<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 JUNE 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: 28,346,604 shares of Common
Stock, $.01 par value per share, as of August 11, 2000.
================================================================================
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 45,312 $ 47,090
Restricted cash in escrow -- 25,244
Other current assets 14,799 28,083
--------- ---------
Total current assets 60,111 100,417
--------- ---------
NET PROPERTY AND EQUIPMENT 397,379 405,205
--------- ---------
OTHER ASSETS:
Goodwill and other intangible assets, net 56,409 58,543
Other, net 9,905 2,695
--------- ---------
Total other assets 66,314 61,238
--------- ---------
TOTAL ASSETS $ 523,804 $ 566,860
========= =========
CURRENT LIABILITIES:
Accounts payable $ 8,880 $ 17,894
Other current liabilities 57,871 54,528
Current maturities of long-term debt 10,426 32,668
--------- ---------
Total current liabilities 77,177 105,090
--------- ---------
LONG-TERM DEBT 304,793 346,705
DEFERRED INCOME TAXES 7,609 9,945
OTHER LONG-TERM OBLIGATIONS 227 219
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 55,607 46,656
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 28,346,604 and
28,325,106 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively 283 283
Capital in excess of par 80,492 80,362
Retained deficit (2,384) (22,400)
--------- ---------
Total stockholders' equity 78,391 58,245
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 523,804 $ 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>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 330,276 $ 265,048
Admissions 9,704 8,956
Food, beverage and other 32,734 27,672
--------- ---------
372,714 301,676
Less promotional allowances (24,473) (19,684)
--------- ---------
Net revenues 348,241 281,992
--------- ---------
COSTS AND EXPENSES:
Casino 143,787 120,434
Selling, general and administrative 68,530 57,052
Food, beverage and other 22,730 19,879
Other operating expenses 14,956 13,251
Depreciation and amortization 18,049 17,091
Write down of assets 6,800 --
--------- ---------
274,852 227,707
--------- ---------
Income from operations 73,389 54,285
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 931 1,703
Interest expense (19,512) (27,786)
--------- ---------
(18,581) (26,083)
--------- ---------
Income before income taxes and minority interests 54,808 28,202
Minority interests (20,238) (16,390)
Income tax expense (13,400) (1,200)
--------- ---------
Net income before extraordinary item 21,170 10,612
Extraordinary loss on extinguishment of debt (1,154) (34,760)
--------- ---------
Net income (loss) 20,016 (24,148)
Preferred stock dividends and accretion -- (27)
--------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 20,016 $ (24,175)
========= =========
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.75 $ 0.38
Extraordinary loss (0.04) (1.26)
--------- ---------
BASIC INCOME (LOSS) PER SHARE $ 0.71 $ (0.88)
========= =========
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.73 $ 0.38
Extraordinary loss (0.04) (1.22)
--------- ---------
DILUTED INCOME (LOSS) PER SHARE $ 0.69 $ (0.84)
========= =========
</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,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 164,749 $ 135,920
Admissions 4,716 4,678
Food, beverage and other 16,237 14,079
--------- -----------
185,702 154,677
Less promotional allowances (12,277) (10,076)
--------- -----------
Net revenues 173,425 144,601
--------- -----------
COSTS AND EXPENSES:
Casino 72,043 60,984
Selling, general and administrative 34,845 28,400
Food, beverage and other 11,671 10,242
Other operating expenses 7,386 6,663
Depreciation and amortization 9,213 8,618
Write down of assets 6,800 --
--------- -----------
141,958 114,907
--------- -----------
Income from operations 31,467 29,694
--------- -----------
OTHER INCOME (EXPENSE):
Interest income 449 796
Interest expense (9,405) (13,652)
--------- -----------
(8,956) (12,856)
--------- -----------
Income before income taxes and minority interests 22,511 16,838
Minority interests (9,860) (8,547)
Income tax expense (4,900) (600)
--------- -----------
Net income before extraordinary item 7,751 7,691
Extraordinary loss on extinguishment of debt (1,154) (34,760)
--------- -----------
NET INCOME (LOSS) 6,597 (27,069)
========= ===========
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.27 $ 0.27
Extraordinary loss (0.04) (1.24)
--------- -----------
BASIC INCOME (LOSS) PER SHARE $ 0.23 $ (0.97)
========= ===========
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.27 $ 0.27
Extraordinary loss (0.04) (1.21)
--------- -----------
DILUTED INCOME (LOSS) PER SHARE $ 0.23 $ (0.94)
========= ===========
</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,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 20,016 $ (24,148)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss 1,154 34,760
Depreciation 16,782 15,754
Amortization 1,920 2,289
Compensation expense recognized on issuance of stock 39 56
Write down of assets 6,800 --
Minority interests 20,238 16,390
Deferred income taxes 10,195 --
Changes in operating assets and liabilities:
Other current assets 3,910 1,129
Accounts payable and other current liabilities (5,789) 2,102
--------- ---------
Net cash provided by operating activities 75,265 48,332
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,960) (12,113)
Purchase of Minority Interest in Partnership (7,000) --
--------- ---------
Net cash used in investing activities (24,960) (12,113)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt, installment contracts and other (2,808) (4,540)
