filed a Motion to Vacate the stay order which was granted that
day and the Illinois Supreme Court ordered a "status quo" of all proceedings
by the parties pending a review and hearing before the Illinois Supreme
Court. As of November 10, 2000 no hearing before the Illinois Supreme Court
has been scheduled.
HAMILTON COUNTY, INDIANA LITIGATION
CONSECO, INC. V. INDIANA GAMING COMPANY, L.P., THE INDIANA GAMING
COMPANY, ARGOSY GAMING COMPANY, CENTAUR, INC. AND RJ INVESTMENTS, INC.
pending in the Superior Court for Hamilton County, Indiana, Case No.
29001-0010-CP-653.
On October 17, 2000 Conseco, Inc., parent company to Conseco
Entertainment L.L.C. ("Parent") file a complaint for damages and injunctive
relief, alleging among other things that Indiana Gaming and Argosy have
attempted to frustrate and delay Parent's efforts to restructure its debts. A
temporary restraining order was issued on October 20, 2000 which purports to
prohibit Indiana Gaming from pursuing the Illinois action. Parent is also
seeking unspecified money damages, including punitive damages, for tortous
inference and abuse of process. Recently, Parent has filed a Petition in this
case alleging Indiana Gaming violated the Court's temporary restraining order
by responding to Conseco's Motion for Stay in the Illinois Supreme Court.
Indiana Gaming and Argosy filed a Motion to Dismiss and a hearing is to be
held with respect to such motion on November 3, 2000, however, the court has
not yet ruled on that motion. The hearing on the Preliminary Injunction is
set for November 15, 2000.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION-None
24
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K - None
25
<PAGE>
ARGOSY GAMING COMPANY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2000 /s/ Dale R. Black
----------------------------- ----------------------------------
Dale R. Black
Senior Vice President-Chief
Financial Officer
26
