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, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21122
ARGOSY GAMING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 37-1304247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 24,498,333 shares of Common
Stock, $.01 par value per share, as of November 11, 1997.
TABLE OF CONTENTS
PART I
FINANCIAL STATEMENTS OF ARGOSY GAMING COMPANY
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
FINANCIAL STATEMENTS OF GUARANTOR SUBSIDIARIES OF THE COMPANY'S
FIRST MORTGAGE NOTES PROVIDED PURSUANT TO RULE 3-10 OF REGULATION S-X.
FINANCIAL STATEMENTS OF ALTON GAMING COMPANY
Condensed Balance Sheets 10
Condensed Statements of Income 11
Condensed Statements of Cash Flows 13
Notes to Condensed Financial Statements 14
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 15
Condensed Statements of Operations 16
Condensed Statements of Cash Flows 18
Notes to Condensed Financial Statements 19
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 20
Condensed Consolidated Statements of Operations 21
Condensed Consolidated Statements of Cash Flows 23
Notes to Condensed Consolidated Financial Statements 24
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 25
Condensed Statements of Operations 26
Condensed Statements of Cash Flows 28
Notes to Condensed Financial Statements 29
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 30
Condensed Statements of Operations 31
Condensed Statements of Cash Flows 33
Notes to Condensed Financial Statements 34
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 35
Condensed Consolidated Statements of Operations 36
Condensed Consolidated Statements of Cash Flows 38
Notes to Condensed Consolidated Financial Statements 39
TABLE OF CONTENTS (CONTINUED)
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 41
Condensed Statements of Operations 42
Condensed Statements of Cash Flows 44
Notes to Condensed Financial Statements 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS 47
PART II
Item 1 Legal Proceedings 55
Item 2 Changes in Securities 57
Item 3 Defaults upon Senior Securities 57
Item 4 Submission of Matters to a Vote of Security Holders 57
Item 5 Other Information 57
Item 6 Exhibits and Reports on Form 8-K 57
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 45,354 $ 38,284
Income taxes receivable 1,967 11,111
Other current assets 8,513 9,446
--------- ---------
Total current assets 55,834 58,841
--------- ---------
PROPERTY AND EQUIPMENT, NET 377,806 314,480
--------- ---------
OTHER ASSETS:
Restricted cash and cash equivalents 48,104 84,551
Goodwill, net 22,476 22,923
Other, net 50,820 51,364
--------- ---------
Total other assets 121,400 158,838
--------- ---------
TOTAL ASSETS $ 555,040 $ 532,159
--------- ---------
--------- ---------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 42,510 $ 29,948
Other current liabilities 27,307 15,018
--------- ---------
Total current liabilities 69,817 44,966
--------- ---------
LONG-TERM DEBT 407,440 377,308
OTHER LONG-TERM OBLIGATIONS 10,877 20,340
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 17,001 16,844
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized;
24,498,333 shares issued and outstanding 245 243
Capital in excess of par 71,972 71,865
Retained (deficit) earnings (22,312) 593
--------- ---------
Total stockholders' equity 49,905 72,701
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 555,040 $ 532,159
--------- ---------
--------- ---------
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,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 234,337 $ 173,924
Admissions 13,152 1,983
Food, beverage and other 25,717 20,110
---------- ----------
273,206 196,017
Less promotional allowances (20,851) (10,040)
---------- ----------
Net revenues 252,355 185,977
---------- ----------
COSTS AND EXPENSES:
Casino 120,077 89,190
Food, beverage and other 21,526 17,622
Other operating expenses 21,104 13,631
Selling, general and administrative 52,151 38,937
Depreciation and amortization 25,231 17,066
Development and preopening costs 516 7,372
Severance expenses 1,750
Lease termination costs 3,508
Referendum expenses 383
---------- ----------
242,355 187,709
---------- ----------
Income (loss) from operations 10,000 (1,732)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 4,733 2,524
Interest expense (34,891) (23,681)
---------- ----------
(30,158) (21,157)
---------- ----------
Loss before income taxes, minority interests and
extraordinary item (20,158) (22,889)
Income tax benefit 8,646
Minority interests (2,747) 1,557
---------- ----------
Loss before extraordinary item (22,905) (12,686)
Extraordinary loss on extinguishment of debt
(net of income tax benefit of $594) (890)
---------- ----------
Net loss (22,905) $ (13,576)
---------- ----------
---------- ----------
Loss before extraordinary item per share $ (0.94) $ (0.52)
Extraordinary loss on extinguishment of debt per
share (net of income tax benefit of $.02) $ (0.04)
---------- ----------
Net loss per share $ (0.94) $ (0.56)
---------- ----------
---------- ----------
Weighted average shares outstanding 24,422,088 24,333,333
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
2
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 76,753 $ 55,778
Admissions 4,560
Food, beverage and other 8,556 7,244
---------- ----------
89,869 63,022
Less promotional allowances (7,518) (3,000)
---------- ----------
Net revenues 82,351 60,022
---------- ----------
COSTS AND EXPENSES:
Casino 40,491 29,925
Food, beverage and other 7,443 6,294
Other operating expenses 7,352 4,899
Selling, general and administrative 17,110 12,606
Depreciation and amortization 8,829 5,982
Development and preopening costs 193 3,681
Referendum expenses 383
---------- ----------
81,418 63,770
---------- ----------
Income (loss) from operations 933 (3,748)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 1,898 1,884
Interest expense (11,676) (12,135)
---------- ----------
(9,778) (10,251)
---------- ----------
Loss before income taxes, minority interests and
extraordinary item (8,845) (13,999)
Income tax benefit 5,447
Minority interests (778) 844
---------- ----------
Net loss $ (9,623) $ (7,708)
---------- ----------
---------- ----------
Net loss per share $ (0.39) $ (0.32)
---------- ----------
---------- ----------
Weighted average shares outstanding 24,498,333 24,333,333
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
3
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (22,905) $ (13,576)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 23,691 16,422
Amortization 2,981 1,928
Deferred income taxes (102)
Minority interests 2,747 (1,557)
Extraordinary item 890
Compensation expense recognized on issuance of stock 107
Lease termination costs 2,223
Changes in operating assets and liabilities:
Income taxes receivable 9,144 (8,459)
Other current assets 1,681 (1,601)
Deposits (1,673) (989)
Accounts payable and other current liabilities 13,786 12,954
---------- ----------
Net cash provided by operating activities 29,559 8,133
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (82,864) (73,322)
Decrease (increase) in restricted cash held by trustees 36,447 (83,029)
Decrease in long term obligations (4,307)
Increase in other assets (826)
---------- ----------
Net cash used in investing activities (51,550) (156,351)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 44,500
Repayment of line of credit (90,000)
Payments on long-term debt and installment contracts (3,890) (4,437)
Capital contributions from partner 19,044
Proceeds from sale of first mortgage notes 235,000
Proceeds from partner loans 36,293 5,449
Repayment of partner loans (1,515)
Payment of preferred equity return to partner (764)
Partnership equity distributions (838)
Increase in other assets (225) (9,920)
---------- ----------
Net cash provided by financing activities 29,061 199,636
---------- ----------
Net increase in cash and cash equivalents 7,070 51,418
Cash and cash equivalents, beginning of period 38,284 16,159
---------- ----------
Cash and cash equivalents, end of period $ 45,354 $ 67,577
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
4
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public and, through its subsidiaries, operates
riverboat casinos in Alton, Illinois; Lawrenceburg, Indiana; Riverside,
Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa. Indiana Gaming
Company, L.P., ("Indiana Partnership") a limited partnership in which the
Company is general partner and holds a 57.5% partnership interest, opened a
riverboat casino and related entertainment and support facilities at a
temporary site in Lawrenceburg, Indiana on December 10, 1996. The Indiana
Partnership is developing its permanent facility which is expected to open in
December 1997.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information, refer to
the financial statements and footnotes thereto for the year ended December
31, 1996, included in the Company's Annual Report on Form 10-K (File No.
0-21122). The accompanying unaudited condensed consolidated financial
statements contain all adjustments which are, in the opinion of management,
necessary to present fairly the financial position and the results of
operations for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1996 amounts have been reclassified to conform
to the 1997 financial statement presentation.
As of September 30, 1997 the Company is in a net operating loss position
and, therefore, has recorded a valuation allowance of $10.4 million against
its deferred tax assets.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and restate all prior
periods. The adoption of Statement 128 has no effect on the Company's
calculation of primary earnings per share. The Company has not yet
determined what the impact of Statement 128 will be on the calculation of
fully diluted earnings per share.
5
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(Dollars in Thousands)
2. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA DEVELOPMENT--On June 30, 1995 the Indiana
Partnership was awarded a preliminary suitability certificate from the
Indiana Gaming Commission to develop a riverboat casino project on the Ohio
River in Lawrenceburg, Indiana. On December 10, 1996 the Indiana Partnership
was awarded a gaming license and commenced operations at a temporary
facility. The Indiana Partnership is in the process of constructing its
permanent facility which is expected to open in December 1997.
Provisions of the partnership agreement governing the Indiana Partnership
stipulate that capital contributions up to a total project cost of $225
million, will be made on the same basis as the partners' equity ownership
with any excess project cost being the responsibility of the Company.
Funding for the Indiana Partnership is to be provided by capital equity
contributions for the first $52,500 and capital loans by the partners for the
balance.
Under terms of the Lawrenceburg partnership agreement, after the third
anniversary date of commencement of operations at the Lawrenceburg casino,
each limited partner has the right to sell its interest to the other partners
(pro rata in accordance with their respective percentage interests). In the
event of this occurrence, if the partners cannot agree on a selling price,
the Indiana Partnership will be sold in its entirety.