Repayment of partner loans (9,167) (8,639)
Partnership equity distributions (8,523) (7,019)
Repayment of partner capital contribution (1,890) (289)
Decrease (increase) in restricted cash held in escrow 25,244 (26,681)
Proceeds from issuance of subordinated notes -- 200,000
(Repayment of) proceeds from line of credit (30,100) 25,000
Repayment of long-term debt (23,716) (241,043)
Payment of preferred equity return to partner (1,165) (2,535)
Other 42 (9,196)
--------- ---------
Net cash used in financing activities (52,083) (74,942)
--------- ---------
Net decrease in cash and cash equivalents (1,778) (38,723)
Cash and cash equivalents, beginning of period 47,090 89,857
--------- ---------
Cash and cash equivalents, end of period $ 45,312 $ 51,134
========= =========
</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>
TOTAL
COMMON CAPITAL IN RETAINED STOCKHOLDERS'
SHARES STOCK EXCESS 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 21,498 -- 91 -- 91
Restricted Stock
compensation expense -- -- 39 -- 39
Net income for the six months
ended June 30, 2000 -- -- -- 20,016 20,016
---------- ---------- ---------- ---------- ----------
Balance, June 30, 2000 28,346,604 $ 283 $ 80,492 $ (2,384) $ 78,391
========== ========== ========== ========== ==========
</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. Conseco
Entertainment, L.L.C., a 29% partner in the Indiana Partnership, has exercised
their right to sell their interest 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 for approximately $8 million. At June
30, 2000, the Company had placed $7 million in escrow to fund the initial
purchase requirement. This amount is included in other assets in the
accompanying condensed consolidated financial statements.
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>
JUNE 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 73,700 103,800
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% 19,744 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 15,602 17,933
Notes payable, principal and interest payments due
quarterly through September 2015, discounted
at 10.5% 6,173 6,487
------------- -------------
315,219 379,373
Less: current maturities 10,426 32,668
------------- -------------
Long-term debt, less current maturities $ 304,793 $ 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
subsidiaries that operate the Argosy Casino Lawrenceburg and the Belle of Sioux
City casino are not co-borrowers nor are the assets pledged. 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.
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
In July 2000, the Company purchased the 30% minority interest in the Belle
of Sioux City casino. During the third quarter of 2000, the Belle of Sioux City
Partnership will become a co-borrower under the Credit Facility and will become
a guarantor of the Subordinated Notes.
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 $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>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------------------- -----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
------------- ------------ ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR:
Net income before extraordinary items $ 21,170 $ 10,612 $ 7,751 $ 7,691
Preferred stock dividends and accretion
-- (27) -- --
------------ ------------ ------------ --------------
Numerator for basic earnings per share -
Income attributable to common shareholders 21,170 10,585 7,751 7,691
Effect of dilutive securities:
Preferred stock dividends -- 27 -- --
------------ ------------ ------------ --------------
Numerator for diluted earnings per share -
Income available to common
stockholders after assumed conversions $ 21,170 $ 10,612 $ 7,751 $ 7,691
============ ============ ============ ==============
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares outstanding 28,269,972 27,578,009 28,307,027 28,041,324
Effect of dilutive securities:
Restricted stock 69,165 81,941 39,330 85,515
Employee and directors stock options 726,810 296,850 743,185 399,954
Preferred stock -- 537,553 -- --
Warrants 67,639 89,570 69,349 132,129
------------ ------------ ------------ --------------
Dilutive potential common shares 863,614 1,005,914 851,864 617,598
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 28,583,923 28,658,922 29,133,586 29,158,891
============ ============ ============ ==============
Basic income per share before extraordinary item $ 0.75 $ 0.38 $ 0.27 $ 0.27
Extraordinary item (0.04) (1.26) (0.04) (1.24)
------------ ------------ ------------ --------------
Basic earnings (loss) per share - including extraordinary item $ 0.71 $ (0.88) $ 0.23 $ (0.97)
============ ============ ============ ==============
Diluted income per share before extraordinary item $ 0.73 $ 0.38 $ 0.27 $ 0.27
Extraordinary item (0.04) (1.22) (0.04) (1.21)
------------ ------------ ------------ --------------
Diluted earnings (loss) per share - including extraordinary item $ 0.69 $ (0.84) $ 0.23 $ (0.94)
============ ============ ============ ==============
</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 June 30, 2000, $73.7 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 subsidiaries that operate the Argosy Casino Lawrenceburg and the
Belle of Sioux City casino are not co-borrowers nor are the assets 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 and The Indiana Gaming Company (the "Guarantors"). The Company's
joint-venture subsidiaries that operate the Argosy Casino & Hotel 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.
