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 March 31, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-11853
ARGOSY GAMING COMPANY
(Exact name of Registrant as Specified in its Charter)
Delaware 37-1304247
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
219 Piasa Street
Alton, Illinois 62002
(618) 474-7500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 28,140,326 shares
of Common Stock, $.01 par value per share, as of April 30, 1999.
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 3
Condensed Consolidated Statements of Stockholders' Equity 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 12
Condensed Statements of Income 13
Condensed Statements of Cash Flows 14
Notes to Condensed Financial Statements 15
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 16
Condensed Statements of Operations 17
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 22
Notes to Condensed Consolidated Financial Statements 23
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 24
Condensed Statements of Operations 25
Condensed Statements of Cash Flows 26
Notes to Condensed Financial Statements 27
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 28
Condensed Statements of Operations 29
Condensed Statements of Cash Flows 30
Notes to Condensed Financial Statements 31
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 32
Condensed Consolidated Statements of Income 33
Condensed Consolidated Statements of Cash Flows 34
Notes to Condensed Consolidated Financial Statements 35
TABLE OF CONTENTS (CONTINUED)
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 36
Condensed Statements of Income 37
Condensed Statements of Cash Flows 38
Notes to Condensed Financial Statements 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS 40
PART II
Item 1 Legal Proceedings 47
Item 2 Changes in Securities 49
Item 3 Defaults upon Senior Securities 49
Item 4 Submission of Matters to a Vote of Security Holders 49
Item 5 Other Information 49
Item 6 Exhibits and Reports on Form 8-K 49
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 105,936 $ 89,857
Other current assets 9,165 9,399
--------- ---------
Total current assets 115,101 99,256
--------- ---------
NET PROPERTY AND EQUIPMENT 392,106 395,920
--------- ---------
OTHER ASSETS:
Goodwill and other intangible assets, net 51,319 51,817
Other, net 15,280 15,759
--------- ---------
Total other assets 66,599 67,576
--------- ---------
TOTAL ASSETS $ 573,806 $ 562,752
--------- ---------
--------- ---------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 66,819 $ 57,130
Other current liabilities 13,342 14,255
--------- ---------
Total current liabilities 80,161 71,385
--------- ---------
LONG-TERM DEBT 407,789 412,360
OTHER LONG-TERM OBLIGATIONS 2,148 2,144
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 34,518 30,660
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE - 5,340
10,000,000 SHARES AUTHORIZED, 547 SHARES ISSUED
AND OUTSTANDING AT DECEMBER 31, 1998
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 281 258
28,140,326 shares issued and outstanding at March 31, 1999;
25,830,313 shares issued and outstanding at December 31, 1998
Capital in excess of par 79,894 74,484
Retained deficit (30,985) (33,879)
--------- ---------
Total stockholders' equity 49,190 40,863
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 573,806 $ 562,752
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
1
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 129,128 $ 108,323
Admissions 4,278 3,191
Food, beverage and other 13,593 11,133
--------- ---------
146,999 122,647
Less promotional allowances (9,608) (6,947)
--------- ---------
Net revenues 137,391 115,700
--------- ---------
COSTS AND EXPENSES:
Casino 59,450 52,623
Food, beverage and other 9,637 9,349
Other operating expenses 6,588 6,618
Selling, general and administrative 28,652 23,393
Depreciation and amortization 8,473 8,066
--------- ---------
112,800 100,049
--------- ---------
Income from operations 24,591 15,651
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 907 810
Interest expense (14,134) (14,292)
--------- ---------
(13,227) (13,482)
--------- ---------
Income before income taxes and minority interests 11,364 2,169
Minority interests (7,843) (4,606)
Income tax expense (600) (100)
--------- ---------
Net income (loss) 2,921 (2,537)
Preferred stock dividends and accretion (27) -
--------- ---------
Net income (loss) attributable to common stockholders $ 2,894 $ (2,537)
--------- ---------
--------- ---------
Basic income (loss) per share $ 0.11 $ (0.10)
--------- ---------
--------- ---------
Diluted income (loss) per share $ 0.10 $ (0.10)
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
2
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,921 $ (2,537)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 7,948 7,438