The partnership may only operate at its temporary site for one year from
the opening of the temporary facility. The completion of the permanent
facility is subject to the satisfaction of numerous conditions including
weather conditions and the receipt of numerous permits and licenses. There
can be no assurance that the permanent facility will be open within one year
of the opening of the temporary facility.
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 asserted 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 $13.6 million including interest through
September 30, 1997, 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. This contingent liability could have a material
adverse effect on the Company's results of operations, financial condition
and cash flows. No provision has been made for this contingency in the
accompanying condensed consolidated financial statements.
6
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(Dollars in Thousands)
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the financial
condition of the Company.
3. SUBSIDIARY GUARANTORS
On June 5, 1996, the Company issued its $235 million First Mortgage Notes,
due 2004, ("Mortgage Notes") in a private placement transaction. In October,
1996, the Company exchanged all of the outstanding privately placed Mortgage
Notes for a like amount of identical Mortgage Notes registered with the
Securities and Exchange Commission. The Mortgage Notes rank senior in right
of payment to all existing and future indebtedness of the Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and several
basis, by the following wholly-owned subsidiaries of the Company: Alton
Gaming Company, The Missouri Gaming Company, The St. Louis Gaming Company,
Iowa Gaming Company, Jazz Enterprises, Inc., Argosy of Louisiana, Inc.,
Catfish Queen Partnership in Commendam and The Indiana Gaming Company (the
"Guarantors"). The Mortgage Notes are secured, subject to certain prior
liens, by a first lien on (i) substantially all of the assets of the Company
(other than the assets of the Indiana Partnership) 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 proposed Lawrenceburg Casino project.
The following tables present summarized balance sheet information of the
Company as of September 30, 1997 and December 31, 1996 and summarized
operating statement information for the nine and three months ended September
30, 1997 and 1996. 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.
7
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(Dollars in Thousands)
Summarized balance sheet information as of September 30, 1997 and
December 31, 1996 is as follows:
SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ------------ ----------- ------------ ------------
ASSETS:
Current assets $ 33,149 $ 23,405 $ 16,857 $ (17,577) $ 55,834
Non-current assets 389,046 379,240 202,154 (471,234) 499,206
---------- ---------- ---------- ------------ ----------
$ 422,195 $ 402,645 $ 219,011 $ (488,811) $ 555,040
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
LIABILITIES AND EQUITY:
Current liabilities $ 22,290 $ 40,644 $ 45,111 $ (38,228) $ 69,817
Non-current liabilities 350,000 317,322 135,932 (367,936) 435,318
Stockholders' equity 49,905 44,679 37,968 (82,647) 49,905
---------- ---------- ---------- ------------ ----------
$ 422,195 $ 402,645 $ 219,011 $ (488,811) $ 555,040
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
DECEMBER 31, 1996
------------------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
ASSETS:
Current assets $ 29,353 $ 25,301 $ 13,191 $ (9,004) $ 58,841
Non-current assets 403,873 314,287 119,727 (364,569) 473,318
---------- ---------- ---------- ------------ ----------
$ 433,226 $ 339,588 $ 132,918 $ (373,573) $ 532,159
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
LIABILITIES AND EQUITY:
Current liabilities $ 10,525 $ 26,939 $ 20,630 $ (13,128) $ 44,966
Non-current liabilities 350,000 267,428 78,856 (281,792) 414,492
Stockholders' equity 72,701 45,221 33,432 (78,653) 72,701
---------- ---------- ---------- ------------ ----------
$ 433,226 $ 339,588 $ 132,918 $ (373,573) $ 532,159
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
8
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(Dollars in Thousands)
Summarized operating statement information for the nine and three months ended
September 30,1997 and 1996 is as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
Net revenues $ 4,634 $ 146,983 $ 110,255 $ (9,517) $ 252,355
Costs and expenses 11,622 140,962 96,214 (6,443) 242,355
Net interest expense (23,692) 395 (3,400) (3,461) (30,158)
Net (loss) income (22,905) 2,743 6,508 (9,251) (22,905)
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
Net revenues $ 359 $ 170,764 $ 14,964 $ (110) $ 185,977
Costs and expenses 9,272 161,693 20,935 (4,191) 187,709
Net interest expense (15,952) (4,687) (418) (100) (21,157)
Net (loss) income (16,033) 3,424 (6,390) 5,423 (13,576)
THREE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
Net revenues $ 1,276 $ 46,010 $ 37,647 $ (2,582) $ 82,351
Costs and expenses 2,647 47,423 33,329 (1,981) 81,418
Net interest expense (7,720) 930 (1,314) (1,674) (9,778)
Net (loss) income (9,623) (937) 1,612 (675) (9,623)
THREE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
Net revenues $ 117 $ 54,830 $ 4,796 $ 279 $ 60,022
Costs and expenses 2,695 56,422 8,165 (3,512) 63,770
Net interest expense (8,315) (1,589) (247) (100) (10,251)
Net (loss) income (8,497) (727) (3,615) 5,131 (7,708)
9
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 3,710 $ 3,563
Other current assets 1,642 1,482
-------- --------
Total current assets 5,352 5,045
-------- --------
DUE FROM AFFILIATES 16,318 10,592
NET PROPERTY AND EQUIPMENT 28,255 30,112
OTHER ASSETS 4 7
-------- --------
TOTAL ASSETS $ 49,929 $ 45,756
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 903 $ 1,547
Other accrued liabilities 4,939 4,299
Income taxes payable to affiliate 1,460
-------- --------
Total current liabilities 7,302 5,846
-------- --------
-------- --------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY 184 171
DEFERRED INCOME TAXES 3,745 3,494
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 38,441 35,988
-------- --------
Total stockholder's equity 38,698 36,245
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 49,929 $ 45,756
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
10
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 46,905 $ 56,084
Food, beverage and other 5,613 5,909
-------- --------
52,518 61,993
Less promotional allowances (1,523) (1,728)
-------- --------
Net revenues 50,995 60,265
-------- --------
COSTS AND EXPENSES:
Casino 23,944 26,869
Food, beverage and other 5,299 5,586
Other operating expenses 4,170 4,254
Selling, general and administrative 8,528 9,390
Depreciation and amortization 3,237 3,141
Management fees -- related party 1,766 3,380
-------- --------
46,944 52,620
-------- --------
Income from operations 4,051 7,645
OTHER INCOME (EXPENSE):
Interest income 48 38
Interest expense (11) (29)
-------- --------
37 9
-------- --------
Income before income taxes 4,088 7,654
Income tax expense (1,635) (3,061)
-------- --------
Net income $ 2,453 $ 4,593
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
11
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 14,850 $ 18,642
Food, beverage and other 2,000 2,217
-------- --------
16,850 20,859
Less promotional allowances (540) (535)
-------- --------
Net revenues 16,310 20,324
-------- --------
COSTS AND EXPENSES:
Casino 8,096 9,378
Food, beverage and other 1,876 2,097
Other operating expenses 1,433 1,521
Selling, general and administrative 3,268 3,196
Depreciation and amortization 1,128 1,070
Management fees -- related party 478 1,507
-------- --------
16,279 18,769
-------- --------
Income from operations 31 1,555
OTHER INCOME (EXPENSE):
Interest income 25 13
Interest expense (4) (8)
-------- --------
21 5
-------- --------
Income before income taxes 52 1,560
Income tax expense (23) (624)
-------- --------
Net income $ 29 $ 936
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
12
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,453 $ 4,593
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 3,237 3,141
Deferred income taxes 175 463
Changes in operating assets and liabilities:
Other current assets (82) (102)
Other assets 3 170
Accounts payable (644) 280
Other accrued liabilities 640 (1,094)
Income taxes payable to affiliate 1,460 2,601
-------- --------
Net cash provided by operating activities 7,242 10,052
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,382) (1,175)
-------- --------
Net cash used in investing activities (1,382) (1,175)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliate (5,726) (8,373)
Increase in other long-term obligations -- related party 13 10
-------- --------
Net cash used in financing activities (5,713) (8,363)
-------- --------
Net increase in cash and cash equivalents 147 514
Cash and cash equivalents, beginning of period 3,563 3,873
-------- --------
Cash and cash equivalents, end of period $ 3,710 $ 4,387
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
13
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
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 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, 1996 included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1996 amounts have been
reclassified to conform to the 1997 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 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 asserted 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 $13.6 million, including interest through September 30, 1997,
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. This
contingent liability could have a material adverse effect on the Company's
results of operations, financial condition and cash flows. No provision has
been made for this contingency in the accompanying financial statements.
On June 5, 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.
14
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 4,034 $ 6,143
Other current assets 1,874 1,563
------------- ------------
Total current assets 5,908 7,706
------------- ------------
NET PROPERTY AND EQUIPMENT 72,352 75,773
OTHER ASSETS 2,490 3,272
------------- ------------
TOTAL ASSETS $ 80,750 $ 86,751
------------- ------------
------------- ------------
CURRENT LIABILITIES:
Accounts payable $ 1,840 $ 3,505
Income taxes payable to affiliate 3,811 4,435
Other accrued liabilities 4,180 4,244
------------- ------------
Total current liabilities 9,831 12,184
------------- ------------
DUE TO AFFILIATES 52,543 56,345
DEFERRED INCOME TAXES 1,674 907
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1000 shares
authorized issued and outstanding
Capital in excess of par 5,000 5,000
Retained earnings 11,702 12,315
------------- ------------
Total stockholder's equity 16,702 17,315
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 80,750 $ 86,751
------------- ------------
------------- ------------
See accompanying notes to condensed financial statements.