In July 2000, the Company purchased the 30% minority interest in the Belle
of Sioux City Casino. During the third quarter of 2000, the Belle of Sioux City
Partnership will become a co-borrower under the Credit Facility and will become
a guarantor of the Subordinated Notes.
The following tables present summarized balance sheet information of the
Company as of June 30, 2000 and December 31, 1999 and summarized operating
statement information for the six and three months ended June 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
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.
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 June 30, 2000 and December 31,
1999 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 13,862 $ 23,514 $ 31,448 $ (8,713) $ 60,111
Non-current assets 345,022 402,999 215,366 (499,694) 463,693
--------- --------- --------- --------- ---------
$ 358,884 $ 426,513 $ 246,814 $(508,407) $ 523,804
========= ========= ========= ========= =========
LIABILITIES AND EQUITY:
Current liabilities $ 6,793 $ 107,807 $ 51,322 $ (88,745) $ 77,177
Non-current liabilities 273,700 185,236 46,895 (137,595) 368,236
Stockholders' equity 78,391 133,470 148,597 (282,067) 78,391
--------- --------- --------- --------- ---------
$ 358,884 $ 426,513 $ 246,814 $(508,407) $ 523,804
========= ========= ========= ========= =========
</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 three months ended June
30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 2,065 $ 173,031 $ 201,879 $ (28,733) $ 348,242
Costs and expenses 14,213 113,970 148,343 (1,673) 274,853
Net interest expense 13,135 193 5,253 -- 18,581
Net income (loss) 20,016 36,847 46,226 (83,073) 20,016
</TABLE>
<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
to common stockholders (24,175) 20,162 36,307 (56,469) (24,175)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 851 $ 85,700 $ 100,837 $ (13,963) $ 173,425
Costs and expenses 10,435 57,423 74,875 (774) 141,958
Net interest expense 6,408 123 2,425 -- 8,956
Net (loss) income 6,597 16,813 22,551 (39,364) 6,597
</TABLE>
<TABLE>
<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)
</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). On April 28, 2000, Conseco
Entertainment, L.L.C., a 29% limited partner in the Indiana Partnership
("Selling Partner"), notified the other partners ("Non-Selling Partners") that
it was exercising its irrevocable Put Right to sell its limited partnership
interest. Under terms of the partnership agreement, the Partners had until June
27, 2000 to negotiate a sales price. The price was not agreed upon by June 27,
2000, therefore the Selling Partners and the Non-Selling Partners have each
hired appraisers to determine the purchase price. Upon the conclusion of the
appraisal process, if the Non-Selling Partners elect not to pay appraised value,
the Indiana Partnership must be sold in its entirety. There is no provision to
preclude any of the Non-Selling Partners from bidding for the Indiana
Partnership in this event.
On June 29, 2000, the Company announced that the Internal Revenue Service
completed a combined audit for the 1992 and 1993 tax years of the Company. As a
part of the audit, it was determined that a predecessor entity, prior to the
formation of the Company, was a valid S-Corporation under provisions of the
Internal Revenue code. The Company had previously disclosed that if the
S-Corporation election was not upheld, it could have been liable for up to $15
million in taxes and interest. As a result of the audit, there are no additional
taxes due by the Company. No provision had been made for this contingency in our
consolidated financial statements.
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the financial condition
of the Company.
