- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11853
ARGOSY GAMING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 37-1304247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: 28,161,219 shares of Common
Stock, $.01 par value per share, as of November 12, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PART 1
FINANCIAL STATEMENTS OF ARGOSY GAMING COMPANY
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Condensed Consolidated Statements of Stockholders' Equity 5
Notes to Condensed Consolidated Financial Statements 6
FINANCIAL STATEMENTS OF GUARANTOR SUBSIDIARIES OF THE COMPANY'S FIRST
MORTGAGE NOTES PROVIDED PURSUANT TO RULE 3-10 OF REGULATION S-X.
FINANCIAL STATEMENTS OF ALTON GAMING COMPANY
Condensed Balance Sheets 14
Condensed Statements of Income 15
Condensed Statements of Cash Flows 17
Condensed Statements of Stockholder's Equity 18
Notes to Condensed Financial Statements 19
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 20
Condensed Statements of Operations 21
Condensed Statements of Cash Flows 23
Notes to Condensed Financial Statements 24
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 25
Condensed Consolidated Statements of Operations 26
Condensed Consolidated Statements of Cash Flows 28
Notes to Condensed Consolidated Financial Statements 29
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 30
Condensed Statements of Operations 31
Condensed Statements of Cash Flows 33
Notes to Condensed Financial Statements 34
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 35
Condensed Statements of Operations 36
Condensed Statements of Cash Flows 38
Notes to Condensed Financial Statements 39
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 40
Condensed Consolidated Statements of Income 41
Condensed Consolidated Statements of Cash Flows 43
Notes to Condensed Consolidated Financial Statements 44
TABLE OF CONTENTS (CONTINUED)
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 45
Condensed Statements of Income 46
Condensed Statements of Cash Flows 48
Notes to Condensed Financial Statements 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS 50
PART II
Item 1 Legal Proceedings 59
Item 2 Changes in Securities 60
Item 3 Defaults upon Senior Securities 60
Item 4 Submission of Matters to a Vote of Security Holders 60
Item 5 Other Information 60
Item 6 Exhibits and Reports on Form 8-K 60
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------------- --------------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 37,702 $ 89,857
Restricted cash 26,664 -
Other current assets 8,608 9,399
--------- ---------
Total current assets 72,974 99,256
--------- ---------
NET PROPERTY AND EQUIPMENT 390,281 395,920
--------- ---------
Other assets:
Goodwill and other intangible assets, net 50,264 51,817
Other, net 16,252 15,759
--------- ---------
Total other assets 66,516 67,576
--------- ---------
TOTAL ASSETS $ 529,771 $ 562,752
========= =========
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 71,870 $ 57,130
Other current liabilities 34,361 14,255
--------- ---------
Total current liabilities 106,231 71,385
--------- ---------
LONG-TERM DEBT 346,234 412,360
OTHER LONG-TERM OBLIGATIONS 2,158 2,144
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 42,325 30,660
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE - 5,340
10,000,000 SHARES AUTHORIZED, 547 SHARES ISSUED
AND OUTSTANDING AT DECEMBER 31, 1998
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 282 258
28,161,219 and 25,830,313 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively
Capital in excess of par 79,937 74,484
Retained deficit (47,396) (33,879)
--------- ---------
Total stockholders' equity 32,823 40,863
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 529,771 $ 562,752
========= =========
See accompanying notes to condensed consolidated financial statements.
1
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share And Per Share Data)
NINE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------------- ---------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 412,314 $ 349,203
Admissions 14,013 11,781
Food, beverage and other 42,938 37,345
--------- ---------
469,265 398,329
Less promotional allowances (30,703) (24,639)
--------- ---------
Net revenues 438,562 373,690
--------- ---------
COSTS AND EXPENSES:
Casino 186,044 165,307
Food, beverage and other 30,491 30,183
Other operating expenses 20,364 20,150
Selling, general and administrative 87,105 72,489
Depreciation and amortization 25,719 24,823
--------- ---------
349,723 312,952
--------- ---------
Income from operations 88,839 60,738
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 2,386 2,575
Interest expense (38,518) (43,114)
--------- ---------
(36,132) (40,539)
--------- ---------
Income before minority interests, income taxes and extraordinary item 52,707 20,199
Minority interests (25,977) (17,921)
Income tax expense (1,800) (445)
--------- ---------
Net income before extraordinary item 24,930 1,833
Extraordinary loss on extinguishment of debt (38,420) --
--------- ---------
NET (LOSS) INCOME (13,490) 1,833
Preferred stock dividends and accretion (27) (110)
--------- ---------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (13,517) $ 1,723
========= =========
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.90 $ 0.07
Extraordinary loss (1.39) --
--------- ---------
BASIC (LOSS) INCOME PER SHARE $ (0.49) $ 0.07
========= =========
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.87 $ 0.07
Extraordinary loss (1.34) --
--------- ---------
DILUTED (LOSS) INCOME PER SHARE $ (0.47) $ 0.07
========= =========
See accompanying notes to condensed consolidated financial statements.
2
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share And Per Share Data)
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ -------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $147,267 $124,330
Admissions 5,057 4,581
Food, beverage and other 15,265 13,780
-------- --------
167,589 142,691
Less promotional allowances (11,020) (9,158)
-------- --------
Net revenues 156,569 133,533
-------- --------
COSTS AND EXPENSES:
Casino 65,610 57,935
Food, beverage and other 10,612 10,473
Other operating expenses 7,113 6,847
Selling, general and administrative 30,053 24,129
Depreciation and amortization 8,628 8,452
-------- --------
122,016 107,836
-------- --------
Income from operations 34,553 25,697
-------- --------
OTHER INCOME (EXPENSE):
Interest income 684 933
Interest expense (10,732) (14,627)
-------- --------
(10,048) (13,694)
-------- --------
Income before minority interests, income taxes and extraordinary item 24,505 12,003
Minority interests (9,587) (7,697)
Income tax expense (600) (195)
-------- --------
Net income before extraordinary item 14,318 4,111
Extraordinary loss on extinguishment of debt (3,660) --
-------- --------
NET INCOME 10,658 4,111
Preferred stock dividends and accretion -- (95)
-------- --------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 10,658 $ 4,016
======== ========
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.51 $ 0.17
Extraordinary loss (0.13) --
-------- --------
BASIC INCOME PER SHARE $ 0.38 $ 0.17
======== ========
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.49 $ 0.15
Extraordinary loss (0.12) --
-------- --------
DILUTED INCOME PER SHARE $ 0.37 $ 0.15
======== ========
See accompanying notes to condensed consolidated financial statements.
3
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share And Per Share Data)
NINE MONTHS ENDED
------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------------- ------------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (13,490) $ 1,833
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Extraordinary loss 38,420 --
Depreciation 23,728 23,021
Amortization 3,289 3,227
Compensation expense recognized on issuance of stock 85 198
Minority interests 25,977 17,921
Gain on sale of assets (198) --
Changes in operating assets and liabilities
Other current assets 332 1,130
Accounts payable and other current liabilities 16,192 22,849
--------- ---------
Net cash provided by operating activities 94,335 70,179
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (18,088) (30,980)
Decrease in restricted cash held by trustees -- 14,504
Proceeds from sale of assets 503 --
Other 12 (2,831)
--------- ---------
Net cash used in investing activities (17,573) (19,307)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts (5,926) (5,219)
Repayment of partner loans (14,334) (15,032)
Partnership equity distributions (10,919) (7,438)
Payment of preferred equity return to partner (3,052) (2,709)
Repayment of partner capital contribution (1,668) --
Proceeds (net of issuance costs) from sale of
preferred stock and warrants -- 7,365
Increase in restricted cash held in escrow (26,664) --
Proceeds from issuance of subordinated notes 200,000 --
Proceeds from line of credit 130,000 --
Repayment of line of credit (28,000) --
Repayment of long-term debt (327,738) --
Premiums paid on early extinguishment of debt (30,585) --
Costs incurred to tender and retire debt (894) --
(Increase) decrease in other assets (9,137) 14
--------- ---------
Net cash used in financing activities (128,917) (23,019)
--------- ---------
Net (decrease) increase in cash and cash equivalents (52,155) 27,853
Cash and cash equivalents, beginning of period 89,857 59,354
--------- ---------
Cash and cash equivalents, end of period $ 37,702 87,207
========= =========
See accompanying notes to condensed consolidated financial statements.
4
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share And Per Share Data)
(unaudited)
TOTAL
COMMON CAPITAL IN RETAINED STOCKHOLDERS'
SHARES STOCK EXCESS OF PAR DEFICIT EQUITY
------------- ------------- --------------- ------------ --------------
Balance, December 31, 1998 25,830,313 $258 $74,484 $(33,879) $40,863
Restricted Stock
compensation expense -- -- 85 -- 85
Preferred stock conversion 2,310,011 23 5,344 -- 5,367
Warrants converted 18,765 1 -- -- 1
Exercise of stock options 1,000 -- 4 -- 4
Convertible notes converted 1,130 -- 20 -- 20
Net loss for the nine months
ended September 30, 1999 -- -- -- (13,490) (13,490)
Preferred stock dividends
and accretion -- -- -- (27) (27)
------------- ------------- --------------- ------------ --------------
Balance, September 30, 1999 28,161,219 $282 $79,937 $(47,396) $32,823
============= ============= =============== ============ ==============
See accompanying notes to condensed consolidated financial statements
5
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 it
subsidiaries or joint ventures, operates riverboat casinos in Alton,
Illinois; Lawrenceburg, Indiana; Riverside, Missouri; Baton Rouge,
Louisiana; and Sioux City, Iowa. Indiana Gaming Company, L.P.,
("Indiana Partnership") is a limited partnership which owns the casino
in Lawrenceburg, Indiana. The Company is the sole general partner,
holds a 57.5% interest and manages the Indiana Partnership.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Interim results may not necessarily be indicative of results which may
be expected for any other interim period or for the year as a whole.
For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1998, included in the
Company's Annual Report on Form 10-K (File No. 1-11853). The
accompanying unaudited condensed consolidated financial statements
contain all adjustments which are, in the opinion of management,
necessary to present fairly the financial position and the results of
operations for the periods indicated. Such adjustments include only
normal recurring accruals. Certain 1998 amounts have been reclassified
to conform to the 1999 financial statement presentation.
As of September 30, 1999 the Company is in a net operating
loss position and, therefore, has recorded a valuation allowance of
$18,600 against its deferred tax assets.