15
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 46,412 $ 64,706
Admissions 1,983
Food, beverage and other 7,233 8,145
------------- -------------
53,645 74,834
Less promotional allowances (3,706) (5,360)
------------- -------------
Net revenues 49,939 69,474
------------- -------------
COSTS AND EXPENSES:
Casino 24,916 33,402
Food, beverage and other 6,244 7,169
Other operating expenses 2,978 3,594
Selling, general and administrative 8,508 10,271
Depreciation and amortization 4,462 5,751
Preopening costs 383
Lease termination costs 3,508
------------- -------------
47,108 64,078
------------- -------------
Income from operations 2,831 5,396
OTHER INCOME (EXPENSE):
Interest income (expense) 201 (30)
Interest expense - related party (4,006) (4,515)
------------- -------------
(3,805) (4,545)
------------- -------------
(Loss) income before income taxes (974) 851
Income tax benefit (expense) 361 (462)
------------- -------------
Net income (loss) $ (613) $ 389
------------- -------------
------------- -------------
See accompanying notes to condensed financial statements.
16
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 14,745 $ 20,704
Food, beverage and other 2,297 2,790
------------- -------------
17,042 23,494
Less promotional allowances (1,278) (1,350)
------------- -------------
Net revenues 15,764 22,144
------------- -------------
COSTS AND EXPENSES:
Casino 8,124 11,011
Food, beverage and other 2,093 2,457
Other operating expenses 1,104 1,252
Selling, general and administrative 2,695 3,215
Depreciation and amortization 1,724 1,500
Preopening costs 61
------------- -------------
15,740 19,496
------------- -------------
Income from operations 24 2,648
OTHER INCOME (EXPENSE):
Interest income (expense) 107 (6)
Interest expense - related party (1,248) (1,625)
------------- -------------
(1,141) (1,631)
------------- -------------
Loss (income) before income taxes (1,117) 1,017
Income tax benefit (expense) 443 (526)
------------- -------------
Net (loss) income $ (674) $ 491
------------- -------------
------------- -------------
See accompanying notes to condensed financial statements.
17
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (613) $ 389
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation 4,296 5,571
Amortization 166 180
Deferred income taxes 261 622
Lease termination costs 2,223
Changes in operating assets and liabilities:
Other current assets 827 463
Accounts payable (1,665) 397
Other accrued liabilities 151 1,455
Income taxes payable to affiliate (624) (386)
Other assets (136) 200
------------- ------------
Net cash provided by operating activities 2,663 11,114
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (876) (18,488)
------------- ------------
Net cash used in investing activities (876) (18,488)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (94) (588)
Due to affiliate (3,802) 16,832
------------- ------------
Net cash (used in) provided by financing activities (3,896) 16,244
------------- ------------
Net increase in cash and cash equivalents (2,109) 8,870
Cash and cash equivalents, beginning of period 6,143 4,131
------------- ------------
Cash and cash equivalents, end of period $ 4,034 $ 13,001
------------- ------------
------------- ------------
See accompanying notes to condensed financial statements.
18
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Missouri Gaming 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 Company
commenced operations on June 22, 1994, at a temporary facility. The Company
began construction of a permanent facility during 1995. The permanent
facility was opened to the public on January 15, 1996 and serves as a dining
and entertainment outlet to the riverboat casino.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results
which may be expected for any other interim period or for the year as a
whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1996 included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1996 amounts have been
reclassified to conform to the 1997 presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company is restricted from making certain distributions to Argosy and
other affiliates unless approved by state gaming authorities.
On June 5, 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.
19
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 2,760 $ 3,051
Other current assets 1,104 2,776
------------- ------------
Total current assets 3,864 5,827
------------- ------------
NET PROPERTY AND EQUIPMENT 45,176 49,021
OTHER ASSETS 1,848 2,206
------------- ------------
TOTAL ASSETS $ 50,888 $ 57,054
------------- ------------
------------- ------------
CURRENT LIABILITIES:
Accounts payable $ 560 $ 1,127
Other accrued liabilities 3,769 3,497
Current maturities of long-term debt-related party 5,578 5,578
------------- ------------
Total current liabilities 9,907 10,202
------------- ------------
LONG-TERM DEBT-RELATED PARTY 43,650 42,812
DEFERRED INCOME TAXES 1,160
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 2,810 3,174
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares authorized
issued and outstanding 1 1
Accumulated deficit (5,480) (295)
------------- ------------
Total stockholder's deficit (5,479) (294)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 50,888 $ 57,054
------------- ------------
------------- ------------
See accompanying notes to condensed consolidated financial statements.
20
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
Revenues:
Casino $ 37,856 $ 38,995
Food, beverage and other 5,487 4,038
------------- -------------
43,343 43,033
Less promotional allowances (3,302) (2,388)
------------- -------------
Net revenues 40,041 40,645
------------- -------------
COST AND EXPENSES:
Casino 22,236 19,794
Food, beverage and other 5,120 3,549
Other operating expenses 3,892 3,764
Selling, general and administrative 9,765 8,233
Depreciation and amortization 4,178 4,661
Referendum costs 383
------------- -------------
45,191 40,384
------------- -------------
(Loss) income from operations (5,150) 261
INTEREST (EXPENSE) INCOME NET:
Interest to related party (1,202)
Other 69 95
------------- -------------
(Loss) income before income taxes
and minority interest (6,283) 356
Income tax benefit (expense) 734 (263)
Minority interest 364 (12)
------------- -------------
Net (loss) income $ (5,185) $ 81
------------- -------------
------------- -------------
See accompanying notes to condensed consolidated financial statements.
21
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 11,660 $ 11,959
Food, beverage and other 1,801 1,489
------------- -------------
13,461 13,448
Less promotional allowances (1,064) (893)
------------- -------------
Net revenues 12,397 12,555
------------- -------------
COST AND EXPENSES:
Casino 7,155 6,431
Food, beverage and other 1,658 1,254
Other operating expenses 1,340 1,414
Selling, general and administrative 3,205 2,752
Depreciation and amortization 1,389 1,930
Referendum costs 383
------------- -------------
14,747 14,164
------------- -------------
Loss from operations (2,350) (1,609)
INTEREST (EXPENSE) INCOME NET:
Interest to related party (400) 24
Other 22
------------- -------------
Loss before income taxes and minority interest (2,728) (1,585)
Income tax benefit 684
Minority interest 159 65
------------- -------------
Net loss $ (2,569) $ (836)
------------- -------------
------------- -------------
See accompanying notes to condensed consolidated financial statements.
22
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
(UNAUDITED) (UNAUDITED)
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (5,185) $ 81
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation 3,819 4,302
Amortization 359 359
Minority interest (364) 12
Deferred income taxes (735) 1,076
Changes in operating assets and liabilities:
Other current assets 369 (498)
Accounts payable (567) (162)
Other accrued liabilities 1,152 243
------------- -------------
Net cash (used in) provided by operating activities (1,152) 5,413
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (307) (516)
------------- -------------
Net cash used in investing activities (307) (516)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates 1,168 (7,519)
Payments on notes payable and long-term debt (385)
Decrease in other assets 69
------------- -------------
Net cash provided by (used in) financing activities 1,168 (7,835)
------------- -------------
Net decrease in cash and cash equivalents (291) (2,938)
Cash and cash equivalents, beginning of period 3,051 5,201
------------- -------------
Cash and cash equivalents, end of period $ 2,760 $ 2,263
------------- -------------
------------- -------------
See accompanying notes to condensed consolidated financial statements.
23
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
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, a
wholly owned subsidiary of Argosy Gaming Company (Argosy), is the 90%
general partner of the Partnership, along with the 10% partner in commendam
Jazz, which became a wholly owned subsidiary of Argosy in 1995. On September
21, 1994, Jazz contributed its State of Louisiana Riverboat Gaming License
and certain leases with a fair value of $3,271 to the Company.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1996 included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed consolidated financial statements contain all adjustments which
are, in the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals. Certain 1996 amounts
have been reclassified to conform to the 1997 presentation.
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East
Baton Rouge (collectively referred to as "City-Parish") and Jazz entered into
an agreement which requires Jazz and the Company to pay to the City-Parish
$2.50 per passenger. Additionally, Jazz agreed to pay to the City-Parish an
additional fee which is now $2.50 per passenger until construction of a hotel
commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if required, for
the initial five-year certification term approved by the Louisiana Gaming
Control Board. Through September 30, 1997, the Company has paid all
admission payments due under the above agreements.
On June 5, 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.
24
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 2,760 $ 3,051
Other current assets 1,104 1,134
------------- ------------
Total current assets 3,864 4,185
------------- ------------
NET PROPERTY AND EQUIPMENT 44,860 48,704
OTHER ASSETS 1,848 2,206
------------- ------------
TOTAL ASSETS $ 50,572 $ 55,095
------------- ------------
------------- ------------
CURRENT LIABILITIES:
Accounts payable $ 560 $ 1,127
Accounts payable - related party 959
Other accrued liabilities 3,959 3,497
Accrued interest-related party 702
Notes payable and current maturities of long-term debt-related party 5,578 5,578
------------- ------------
Total current liabilities 11,758 10,202
------------- ------------
LONG-TERM DEBT-RELATED PARTY 13,793 13,793
PARTNERS' EQUITY 25,021 31,100
------------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 50,572 $ 55,095
------------- ------------
------------- ------------
See accompanying notes to condensed financial statements.