Amortization 1,038 1,075
Compensation expense recognized on issuance of stock 66 66
Minority interests 7,843 4,606
Changes in operating assets and liabilities:
Other current assets 173 229
Accounts payable and other current liabilities 10,248 10,589
--------- ---------
Net cash provided by operating activities 30,237 21,466
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,130) (15,107)
Decrease in restricted cash held by trustees - 8,142
Decrease in long term obligations - (1,247)
--------- ---------
Net cash used in investing activities (4,130) (8,212)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts (2,113) (1,282)
Repayment of partner loans (3,368) (5,236)
Partnership equity distributions (3,424) (1,714)
Payment of preferred equity return to partner (1,123) (75)
--------- ---------
Net cash used in financing activities (10,028) (8,307)
--------- ---------
Net increase in cash and cash equivalents 16,079 4,947
Cash and cash equivalents, beginning of period 89,857 59,354
--------- ---------
Cash and cash equivalents, end of period $ 105,936 $ 64,301
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
3
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
TOTAL
COMMON CAPITAL IN RETAINED STOCKHOLDERS'
SHARES STOCK EXCESS OF PAR DEFICIT EQUITY
---------- ------ ------------- -------- -------------
Balance, December 31, 1998 25,830,313 $ 258 $ 74,484 $(33,879) $ 40,863
Restricted Stock
compensation expense 66 66
Preferred Stock conversion 2,310,013 23 5,344 5,367
Net income for the three months
ended March 31, 1999 2,921 2,921
Preferred Stock dividends and accretion (27) (27)
---------- ----- -------- -------- --------
Balance, March 31, 1999 28,140,326 $ 281 $ 79,894 $(30,985) $ 49,190
---------- ----- -------- -------- --------
---------- ----- -------- -------- --------
See accompanying notes to condensed consolidated financial statements.
4
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands, Except Share and Per Share Data)
1. BASIS OF PRESENTATION
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public and, through its subsidiaries or joint
ventures, operates riverboat casinos in Alton, Illinois; Lawrenceburg,
Indiana; Riverside, Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa.
Indiana Gaming Company, L.P., ("Indiana Partnership") is a limited
partnership which owns the casino in Lawrenceburg, Indiana. The Company is
the sole general partner, holds a 57.5% interest and manages the Indiana
Partnership.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information, refer to
the financial statements and footnotes thereto for the year ended December
31, 1998, included in the Company's Annual Report on Form 10-K (File No.
1-11853). The accompanying unaudited condensed consolidated financial
statements contain all adjustments which are, in the opinion of management,
necessary to present fairly the financial position and the results of
operations for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1998 amounts have been reclassified to conform to
the 1999 financial statement presentation.
As of March 31, 1999 the Company is in a net operating loss position
and, therefore, has recorded a valuation allowance of $11,500 against its
deferred tax assets.
5
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
NUMERATOR:
Net income (loss) $ 2,921 $ (2,537)
Preferred stock dividends and accretion (27) -
----------- -----------
Numerator for basic earnings per share -
Income (loss) attributable to common shareholders 2,894 (2,537)
Effect of dilutive securities:
Preferred stock dividends 27 -
----------- -----------
Numerator for diluted earnings per share -
Income (loss) available to common
stockholders after assumed conversions $ 2,921 $ (2,537)
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares outstanding 27,114,690 24,333,333
Effect of dilutive securities:
Restricted stock 68,558 -
Employee stock options 119,470 -
Preferred stock 1,046,624 -
Warrants 12,987 -
----------- -----------
Dilutive potential common shares 1,247,639 -
Denominator for diluted earnings per share - adjusted
Weighted-average shares and assumed conversions 28,362,329 24,333,333
----------- -----------
----------- -----------
Basic earnings (loss) per share $ 0.11 $ (0.10)
----------- -----------
----------- -----------
Diluted earnings (loss) per share $ 0.10 $ (0.10)
----------- -----------
----------- -----------
6
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Additional employee and directors stock options to purchase 852,024
shares of common stock at prices ranging from $4.25 to $16.75 were not
included in the computation of diluted earnings per share because the options
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be anti-dilutive.