6
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
NINE MONTHS ENDED THREE MONTHS ENDED
---------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---------------- --------------- --------------- ---------------
NUMERATOR:
Net (loss) income $ (13,490) $ 1,833 $ 10,658 $ 4,111
Preferred stock dividends and accretion (27) (110) -- (95)
------------ ------------ ------------ ------------
Numerator for basic earnings per share -
(Loss) income attributable to Common Stockholders (13,517) 1,723 10,658 4,016
Effect of dilutive securities:
Preferred stock dividends and accretion 27 -- -- 95
------------ ------------ ------------ ------------
Numerator for diluted earnings per share-(loss) income
available to Common Stockholders after
assumed conversions $ (13,490) $ 1,723 $ 10,658 $ 4,111
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares outstanding 27,740,541 24,333,333 28,055,269 24,333,333
Effect of dilutive securities:
Restricted stock 90,659 105,828 93,799 90,717
Employee stock options 477,521 -- 696,782 --
Preferred stock 360,260 -- -- 2,847,500
Warrants 148,526 -- 192,200 --
------------ ------------ ------------ ------------
Dilutive potential common shares 1,076,966 105,828 982,781 2,938,217
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 28,817,507 24,439,161 29,038,050 27,271,550
============ ============ ============ ============
BASIC INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.90 $ 0.07 $ 0.51 $ 0.17
Extraordinary loss (1.39) -- (0.13) --
------------ ------------ ------------ ------------
BASIC (LOSS) INCOME PER SHARE $ (0.49) $ 0.07 $ 0.38 $ 0.17
============ ============ ============ ============
DILUTED INCOME PER SHARE BEFORE EXTRAORDINARY LOSS $ 0.87 $ 0.07 $ 0.49 $ 0.15
Extraordinary loss (1.34) -- (0.12) --
------------ ------------ ------------ ------------
DILUTED (LOSS) INCOME PER SHARE $ (0.47) $ 0.07 $ 0.37 $ 0.15
============ ============ ============ ============
7
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Additional employee and directors stock options to purchase
570,000 and 576,000 shares of common stock were not included in the
computation of quarter-to-date and year-to-date diluted earnings per
share, respectively, because the options exercise price was greater
than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.
12% Convertible Debentures (convertible into 6,497,175 shares
of common stock) were outstanding until July 7, 1999 but were not
included in the computation of diluted earnings per share as the net
interest expense per common share obtainable on conversion exceeded
basic earnings per share, thus the effect would be anti-dilutive.
3. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
First Mortgage Notes due June 1, 2004,
interest payable semi-annually at 13.25% $22,242 $235,000
Convertible Subordinated notes due June 1, 2001,
convertible into common stock at $17.70 per
share, interest payable semi-annually at 12% -- 115,000
Senior secured line of credit, expires June 2004,
interest payable at least quarterly at either
LIBOR or prime plus a margin 102,000 --
Senior subordinated notes due June 1, 2009,
interest payable semi-annually at 10.75% 200,000 --
Note payable, principal and interest payments
due quarterly through September 2015,
discounted at 10.5% 6,633 7,097
Notes payable, principal and interest payments
due monthly through December 2001, interest
payable at prime + 1%, secured by gaming vessel
and certain equipment 18,576 21,707
Loans from partner, principal due in annual
installments through 2004, interest payable
at prime + 6% 30,862 45,196
--------------- ---------------
380,313 424,000
Less: current maturities 34,079 11,640
--------------- ---------------
Long-term debt, less current maturities $346,234 $412,360
============== ===============
8
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
On June 8, 1999, the Company issued $200,000 of Senior
Subordinated Notes due 2009 ("Subordinated Notes") and entered into a
five year $200,000 Senior Secured revolving bank credit agreement
("Credit Facility"). The Credit Facility is secured by liens on
substantially all of the Company's assets and the Company's
subsidiaries are co-borrowers. The Company's joint-venture subsidiaries
that operate the Argosy Casino & Hotel 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 & 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 and the subsidiary
guarantees of the Subordinated Notes rank junior to the senior
indebtedness of the subsidiary guarantors.
The Subordinated Notes and the Credit Facility contain certain
restrictions on the payment of dividends on the Company's common stock
and the occurrence of additional indebtedness, as well as other typical
debt covenants. In addition, the Credit Facility requires the Company
to maintain certain financial ratios.
The Company used the proceeds from the issuance of the
Subordinated Notes, $25,000 in borrowings under the Credit Facility and
approximately $51,000 of cash on hand to tender for and retire
approximately $213,000 of its outstanding 13 1/4% First Mortgage Notes
due 2004 ("Mortgage Notes"). Under terms of the Credit Facility, the
Company will be required to redeem the remaining $22,242 of Mortgage
Notes on June 1, 2000. The Company has placed $26,664 in escrow to fund
the remaining interest payments and June 2000 redemption premium for
the untendered $22,242 of Mortgage Notes. On July 7, 1999, the Company
redeemed all of its outstanding 12% Convertible Subordinated Notes due
2001 ("Convertible Notes"). The Company used borrowings of $105,000
under the Credit Facility and approximately $13,700 of cash to redeem
the Convertible Notes. In connection with the early extinguishment of
the Mortgage Notes, the Company recorded an extraordinary loss of
$34,760. In connection with the early extinguishment of the Convertible
Notes, the Company recorded an extraordinary loss of $3,660. The tax
benefits recorded on the extraordinary losses were offset by valuation
allowances due to the uncertainty of realization.
9
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
4. CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A
Convertible Preferred Stock ("Preferred Shares"), together with
warrants to purchase an additional 292,612 shares of Common Stock at
$3.89 per share. Through September 30, 1999, all 800 Preferred Shares
had been converted into 3,641,991 shares of common stock. As of
September 30, 1999, 27,432 warrants have been converted into 18,765
shares of common stock. The warrants may be exercised at the fixed
strike price of $3.89. The warrants expire in 2003.
5. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA - Under terms of the Lawrenceburg
partnership agreement, after December 10, 1999, each limited partner
has the right to sell its interest to the other partners (pro rata in
accordance with their respective percentage interests). In the event of
this occurrence, if the partners cannot agree on a selling price, the
Indiana Partnership will be sold in its entirety.
OTHER - A predecessor entity to the Company ("Predecessor"),
as a result of a certain shareholder loan transaction, could be subject
to federal and certain state income taxes (plus interest and penalties,
if any) if it is determined that it failed to satisfy all of the
requirements of the S-Corporation provisions of the Internal Revenue
Code ("Code") relating to the prohibition concerning a second class of
stock.
An audit is currently being conducted by the Internal Revenue
Service ("IRS") of the Company's federal income tax returns for the
1992 and 1993 tax years and the IRS has identified the S-Corporation
status as one of the issues, although the IRS has yet to make a formal
claim of deficiency. If the IRS successfully challenges the
Predecessor's S-Corporation status, the Company would be required to
pay federal and certain state income taxes on the Predecessor's taxable
income from the commencement of its operations until February 25, 1993
(plus interest and penalties, if any, thereon until the date of
payment). If the Predecessor was required to pay federal and state
income taxes on its taxable earnings through February 25, 1993, such
payments could amount to approximately $14,400, including interest
through September 30, 1999, but excluding penalties, if any. While the
Company believes the Predecessor has legal authority for its position
that it is not subject to federal and certain state income taxes
because it met the S-Corporation requirements, no assurances can be
given that the Predecessor's position will be upheld. No provision has
been made for this contingency in the accompanying condensed
consolidated financial statements.
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 or results of operations of the
Company.
10
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
6. SUBSIDIARY GUARANTORS
The $22,242 outstanding Mortgage Notes are unconditionally
guaranteed, on a joint and several basis, by the following wholly-owned
subsidiaries of the Company: Alton Gaming Company, The Missouri Gaming
Company, The St. Louis Gaming Company, Iowa Gaming Company, Jazz
Enterprises, Inc., Argosy of Louisiana, Inc., Catfish Queen Partnership
in Commendam and the Indiana Gaming Company (the "Guarantors"). The
Mortgage Notes are secured, subject to certain prior liens, by a first
lien on (i) substantially all of the assets of the Company including
the assets used in the Company's Alton, Riverside, Baton Rouge and
Sioux City operations, (ii) a pledge of all the capital stock of, and
partnership interests in, the Company's subsidiaries, excluding the
Company's partnership interest in its Sioux City property, (iii) a
pledge of the intercompany notes payable to the Company from its
subsidiaries and (iv) an assignment of the proceeds of the management
agreement relating to the Lawrenceburg Casino project. The collateral
for the Mortgage Notes does not include assets of the Indiana
Partnership.
The Credit Facility is secured by a second 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. All of the Company's wholly-owned
operating subsidiaries guarantee the Subordinated Notes. 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 and the subsidiary guarantees will rank junior to the
senior indebtedness of the subsidiary guarantors.
The following tables present summarized balance sheet
information of the Company as of September 30, 1999 and December 31,
1998 and summarized operating statement information for the nine and
three months ended September 30, 1999 and 1998. The column labeled
"Parent Company" represents the holding company for each of the
Company's direct subsidiaries, the column labeled "Guarantors"
represents each of the Company's direct subsidiaries, all of which are
wholly-owned by the parent company, and the column labeled
"Non-Guarantors" represents the partnerships which operate the
Company's casinos in Sioux City, Iowa and Lawrenceburg, Indiana. The
Company believes that separate financial statements and other
disclosures regarding the Guarantors, except as otherwise required
under Regulation S-X, are not material to investors.
11
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, 1999 and
December 31, 1998 is as follows:
SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ------------ ----------- ------------ ------------
ASSETS:
Current assets $ 34,458 $ 22,529 $ 24,187 $ (8,200) $ 72,974
Non-current assets 336,922 360,172 222,528 (462,825) 456,797
--------- --------- --------- --------- ---------
371,380 382,701 246,715 (471,025) $ 529,771
========= ========= ========= ========= =========
LIABILITIES AND EQUITY:
Current liabilities $ 36,557 $ 92,494 $ 57,949 $ (80,769) $ 106,231
Non-current liabilities 302,000 183,751 72,368 (167,402) 390,717
Stockholders' equity 32,823 106,456 116,398 (222,854) 32,823
--------- --------- --------- --------- ---------
$ 371,380 $ 382,701 $ 246,715 $(471,025) $ 529,771
========= ========= ========= ========= =========
DECEMBER 31, 1998
----------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ----------- ------------- -------------
ASSETS:
Current assets $ 55,896 $ 22,236 $ 29,585 $ (8,461) $ 99,256
Non-current assets 347,441 360,354 227,439 (471,738) 463,496
--------- --------- --------- --------- ---------
$ 403,337 $ 382,590 $ 257,024 $(480,199) $ 562,752
========= ========= ========= ========= =========
LIABILITIES AND EQUITY:
Current liabilities $ 7,134 $ 47,507 $ 59,116 $ (42,372) $ 71,385
Non-current liabilities 350,000 269,878 111,208 (285,922) 445,164
Convertible preferred stock 5,340 - - - 5,340
Stockholders' equity 40,863 65,205 86,700 (151,905) 40,863
--------- --------- --------- --------- ---------
$ 403,337 $ 382,590 $ 257,024 $(480,199) $ 562,752
========= ========= ========= ========= =========
12
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, 1999 and 1998 is as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ --------------- --------------
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 shareholders (13,517) 34,833 57,964 (92,797) (13,517)
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ --------------- --------------
Net revenues $ 1,582 $ 158,662 $ 224,291 $ (10,845) $ 373,690
Costs and expenses 8,012 139,777 166,987 (1,824) 312,952
Net interest expense (income) 28,722 (3,875) 15,033 659 40,539
Net income (loss) attributable
to common shareholders 1,723 6,358 37,984 (44,342) 1,723
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ --------------- --------------
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 (income) 6,918 49 3,081 - 10,048
Net income (loss) attributable
to common shareholders 10,658 14,671 21,657 (36,328) 10,658
THREE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ --------------- --------------
Net revenues $ 1,502 $ 46,621 $ 84,175 $ 1,235 $ 133,533
Costs and expenses 2,912 41,398 64,724 (1,198) 107,836
Net interest expense (income) 9,691 (1,235) 5,237 1 13,694
Net income (loss) attributable
to common shareholders 4,016 (3,470) 16,660 (13,190) 4,016
13
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 5,162 $ 4,383
Other current assets 1,659 1,727
------- -------
Total current assets 6,821 6,110
DUE FROM AFFILIATES 9,440 10,046
NET PROPERTY AND EQUIPMENT 28,332 26,808
OTHER ASSETS 2 2
------- -------
TOTAL ASSETS $44,595 $42,966
======= =======
CURRENT LIABILITIES:
Accounts payable $ 1,375 $ 1,597
Other current liabilities 7,462 4,624
------- -------
Total current liabilities 8,837 6,221
------- -------
OTHER LONG-TERM OBLIGATIONS 214 201
DEFERRED INCOME TAXES 2,958 3,201
STOCKHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares authorized, issued
and outstanding 1 1
Capital in excess of par 256 256
Retained earnings 32,329 33,086
------- -------
Total stockholder's equity 32,586 33,343
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $44,595 $42,966
======= =======
See accompanying notes to condensed financial statements.