25
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 37,856 $ 38,995
Food, beverage and other 5,487 4,038
--------------- --------------
43,343 43,033
Less promotional allowances (3,302) (2,388)
--------------- --------------
Net revenues 40,041 40,645
--------------- --------------
COSTS AND EXPENSES:
Casino 22,236 19,794
Food, beverage and other 5,120 3,549
Other operating expenses 3,892 3,764
Selling, general and administrative 9,562 7,993
Depreciation and amortization 4,178 4,118
Referendum expenses 383
--------------- --------------
44,988 39,601
--------------- --------------
(Loss) income from operations (4,947) 1,044
INTEREST (EXPENSE) INCOME (NET):
Related parties (1,202) (1,202)
Other 70 95
--------------- --------------
(1,132) (1,107)
--------------- --------------
Net loss $ (6,079) $ (63)
--------------- --------------
--------------- --------------
See accompanying notes to condensed financial statements.
26
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- --------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 11,660 $ 11,959
Food, beverage and other 1,801 1,489
--------------- --------------
13,461 13,448
Less promotional allowances (1,064) (893)
--------------- --------------
Net revenues 12,397 12,555
--------------- --------------
COSTS AND EXPENSES:
Casino 7,155 6,431
Food, beverage and other 1,658 1,254
Other operating expenses 1,340 1,414
Selling, general and administrative 3,137 2,666
Depreciation and amortization 1,389 1,388
Referendum expenses 383
--------------- --------------
14,679 13,536
--------------- --------------
Loss from operations (2,282) (981)
INTEREST (EXPENSE) INCOME (NET):
Related parties (400) (400)
Other 23 22
--------------- --------------
(377) (378)
--------------- --------------
Net loss $ (2,659) $ (1,359)
--------------- --------------
--------------- --------------
See accompanying notes to condensed financial statements.
27
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- ---------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,079) $ (63)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 3,819 3,759
Amortization 359 359
Changes in operating assets and liabilities:
Other current assets 29 523
Accounts payable (567) (143)
Accrued interest to related parties 702 2,011
Deposits 69
Other accrued liabilities 464 297
--------------- ---------------
Net cash (used in) provided by operating activities (1,273) 6,812
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (307) (516)
--------------- ---------------
Net cash used in investing activities (307) (516)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates 1,289 (8,849)
Payments on notes payable and long-term debt (385)
--------------- ---------------
Net cash provided by (used in) financing activities 1,289 (9,234)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (291) (2,938)
Cash and cash equivalents, beginning of period 3,051 5,201
--------------- ---------------
Cash and cash equivalents, end of period $ 2,760 $ 2,263
--------------- ---------------
--------------- ---------------
See accompanying notes to condensed financial statements.
28
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Catfish Queen Partnership in Commendam ("Partnership") was formed to
provide riverboat gaming and related entertainment in Baton Rouge, Louisiana.
The Partnership is comprised of a 90% general partner, Argosy of Louisiana,
Inc. ("General Partner"), a wholly owned subsidiary of Argosy Gaming Company
("Argosy"), and a 10% partner in commendam, Jazz Enterprises, Inc. ("Jazz")
which became a wholly owned subsidiary of Argosy in 1995.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1996, included in the
Argosy's Annual Report on Form 10-K (File No. 0-21122). The accompanying
unaudited condensed financial statements contain all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals. Certain 1996 amounts
have been reclassified to conform to the 1997 financial statement
presentation.
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East
Baton Rouge (collectively referred to as "City-Parish") and Jazz entered into
an agreement which requires Jazz and the Company to pay to the City-Parish
$2.50 per passenger. Additionally, Jazz agreed to pay to the City-Parish an
additional passenger fee which is now $2.50 per passenger until actual
construction of a hotel commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger if required,
for the initial five-year certification term approved by the Louisiana Gaming
Control Board. Through September 30, 1997, the Partnership has paid all
admission payments due under the above agreements.
On June 5, 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.
29
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- --------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 83 $
Other current assets 154 78
-------------- -------------
Total current assets 237 78
-------------- -------------
NET PROPERTY AND EQUIPMENT 54,918 57,297
GOODWILL, NET 20,071 20,519
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 3,904 3,685
-------------- -------------
TOTAL ASSETS $ 81,022 $ 83,471
-------------- -------------
-------------- -------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 4,100 $ 3,478
LONG-TERM DEBT 80,559 81,485
STOCKHOLDER'S DEFICIT:
Common stock, no par value, 100,000 shares
authorized, 200 shares issued and outstanding
Retained deficit (3,637) (1,492)
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 81,022 $ 83,471
-------------- -------------
-------------- -------------
See accompanying notes to condensed financial statements.
30
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue $ 2,271 $ 2,346
Rent revenue 303 274
----------- -----------
2,574 2,620
----------- -----------
COSTS AND EXPENSES:
Operating expenses 705 275
Selling, general and administrative 956 1,192
Depreciation and amortization 1,766 987
Preopening costs 100
----------- ----------
3,427 2,554
----------- ----------
(Loss) income from operations (853) 66
OTHER (EXPENSE) INCOME:
Interest expense (684) (717)
Equity in loss of unconsolidated partnership (608) (6)
----------- -----------
Loss before income taxes (2,145) (657)
Income tax expense
------------ -----------
Net loss $ (2,145) $ (657)
------------ -----------
------------ -----------
See accompanying notes to condensed financial statements.
31
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue $ 700 $ 714
Rent revenue 119 89
--------- ----------
819 803
--------- ----------
COSTS AND EXPENSES:
Operating expenses 260 81
Selling, general and administrative 321 401
Depreciation and amortization 589 628
-------- ----------
1,170 1,110
-------- ----------
Loss from operations (351) (307)
OTHER EXPENSE:
Interest expense (224) (236)
Equity in loss of unconsolidated partnership (266) (136)
--------- --------
Loss before income taxes (841) (679)
Income tax benefit 9
---------- ----------
Net loss $ (841) $ (670)
---------- ----------
---------- ----------
See accompanying notes to condensed financial statements.
32
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- --------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,145) $ (657)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,318 540
Amortization 448 448
Equity in loss of unconsolidated partnership 608 6
Changes in operating assets and liabilities:
Other current assets (76) (141)
Accounts payable and accrued liabilities 622 415
--------- --------
Net cash provided by operating activities 775 611
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (785) (25,387)
Increase in other assets (826) (179)
--------- --------
Net cash used in investing activities (1,611) (25,566)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (298) (295)
Advances from affiliate 1,217 25,218
--------- --------
Net cash provided by financing activities 919 24,923
--------- --------
Net increase (decrease) in cash and cash equivalents 83 (32)
Cash and cash equivalents, beginning of period - 32
--------- --------
Cash and cash equivalents, end of period $ 83 $ -
--------- --------
--------- --------
See accompanying notes to condensed financial statements.
33
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jazz Enterprises, Inc., ("Jazz" or "the Company") a Louisiana corporation
was incorporated on June 10, 1992 for the purpose of developing a riverboat
gaming operation and an entertainment complex known as "Catfish Town" in Baton
Rouge, Louisiana.
In July 1993, the Company entered into a partnership with Argosy of
Louisiana, Inc. (a wholly owned subsidiary of Argosy Gaming Company ("Argosy")
("ALI") in which the Company owns 10% and ALI owns 90%, to operate a riverboat
casino in Baton Rouge, Louisiana, which opened September 30, 1994. The Company
contributed its Certificate of Preliminary Approval and certain leases to the
partnership.
On December 5, 1994, the stockholders of Jazz entered into an agreement to
sell 100% of the common stock of Jazz to Argosy. The transaction was
consummated on May 30, 1995 and was accounted for as a purchase, therefore
establishing a new basis of accounting. Terms of the transaction allowed Argosy
to acquire Jazz's 10% limited partnership interest in the Baton Rouge casino and
all of Jazz's interest in Catfish Town real estate development.
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, 1996, included in Argosy's Annual Report
on Form 10-K (File No. 0-21122). The accompanying unaudited condensed financial
statements contain all adjustments which are, in the opinion of management,
necessary to present fairly the financial position and the results of operations
for the periods indicated. Such adjustments include only normal recurring
accruals. Certain 1996 amounts have been reclassified to conform to the 1997
financial statement presentation.
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East
Baton Rouge (collectively referred to as "City-Parish") and the Company
entered into an agreement which required the Company and the partnership to
pay to the City-Parish $2.50 per passenger. Additionally, the Company agreed
to pay to the City-Parish an additional passenger fee which is now $2.50 per
passenger until actual construction of a hotel commences by the Company or
another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger if required, for
the initial five-year certification term approved by the Louisiana Riverboat
Gaming Commission. Through September 30, 1997, the partnership has paid all
admission payments due under the above agreements.
On June 5, 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.
34
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 13,014 $ 9,216
Other current assets 1,914 1,844
------------- ------------
Total current assets 14,928 11,060
------------- ------------
NET PROPERTY AND EQUIPMENT 145,076 69,392
OTHER ASSETS:
Deposits 1,305 5
Cash and cash equivalents-restricted 22,030 14,919
Intangible assets, net 30,599 31,459
------------- ------------
Total other assets 53,934 46,383
------------- ------------
TOTAL ASSETS $ 213,938 $ 126,835
------------- ------------
------------- ------------
CURRENT LIABILITIES:
Accounts payable $ 856 $ 3,115
Accrued interest and dividends payable-related parties 3,200 2,198
Other accrued liabilities 16,327 5,616
Current maturities of long-term debt-related parties 7,246 2,900
Current maturities of other long-term obligations 5,169 5,169
------------- ------------
Total current liabilities 32,798 18,998
------------- ------------
LONG-TERM DEBT-RELATED PARTY 156,983 86,612
OTHER LONG-TERM OBLIGATIONS 10,693 15,000
MINORITY INTERESTS 14,771 14,490
STOCKHOLDER'S DEFICIT:
Common stock - $.01 par value, 1,000 shares authorized
issued and outstanding
Accumulated deficit (1,307) (8,265)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 213,938 $ 126,835
------------- ------------
------------- ------------
See accompanying notes to condensed consolidated financial statements.