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
We, through our subsidiaries or joint ventures, 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 six and three months ended June 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>
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASINO REVENUES
Alton Belle Casino $ 56,376 $ 38,019 $ 28,187 $ 19,910
Argosy Casino - Riverside 48,351 39,995 23,522 20,797
Argosy Casino - Baton Rouge 35,977 24,315 18,303 11,736
Belle of Sioux City Casino 17,621 12,705 8,626 6,542
Argosy Casino - Lawrenceburg 171,951 150,014 86,111 76,935
--------- --------- --------- ---------
Total $ 330,276 $ 265,048 $ 164,749 $ 135,920
========= ========= ========= =========
NET REVENUES
Alton Belle Casino $ 58,177 $ 39,770 $ 29,015 $ 20,777
Argosy Casino - Riverside 50,777 42,423 24,649 22,008
Argosy Casino - Baton Rouge 37,073 25,200 18,842 12,174
Belle of Sioux City Casino 18,136 13,130 8,896 6,761
Argosy Casino - Lawrenceburg 183,742 161,289 91,940 82,820
Other 336 180 83 61
--------- --------- --------- ---------
Total $ 348,241 $ 281,992 $ 173,425 $ 144,601
========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS (1)
Alton Belle Casino $ 16,356 $ 9,286 $ 7,922 $ 5,304
Argosy Casino - Riverside 8,449 5,256 3,732 3,221
Argosy Casino - Baton Rouge 6,370 (744) 2,990 (637)
Belle of Sioux City Casino 3,090 1,805 1,540 960
Argosy Casino - Lawrenceburg 56,264 50,242 27,263 25,818
Corporate (2) (7,220) (8,352) (3,637) (3,326)
Jazz Enterprises, Inc. (2,585) (2,546) (1,261) (1,315)
Other (535) (662) (282) (331)
--------- --------- --------- ---------
Total (3) $ 80,189 $ 54,285 $ 38,267 $ 29,694
========= ========= ========= =========
EBITDA(1)(4)
Alton Belle Casino $ 19,411 $ 11,333 $ 9,424 $ 6,325
Argosy Casino - Riverside 11,188 8,160 5,116 4,666
Argosy Casino - Baton Rouge 8,633 2,046 4,202 782
Belle of Sioux City Casino 3,858 2,391 1,941 1,266
Argosy Casino - Lawrenceburg 66,829 59,976 32,609 30,777
Lawrenceburg financial advisory fee (5) (3,342) (2,999) (1,630) (1,539)
Corporate (2) (7,034) (8,353) (3,546) (3,334)
Jazz Enterprises, Inc. (1,235) (1,196) (586) (640)
Other (70) 18 (49) 9
--------- --------- --------- ---------
Total (3) $ 98,238 $ 71,376 $ 47,481 $ 38,312
========= ========= ========= =========
</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 and in the case of Sioux City and Lawrenceburg
before the 30% and 42.5% minority interests, respectively.
(2) Includes expenses related to a severance package and a settlement
arrangement of approximately $1.8 million for the six months ended June 30,
1999.
(3) Excludes a $6.8 million pre-tax charge related to the write-off of assets
for the three and six months ended June 30, 2000.
(4) "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.
(5) 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)
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
CASINO--Casino revenues for the six months ended June 30, 2000 increased
$65.2 million, or 24.6%, to $330.3 million from $265.0 million for the six
months ended June 30, 1999. The western properties (Alton, Riverside, Sioux City
and Baton Rouge) reported an aggregate 38% increase in casino revenues from
$115.0 to $158.3 million. In particular, Alton casino revenues increased from
$38.0 to $56.4 million, Riverside casino revenues increased from $40.0 to $48.4
million, Sioux City casino revenues increased from $12.7 to $17.6 million, and
Baton Rouge casino revenues increased from $24.3 to $36.0 million. Lawrenceburg
casino revenues increased $21.9 million, or 14.6%, to $172.0 million for the six
months ended June 30, 2000, from $150.0 million over the six months ended June
30, 1999. Each of our casinos reported increases in passengers as well as an
increase in the average win per passenger for the six months ended June 30, 2000
versus the six months ended June 30, 1999. This increase in revenues was
partially attributable to favorable regulatory changes in Illinois, Missouri and
Louisiana.