14
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
-------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 61,457 $ 51,540
Food, beverage and other 4,760 5,006
-------- --------
66,217 56,546
Less promotional allowances (2,114) (1,752)
-------- --------
Net revenues 64,103 54,794
-------- --------
COSTS AND EXPENSES:
Casino 27,586 24,140
Food, beverage and other 3,735 4,399
Other operating expenses 4,251 4,099
Selling, general and administrative 8,966 8,607
Depreciation and amortization 3,100 2,956
Management fees - related party 2,490 1,491
-------- --------
50,128 45,692
-------- --------
Income from operations 13,975 9,102
-------- --------
OTHER INCOME (EXPENSE):
Interest income 158 53
Interest expense (83) (33)
-------- --------
75 20
-------- --------
Income before income taxes 14,050 9,122
Income tax expense (5,546) (3,634)
-------- --------
NET INCOME $ 8,504 $ 5,488
======== ========
See accompanying notes to condensed financial statements.
15
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- --------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 23,438 $ 17,223
Food, beverage and other 1,686 1,668
-------- --------
25,124 18,891
Less promotional allowances (791) (545)
-------- --------
Net revenues 24,333 18,346
-------- --------
Costs and expenses:
Casino 10,237 8,090
Food, beverage and other 1,347 1,434
Other operating expenses 1,403 1,407
Selling, general and administrative 3,114 2,889
Depreciation and amortization 1,053 1,012
Management fees - related party 1,153 484
-------- --------
18,307 15,316
-------- --------
Income from operations 6,026 3,030
-------- --------
OTHER INCOME (EXPENSE):
Interest income 63 12
Interest expense (30) (25)
-------- --------
33 (13)
-------- --------
Income before income taxes 6,059 3,017
Income tax expense (2,419) (1,244)
-------- --------
NET INCOME $ 3,640 $ 1,773
======== ========
See accompanying notes to condensed financial statements.
16
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,504 $ 5,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 313 97
Depreciation 2,787 2,859
Deferred income taxes (361) (422)
Changes in operating assets and liabilities:
Other current assets (127) (100)
Accounts payable (222) 739
Income taxes payable to affiliate 743 4,056
Other accrued liabilities 2,095 1,147
-------- --------
Net cash provided by operating activities 13,732 13,864
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,311) (2,753)
-------- --------
Net cash used in investing activities (4,311) (2,753)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates 606 (11,824)
Payment of dividend (9,261) -
Increase in other long-term obligations - related
party 13 11
-------- --------
Net cash used in financing activities (8,642) (11,813)
-------- --------
Net increase (decrease) in cash and cash equivalents 779 (702)
Cash and cash equivalents, beginning of period 4,383 3,807
-------- --------
Cash and cash equivalents, end of period $ 5,162 $ 3,105
======== ========
See accompanying notes to condensed financial statements.
17
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF STOCKHOLDER'S EQUITY
(In Thousands, Except Share and Per Share Data)
(unaudited)
TOTAL
COMMON CAPITAL IN RETAINED STOCKHOLDER'S
SHARES STOCK EXCESS OF PAR EARNINGS EQUITY
-------------- --------- --------------- ------------- ---------------
Balance, December 31, 1998 1,000 $ 1 $ 256 $ 33,086 $ 33,343
Dividends paid - - - (9,261) (9,261)
Net income for the nine months
ended September 30, 1999 - - - 8,504 8,504
-------------- --------- --------------- ------------- ----------------
Balance, September 30, 1999 1,000 $ 1 $ 256 $ 32,329 $ 32,586
============== ========= =============== ============= ================
See accompanying notes to condensed financial statements
18
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alton Gaming Company ("Company"), an Illinois Corporation and
a wholly-owned subsidiary of Argosy Gaming Company ("Argosy"), is
engaged in the business of providing casino-style gaming and related
entertainment to the public through the operation of the Alton Belle
Casino in Alton, Illinois.
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole. For further
information refer to the financial statements and footnotes thereto for
the year ended December 31, 1998 included in Argosy's Annual Report on
Form 10-K (File No. 1-11853). The accompanying unaudited condensed
financial statements contain all adjustments which are, in the opinion
of management, necessary to present fairly the financial position and
results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1998 amounts have been
reclassified to conform to the 1999 financial statement presentation.
2. COMMITMENTS AND CONTINGENCIES
A predecessor entity to the Company ("Predecessor"), as a
result of a certain shareholder loan transaction, could be subject to
federal and certain state income taxes (plus interest and penalties, if
any) if it is determined that it failed to satisfy all of the
requirements of the S-Corporation provisions of the Internal Revenue
Code ("Code") relating to the prohibition concerning a second class of
stock.
An audit is currently being conducted by the Internal Revenue
Service ("IRS") of the Company's federal income tax returns for the
1992 and 1993 tax years and the IRS has identified the S-Corporation
status as one of the issues, although the IRS has yet to make a formal
claim of deficiency. If the IRS successfully challenges the
Predecessor's S-Corporation status, the Company would be required to
pay federal and certain state income taxes on the Predecessor's taxable
income from the commencement of its operations until February 25, 1993
(plus interest and penalties, if any, thereon until the date of
payment). If the Predecessor was required to pay federal and certain
state income taxes on its taxable earnings through February 25, 1993,
such payments could amount to approximately $14.4 million, including
interest through September 30, 1999, but excluding penalties, if any.
While the Company believes the Predecessor has legal authority for its
position that it is not subject to federal and certain state income
taxes because it met the S-Corporation requirements, no assurances can
be given that the Predecessor's position will be upheld. No provision
has been made for this contingency in the accompanying condensed
financial statements.
In June 1996, Argosy issued $235 million of 13 1/4% First
Mortgage Notes, due 2004 ("Mortgage Notes"). The assets of the Company
are pledged as collateral, and the Company is a guarantor, under the
terms of the Mortgage Notes. As part of a refinancing, in June 1999,
Argosy retired through a tender offer $212.7 million of its Mortgage
Notes and at September 30, 1999, $22.2 million of the Mortgage Notes
remain outstanding. On June 8, 1999, Argosy issued $200 million of
Senior Subordinated Notes due 2009 ("Subordinated Notes") and entered
into a five year, $200 million Senior Secured revolving bank credit
agreement ("Credit Facility"). The Company is a named borrower under
the Credit Facility and borrowings are secured by substantially all the
assets of the Company. The Company is a guarantor, under the terms of
the Subordinated Notes. The Subordinated Notes rank junior to all of
the senior indebtedness of Argosy, including borrowings under the
Credit Facility.
19
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 3,730 $ 3,905
Other current assets 955 1,671
------------------ -----------------
Total current assets 4,685 5,576
NET PROPERTY AND EQUIPMENT 64,550 66,819
OTHER ASSETS 1,000 1,134
------------------ -----------------
TOTAL ASSETS $ 70,235 $ 73,529
================== =================
CURRENT LIABILITIES:
Accounts payable $ 1,207 $ 1,405
Other accrued liabilities 7,321 4,414
------------------ -----------------
Total current liabilities 8,528 5,819
------------------ -----------------
DUE TO AFFILIATES 40,020 49,056
DEFERRED INCOME TAXES 2,146 2,260
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares authorized, issued
and outstanding - -
Capital in excess of par 5,000 5,000
Retained earnings 14,541 11,394
------------------ -----------------
Total stockholder's equity 19,541 16,394
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 70,235 $ 73,529
================== =================
See accompanying notes to condensed financial statements.
20
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
-------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------------- --------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 61,680 $ 53,067
Food, beverage and other 8,186 8,514
-------- --------
69,866 61,581
Less promotional allowances (4,584) (4,818)
-------- --------
Net revenues 65,282 56,763
-------- --------
COSTS AND EXPENSES:
Casino 30,707 28,432
Food, beverage and other 6,064 6,527
Other operating expenses 3,500 3,383
Selling, general and administrative 11,962 10,707
Depreciation and amortization 4,325 4,478
-------- --------
56,558 53,527
-------- --------
Income from operations 8,724 3,236
-------- --------
OTHER INCOME (EXPENSE):
Interest income 24 38
Interest expense (3,550) (3,405)
-------- --------
(3,526) (3,367)
-------- --------
Income (loss) before income taxes 5,198 (131)
Income tax (expense) benefit (2,051) 7
-------- --------
NET INCOME (LOSS) $ 3,147 $ (124)
======== ========
See accompanying notes to condensed financial statements.
21
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------------- ---------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 21,685 $ 17,712
Food, beverage and other 2,649 2,521
-------- --------
24,334 20,233
Less promotional allowances (1,475) (1,330)
-------- --------
Net revenues 22,859 18,903
-------- --------
COSTS AND EXPENSES:
Casino 10,668 9,157
Food, beverage and other 2,014 1,883
Other operating expenses 1,337 1,187
Selling, general and adminsitrative 3,952 3,368
Depreciation and amortization 1,421 1,447
-------- --------
19,392 17,042
-------- --------
Income from operations 3,467 1,861
-------- --------
OTHER INCOME (EXPENSE):
Interest income 10 13
Interest expense (1,282) (1,067)
-------- --------
(1,272) (1,054)
-------- --------
Income before income taxes 2,195 807
Income tax expense (892) (346)
-------- --------
NET INCOME $ 1,303 $ 461
======== ========
See accompanying notes to condensed financial statements.