35
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- ------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 87,775 $
Admissions 13,152
Food, beverage and other 4,620
------------- ------------
105,547
Less promotional allowances (11,461)
------------- ------------
Net revenues 94,086
------------- ------------
COST AND EXPENSES:
Casino 39,438
Food, beverage and other 3,568
Other operating expenses 9,654
Selling, general and administrative 15,637
Depreciation and amortization 8,324
Management fees-related parties 1,289
Preopening 5,659
------------- ------------
77,910 5,659
------------- ------------
Income (loss) from operations 16,176 (5,659)
OTHER INCOME (EXPENSE):
Interest income 1,056
Interest expense (1,977)
------------- ------------
(921)
------------- ------------
Income (loss) before income taxes and minority interests 15,255 (5,659)
Income tax expense (5,425)
Minority interests (2,872) 2,383
------------- ------------
Net income (loss) $ 6,958 $ (3,276)
------------- ------------
------------- ------------
See accompanying notes to condensed consolidated financial statements.
36
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- ------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 30,357 $
Admissions 4,560
Food, beverage and other 1,639
------------- ------------
36,556
Less promotional allowances (4,339)
------------- ------------
Net revenues 32,217
------------- ------------
COST AND EXPENSES:
Casino 13,969
Food, beverage and other 1,362
Other operating expenses 3,324
Selling, general and administrative 5,171
Depreciation and amortization 2,934
Management fees-related parties 420
Preopening 2,816
------------- ------------
27,180 2,816
------------- ------------
Income (loss) from operations 5,037 (2,816)
OTHER INCOME (EXPENSE):
Interest income 459
Interest expense (807)
------------- ------------
(348)
------------- ------------
Income (loss) before income taxes and minority interests 4,689 (2,816)
Income tax expense (1,571)
Minority interests (811) 1,218
------------- ------------
Net income (loss) $ 2,307 $ (1,598)
------------- ------------
------------- ------------
See accompanying notes to condensed consolidated financial statements.
37
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,958 $ (3,276)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 921 64
Amortization 7,403
Minority interests 2,872 (2,383)
Changes in operating assets and liabilities:
Other current assets (70) (1,507)
Deposits (1,300) (1,336)
Accounts payable (2,259) (581)
Accrued interest payable to related parties 13 129
Accrued liabilities 10,053 224
------------- ------------
Net cash provided by (used in) operating activities 24,591 (8,666)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow (7,111) (8,237)
Purchases of property and equipment (78,604) (35,449)
Payments under development agreement and other
infrastructure improvements (4,307)
------------- ------------
Net cash used in investing activities (90,022) (43,686)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 39,610 31,743
Payments on installment contracts (3,497) (1,062)
Proceeds from contributed capital 19,044
Repayment of long term debt - related party (1,515)
Proceeds from long-term debt - related party 36,293 5,449
Payment of preferred return to partner (764)
Partnership equity distributions (838)
Other (60) (25)
------------- ------------
Net cash provided by financing activities 69,229 55,149
------------- ------------
Net increase in cash and cash equivalents 3,798 2,797
Cash and cash equivalents, beginning of period 9,216 2
------------- ------------
Cash and cash equivalents, end of period $ 13,014 $ 2,799
------------- ------------
------------- ------------
See accompanying notes to condensed consolidated financial statements.
38
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
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") "the Company") was formed effective April
11, 1994 to provide riverboat gaming and related entertainment in
Lawrenceburg, Indiana. The Company is a 57 1/2% general partner in the
Partnership, together with, three limited partners including, Conseco
Entertainment, L.L.C., ("Conseco") a 29% limited partner, Centaur, Inc., a
9.5% limited partner and RJ Investments, Inc., a 4% limited partner. On
December 10, 1996, the Company commenced operations at a temporary site and
ceased being in the development stage. The Company is constructing its
permanent site which it expects to open in December 1997.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information refer to
the financial statements and footnotes thereto for the year ended December
31, 1996, included in Argosy's Annual Report on Form 10-K (File No. 0-21122).
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations for the
periods indicated. Such adjustments include only normal recurring accruals.
Certain 1996 amounts have been reclassified to conform to the 1997 financial
statement presentation.
2. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforward
for income tax purposes of approximately $260 and recorded a valuation
allowance against its deferred tax assets. During the nine months ended
September 30, 1997 the Company utilized the net operating loss carryforward.
3. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of the Development Agreement, the Company entered into a lease
with the City of Lawrenceburg for docking privileges for the riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Company. Under the terms of the Development
Agreement, the Company pays an annual fee to the City of Lawrenceburg ranging
from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of $6
million per year.
The Company has agreed to pay the City of Lawrenceburg approximately
$33,848 in reimbursements for infrastructure improvements and unrestricted
grants. These have been recorded as an intangible asset in the accompanying
balance sheets. The reimbursement for infrastructure improvements and
unrestricted city grants are being amortized over the 28 year term, including
extensions, of the Development Agreement.
39
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(Dollars in Thousands)
Included in other long term obligations at September 30, 1997 is $15,862
representing the remaining grants and infrastructure payments due by the
Company under the terms of the Riverboat Gaming Development Agreement with
the City of Lawrenceburg ("Development Agreement"). Upon the final completion
of the permanent site $8,000 is due. The remaining $7,862 is payable as
follows: $862 ratably over the first year subsequent to opening of the
temporary site, $5,000 ratably over the second year subsequent to the opening
of the temporary site and $2,000 ratably over the third year subsequent to
the opening of the temporary site.
COMPLETION OF PERMANENT FACILITY-Provisions of the partnership agreement
stipulate that capital contributions, including partner loans up to a total
project cost, as defined, of $225 million will be made 57 1/2% by the Company
and 42 1/2% by the limited partners with any excess project cost being the
sole responsibility of the Company.
Pursuant to Indiana gaming law, the Company may only operate at its
temporary site for one year from the opening of the temporary facility. The
completion of the permanent facility is subject to the satisfaction of
numerous conditions including weather conditions and the receipt of numerous
permits and licenses. There can be no assurance that the permanent facility
will be open within one year of the opening of the temporary facility.
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 the third anniversary date of commencement of
operations each limited partner has the right to sell its interest to the
other partners (pro rata in accordance with their respective percentage
interests). In the event of this occurrence, if the partners cannot agree on
a selling price, the Partnership will be sold in its entirety.
GUARANTY OF PARENT OBLIGATIONS-On June 5, 1996 Argosy issued $235
million of 13 1/4% First Mortgage Notes, due 2004 ("Mortgage Notes"). The
Company has pledged its interest in the Partnership, and its rights to
certain payments from the Partnership, as collateral, under the terms of the
Mortgage Notes. Additionally, the Company is a guarantor of the Mortgage
Notes.
40
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 13,014 $ 9,216
Other current assets 1,914 1,844
------------- -------------
Total current assets 14,928 11,060
------------- -------------
NET PROPERTY AND EQUIPMENT 143,774 68,349
OTHER ASSETS:
Deposits 1,305 5
Cash and cash equivalents-restricted 22,030 14,919
Intangible assets, net 30,599 31,459
------------- -------------
Total other assets 53,934 46,383
------------- -------------
TOTAL ASSETS $ 212,636 $ 125,792
------------- -------------
------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 934 $ 3,464
Accrued interest and dividends payable-related parties 7,578 5,240
Other accrued liabilities 10,904 5,616
Due to affiliates 1,963 777
Current maturities of long-term debt-related parties 17,052 7,066
Current maturities of other long-term obligations 5,169 5,169
------------- -------------
Total current liabilities 43,600 27,332
------------- -------------
LONG-TERM DEBT-RELATED PARTIES 119,365 49,463
OTHER LONG-TERM OBLIGATIONS 10,693 15,000
PARTNERS' EQUITY:
General partner 22,413 19,549
Limited partners 16,565 14,448
------------- -------------
Total partners' equity 38,978 33,997
------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 212,636 $ 125,792
------------- -------------
------------- -------------
See accompanying notes to condensed financial statements.
41
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- --------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 87,775 $
Admissions 13,152
Food, beverage and other 4,620
------------- -------------
105,547
Less promotional allowances (11,461)
------------- -------------
Net revenues 94,086
------------- -------------
COST AND EXPENSES:
Casino 39,438
Food, beverage and other 3,568
Other operating expenses 9,654
Selling, general and administrative 15,637
Depreciation and amortization 8,324
Management fees-related parties 3,224
Preopening 5,608
------------- -------------
79,845 5,608
------------- -------------
Income (loss) from operations 14,241 (5,608)
OTHER INCOME (EXPENSE):
Interest income 1,056
Interest expense (4,209)
------------- -------------
(3,153)
------------- -------------
Net income (loss) prior to preferred equity return 11,088 (5,608)
Preferred equity return (4,134) (2,468)
------------- -------------
Net income (loss) attributable to common equity partners $ 6,954 $ (8,076)
------------- -------------
------------- -------------
See accompanying notes to condensed financial statements.
42
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 30,357 $
Admissions 4,560
Food, beverage and other 1,639
------------- -------------
36,556
Less promotional allowances (4,339)
------------- -------------
Net revenues 32,217
------------- -------------
COST AND EXPENSES:
Casino 13,969
Food, beverage and other 1,362
Other operating expenses 3,324
Selling, general and administrative 5,171
Depreciation and amortization 2,934
Management fees-related parties 1,049
Preopening 2,866
------------- -------------
27,809 2,866
------------- -------------
Income (loss) from operations 4,408 (2,866)
OTHER INCOME (EXPENSE):
Interest income 459
Interest expense (1,690)
------------- -------------
(1,231)
------------- -------------
Net income (loss) prior to preferred equity return 3,177 (2,866)
Preferred equity return (1,393) (2,468)
------------- -------------
Net income (loss) attributable to common equity partners $ 1,784 $ (5,334)
------------- -------------
------------- -------------
See accompanying notes to condensed financial statements.