Casino expenses increased $23.4 million to $143.8 million for the six
months ended June 30, 2000 from $120.4 million for the six months ended June 30,
1999. This increase is due to increased gaming and admission taxes at all
properties totaling $15.7 million and increases in other casino expenses of $7.7
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 $0.1 million to $3.3 million for the six months ended June 30, 2000
from $3.2 million for the six months ended June 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 $5.0
million to $32.7 million for the six month period ended June 30, 2000 from $27.7
million for the six months ended June 30, 1999. This increase is primarily
attributable to a $2.3 million increase at Lawrenceburg and a $1.0 million
increase at Alton. Food, beverage and other net profit improved $2.2 million to
$10.0 million for the six months ended June 30, 2000 from $7.8 million for the
six months ended June 30, 1999.
For the six months ended June 30, 2000, the Lawrenceburg hotel generated
$1.9 million in net revenues and $0.7 million of operating profit. The hotel
occupancy percentage was 87% and the average daily room rate including
promotional allowances was $85. For the six months ended June 30, 1999, the
Lawrenceburg Hotel generated $1.9 million in net revenues and $0.8 million of
operating profit. The hotel occupancy rate was 80% and the daily room rate
including promotional allowances was $80.
OTHER OPERATING EXPENSES--Other operating expenses increased by $1.7
million to $15.0 million for the six months ended June 30, 2000 from $13.3
million for the six months ended June 30, 1999 due to increases attributable to
the overall increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $11.4 million to $68.5 million for the six months ended June
30, 2000 from $57.1 million for the six months ended June 30, 1999, due
primarily to an increase of $6.0 million at Lawrenceburg related to additional
payments to the city as a result of increased gaming revenue and expanded
advertising and marketing efforts, a $1.2 million increase in rent expense in
Riverside and $4.3 million at our other properties primarily relating to
expanded promotions. Selling, general and administrative expenses for the six
months ended June 30, 1999 included $1.8 million due to expenses related to a
severance package and settlement arrangement.
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 $0.9
million from $17.1 million for the six months ended June 30, 1999 to $18.0
million for the six months ended June 30, 2000, due primarily to an increase of
$1.0 million at Alton for depreciation on the new landing facility placed in
service in December 1999.
INTEREST EXPENSE--Net interest expense decreased $7.5 million to $18.6
million for the six months ended June 30, 2000 from $26.1 million for the six
months ended June 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 $3.8
million to $20.2 million for the six months ended June 30, 2000 from $16.4
million for the six months ended June 30, 1999. This increase is primarily
attributable to improved income at our Indiana Partnership.
INCOME TAX EXPENSE - Income tax expense increased by $12.2 million to $13.4
million for the six months ended June 30, 2000 from $1.2 million for the six
months ended June 30, 1999. During the six months ended June 30, 2000, and 1999,
we recorded income tax expense at effective rates of 39% and 10%, respectively.
Income tax expense for the six months ended June 30, 1999 was significantly
reduced by the utilization of net operating losses.
EXTRAORDINARY LOSS - The Company recorded an extraordinary loss of $1.2
million for the six months ended June 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 six months ended June 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 the first phase of
the refinancing. The extraordinary loss 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 JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
CASINO--Casino revenues for the three months ended June 30, 2000 increased
$28.8 million, or 21.2%, to $164.7 million for the three months ended June 30,
2000 from $135.9 million for the three months ended June 30, 1999. The western
properties (Alton, Riverside, Sioux City and Baton Rouge) reported an aggregate
33% increase in casino revenues from $59.0 to $78.6 million. In particular,
Alton casino revenues increased from $19.9 to $28.2 million, Riverside casino
revenues increased from $20.8 to $23.5 million, Sioux City casino revenues
increased from $6.5 to $8.6 million, and Baton Rouge casino revenues increased
from $11.7 to $18.3 million. Lawrenceburg casino revenues increased $9.2
million, or 12.0%, to $86.1 million for the three months ended June 30, 2000
from $76.9 million for the three months ended June 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 June 30, 2000 versus the three months ended
June 30, 1999. This increase was partially attributable to favorable regulatory
changes in Illinois, Missouri and Louisiana.
Casino expenses increased $11.0 million to $72.0 million for the three
months ended June 30, 2000 from $61.0 million for the three months ended June
30, 1999. This increase is due to increased gaming and admission taxes at all
properties totaling $7.0 million and increases in other casino expenses of $4.0
million at all properties due to increases in overall revenues and admissions at
all properties.