22
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---------------- ----------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,147 $ (124)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 4,205 4,358
Amortization 120 120
Deferred income taxes (23) 227
Changes in operating assets and liabilities:
Other current assets 625 76
Other assets 14 749
Accounts payable (198) (382)
Other accrued liabilities 3,172 1,099
-------- --------
Net cash provided by operating activities 11,062 6,123
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,936) (1,140)
-------- --------
Net cash used in investing activities (1,936) (1,140)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (265) (118)
Due to affiliates (9,036) (4,711)
-------- --------
Net cash used in financing activities (9,301) (4,829)
-------- --------
Net (decrease) increase in cash and cash equivalents (175) 154
Cash and cash equivalents, beginning of period 3,905 3,629
-------- --------
Cash and cash equivalents, end of period $ 3,730 $ 3,783
======== ========
See accompanying notes to condensed financial statements.
23
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Missouri Gaming Company ("Company") (a Missouri
corporation and a wholly owned subsidiary of Argosy Gaming Company,
("Argosy")) owns and operates a riverboat casino and related facilities
in Riverside, Missouri.
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole. For further
information refer to the financial statements and footnotes thereto for
the year ended December 31, 1998 included in Argosy's Annual Report on
Form 10-K (File No. 1-11853). The accompanying unaudited condensed
financial statements contain all adjustments which are, in the opinion
of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1998 amounts have been
reclassified to conform to the 1999 presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company is restricted from making certain distributions to
Argosy and other affiliates unless approved by state gaming
authorities.
In June 1996, Argosy issued $235 million of 13 1/4% First
Mortgage Notes, due 2004 ("Mortgage Notes"). The assets of the Company
are pledged as collateral, and the Company is a guarantor, under the
terms of the Mortgage Notes. As part of a refinancing, in June 1999,
Argosy retired through a tender offer $212.7 million of its Mortgage
Notes and at September 30, 1999, $22.2 million of the Mortgage Notes
remain outstanding. On June 8, 1999, Argosy issued $200 million of
Senior Subordinated Notes due 2009 ("Subordinated Notes") and entered
into a five year, $200 million Senior Secured revolving bank credit
agreement ("Credit Facility"). The Company is a named borrower under
the Credit Facility and borrowings are secured by substantially all the
assets of the Company. The Company is a guarantor, under the terms of
the Subordinated Notes. The Subordinated Notes rank junior to all of
the senior indebtedness of Argosy, including borrowings under the
Credit Facility.
24
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 4,208 $ 3,025
Other current assets 2,204 1,595
-------- --------
Total current assets 6,412 4,620
NET PROPERTY AND EQUIPMENT 40,378 39,670
OTHER ASSETS 1,623 1,713
-------- --------
TOTAL ASSETS $ 48,413 $ 46,003
======== ========
CURRENT LIABILITIES:
Accounts payable $ 663 $ 595
Due to affiliates 7,095 3,149
Other accrued liabilities 5,690 4,653
Accrued interest - related party 3,356 2,304
Current maturities of long-term debt-related party 13,349 13,349
-------- --------
Total current liabilities 30,153 24,050
-------- --------
LONG-TERM DEBT-RELATED PARTY 34,709 34,709
DEFERRED INCOME TAXES 432 432
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 1,121 1,484
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares authorized, issued
and outstanding 1 1
Accumulated deficit (18,003) (14,673)
-------- --------
Total stockholder's deficit (18,002) (14,672)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 48,413 $ 46,003
======== ========
See accompanying notes to condensed consolidated financial statements.
25
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 38,825 $ 35,812
Food, beverage and other 3,693 4,733
-------- --------
42,518 40,545
Less promotional allowances (2,417) (2,960)
-------- --------
Net revenues 40,101 37,585
-------- --------
COSTS AND EXPENSES:
Casino 22,868 22,058
Food, beverage and other 3,299 4,372
Other operating expenses 3,709 3,759
Selling, general and administrative 8,764 8,759
Depreciation and amortization 4,131 3,932
-------- --------
42,771 42,880
-------- --------
Loss from operations (2,670) (5,295)
-------- --------
INTEREST (EXPENSE) INCOME NET:
Interest to related party (1,052) (1,052)
Other 29 56
-------- --------
(1,023) (996)
-------- --------
Loss before minority interest (3,693) (6,291)
Minority interest 363 612
-------- --------
NET LOSS $ (3,330) $ (5,679)
======== ========
See accompanying notes to condensed consolidated financial statements.
26
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS
ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 14,510 $ 11,527
Food, beverage and other 1,270 1,400
-------- --------
15,780 12,927
Less promotional allowances (879) (885)
-------- --------
Net revenues 14,901 12,042
-------- --------
COSTS AND EXPENSES:
Casino 8,308 7,322
Food, beverage and other 1,141 1,367
Other operating expenses 1,331 1,189
Selling, general and administrative 3,199 2,616
Depreciation and amortization 1,341 1,326
-------- --------
15,320 13,820
-------- --------
Loss from operations (419) (1,778)
-------- --------
INTEREST (EXPENSE) INCOME NET:
Interest to related party (351) (354)
Other 2 24
-------- --------
(349) (330)
-------- --------
Loss before minority interest and income taxes (768) (2,108)
Minority interest 74 206
Income tax expense - (82)
-------- --------
NET LOSS $ (694) $ (1,984)
======== ========
See accompanying notes to condensed consolidated financial statements.
27
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
Nine Months Ended
-----------------------------------
September 30, September 30,
1999 1998
--------------- ---------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,330) $(5,679)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 4,050 3,851
Amortization 81 81
Loss on disposal of fixed assets 127 -
Minority interest (363) (612)
Changes in operating assets and liabilities:
Other current assets (610) (181)
Accounts payable 68 (353)
Accrued interest to related parties 1,052 1,052
Other accrued liabilities 1,144 919
------- -------
Net cash provided by (used in) operating 2,219 (922)
activities ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,885) (776)
------- -------
Net cash used in investing activities (4,885) (776)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (106) (161)
Increase in due to affiliates 3,946 1,067
Increase (decrease) in other assets 9 (54)
------- -------
Net cash provided by financing activities 3,849 852
------- -------
Net increase (decrease) in cash and cash equivalents 1,183 (846)
Cash and cash equivalents, beginning of period 3,025 3,429
------- -------
Cash and cash equivalents, end of period $ 4,208 $ 2,583
======= =======
See accompanying notes to condensed consolidated financial statements.
28
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Argosy of Louisiana, Inc. (collectively with its controlled
partnership Catfish Queen Partnership in Commendam ("Partnership") "the
Company") was formed on July 29, 1993. The Company entered a
partnership agreement with Jazz Enterprises, Inc. ("Jazz") to form the
Partnership to provide riverboat gaming and related entertainment in
Baton Rouge, Louisiana. The Company is the 90% general partner of the
Partnership, along with the 10% partner in commendam Jazz. Both the
Company and Jazz are wholly owned subsidiaries of Argosy Gaming Company
("Argosy").
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Interim results may not necessarily be indicative of results which may
be expected for any other interim period or for the year as a whole.
For further information refer to the financial statements and footnotes
thereto for the year ended December 31, 1998 included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). The accompanying
unaudited condensed consolidated financial statements contain all
adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations for
the periods indicated. Such adjustments include only normal recurring
accruals. Certain 1998 amounts have been reclassified to conform to the
1999 presentation.
2. COMMITMENTS
In June 1996, Argosy issued $235 million of 13 1/4% First
Mortgage Notes, due 2004 ("Mortgage Notes"). The assets of the Company
are pledged as collateral, and the Company is a guarantor, under the
terms of the Mortgage Notes. As part of a refinancing, in June 1999,
Argosy retired through a tender offer $212.7 million of its Mortgage
Notes and at September 30, 1999, $22.2 million of the Mortgage Notes
remain outstanding. On June 8, 1999, Argosy issued $200 million of
Senior Subordinated Notes due 2009 ("Subordinated Notes") and entered
into a five year, $200 million Senior Secured revolving bank credit
agreement ("Credit Facility"). The Company is a named borrower under
the Credit Facility and borrowings are secured by substantially all the
assets of the Company. The Company is a guarantor, under the terms of
the Subordinated Notes. The Subordinated Notes rank junior to all of
the senior indebtedness of Argosy, including borrowings under the
Credit Facility.
29
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 4,208 $ 3,025
Other current assets 1,374 764
------- -------
Total current assets 5,582 3,789
NET PROPERTY AND EQUIPMENT 40,378 39,670
OTHER ASSETS 1,623 1,713
------- -------
TOTAL ASSETS $47,583 $45,172
======= =======
CURRENT LIABILITIES:
Accounts payable $ 663 $ 595
Other accrued liabilities 5,561 4,591
Accrued interest - related party 3,356 2,304
Due to affiliates 7,095 3,149
Notes payable and current maturities of long-term
debt-related party 13,349 13,349
------- -------
Total current liabilities 30,024 23,988
------- -------
LONG-TERM DEBT-RELATED PARTY 6,022 6,022
PARTNERS' EQUITY 11,537 15,162
------- -------
TOTAL LIABILITIES AND PARTNERS' EQUITY $47,583 $45,172
======= =======
See accompanying notes to condensed financial statements.
30
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 38,825 $ 35,812
Food, beverage and other 3,693 4,733
-------- --------
42,518 40,545
Less promotional allowances (2,417) (2,960)
-------- --------
Net revenues 40,101 37,585
-------- --------
COSTS AND EXPENSES:
Casino 22,868 22,058
Food, beverage and other 3,299 4,372
Other operating expenses 3,709 3,759
Selling, general and administrative 8,696 8,579
Depreciation and amortization 4,131 3,932
-------- --------
42,703 42,700
-------- --------
Loss from operations (2,602) (5,115)
-------- --------
INTEREST (EXPENSE) INCOME NET:
Related parties (1,052) (1,052)
Other 29 46
-------- --------
(1,023) (1,006)
-------- --------
NET LOSS $ (3,625) $ (6,121)
======== ========
See accompanying notes to condensed financial statements.
31
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS
ENDED
--------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 14,510 $ 11,527
Food, beverage and other 1,270 1,400
-------- --------
15,780 12,927
Less promotional allowances (879) (885)
-------- --------
Net revenues 14,901 12,042
-------- --------
COSTS AND EXPENSES:
Casino 8,308 7,322
Food, beverage and other 1,141 1,367
Other operating expenses 1,331 1,189
Selling, general and administrative 3,176 2,556
Depreciation and amortization 1,341 1,326
-------- --------
15,297 13,760
-------- --------
Loss from operations (396) (1,718)
-------- --------
INTEREST (EXPENSE) INCOME NET:
Related parties (351) (354)
Other 2 14
-------- --------
(349) (340)
-------- --------
NET LOSS $ (745) $ (2,058)
======== ========
See accompanying notes to condensed financial statements.
32
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,625) $(6,121)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 4,050 3,851
Amortization 81 81
Loss on disposal of fixed assets 127 -
Changes in operating assets and liabilities:
Other current assets (610) (203)
Accounts payable 68 (353)
Accrued interest to related parties 1,052 1,052
Other accrued liabilities 1,076 717
------- -------
Net cash provided by (used in) operating
activities 2,219 (976)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,885) (776)
------- -------
Net cash used in investing activities (4,885) (776)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (106) (161)
Increase in due to affiliates 3,946 1,067
Decrease in other assets 9 -
------- -------
Net cash provided by financing activities 3,849 906
------- -------
Net increase (decrease) in cash and cash equivalents 1,183 (846)
Cash and cash equivalents, beginning of period 3,025 3,429
------- -------
Cash and cash equivalents, end of period $ 4,208 $ 2,583
======= =======
See accompanying notes to condensed financial statements.