43
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,954 $ (8,076)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 921 64
Amortization 7,403
Accrued preferred equity dividends 4,134 2,468
Changes in operating assets and liabilities:
Other current assets (70) (1,450)
Accounts payable (2,530) (292)
Accrued interest payable to related parties 3 275
Deposits (1,300) (1,336)
Accrued liabilities 5,486 1,127
------------- -------------
Net cash provided by (used in) operating activities 21,001 (7,220)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow (7,111) (8,237)
Purchases of property and equipment (78,345) (34,732)
Payments under development agreement and other
infrastructure improvements (4,307)
------------- -------------
Net cash used in investing activities (89,763) (42,969)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (3,497) (1,062)
Proceeds from contributed capital 34,264
Proceeds from long-term debt - related party 83,445 19,809
Repayment of long term debt - related party (3,557)
Payment of preferred return to partners (1,798)
Partnership equity distribution (1,973)
Other (60) (25)
------------- -------------
Net cash provided by financing activities 72,560 52,986
------------- -------------
Net increase in cash and cash equivalents 3,798 2,797
Cash and cash equivalents, beginning of period 9,216 2
------------- -------------
Cash and cash equivalents, end of period $ 13,014 $ 2,799
------------- -------------
------------- -------------
See accompanying notes to condensed financial statements.
44
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Indiana Gaming Company, L.P. ("Partnership"), an Indiana limited
partnership, was formed effective April 11, 1994 to provide riverboat gaming
and related entertainment in Lawrenceburg, Indiana. The Partnership is
comprised of a 57.5% general partner, The Indiana Gaming Company ("General
Partner"), a wholly owned subsidiary of Argosy Gaming Company, ("Argosy"),
and three limited partners including, Conseco Entertainment, L.L.C.,
("Conseco") a 29% limited partner, Centaur, Inc., a 9.5% limited partner and
RJ Investments, Inc., a 4% limited partner. Net income (loss) is allocated to
the partners based on their respective ownership interests. On December 10,
1996, the Partnership commenced operations at a temporary site and ceased
being in the development stage. The Partnership is constructing its permanent
site which it expects to open in December 1997.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1996, included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1996 amounts have been
reclassified to conform to the 1997 financial statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of the Development Agreement, the Partnership entered into a
lease with the City of Lawrenceburg for docking privileges for its riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Partnership. Under the terms of the Development
Agreement, the Partnership pays an annual fee to the City of Lawrenceburg
ranging from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of
$6 million per year.
45
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(Dollars in Thousands)
The Partnership has agreed to pay the City of Lawrenceburg $33,848 in
reimbursements for infrastructure improvements and unrestricted grants.
Subsequent to the commencement of operations at the temporary site, these
have been recorded as an intangible asset in the accompanying balance sheets.
The reimbursement for infrastructure improvements and unrestricted city
grants are being amortized over the 28 year term, including extensions, of
the Development Agreement.
Included in other long term obligations at September 30, 1997 is $15,862
representing the remaining grants and infrastructure payments due by the
Partnership under the terms of the Riverboat Gaming Development Agreement
with the City of Lawrenceburg ("Development Agreement"). Upon the final
completion of the permanent site $8,000 is due. The remaining $7,862 is
payable as follows: $862 ratably over the first year subsequent to opening of
the temporary site, $5,000 ratably over the second year subsequent to the
opening of the temporary site and $2,000 ratably over the third year
subsequent to the opening of the temporary site.
COMPLETION OF PERMANENT FACILITY-Provisions of the partnership agreement
stipulate that capital contributions, including partner loans up to a total
project cost, as defined, of $225 million will be made 57 1/2% by the General
Partner and 42 1/2% by the limited partners with any excess project cost
being the sole responsibility of the General Partner.
The Partnership may only operate at its temporary site for one year from
the opening of the temporary facility. The completion of the permanent
facility is subject to the satisfaction of numerous conditions including
weather conditions and the receipt of numerous permits and licenses. There
can be no assurance that the permanent facility will be open within one year
of the opening of the temporary facility.
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 the third anniversary date of commencement of operations
each limited partner has the right to sell its interest to the other partners
(pro rata in accordance with their respective percentage interests). In the
event of this occurrence, if the partners cannot agree on a selling price,
the Partnership will be sold in its entirety.
46
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company opened its first riverboat casino, the Alton Belle Casino,
in Alton, Illinois in September 1991. Subsequently, the Company opened the
Argosy Casino in Riverside, Missouri in June 1994; the Belle of Baton Rouge
in Baton Rouge, Louisiana in September 1994; and the Belle of Sioux City in
Sioux City, Iowa in October 1994. In addition, the Company, through its
57.5% equity interest in Indiana Gaming Company, L.P., opened a temporary
casino in Lawrenceburg, Indiana on December 10, 1996 and expects to open the
permanent gaming facility in December 1997. The anticipated opening date of
the permanent Lawrenceburg facility is a forward looking statement that
involves certain risks and uncertainties and there can be no assurance that
the projected opening date will be met, as the opening is subject to numerous
conditions, including licensing, permitting and construction.
The Company's results of operations for the three months and nine months
ended September 30, 1997 were adversely affected by increased competition at
its Alton and Riverside properties, and the Company expects the competitive
environment in the St. Louis and Kansas City areas to remain intense. The
increased competition has resulted in the Company reporting decreased
revenues at its Alton and Riverside properties in 1997. The Company believes
that the competitive pressures in these markets will continue to adversely
effect the operating revenues and profitability at these properties. In
addition, the Company is incurring significant costs and capital expenditures
in developing the Lawrenceburg casino project. These increased costs,
competitive pressures on revenues and the increased interest expense
associated with the issuance, in June 1996, of $235 million of First Mortgage
Notes ("Mortgage Notes"), will continue to adversely affect the Company's
results of operations.
The Company is in a net operating loss carryforward position at
September 30, 1997 and, as such, the Company has not recorded an income tax
benefit on its 1997 operating losses due to the uncertainty of realization.
47
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,
1997 1996 1997 1996
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
GROSS REVENUES
Alton $ 52,518 $ 61,994 $ 16,850 $ 20,859
Riverside 53,645 74,834 17,042 23,495
Baton Rouge 43,343 43,033 13,461 13,448
Sioux City 17,022 15,510 5,726 5,013
Lawrenceburg 105,547 - 36,556 -
Corporate 824 377 118 123
Other 307 269 116 84
------------- ------------- ------------- -------------
Total $ 273,206 $ 196,017 $ 89,869 $ 63,022
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET REVENUES
Alton $ 50,995 $ 60,266 $ 16,310 $ 20,323
Riverside 49,939 69,474 15,764 22,145
Baton Rouge 40,041 40,645 12,397 12,555
Sioux City 16,171 14,964 5,431 4,796
Lawrenceburg 94,086 - 32,217 -
Corporate 816 359 116 119
Other 307 269 116 84
------------- ------------- ------------- -------------
Total $ 252,355 $ 185,977 $ 82,351 $ 60,022
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS(1)
Alton $ 5,817 $ 11,026 $ 509 $ 3,060
Riverside(3) 2,831 8,904 24 2,652
Baton Rouge(4) (2,676) 3,773 (1,582) 116
Sioux City 493 102 143 (476)
Lawrenceburg 16,176 - 5,037 -
Corporate(5) (9,056) (9,972) (2,532) (3,267)
Other(6) (1,835) (3,915) (666) (1,934)
------------- ------------- ------------- -------------
Total $ 11,750 $ 9,918 $ 933 $ 151
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
EBITDA(1)(2)
Alton $ 9,054 $ 14,167 $ 1,637 $ 4,130
Riverside(3) 7,293 14,655 1,748 4,152
Baton Rouge(4) 1,502 7,891 (193) 1,504
Sioux City 1,212 697 386 (263)
Lawrenceburg 24,500 - 7,971 -
Corporate(5) (7,211) (8,741) (1,941) (2,859)
Other(6) 631 (1,685) 154 (531)
------------- ------------- ------------- -------------
Total $ 36,981 $ 26,984 $ 9,762 $ 6,133
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
48
ARGOSY GAMING COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
(1) Income (loss) from operations and EBITDA are presented before consideration
of any 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 to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or as
an alternative to cash flows generated by operating, investing and
financing activities (as an indicator of cash flow or a measure of
liquidity). EBITDA is presented solely as a supplemental disclosure
because management believes that it is a widely used measure of operating
performance in the gaming industry and for companies with a significant
amount of depreciation and amortization. The Company has other significant
uses of cash flows, including capital expenditures, which are not reflected
in EBITDA.
(3) Excludes $3.5 million for the nine months ended September 30, 1996 related
to lease termination costs in connection with assets formerly used at the
Riverside temporary facility.
(4) Excludes referendum expenses of approximately $.4 million for the three and
nine months ended September 30, 1996.
(5) Excludes severance expenses of approximately $1.8 million for the nine
months ended September 30, 1997, and excludes a one-time charge of $1.5
million in connection with the termination of a private placement for the
nine months ended September 30, 1996.
(6) Excludes pre-opening expenses of approximately $3.5 million and $6.2
million for the three and nine months ended September 30, 1996 primarily
related to Lawrenceburg.