ADMISSIONS--Admissions revenues (net of complimentary admissions) decreased
slightly by $0.1 million to $1.6 million for the three months ended June 30,
2000 from $1.7 million for the three months ended June 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 $2.1
million to $16.2 million for the three month period ended June 30, 2000 from
$14.1 million for the three month period ended June 30, 1999. Food, beverage and
other net profit improved $0.8 million to $4.6 million for the three months
ended June 30, 2000 from $3.8 million for the three months ended June 30, 1999.
For the three months ended June 30, 2000, the Lawrenceburg hotel generated
$1.0 million in net revenues and $0.3 million of operating profit. The hotel
occupancy percentage was 90% and the average daily room rate including
promotional allowances was $85. For the three months ended June 20, 1999, the
Lawrenceburg hotel generated $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 including promotional allowances was $83.
OTHER OPERATING EXPENSES--Other operating expenses increased by $0.7
million to $7.4 million for the three months ended June 30, 2000 as compared to
$6.7 million for the three months ended June 30, 1999 due to increases
attributable to the overall increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $6.4 million to $34.8 million for the three months ended June
30, 2000 from $28.4 million for the three months ended June 30, 1999, due
primarily to an increase of $3.0 million at Lawrenceburg related to additional
payments to the city as a result of increased gaming revenue and expanded
advertising and marketing effort, a $0.6 million increase in rent expense in
Riverside and $2.8 million at our other properties relating to expanded
promotions.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $0.6
million from $8.6 million for the three months ended June 30, 1999 to $9.2
million for the three months ended June 30, 2000, due primarily to an increase
of $0.5 million at Alton due to depreciation on the new landing facility placed
in service December 1999.
19
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
INTEREST EXPENSE--Net interest expense decreased $3.9 million to $9.0
million for the three months ended June 30, 2000 from $12.9 million for the six
months ended June 30, 1999. This decrease is primarily attributable to a
refinancing completed during June 1999, which lowered the average borrowing rate
and increased out 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 $1.3
million to $9.9 million for the three months ended June 30, 2000 as compared to
$8.5 million for the three months ended June 30, 1999. This increase is
primarily attributable to improved income at our Indiana Partnership.
INCOME TAX EXPENSE - Income tax expense increased by $4.3 million to $4.9
million for the three months ended June 30, 2000 from $0.6 million for the three
months ended June 30, 1999. During the three months ended June 30, 2000, and
1999, we recorded income tax expense at effective rates of 39% and 7%,
respectively. Income tax expense for the three months ended June 30, 1999 was
significantly reduced by the utilization of net operating losses.
EXTRAORDINARY LOSS - The Company recorded an extraordinary loss of $1.2
million for the three months ended June 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 three months ended June 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 the first phase of
a refinancing. The extraordinary loss was not recorded net of a tax benefit as
the Company was in a net operating loss position
COMPETITION
Our Alton Casino faces competition from four other riverboat casino
operators in the St. Louis area and expects the level of competition to remain
intense in the future. 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 one other riverboat casino in the Cincinnati market. In addition, The
Indiana Partnership competes with a riverboat casino in the Louisville, Kentucky
area approximately 100 miles from our Lawrenceburg facility and a competing
riverboat is expected to open approximately 45 miles from our Lawrenceburg
facility in the fourth quarter of 2000. 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 six months ended June 30, 2000, we generated cash flows from
operating activities of $75.3 million compared to $48.3 million for the same
period in 1999. This increase is attributable to improved operations at each of
our five casino locations.
In the six months ended June 30, 2000, we used cash flows for investing
activities of $25.0 million compared to $12.1 million for the six months ended
June 30, 1999. In the six months ended June 30, 2000, $7 million in cash flows
were used to purchase the minority interest in the Sioux City Partnership. The
primary used of cash flows in both the six months ended June 30, 2000 and 1999
were for purchases of property and equipment. During the six months ended June
30, 2000, $5.5 million of cash flows were used to fund progress payments on the
Baton Rouge Hotel.
20
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
During the six months ended June 30, 2000, we used $52.1 million in cash
flows for financing activities compared to using $74.9 million of cash flows for
financing activities for the same period in 1999. During the six months ended
June 30, 2000, $30.1 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 six months ended June 30,
2000 also included cash that had been previously escrowed to redeem debt.
Sources of cash during the six months ended June 30, 1999 included proceeds from
the issuance of subordinated notes and borrowings on the line of credit.
At June, 2000, we had approximately $45.3 million of cash and cash
equivalents, including approximately $24.2 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 June 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
$73.7 million on a senior secured revolving credit facility. As of August 9,
2000 availability under the credit facility was approximately $136 million.