33
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Catfish Queen Partnership in Commendam ("Partnership")
provides riverboat gaming and related entertainment in Baton Rouge,
Louisiana. The Partnership is comprised of a 90% general partner,
Argosy of Louisiana, Inc. ("General Partner"), and a 10% partner in
commendam, Jazz Enterprises, Inc. ("Jazz") both wholly owned
subsidiaries of Argosy Gaming Company ("Argosy").
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole. For further
information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1998, included in Argosy's Annual
Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed financial statements contain all adjustments which are, in
the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals. Certain 1998
amounts have been reclassified to conform to the 1999 presentation.
2. COMMITMENTS
In June 1996, Argosy issued $235 million of 13 1/4% First
Mortgage Notes, due 2004 ("Mortgage Notes"). The assets of the
Partnership are pledged as collateral, and the Partnership is a
guarantor, under the terms of the Mortgage Notes. As part of a
refinancing, in June 1999, Argosy retired through a tender offer $212.7
million of its Mortgage Notes and at September 30, 1999, $22.2 million
of the Mortgage Notes remain outstanding. On June 8, 1999, Argosy
issued $200 million Senior Secured Subordinated Notes due 2009
("Subordinated Notes') and entered into a five year, $200 million
Senior Secured revolving bank credit agreement ("Credit Facility"). The
Partnership is a named borrower under the Credit Facility and
borrowings are secured by substantially all of the assets of the
Partnership. The Partnership is a guarantor, under the terms of the
Subordinated Notes. The Subordinated Notes rank junior to all of the
senior indebtedness of Argosy, including borrowings under the Credit
Facility.
34
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------ -----------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 36 $ -
Other current assets 145 110
-------- --------
Total current assets 181 110
NET PROPERTY AND EQUIPMENT 51,156 52,733
GOODWILL, NET 18,878 19,325
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 1,292 1,636
-------- --------
TOTAL ASSETS $ 73,399 $ 75,696
======== ========
CURRENT LIABILITIES:
Accounts payable and accrued liablities $ 3,247 $ 2,843
Current maturities of long-term debt 545 545
-------- --------
Total current liabilities 3,792 3,388
-------- --------
LONG-TERM DEBT 6,088 6,552
LONG-TERM DEBT-RELATED PARTY 75,865 75,625
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares
authorized, 200 shares issued and outstanding - -
Accumulated deficit (12,346) (9,869)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 73,399 $ 75,696
======== ========
See accompanying notes to condensed financial statements.
35
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ -----------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue $ 2,332 $ 2,174
Rent revenue 275 262
------- -------
2,607 2,436
------- -------
COSTS AND EXPENSES:
Operating expenses 814 834
Selling, general and adminsitrative 1,273 2,396
Depreciation and amortization 2,026 1,854
------- -------
4,113 5,084
------- -------
Loss from operations (1,506) (2,648)
------- -------
OTHER EXPENSE:
Interest expense (609) (650)
Equity in loss of unconsolidated partnership (362) (612)
------- -------
NET LOSS $(2,477) $(3,910)
======= =======
See accompanying notes to condensed financial statements.
36
JAZZ ENTEREPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue $ 869 $ 692
Rent revenue 92 88
------- -------
961 780
------- -------
COSTS AND EXPENSES:
Operating expenses 247 222
Selling, general and adminsitrative 462 569
Depreciation and amortization 675 588
------- -------
1,384 1,379
------- -------
Loss from operations (423) (599)
------- -------
OTHER EXPENSE:
Interest expense (199) (213)
Equity in loss of unconsolidated partnership (75) (206)
------- -------
NET LOSS $ (697) $(1,018)
======= =======
See accompanying notes to condensed financial statements.
37
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ---------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,477) $(3,911)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,579 1,317
Amortization 447 537
Equity in loss of unconsolidated partnership 362 612
Changes in operating assets and liabilities:
Other current assets (35) (218)
Accounts payable and accrued liabilities 404 269
------- -------
Net cash provided by (used in) operating
activities 280 (1,394)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (15)
------- -------
Net cash used in investing activities - (15)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (464) (421)
Advances from affiliate 240 888
(Decrease) increase in other assets (20) 922
------- -------
Net cash (used in) provided by financing
activities (244) 1,389
------- -------
Net increase (decrease) in cash and cash equivalents 36 (20)
Cash and cash equivalents, beginning of period - 20
------- -------
Cash and cash equivalents, end of period $ 36 $ -
======= =======
See accompanying notes to condensed financial statements.
38
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jazz Enterprises, Inc. ("Jazz" or "the Company") a Louisiana
corporation and a wholly owned subsidiary of Argosy Gaming Company
("Argosy") was incorporated for the purpose of developing a riverboat
gaming operation and an entertainment complex known as "Catfish Town"
in Baton Rouge, Louisiana.
The Company entered into a partnership ("Partnership") with
Argosy of Louisiana, Inc. (a wholly owned subsidiary of Argosy) ("ALI")
in which the Company owns 10% and ALI owns 90% to operate a riverboat
casino in Baton Rouge, Louisiana.
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole. For further
information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1998, included in Argosy's Annual
Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed financial statements contain all adjustments which are, in
the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals. Certain 1998
amounts have been reclassed to conform to the 1999 presentation.
2. COMMITMENTS
In June 1996, Argosy issued $235 million of 13 1/4% First
Mortgage Notes, due 2004 ("Mortgage Notes"). The assets of the Company
are pledged as collateral, and the Company is a guarantor, under the
terms of Mortgage Notes. As part of a refinancing, in June 1999, Argosy
retired through a tender offer $212.7 million of its Mortgage Notes and
at September 30, 1999, $22.2 million of the Mortgage Notes remain
outstanding. On June 8, 1999, Argosy issued $200 million of Senior
Subordinated Notes due 2009 ("Subordinated Notes") and entered into a
five year, $200 million Senior Secured revolving bank credit agreement
("Credit Facility"). The Company is a named borrower under the Credit
Facility and borrowings are secured by substantially all the assets of
the Company. The Company is a guarantor, under the terms of the
Subordinated Notes. The Subordinated Notes rank junior to all of the
senior indebtedness of Argosy, including borrowings under the Credit
Facility.
39
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------------- ---------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 20,277 $ 25,491
Other current assets 1,690 1,603
-------- --------
Total current assets 21,967 27,094
-------- --------
NET PROPERTY AND EQUIPMENT 189,674 194,731
-------- --------
OTHER ASSETS:
Intangible assets 28,470 29,566
Other 397 722
-------- --------
Total other assets 28,867 30,288
-------- --------
TOTAL ASSETS $240,508 $252,113
======== ========
CURRENT LIABILITIES:
Accounts payable $ 3,054 $ 1,974
Accrued interest and dividends payable-related parties 528 2,183
Other accrued liabilities 27,724 26,393
Current maturites of long-term debt 11,292 11,095
Income taxes payable 42,672 24,534
-------- --------
Total current liabilities 85,270 66,179
-------- --------
LONG-TERM DEBT 48,971 118,933
MINORITY INTERESTS 41,682 30,516
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares authorized,
issued and outstanding - -
Retained earnings 64,585 36,485
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $240,508 $252,113
======== ========
See accompanying notes to condensed consolidated financial statements.
40
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------------- ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 230,307 $ 192,101
Admissions 14,013 11,781
Food, beverage and other 24,817 17,294
--------- ---------
269,137 221,176
Less promotional allowances (21,033) (14,295)
--------- ---------
Net revenues 248,104 206,881
--------- ---------
COSTS AND EXPENSES:
Casino 94,542 81,011
Food, beverage and other 16,217 13,586
Other operating expenses 6,261 6,236
Selling, general and administrative 38,724 30,669
Depreciation and amortization 10,235 9,270
Management fees - related parties 4,618 3,687
--------- ---------
170,597 144,459
--------- ---------
Income from operations 77,507 62,422
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 219 1,015
Interest expense (5,578) (7,867)
--------- ---------
(5,359) (6,852)
--------- ---------
Income before minority interest and income taxes 72,148 55,570
Minority interest (25,352) (17,815)
Income tax expense (18,696) (15,187)
--------- ---------
NET INCOME $ 28,100 $ 22,568
========= =========
See accompanying notes to condensed consolidated financial statements.
41
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 80,293 $ 72,036
Admissions 5,057 4,581
Food, beverage and other 9,158 7,571
-------- --------
94,508 84,188
Less promotional allowances (7,693) (6,118)
-------- --------
Net revenues 86,815 78,070
-------- --------
COSTS AND EXPENSES:
Casino 32,702 30,086
Food, beverage and other 5,708 5,316
Other operating expenses 2,119 2,132
Selling, general and administrative 13,903 10,313
Depreciation and amortization 3,473 3,323
Management fees - related parties 1,619 1,511
-------- --------
59,524 52,681
-------- --------
Income from operations 27,291 25,389
-------- --------
OTHER INCOME (EXPENSE):
Interest income 63 250
Interest expense (1,410) (2,653)
-------- --------
(1,347) (2,403)
-------- --------
Income before minority interest and income taxes 25,944 22,986
Minority interest (9,288) (7,638)
Income tax expense (6,586) (6,189)
-------- --------
NET INCOME $ 10,070 $ 9,159
======== ========
See accompanying notes to condensed consolidated financial statements.
42
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $28,100 $22,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,139 8,234
Amortization 1,096 1,036
Deferred income taxes 305 1,603
Minority interests 25,352 17,815
Changes in operating assets and liabilities:
Other current assets 54 13
Accounts payable 1,080 (2,983)
Accrued interest and dividends payable-related parties (201) (1,674)
Income taxes payable 18,138 18,619
Accrued liabilities 3,289 8,018
--------------- ---------------
Net cash provided by operating activities 86,352 73,249
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow -- 13,114
Purchases of property and equipment (4,518) (25,801)
Other 317 (3,750)
--------------- ---------------
Net cash used in investing activities (4,201) (16,437)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (1,961) (2,111)
Repayment of long-term debt (55,431) (40,872)
Repayment of partner loans (14,334) (15,032)
Payment of preferred equity return to partner (3,052) (2,709)
Partnership equity distributions (10,919) (7,438)
Repayment of partner capital contribution (1,668) --
--------------- ---------------
Net cash used in financing activities (87,365) (68,162)
--------------- ---------------
Net decrease in cash and cash equivalents (5,214) (11,350)
Cash and cash equivalents, beginning of period 25,491 41,257
--------------- ---------------
Cash and cash equivalents, end of period $20,277 $29,907
=============== ===============
See accompanying notes to condensed consolidated financial statements.