49
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
CASINO--Casino revenues for the nine months ended September 30, 1997
increased to $234.3 million from $173.9 million for the nine months ended
September 30, 1996 due to the opening of the Lawrenceburg casino, which
generated $87.8 million of casino revenues, offset by decreased revenues at
the company's other properties. Alton casino revenues decreased from $56.1
to $46.9 million and Riverside casino revenues decreased from $64.7 to $46.4
million due to the effects of increased competition. Baton Rouge casino
revenues decreased from $39.0 million to $37.9 million.
Casino expenses increased to $120.1 million for the nine months ended
September 30, 1997 from $89.2 million for the nine months ended September 30,
1996 due primarily to the opening of the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $5.6
million to $25.7 million for the nine month period ended September 30, 1997,
due to the opening of the Lawrenceburg casino and increased sales in Baton
Rouge. Food, beverage and other net profit improved $1.7 million to $4.2
million for the nine months ended September 30, 1997 due primarily to the
increased sales in Lawrenceburg.
OTHER OPERATING EXPENSES--Other operating expenses increased $7.5
million to $21.1 million for the nine months ended September 30, 1997. This
increase is due primarily to costs associated with operating the Lawrenceburg
casino.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $13.3 million to $52.2 million for the nine months ended
September 30, 1997 due primarily to the opening of the Lawrenceburg casino.
This increase was somewhat offset when the Company recorded a charge of
approximately $1.5 million in professional and other fees related to its
response to a Marion County, Indiana grand jury document subpoena and the
related termination of a private placement of First Mortgage Notes in 1996.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$8.1 million from $17.1 million for the nine months ended September 30, 1996
to $25.2 million for the nine months ended September 30, 1997. This increase
is due primarily to additional assets associated with the Lawrenceburg casino.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
decreased from $7.4 million for the nine month period ended September 30,
1996 to $.5 million for the nine month period ended September 30, 1997. The
primary decrease is due to expenses related to developing the casino in
Lawrenceburg, Indiana in 1996.
INTEREST EXPENSE--Net interest expense increased $9.0 million to $30.2
million for the nine months ended September 30, 1997. The increase is
attributable to interest expense on borrowings on the Company's $235 million
First Mortgage Notes which were issued in June, 1996.
NET LOSS--Net loss increased from $13.6 million for the nine months
ended September 30, 1996 to $22.9 million for the nine months ended September
30, 1997 primarily for the reasons discussed above. In addition, in 1996 the
Company recorded a pretax charge of $3.5 million related to lease termination
costs in connection with assets formerly used at its temporary facility in
Riverside. Also, the Company recorded an extraordinary loss of $.9 million
(net of tax) related to the write off of deferred finance costs associated
with extinguishment of its
50
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
revolving secured line of credit in 1996. In 1997, the Company is in a net
operating loss position and, therefore, has not recorded any tax benefit
against its losses for the nine months ended September 30, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
CASINO--Casino revenues for the three months ended September 30, 1997
increased to $76.8 million from $55.8 million for the three months ended
September 30, 1996 due to the opening of the Lawrenceburg casino, which
generated $30.4 million of casino revenues, offset by decreased revenues at
the Company's other properties. Alton casino revenues decreased from $18.6
to $14.9 million and Riverside casino revenues decreased from $20.7 to $14.7
million due to the effects of increased competition. Baton Rouge casino
revenues decreased from $12.0 million to $11.7 million.
Casino expenses increased to $40.5 million for the three months ended
September 30, 1996 from $30.0 million for the three months ended September
30, 1996 due primarily to the opening of the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $1.4
million to $8.6 million for the three month period ended September 30, 1997,
due to the opening of the Lawrenceburg casino and increased sales in Baton
Rouge. Riverside revenues decreased from $2.8 million to $2.3 million while
Alton revenues decreased from $2.2 million to $2.0 million. Food, beverage
and other net profit improved $.3 million to $1.2 million for the three
months ended September 30, 1997 due primarily to the increased sales.
OTHER OPERATING EXPENSES--Other operating expenses increased $2.5
million to $7.4 million for the three months ended September 30, 1997. This
increase is due primarily to costs associated with operating the Lawrenceburg
casino.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $4.5 million to $17.1 million for the three months ended
September 30, 1997 due primarily to the opening of the Lawrenceburg casino.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$2.8 million from $6.0 million for the three months ended September 30, 1996
to $8.8 million for the three months ended September 30, 1997. This increase
is due primarily to additional assets associated with the Lawrenceburg casino.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
decreased from $3.7 million for the three month period ended September 30,
1996 to $.2 million for the three month period ended September 30, 1997. The
primary decrease is due to expenses related to developing the casino in
Lawrenceburg, Indiana in 1996.
INTEREST EXPENSE--Net interest expense decreased $.5 million to $9.8
million for the three months ended September 30, 1997. This decrease is
attributable to the capitalization of interest expense related to the
construction of the permanent casino site in Lawrenceburg, Indiana which is
expected to open in December 1997.
NET LOSS--Net loss increased from $7.7 million for the three months
ended September 30, 1996 to $9.6 million for the three months ended September
30, 1997 primarily for the reasons discussed above. In 1997, the Company is
in a net operating loss position and, therefore, has not recorded any tax
benefit against its losses for the three months ended September 30, 1997.
51
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
COMPETITION
The Company's Alton Casino faces competition from four other riverboat
casino facilities currently operating in the St. Louis area and expects the
level of competition to remain intense in the future. The most recent casino
complex to open includes two independently owned facilities, each of which
operate two dockside vessels. This casino complex, which increased gaming
capacity in St. Louis by approximately 50%, opened in March of 1997. The
Company's Riverside Casino faces competition from four casino companies in
the Kansas City area that offer dockside gaming, two of which offer two
gaming vessels each. The Company's Baton Rouge Casino faces competition from
one casino located in downtown Baton Rouge, a nearby native American casino
and multiple casinos throughout Louisiana. Currently, the Company faces
competition in Sioux City, Iowa, from two land-based Native American casinos,
slot machines at a pari-mutual race track in Council Bluffs, Iowa and from
two riverboat casinos in the Council Bluffs, Iowa/Omaha, Nebraska market,
which opened in January 1996. The Indiana Partnership faces competition from
one other riverboat casino in the Cincinnati market, which opened in October
1996. 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, 1997, the Company generated cash
flows from operating activities of $29.6 million compared to $8.1 million for
the same period in 1996. The increase in cash flow is primarily attributed
to the opening of the Lawrenceburg Casino and the receipt of a $9.1 million
income tax refund.
In the nine months ended September 30, 1997, the Company used cash flows
for investing activities of $51.6 million versus $156.4 million for the nine
months ended September 30, 1996. The primary use of funds in 1997 was the
investment in the construction of the Lawrenceburg facility. In 1996, the
Company placed $94.3 million in a restricted fund to be used for the
construction of the Lawrenceburg facility and used $73.3 million for capital
expenditures primarily at the Lawrenceburg facility.
During the nine months ended September 30, 1997, the Company generated
$29.1 million in cash flows from financing activities compared to generating
$199.6 million of cash flows from financing activities for the same period in
1996. The primary sources of cash flows in 1997 were $36.3 million in loans
from the Company's partner in Lawrenceburg offset by payments on installment
contracts. In 1996, the Company received proceeds from its issuance of $235
million of first mortgage notes and capital contributions from its partner of
$19.0 million offset by the repayment of $90.0 million on its previous line
of credit.
As of September 30, 1997, the Company had approximately $45.4 million of
cash, cash equivalents, and marketable securities, including approximately
$13.0 million held at the Indiana Partnership, which can be used for general
working capital purposes. In addition, the Company had $26.1 million in a
disbursement account to be used to fund the Company's portion of the
remaining Lawrenceburg construction costs which cannot be used for any other
purpose. In addition to the disbursement account the Indiana Partnership has
placed approximately $22.0 million in an escrow account representing unbilled
construction costs of the permanent Lawrenceburg facility.
52
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
On June 5, 1996 the Company issued $235 million of First Mortgage Notes
which are due September 2004. Additionally, the Company has $115 million of
Convertible Subordinated Notes outstanding which were issued in June 1994 and
are due June 2001.
The Company has made a significant investment in property and equipment
and plans to make significant additional investments at certain of its
existing properties, particularly Lawrenceburg, Indiana. The Company
currently estimates that the total construction costs of the Lawrenceburg
Casino and entertainment project will approximate $225 million. This is a
forward looking statement that involves certain risks and uncertainties and
this amount is subject to numerous factors including weather and other
construction risks. As of September 30, 1997, approximately $192.5 million
has been contributed to the partnership for the project by all partners,
including preopening costs. Of the remaining Lawrenceburg construction
costs, approximately $25 million is anticipated to be funded through
equipment financing from third party lenders and the balance will be funded
by the Company (57.5% ) and its partners (42.5%). In the event project
costs, as defined, exceed $210 million, the Company and its partner will fund
such costs on the same percentages to a total project cost of $225 million.
Any project costs in excess of $225 million must be funded by the Company.
As a result of its June 1995 acquisition of Jazz, the Company is now the
developer of the Catfish Town real estate project in Baton Rouge, Louisiana.
The Company estimates that the completion of the Catfish Town project will
cost an additional $2 to $5 million (primarily tenant allowance) as of
September 30, 1997. Further, if the Predecessor's status as an
S-Corporation, which has been asserted as an issue by the IRS during an
ongoing audit, is successfully challenged, the Company currently estimates
that it would require up to approximately $13.6 million (excluding penalties)
to fund the potential income tax liability.