We have made a significant investment in property and equipment and plan to
make significant additional investments at certain of its 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
million, and expenditures related to the Baton Rouge hotel and other project
capital expenditures to be approximately $26.0 million.
On April 28, 2000, we received notice that Conseco Entertainment, L.L.C., a
29% limited partner in the Indiana Partnership was exercising their put rights
under terms of the Lawrenceburg Partnership agreement. Ultimately we will have
the right to purchase our pro rata share of the selling partner's interest. 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.
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 damages based on
claims of breach of fiduciary duty and 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. The matter went to trial on May 30,
2000. However, the parties reached an agreement to settle the lawsuit on June 9,
2000, wherein the parties entered into a Settlement Agreement and a Partnership
Interest Purchase Agreement. In this agreement, a wholly-owned subsidiary of
Argosy Gaming Company, Argosy of Iowa, purchased the Partnership interest of the
plaintiff for approximately $8 million, of which, $7 million was funded in June
2000. Upon receiving the requisite approval of the Iowa Racing and Gaming
Commission, the parties finalized the agreements on July 26, 2000. The case has
been dismissed with prejudice by the court.
INTERNAL REVENUE SERVICE AUDIT
In November 1994, the Internal Revenue Service ("IRS") began a combined
audit for the 1992 and 1993 tax years of Argosy Gaming Company (the "Company"),
and the Company's predecessors in interest, Metro Tourism & Entertainment, Inc.
("Metro"), Alton Riverboat Gambling Partnership ("ARGP"). Metro and J. Connors
Group, Inc. ("Connors") were the partners of ARGP which until the Company's
initial public offering in February 1993 owned and operated the Alton, Illinois
riverboat casino. The principal issues raised by the IRS involve the status of
Metro as an S corporation and the deductibility of the $8.5 million
accommodation fee paid to William McEnery in 1992 and 1993. The total Federal
income tax liability asserted by the IRS against the Company was approximately
$11.5 million including interest through December 31, 1999. In June 2000, the
Company resolved the matter with the IRS with no additional liability.
23
<PAGE>
INTERIM HOLDINGS, L.L.C. VS. 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 COMPANY, ET AL.. The
Company has removed the case to Federal court, and the federal court, on April
13, 2000, remanded the lawsuit back to the Circuit Court of St. Louis County,
Missouri. The lawsuit is styled as a "bill in equity." It concerns a loan and
consulting agreement entered into between Argosy and a Floyd Warmann and Interim
Holdings, Inc., as part of Argosy's attempt to obtain lease rights for a gaming
facility in downtown St. Louis. The complaint alleges that Argosy's consulting
payments and loans to Warmann, in return for his working to obtain lease rights
for a potential St. Louis gaming facility, defrauded the creditors of Warmann.
The Company filed a Motion to Dismiss the bill in equity on July 5, 2000. The
Court has not yet ruled on the Motion to Dismiss. Management believes that the
claims are without merit and does not expect that the lawsuit will have a
material adverse effect on the Company's financial position or results of
operations.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 18, 2000. At
the meeting, the stockholders voted on the election of two directors. Voting was
as follows:
<TABLE>
<CAPTION>
Votes For Withheld/Abstain
--------- ----------------
<S> <C> <C>
James Gallagher 22,486,572 710,729
George Bristol 22,505,633 691,668
</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 1, 2000, filed with the Securities
and Exchange Commission, containing the following information:
A) A Press Release dated April 27, 2000 announcing the Board of
Directors' unanimous appointment of James B. Perry, the
Company's President and CEO, to serve as a director until
the Annual Meeting of Shareholders in 2003.
B) A Press Release dated May 1, 2000, announcing that on
Friday, April 28, 2000, Argosy received notification from
Conseco Entertainment, L.L.C., an indirect subsidiary of
Conseco, Inc., of its intent to sell its 29% limited
partnership interest in the Lawrenceburg Casino.
C) The Conseco Put Notice dated April 28, 2000 from Conseco
Entertainment, L.L.C., to Argosy Gaming Company announcing
Conseco Entertainment, L.L.C.'s exercise of their
irrevocable put right to sell their 29% limited partnership
interest in the Lawrenceburg Casino.
24
<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 14, 2000 /s/ Dale R. Black
---------------- -----------------------------
Dale R. Black
Senior Vice President-Chief Financial Officer
25