43
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Indiana Gaming Company, a wholly owned subsidiary of
Argosy Gaming Company ("Argosy") (collectively with its controlled
partnership Indiana Gaming Company L.P. ("Partnership" or the
"Company") was formed effective April 11, 1994 to provide riverboat
gaming and related entertainment in Lawrenceburg, Indiana. The Company
is a 57.5% general partner in the Partnership, together with, three
limited partners including, Conseco Entertainment, L.L.C., ("Conseco")
a 29% limited partner and Centaur, Inc., a 13.5% limited partner.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Interim results may not necessarily be indicative of results which may
be expected for any other interim period or for the year as a whole.
For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1998, included in
Argosy's Annual Report on Form 10-K (File No. 1-11853). The
accompanying unaudited condensed financial statements contain all
adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations for
the periods indicated. Such adjustments include only normal recurring
accruals. Certain 1998 amounts have been reclassified to conform to the
1999 presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS - In
accordance with the terms of a Development Agreement, the Company
entered into a lease with the City of Lawrenceburg for docking
privileges for its riverboat casino. The initial term of the lease is
for six years and thereafter automatically extends for up to nine
renewal term periods of five years each, unless terminated by the
Company. Under the terms of the Development Agreement, the Company pays
an annual fee to the City of Lawrenceburg ranging from 5%-14% of
Adjusted Gross Receipts, as defined, with a minimum of $6 million per
year.
BONDING OBLIGATION - The Company is required, by Indiana
Gaming Statute, to post a bond in favor of the Indiana Gaming
Commission to collateralize certain obligations to the City of
Lawrenceburg under the Development Agreement, and to the State of
Indiana. This bond is collateralized by certain real estate of the
Company.
TERMINATION OF LAWRENCEBURG PARTNERSHIP - Under the terms of
the partnership agreement, after December 10, 1999, each limited
partner has the right to sell its interest to the other partners (pro
rata in accordance with their respective percentage interests). In the
event of this occurrence, if the partners cannot agree on a selling
price, the Partnership will be sold in its entirety.
GUARANTY OF PARENT OBLIGATIONS - In June 1996, Argosy issued
$235 million of 13 1/4% First Mortgage Notes, due 2004 ("Mortgage
Notes"). The assets of the Company are pledged as collateral, and the
Company is a guarantor, under the terms of the Mortgage Notes. As part
of a refinancing, in June 1999, Argosy retired through a tender offer
$212.7 million of its Mortgage Notes and at September 30, 1999, $22.2
million of the Mortgage Notes remain outstanding. On June 8, 1999,
Argosy issued $200 million of Senior Subordinated Notes due 2009
("Subordinated Notes") and entered into a five year, $200 million
Senior Secured revolving bank credit agreement ("Credit Facility"). The
Company is a named borrower under the Credit Facility and borrowings
are secured by substantially all the assets of the Company. The Company
is a guarantor, under the terms of the Subordinated Notes. The
Subordinated Notes rank junior to all of the senior indebtedness of
Argosy, including borrowings under the Credit Facility.
44
THE INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------------- ---------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 20,277 $ 25,491
Other current assets 1,295 1,349
---------------- ---------------
Total current assets 21,572 26,840
---------------- ---------------
NET PROPERTY AND EQUIPMENT 188,453 193,469
---------------- ---------------
OTHER ASSETS:
Deposits 119 --
Intangible assets 28,470 29,566
---------------- ---------------
Total other assets 28,589 29,566
---------------- ---------------
TOTAL ASSETS $238,614 $249,875
================ ===============
CURRENT LIABILITIES:
Accounts payable $ 3,054 $ 2,744
Accrued interest and dividends payable-related parties 1,255 4,475
Other accrued liabilities 27,724 25,450
Due to affiliates 918 945
Current maturities of long term debt 21,674 21,478
---------------- ---------------
Total current liabilities 54,625 55,092
---------------- ---------------
LONG-TERM DEBT 70,666 107,722
PARTNERS' EQUITY:
General partner 71,695 56,592
Limited partners 41,628 30,469
---------------- ---------------
Total partners' equity 113,323 87,061
---------------- ---------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $238,614 $249,875
================ ===============
See accompanying notes to condensed financial statements.
45
THE INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $230,307 $192,101
Admissions 14,013 11,781
Food, beverage and other 24,817 17,294
--------------- ---------------
269,137 221,176
Less promotional allowances (21,033) (14,295)
--------------- ---------------
Net revenues 248,104 206,881
--------------- ---------------
COSTS AND EXPENSES:
Casino 94,542 81,011
Food, beverage and other 16,217 13,586
Other operating expenses 6,261 6,236
Selling, general and administrative 38,724 30,669
Depreciation and amortization 10,194 9,229
Management fees - related parties 11,545 9,422
--------------- ---------------
177,483 150,153
--------------- ---------------
Income from operations 70,621 56,728
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 219 1,015
Interest expense (11,188) (15,826)
--------------- ---------------
(10,969) (14,811)
--------------- ---------------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 59,652 41,917
Preferred equity return (3,770) (4,287)
--------------- ---------------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 55,882 $ 37,630
=============== ===============
See accompanying notes to condensed financial statements.
46
THE INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 80,293 $ 72,036
Admissions 5,057 4,581
Food, beverage and other 9,158 7,571
--------------- ---------------
94,508 84,188
Less promotional allowances (7,693) (6,118)
--------------- ---------------
Net revenues 86,815 78,070
--------------- ---------------
COSTS AND EXPENSES:
Casino 32,702 30,086
Food, beverage and other 5,708 5,316
Other operating expenses 2,119 2,132
Selling, general and administrative 13,903 10,313
Depreciation and amortization 3,459 3,310
Management fees - related parties 4,048 3,778
--------------- ---------------
61,939 54,935
--------------- ---------------
Income from operations 24,876 23,135
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 63 251
Interest expense (3,084) (5,413)
--------------- ---------------
(3,021) (5,162)
--------------- ---------------
NET INCOME PRIOR TO PREFERRED EQUITY RETURN 21,855 17,973
Preferred equity return (1,192) (1,508)
--------------- ---------------
NET INCOME ATTRIBUTABLE TO COMMON EQUITY PARTNERS $ 20,663 $ 16,465
=============== ===============
See accompanying notes to condensed financial statements.
47
THE INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------------- ----------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to common equity partners $ 55,882 $ 37,630
Adjustments to reconcile net income attributable to
common equity partners to net cash provided
by operating activities:
Depreciation 9,098 8,193
Amortization 1,096 1,036
Accrued preferred equity dividends 3,770 4,287
Changes in operating assets and liabilities:
Due from affiliates (27) 506
Other current assets 54 12
Accounts payable 310 (2,983)
Accrued interest and dividends payable-related parties 326 (6,014)
Accrued liabilities 4,235 15,046
-------------- ------------
Net cash provided by operating activities 74,744 57,713
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow - 13,115
Purchases of property and equipment (4,518) (25,801)
Other 317 (3,750)
-------------- ------------
Net cash used in investing activities (4,201) (16,436)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (1,961) (2,111)
Payment of preferred equity return to partner (7,316) (6,372)
Partnership equity distributions (26,372) (17,500)
Repayment of partner capital contribution (3,248) -
Payments on long-term debt and partner loans (36,860) (28,457)
Partner equity contributions - 1,813
-------------- ------------
Net cash used in financing activities (75,757) (52,627)
-------------- ------------
Net decrease in cash and cash equivalents (5,214) (11,350)
Cash and cash equivalents, beginning of period 25,491 41,257
-------------- ------------
Cash and cash equivalents, end of period $ 20,277 $ 29,907
============== ============
48
See accompanying notes to condensed financial statements.
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Indiana Gaming Company, L.P. ("Partnership"), an Indiana
limited partnership, was formed to provide riverboat gaming and related
entertainment in Lawrenceburg, Indiana. The Partnership is comprised of
a 57.5% general partner, The Indiana Gaming Company ("General
Partner"), a wholly owned subsidiary of Argosy Gaming Company
("Argosy") and two limited partners including, Conseco Entertainment,
L.L.C., ("Conseco") a 29% limited partner and Centaur, Inc., a 13.5%
limited partner. Net income (loss) is allocated to the partners based
on their respective ownership interests.
The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any
other interim period or for the year as a whole. For further
information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1998, included in Argosy's Annual
Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed financial statements contain all adjustments which are, in
the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals. Certain 1998
amounts have been reclassified to conform to the 1999 financial
statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS - In
accordance with the terms of a Development Agreement, the Partnership
entered into a lease with the City of Lawrenceburg for docking
privileges for its riverboat casino. The initial term of the lease is
for six years and thereafter automatically extends for up to nine
renewal term periods of five years each, unless terminated by the
Partnership. Under the terms of the Development Agreement, the
Partnership pays an annual fee to the City of Lawrenceburg ranging from
5%-14% of Adjusted Gross Receipts, as defined, with a minimum of $6
million per year.
BONDING OBLIGATION - The Partnership is required, by Indiana
Gaming Statute, to post a bond in favor of the Indiana Gaming
Commission to collateralize certain obligations to the City of
Lawrenceburg under the Development Agreement, and to the State of
Indiana. This bond is collateralized by certain real estate of the
Partnership.
TERMINATION OF LAWRENCEBURG PARTNERSHIP - Under the terms of
the partnership agreement, after December 10, 1999, each limited
partner has the right to sell its interest to the other partners (pro
rata in accordance with their respective percentage interests). In the
event of this occurrence, if the partners cannot agree on a selling
price, the Partnership will be sold in its entirety.
49
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, though its subsidiaries or joint ventures, owns and
operates 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 and Hotel in
Lawrenceburg, Indiana.
The Company's results of operations for the three months ended
September 30, 1999 reflect increases in both revenues and operating income at
all of its casino properties. This improvement is attributed to the Company's
operating strategy, which has been developed with the goal to position the
Company as the premier riverboat casino operator. This strategy includes
capitalizing on management's significant experience and expertise in gaming
industry operations and marketing, developing the Company's marketing strategies
with an emphasis on direct marketing, and prudently investing in gaming and
gaming-related assets for its properties.
The results of operations of the Company's Baton Rouge casino for the
nine months were impacted by the imposition of a head tax. Under the terms of an
agreement with the City of Baton Rouge, the Company was required to pay an
additional head tax of $2.50 per passenger until such time as the Company
commenced construction of a hotel. On July 29, 1999, the Company began
construction on a $20 million, 300 room convention hotel in downtown Baton Rouge
and the additional head tax of $2.50 per passenger ceased. The Company's ability
to recover the carrying amount of its long-lived assets in Baton Rouge is
dependent on several factors including achieving anticipated operating results
and the competitive environment. Although the Company's operating results have
improved through cost efficiencies and following the elimination, on July 1,
1999, of video poker at many competing outlets, if the Company's operations do
not continue to improve, management's evaluation of recoverability could change
and the Company could record an impairment loss amounting to a substantial
portion of its $112 million Baton Rouge investment.
The Company is in a net operating loss carryforward position at
September 30, 1999. The federal tax benefit recorded on the Company's operating
income were offset by valuation allowances due to the uncertainty of
realization. The Company utilized approximately $13.8 million and $9.0 million
of net operating loss carryforwards to offset its federal tax liability for the
nine and three months ended September 30, 1999.