The Company believes that cash on hand will be sufficient to find its
current capital expenditure obligations, including the completion of the
permanent Lawrenceburg casino development. The Company's ability to meet its
operating and debt service requirements, however, is substantially dependent
upon the success of the permanent Lawrenceburg casino. If the permanent
Lawrenceburg casino fails to meet the Company's operating and cash flow
expectations or there are any other events that negatively impact its sources
or uses of cash, such as a delayed opening or overrun in the project costs at
the permanent Lawrenceburg casino, a significant deterioration in the
operating results of the Company's other properties, or an adverse IRS
ruling, the Company may be unable to meet future debt service payments
without obtaining additional debt or equity financing or without the
disposition of assets. No assurance can be given that the Company would be
able to obtain such additional financing on suitable terms or sell assets on
favorable terms, if required. In light of the foregoing, the Company has
retained and has been working with a financial advisory firm to consider
various options with respect to the Company's capital structure, including
possible debt and equity financings and asset dispositions.
53
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS
DOCUMENT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE" AND "EXPECT" AND
SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS,
INCLUDING THOSE REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY OR ITS MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS INCLUDING, BUT NOT LIMITED TO, (I) GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY OPERATES, (II) COMPETITIVE
PRESSURES IN THE MARKETS IN WHICH THE COMPANY OPERATES, (III) DELAYS OR
COST-OVERRUNS WITH RESPECT TO THE LAWRENCEBURG CASINO WHICH COULD
SIGNIFICANTLY IMPAIR THE ABILITY OF THE COMPANY TO MEET ITS DEBT SERVICE
REQUIREMENTS, (IV) THE EFFECT OF FUTURE LEGISLATION OR REGULATORY CHANGES ON
THE COMPANY'S OPERATIONS, AND (V) OTHER RISKS DETAILED FROM TIME TO TIME IN
THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. THE COMPANY DOES
NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
54
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
CHALLENGE TO LICENSE FOR LAWRENCEBURG CASINO BY UNSUCCESSFUL APPLICANT
On November 29, 1996, Schilling Casino Corporation d/b/a Empire Casino &
Resort ("Empire"), an unsuccessful competing applicant for the riverboat
owner's license in Lawrenceburg, Indiana that was awarded to the Indiana
Partnership by the Indiana Gaming Commission (the "Commission"), filed with
the Commission a purported "Request for Hearing" (the "Request") on the
denial of Empire's application for the Lawrenceburg license. Empire's
Request, which has been referred to an Administrative Law Judge (the "ALJ"),
did not seek a stay of the award of the license to the Indiana Partnership or
of the Indiana Partnership's commencement of regular gaming operations from
its temporary gaming facility at Lawrenceburg, which commenced December 10,
1996. The Company and the Indiana Partnership were granted leave to intervene
in the administrative proceedings on the Empire Request.
The grounds asserted in the Empire Request include claims that (i) the
application process followed by the Commission did not afford Empire due
process and violated Indiana laws; (ii) the Indiana Partnership failed to
comply with conditions in the certificate and failed to open the temporary
gaming facility in a timely fashion, (iii) the Indiana Partnership made
misrepresentations to the Commission during the licensing hearings; (iv) the
Commission could not lawfully have extended the certificate beyond June 30,
1996 (one year after the date of its initial award) without reconsidering all
other applications; and (v) the endorsement of the Indiana Partnership by the
City of Lawrenceburg was without legal authority and was given improper
weight by the Commission.
The Company and the Indiana Partnership filed with the ALJ a motion or
summary judgment to dismiss Empire's Request; the Commission filed with the
ALJ a motion for partial summary judgment on Empire's Request; and Empire
filed with the ALJ its "discovery plan" describing discovery it wished to
pursue in the matter, as to which the Company and the Indiana Partnership
filed a motion for protective order.
After briefing and a hearing before the ALJ, the ALJ issued on June 13,
1997 his findings of fact and conclusions of law and his recommended orders
to the Commission (the "ALJ Entries") on the various matters presented. The
ALJ Entries rejected the claims asserted in Empire's Request; granted the
Commission's motion for partial summary judgment; and denied the discovery
sought by Empire. The ALJ Entries treated the motion for summary judgment by
the Company and the Indiana Partnership as moot (given the recommendation
that the Commission's motion for partial summary judgment be granted); and
denied the Company's and Indiana Partnership's motion to dismiss, which had
been based in part on the claim that Empire's Request did not timely comply
with procedural requirements. Finally, the ALJ Entries stated Empire would
be entitled to an evidentiary hearing only for purposes of attempting to
establish that it should have been awarded the Lawrenceburg license, an issue
on which Commission regulations place the burden of proof on Empire.
Empire submitted to the Commission exceptions and objections to the ALJ
Entries. (The Company and the Indiana Partnership also filed exceptions to
the ALJ Entries, to preserve for the record any subsequent hearing or
judicial review proceeding those points on which they disagreed with the ALJ
Entries.) At a meeting on August 19, 1997, at which counsel for Empire and
counsel for the Company and the Indiana Partnership addressed the Commission,
the Commission considered the ALJ Entries and the exceptions and objections
of the parties, and entered an order adopting the ALJ Entries in their
entirety (the "Commission Order").
55
On August 25, 1997, the Commission formally notified Empire that it had
entered the Commission Order as the "final determination of the Commission"
on Empire's Request, and advised that any person who wished to seek judicial
review of the Commission Order was required to file a petition for review in
an appropriate court within thirty days of service of the notice. The
Commission notice also advised Empire that it could seek a hearing on the
denial of its license application, as contemplated by the ALJ Entries.
Empire has not filed any petition for judicial review of the Commission
Order, and the time for filing of such a petition expired in late September
1997. Furthermore, in response to an order issued by the ALJ on September 3,
1997, Empire's counsel notified the ALJ in writing on September 15, 1997,
that it would not seek a hearing before the ALJ on the denial of its license
application. As a result of the foregoing, Empire's Request has now been
finally resolved in a manner adverse to Empire and favorable to the Company
and the Indiana Partnership, and presents no further challenge to the
Commission's award of the Lawrenceburg license to the Indiana Partnership.
CAPITOL HOUSE PRESERVATION COMPANY, L.L.C. VS. JAZZ ENTERPRISES, INC., ET AL.
In July 1995, Capitol House Preservation Company, L.L.C. ("Capitol
House") filed a cause of action in the U. S. District Court of the Middle
District of Louisiana against Jazz, the former shareholders of Jazz ("Former
Jazz Shareholders"). Catfish Queen Partnership (the "Partnership"), Argosy
of Louisiana, Inc. ("Argosy Louisiana") and the Company alleging that Jazz
and Argosy obtained the gaming license for Baton Rouge based upon false and
fraudulent pretenses and declarations and financial misrepresentations. The
complain alleges tortious conduct as well as violations of RICO and seeks
damages of $158 million plus court costs and attorneys' fees. The plaintiff
was an applicant for a gaming license in Baton Rouge whose application was
denied by the Louisiana Enforcement Division. The Company believes the
allegations of the plaintiff are without merit and intends to vigorously
defend such cause of action.
On June 7, 1995, the Company consummated its purchase of all of the
outstanding capital stock of Jazz from the Former Jazz Shareholders. The
Company intends to seek indemnification form the Former Jazz Shareholders for
any liability the Company, Argosy Louisiana or Jazz suffers as a result of
such cause of action. As part of the consideration payable by the Company to
the Former Jazz Shareholder for the acquisition of Jazz, the Company agreed
at the time of such acquisition to annual deferred purchase price payments of
$1,350,000 for each of the first ten years after closing and $500,000 for
each of the next ten years. Payments are to be made quarterly by the
Company. The definitive acquisition documents provide the Company with
off-set rights against such deferred purchase price payments for
indemnification claims of the Company against the Former Jazz Shareholders
and for the liabilities that the Former Jazz Shareholder contractually agreed
to retain. There can be no assurance that the Former Jazz Shareholders will
have assets sufficient to satisfy any claim in excess of the Company's
off-set rights.
The defendants filed a Motion to Dismiss, or alternatively to abstain
and stay the action, pending resolution of certain Louisiana state court
claims filed by Capitol House. The trial court decided in favor of the
defendants and dismissed the suit without prejudice to the rights of
plaintiff to revive the suit after the conclusion of the pending state court
matters. The plaintiff appealed this dismissal to the U. S. Fifth Circuit
Court of Appeals. While the appeal was pending, several of the Louisiana
state court claims were resolved. On March 11, 1997, the U. S. Fifth Circuit
Court of Appeals vacated the trial court's dismissal and remanded the case to
the district court for further proceedings. The case is now back in the
district court and will proceed. The defendants have re-urged the previously
filed motion to dismiss. Oral argument on the motion to dismiss is scheduled
for November 13, 1997.
56
GAMING INDUSTRY CLASS ACTIONS
The Company was 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 which were filed
in Las Vegas, Nevada. The suits alleged 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 the extent to which there
is actually an opportunity to win on any given play. The suits sought
unspecified compensatory and punitive damages. On January 14, 1997, the
Court consolidated all three actions under the case name WILLIAM H. POULOS,
ETC. VS. CEASARS WORLD, INC., ET AL. The Gaming Industry Defendants
currently are awaiting the Court's ruling on their numerous motions to
challenge the sufficiency of the plaintiffs' consolidated amended complaint.
The Company is unable to determine what effect, if any, the suit would have
on its business or operations.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - 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
1. Report on Form 8-K dated September 18, 1997, filed with
the Securities and Exchange Commission containing
information announcing the scheduled inaugural cruise of
the new riverboat casino in Lawrenceburg, Indiana.
57
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 13, 1997 /s/ Dale R. Black
---------------------- ---------------------------------------
Dale R. Black
Vice President-Corporate Controller
(Principal Accounting Officer)
58