50
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------------- ------------- -------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASINO REVENUES
Alton Belle Casino $ 61,457 $ 51,540 $ 23,438 $ 17,223
Argosy Casino Riverside 61,680 53,067 21,685 17,712
Argosy Casino - Baton Rouge 38,825 35,812 14,510 11,527
Belle of Sioux City Casino 20,045 16,683 7,342 5,832
Argosy Casino & Hotel in Lawrenceburg 230,307 192,101 80,292 72,036
-------- -------- -------- --------
Total $412,314 $349,203 $147,267 $124,330
======== ======== ======== ========
NET REVENUES
Alton Belle Casino $ 64,103 $ 54,794 $ 24,333 $ 18,346
Argosy Casino Riverside 65,282 56,763 22,859 18,903
Argosy Casino - Baton Rouge 40,101 37,585 14,901 12,042
Belle of Sioux City Casino 20,702 17,410 7,572 6,104
Argosy Casino & Hotel in Lawrenceburg 248,104 206,881 86,815 78,070
Other 270 257 89 68
-------- -------- -------- --------
Total $438,562 $373,690 $156,569 $133,533
======== ======== ======== ========
INCOME (LOSS) FROM OPERATIONS (1)
Alton Belle Casino $ 16,465 $ 10,593 $ 7,179 $ 3,514
Argosy Casino Riverside 8,724 3,236 3,467 1,861
Argosy Casino - Baton Rouge (269) (2,941) 473 (1,026)
Belle of Sioux City Casino 3,197 1,326 1,392 534
Argosy Casino & Hotel in Lawrenceburg 77,548 62,463 27,305 25,401
Corporate (3) (11,994) (8,017) (3,641) (2,934)
Jazz (3,838) (4,823) (1,292) (1,291)
Other (994) (1,099) (330) (362)
-------- -------- -------- --------
Total $ 88,839 $ 60,738 $ 34,553 $ 25,697
======== ======== ======== ========
EBITDA (1)(2)
Alton Belle Casino $ 19,565 $ 13,549 $ 8,232 $ 4,527
Argosy Casino Riverside 13,049 7,714 4,888 3,308
Argosy Casino - Baton Rouge 3,862 991 1,814 300
Belle of Sioux City Casino 4,119 2,130 1,728 824
Argosy Casino & Hotel in Lawrenceburg 92,360 75,379 32,383 30,222
Lawrenceburg financial advisory fee (4) (4,618) (3,687) (1,619) (1,511)
Corporate (3) (11,991) (7,466) (3,638) (2,796)
Jazz (1,812) (2,969) (617) (703)
Other 24 (80) 10 (22)
-------- -------- -------- --------
Total $114,558 $ 85,561 $ 43,181 $ 34,149
======== ======== ======== ========
51
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
(1) Income from operations and EBITDA are presented before consideration of
any management fees paid to the Company and in the case of Sioux City
and Lawrenceburg before the 30% and 42.5% minority interests,
respectively.
(2) "EBITDA" is defined as earnings before interest, taxes, depreciation
and amortization and is presented before any management fees paid.
EBITDA should not be construed as an alternative to operating income,
or net income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance, or as an alternative to cash flows generated by operating,
investing and financing activities (as an indicator of cash flow or a
measure of liquidity). EBITDA is presented solely as a supplemental
disclosure because management believes that it is a widely used measure
of operating performance in the gaming industry and for companies with
a significant amount of depreciation and amortization. EBITDA may not
be comparable to similarly titled measures reported by other companies.
The Company has other significant uses of cash flows, including debt
service and capital expenditures, which are not reflected in EBITDA.
(3) Includes expenses related to a severance package and a settlement
agreement of $1.8 million for the nine months ended September 30, 1999.
(4) The Lawrenceburg partnership pays a financial advisory fee equal to
5.0% of its EBITDA to a minority partner.
52
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
CASINO - Casino revenues for the nine months ended September 30, 1999
increased by $63.1 million to $412.3 million from $349.2 million for the nine
months ended September 30, 1998 due primarily to a $38.2 million increase in
casino revenues at the Lawrenceburg casino, which generated total casino
revenues of $230.3 million for the nine months ended September 30, 1999. The
Company's other properties reported an aggregate 16% increase in casino revenues
from $157.1 to $182.0 million. In particular, Alton casino revenues increased
from $51.5 to $61.5 million due in part to the allowance of dockside gaming
effective June 1999, Riverside casino revenues increased from $53.1 to $61.7
million and Sioux City casino revenues increased from $16.7 to $20.0 million.
Baton Rouge casino revenues increased from $35.8 million to $38.8 million due in
part to the elimination in July 1999 of video poker at many non-casino sites in
Baton Rouge. This increase however, was offset by a decrease in casino revenues
due to a major casino renovation undertaken at Baton Rouge, which closed certain
areas of the vessel for most of the second quarter.
Casino expenses increased to $186.0 million for the nine months ended
September 30, 1999 from $165.3 million for the nine months ended September 30,
1998. This increase is primarily due to increased Lawrenceburg casino expenses
of $13.5 million due to an increase in gaming and admission taxes of $9.5
million as a result of the overall increase in Lawrenceburg casino revenues.
Casino expenses at Alton increased $3.4 million due to a $2.5 million increase
in gaming and admission taxes as a result of the overall increase in Alton
casino revenues. Casino expenses at Riverside increased $2.3 million due to a
$1.4 million increase in gaming and admission taxes as a result of the overall
increase in Riverside casino revenues.
ADMISSIONS - Lawrenceburg admissions revenues (net of complimentary
admissions) decreased slightly by $0.3 million to $5.2 million. Although the
number of Lawrenceburg admissions increased, more complimentary admissions were
given to customers as part of the Company's marketing program.
FOOD, BEVERAGE, AND OTHER - Food, beverage and other revenues
increased $5.6 million to $42.9 million for the nine month period ended
September 30, 1999. This increase is attributable to restaurants and the
hotel at the Lawrenceburg property being opened for the entire nine months in
1999. Food, beverage and other net profit improved $5.2 million to $12.4
million for the nine months ended September 30, 1999. Alton, Riverside and
Baton Rouge each reported decreases in food and beverage revenues and
expenses. Alton's decrease was due to the closing of a restaurant during the
entire nine months ended September 30, 1999 in conjunction with a major
renovation. Riverside's and Baton Rouge's decreases were primarily due to the
decreased use of food and beverage as a promotional item.
The Lawrenceburg hotel, which opened in May 1998, contributed $3.2
million in net revenues and $1.5 million of operating profit. Including
promotional allowances, the hotel occupancy was 83% and the average daily
room rate was $84.
OTHER OPERATING EXPENSES - Other operating expenses increased only
slightly by $0.2 million to $20.4 million for the nine months ended September
30, 1999 as compared to the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses increased $14.6 million to $87.1 million for the nine
months ended September 30, 1999 due principally to an increase of $8.1
million at Lawrenceburg primarily related to expanded promotions and
additional payments due to the city due to the increased gaming revenue.
Corporate expenses increased by $4.7 million due to expenses of $1.8 million
related to a severance package and settlement arrangement and expenses
related to incentive compensation.
53
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 $24.8 million for the nine months ended September 30, 1998 to
$25.7 million for the nine months ended September 30, 1999, due to depreciation
on the Lawrenceburg hotel which opened in May 1998.
INTEREST EXPENSE - Net interest expense decreased $4.4 million to $36.1
million for the nine months ended September 30, 1999. This decrease is due to a
decrease in the average debt outstanding and a decrease in the Company's average
interest rate due to the recently completed refinancing and a decrease in
interest expense to a minority partner of $2.3 million.
NET INCOME BEFORE EXTRAORDINARY ITEM - The Company recorded net income
before extraordinary item of $24.9 million for the nine months ended September
30, 1999 compared to net income before extraordinary item of $1.8 million due
primarily to the factors discussed above and the continued effective use of its
marketing and operating strategy.
EXTRAORDINARY LOSS - The Company recorded an extraordinary loss of
$38.4 million for the nine months ended September 30, 1999 related to the
early extinguishment of debt in conjunction with the recently completed
refinancing.
54
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
CASINO - Casino revenues for the three months ended September 30, 1999
increased by $22.9 million to $147.3 million from $124.3 million for the three
months ended September 30, 1998 due primarily to a $8.3 million increase in
casino revenues at the Lawrenceburg casino, which generated total casino
revenues of $80.3 million for the three months ended September 30, 1999. The
Company's other properties reported an aggregate 28% increase in casino revenues
from $52.3 to $67.0 million. In particular, Alton casino revenues increased from
$17.2 to $23.4 million due in part to the allowance of dockside gaming effective
June 1999, Riverside casino revenues increased from $17.7 to $21.7 million,
Baton Rouge casino revenues increased from $11.5 to $14.5 million due in part to
the elimination in July 1999 of video poker at many non casino sites in Baton
Rouge, and Sioux City casino revenues increased from $5.8 to $7.3 million.
Casino expenses increased to $65.6 million for the three months ended
September 30, 1999 from $57.9 million for the three months ended September 30,
1998. This increase is primarily due to increased Lawrenceburg casino expenses
of $2.6 million due to an increase in gaming and admission taxes of $1.9 million
as a result of the overall increase in Lawrenceburg casino revenues. Casino
expenses at Alton and Riverside increased $2.1 million and $1.5 million, due to
an increase in gaming and admission taxes of $1.7 million and $0.8 million,
respectively, as a result of the overall increase in Alton and Riverside casino
revenues.
ADMISSIONS - Lawrenceburg admissions revenues (net of complimentary
admissions) remained approximately the same at $2.0 million. Although the number
of Lawrenceburg admissions increased, more complimentary admissions were given
to customers as part of the Company's marketing program.
FOOD, BEVERAGE AND OTHER - Food, beverage and other revenues increased
$1.5 million to $15.3 million for the three month period ended September 30,
1999. Food, beverage and other net profit improved $1.3 million to $4.7 million
for the three months ended September 30, 1999. The primary reason for this
increase is an increase in food and beverage revenues of $1.6 million at
Lawrenceburg due to the increased use of food and beverage as a promotional item
as a result of the increase in casino revenues. Alton, Riverside and Baton Rouge
each reported approximately the same food and beverage revenues and expenses as
the three month period ended September 30, 1998. Riverside's and Baton Rouge's
food and beverage revenues and expenses did not increase significantly even
though casino revenues improved due to the decreased use of food and beverage as
a promotional item.
The Lawrenceburg hotel, which opened in May 1998, contributed $1.3
million in net revenues and $0.8 million of operating profit. Including
promotional allowances, the hotel occupancy was 89% and the average daily
room rate was $91.
OTHER OPERATING EXPENSES - Other operating expenses increased only
slightly by $0.3 million to $7.1 million for the three months ended September
30, 1999 as compared to the three months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses increased $5.9 million to $30.1 million for the three
months ended September 30, 1999 due principally to an increase of $3.6 million
at Lawrenceburg primarily relating to expanded promotions and additional
payments due to the city due to increased gaming revenue. Corporate expenses
increased by $1.0 million due to expenses related to incentive compensation.
55
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
DEPRECIATION AND AMORTIZATION - Depreciation and amortization increased
only slightly by $0.2 million to $8.6 million for the three months ended
September 30, 1999.
INTEREST EXPENSE - Net interest expense decreased $3.6 million to $10.0
million for the three months ended September 30, 1999. This decrease is due to a
decrease in the average debt outstanding and a decrease in the Company's average
interest rate due to the recently completed refinancing and a decrease in
interest expense to a minority partner of $1.1 million.
NET INCOME BEFORE EXTRAORDINARY ITEM - The Company recorded net income
before extraordinary item of $14.3 million for the three months ended September
30, 1999 compared to net income before extraordinary item of $4.1 million for
the three month period ended September 30, 1998 due primarily to the factors
discussed above and the continued effective use of its marketing and operating
strategy.
EXTRAORDINARY LOSS - The Company recorded an extraordinary loss of $3.7
for the three months ended September 30, 1999 related to the early
extinguishment of debt in conjunction with the final phase of the recently
completed refinancing.
COMPETITION
The Company's Alton Casino faces competition from five other riverboat
casino operators in the St. Louis area and expects the level of competition to
remain intense in the future. The Company's Riverside Casino faces competition
from three casino companies in the Kansas City area, two of which operate two
gaming vessels each, allowing them to offer more continuous boarding than our
single vessel facility. The Company's Baton Rouge Casino faces competition from
one casino located in downtown Baton Rouge, a nearby Native American casino and
multiple casinos throughout Louisiana. The Company faces competition in Sioux
City, Iowa, from video gaming devices in nearby South Dakota, two land-based
Native American casinos and, to a lesser extent, from slot machines at a
pari-mutual race track in Council Bluffs, Iowa and from two riverboat casinos in
the Council Bluffs Iowa/Omaha, Nebraska market. The Indiana Partnership faces
competition from one other riverboat casino in the Cincinnati market. In
addition, a riverboat casino opened in November 1998 in the Louisville, Kentucky
area approximately 100 miles from the Company's Lawrenceburg facility and a
competing riverboat is expected to open approximately 45 miles from the
Company's Lawrenceburg facility in 2000. There could be further unanticipated
competition in any market which the Company operates as a result of legislative
changes or other events. The Company expects each market in which it
participates, both current and prospective, to be highly competitive.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 1999, the Company generated cash
flows from operating activities of $94.3 million compared to $70.2 million for
the same period in 1998. This increase is attributable to improved operations
all five of the Company's casino locations.
In the nine months ended September 30, 1999, the Company used cash
flows for investing activities of $17.6 million versus $19.3 million for the
nine months ended September 30, 1998. The primary use of funds in 1999 was for
capital expenditures principally associated with the facility renovations at
Alton and Baton Rouge. The primary use of funds in 1998 was capital expenditures
for the completion of the construction of the Lawrenceburg facility and hotel.
Overall capital expenditures have decreased between periods reflecting the
completion of the Lawrenceburg casino.
56
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
During the nine months ended September 30, 1999, the Company used
$128.9 million in cash flows for financing activities compared to using $23.0
million of cash flows for financing activities for the same period in 1998. In
1999, the Company received proceeds of $200 million from the issuance of
subordinated notes and $130 million from a line of credit. The Company repaid
long term debt of $327.7 million, put $26.7 million in funds in an escrow to
retire future debt, repaid $28.0 million on the line of credit, used $30.6
million to pay premiums to retire debt, and used $9.0 million which was
capitalized as deferred finance costs in connection with the refinancing. In
1998, the Company received proceeds of $7.4 million from the sale of preferred
stock and warrants. Cash flows in both 1999 and 1998 were used to repay loans
related to the Company's Lawrenceburg casino, partner equity distributions
related to the Lawrenceburg partnership and for payments on installment
contracts and other long-term debt.
As of September 30, 1999, the Company had approximately $37.7 million
of cash and cash equivalents, including approximately $23.1 million held at the
Indiana Partnership. In addition, the Company has placed in escrow $26.7 million
to fund interest payments, redemption premium and principal for the $22.2
million of Mortgage Notes that were not tendered in the refinancing but which
will be redeemed in June 2000. At September 30, 1999, the Company has
outstanding $200 million of Senior Subordinated Notes, which were issued in June
1999 and are due in June 2009 and $102.0 million on a senior secured revolving
credit facility. As of November 5, 1999 availability under the Credit Facility
is approximately $102 million.
The Company has made a significant investment in property and equipment
and plans to make significant additional investments at certain of its existing
properties. During the next twelve months, the Company expects to spend
approximately $40 million to fund its capital expenditures program principally
related to upgrading its gaming facility in Alton, purchasing gaming equipment,
and on completion of a $20 million, 300 room convention hotel next to the
Company's casino in Baton Rouge, Louisiana on which construction began July 29,
1999.
During an ongoing audit, the Internal Revenue Service (IRS) has
challenged the S-Corporation status of a predecessor entity of the Company. If
the IRS challenge is successful, the Company currently estimates that it would
require up to approximately $14.4 million (excluding penalties) to fund the
potential federal and any state income tax liability. The Company believes it
has substantial legal grounds for its tax position related to this matter and is
vigorously contesting the IRS challenge; however, no assurance can be given that
the Company will not be required to pay some or all of the disputed amount.
The Company believes that cash on hand, operating cash flows and
available capacity under its Credit Facility, will be sufficient to fund its
current operating, capital expenditure and debt service obligations. The
Company's ability to meets its capital expenditures project payments and the
Company's ability to purchase the minority interest in the Indiana
Partnership, in the event that the limited partners would exercise their
right to sell their interest to the other partners, is substantially
dependent upon the continued success of the Lawrenceburg casino. The Company
may be required to fund a portion of the minority interest purchase by
obtaining additional debt or equity financing. No assurance can be given that
the Company would be able to obtain such additional financing on suitable
terms, if required.
57
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
YEAR 2000
The Company determined that it needed to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the Year 2000 and beyond. As the Company is dependent
on third party software for all its major applications, the Company has
identified and obtained reasonable assurance from its significant software
vendors and financial institutions to ensure that those parties have appropriate
plans to remediate Year 2000 issues. Through this process, the Company has
determined that all of the systems that are critical to the Company's operations
are either 2000 compliant or that 2000 compliant versions exist and are being
implemented by the Company.
The Company expects to be fully Year 2000 compliant with respect to all
significant business systems prior to December 31, 1999 and program completion
is currently on schedule.
As of September 30, 1999, the Company has incurred approximately
$0.7 million of costs related to Year 2000 issues. The Company estimates it
will incur less than $0.3 million in future expenses to ensure all systems
will function properly with respect to dates in the Year 2000 and beyond.
These expenses are not expected to have a material impact on the financial
position, cash flow or operations of the Company.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS
DOCUMENT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE" AND "EXPECT" AND SIMILAR
EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS, INCLUDING THOSE
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY OR ITS
MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING, BUT NOT
LIMITED TO, (i) GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY
OPERATES, (ii) INCREASED COMPETITIVE PRESSURES IN THE MARKETS IN WHICH THE
COMPANY OPERATES, (iii) THE EFFECT OF FUTURE LEGISLATION OR REGULATORY CHANGES
ON THE COMPANY'S OPERATIONS, AND (iv) OTHER RISKS DETAILED FROM TIME TO TIME IN
THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. THE COMPANY DOES NOT
INTEND TO UPDATED THESE FORWARD-LOOKING STATEMENTS.
58
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
The Company is from time to time a party to legal proceedings arising
in the ordinary course of business. Other than as disclosed below, the Company
is unaware of any legal proceedings which, even if the outcome were unfavorable
to the Company, would have a material adverse impact on either its financial
condition or results of operations.
GAMEDEV OF SIOUX CITY, INC. F/K/A SIOUX CITY RIVERBOAT CORP., INC. V. ARGOSY
GAMING COMPANY AND IOWA GAMING COMPANY
This suit was filed on June 11, 1998 in the Iowa District Court in
Woodbury County, Iowa. Gamedev of Sioux City, Inc. ("Gamedev"), the limited
partner of the limited partnership, Belle of Sioux City, L.P., seeks monetary
damages and an equitable accounting based on claims of breach of fiduciary duty
and negligent misrepresentation against the defendants. Iowa Gaming Company, a
wholly owned subsidiary of the Company, is the general partner of the Belle of
Sioux City, L.P. On July 21, 1998, the defendants responded to the Petition by
filing a motion to dismiss on the grounds that Gamedev's claims are derivative
in nature, and that Gamedev is not entitled to an equitable accounting because
it has an adequate remedy at law. In response, on August 4, 1998, plaintiff
filed a First Amended and Substituted Petition and added claims for fraudulent
misrepresentation, breach of the partnership agreement, and breach of the
management agreement. Defendants filed a motion to dismiss based on
substantially similar grounds and requested a more specific statement on the
claims for breach of contract. On September 25, 1998, the court denied the
motion to dismiss and granted the request for a more specific statement.
Plaintiff subsequently filed a Second Amended Petition on October 14, 1998 and a
Third Amended Petition on April 29,1999. Gamedev withdrew its claim for an
equitable accounting and added a claim for fraudulent nondisclosure. The parties
filed a joint motion for continuance and the court rescheduled the trial date to
May 30, 2000. The discovery cutoff deadline for the parties is April 28, 2000.
Gamedev must designate its experts by December 31, 1999, and defendants must
designate their experts by March 1, 2000. Dispositive motions shall be filed by
February 29, 2000, and a settlement conference is set for May 24, 2000. The
parties have exchanged and responded to written discovery. Depositions have
begun. There can be no assurance that the lawsuit will not lead to events having
a material adverse effect on the Company.
GAMING INDUSTRY CLASS ACTIONS
The Company has been named, along with two gaming equipment suppliers,
41 of the country's largest gaming operators and four gaming distributors (the
"Gaming Industry Defendants") in three class action lawsuits pending in Las
Vegas, Nevada. The suits allege that the Gaming Industry Defendants violated the
Racketeer Influenced and Corrupt Organizations Act ("RICO") by engaging in a
course of fraudulent and misleading conduct intended to induce people to play
their gaming machines based upon a false belief concerning how those gaming
machines actually operate, as well as to the extent to which there is actually
an opportunity to win on any given play. The suits seek unspecified compensatory
and punitive damages. On January 14, 1997, the Court consolidated all three
actions under the case name WILLIAM H. POULOS, ETC. V. CAESARS WORLD, INC., ET
AL. On February 13, 1997 the plaintiffs filed a consolidated amended complaint.
The Court subsequently dismissed this complaint, in part, and on January 8,
1998, the plaintiffs filed a second amended complaint. The parties have fully
briefed the Plaintiff's motion for class certification and are awaiting a
decision from the court. On June 22, 1999 the Court ordered that the plaintiffs
could conduct limited class discovery on the defendants promotional and
advertising documents. The plaintiffs currently are conducting such discovery.
The Company is unable to determine what effect, if any, the suit would have on
its business or operations.
59
ARGOSY GAMING COMPANY
OTHER INFORMATION
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K - None
60
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 15, 1999 /s/ Dale R. Black
-------------------------- ----------------------------------------
Dale R. Black
Vice President - Chief Financial Officer