12% Convertible Debentures (convertible into 6,497,175 shares of
common stock at $17.70 per share) were outstanding at March 31, 1999 but were
not included in the computation of diluted earnings per share as the net
interest expense per common share obtainable on conversion exceeded basic
earnings per share, thus the effect would be anti-dilutive.
3. CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A Convertible
Preferred Stock ("Preferred Shares"), together with warrants to purchase an
additional 292,612 shares of Common Stock at $3.89 per share. The Preferred
Shares mature in 2005, and the Company had the right to force conversion
and/or redemption at maturity. A portion of the proceeds was allocated to the
warrants and this discount was to be accreted over seven years. The warrants
expire in 2003.
The Preferred Shares provided for a 4% dividend per annum, payable in
cash and/or in kind, at the time of conversion or maturity, at the Company's
option.
The Preferred Shares were convertible at the lower of the fixed
initial strike price ($3.89 per share) or a floating price. The floating
price is based on the market price of the Company's common stock. The
warrants may be exercised at the fixed strike price subject to the same
adjustment provisions.
Through March 31, 1999, all 800 Preferred Shares had been converted
into 3,641,993 shares of common stock. As of March 31, 1999 no warrants had
yet been converted.
7
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
4. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA--Under terms of the Lawrenceburg partnership
agreement, after December 10, 1999, each limited partner has the right to
sell its interest to the other partners (pro rata in accordance with their
respective percentage interests). In the event of this occurrence, if the
partners cannot agree on a selling price, the Indiana Partnership will be
sold in its entirety.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result
of a certain shareholder loan transaction, could be subject to federal and
certain state income taxes (plus interest and penalties, if any) if it is
determined that it failed to satisfy all of the requirements of the
S-Corporation provisions of the Internal Revenue Code ("Code") relating to
the prohibition concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has identified the S-Corporation status as one of the
issues, although the IRS has yet to make a formal claim of deficiency. If the
IRS successfully challenges the Predecessor's S-Corporation status, the
Company would be required to pay federal and certain state income taxes on
the Predecessor's taxable income from the commencement of its operations
until February 25, 1993 (plus interest and penalties, if any, thereon until
the date of payment). If the Predecessor was required to pay federal and
state income taxes on its taxable earnings through February 25, 1993, such
payments could amount to approximately $13,800, including interest through
March 31, 1999, but excluding penalties, if any. While the Company believes
the Predecessor has legal authority for its position that it is not subject
to federal and certain state income taxes because it met the S-Corporation
requirements, no assurances can be given that the Predecessor's position will
be upheld. No provision has been made for this contingency in the
accompanying condensed consolidated financial statements.
The Company is subject, from time to time, to various legal and
regulatory proceedings, in the ordinary course of business. The Company
believes that current proceedings will not have a material effect on the
financial condition of the Company.
8
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
5. SUBSIDIARY GUARANTORS
The Company has issued $235 million First Mortgage Notes, due 2004,
("Mortgage Notes"). 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
including the assets used in the Company's Alton, Riverside, Baton Rouge and
Sioux City operations, (ii) a pledge of all the capital stock of, and
partnership interests in, the Company's subsidiaries, excluding the Company's
partnership interest in its Sioux City property, (iii) a pledge of the
intercompany notes payable to the Company from its subsidiaries and (iv) an
assignment of the proceeds of the management agreement relating to the
Lawrenceburg Casino project. The collateral for the Mortgage Notes does not
include assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of March 31, 1999 and December 31, 1998 and summarized operating
statement information for the three months ended March 31, 1999 and 1998. The
column labeled "Parent Company" represents the holding company for each of
the Company's direct subsidiaries, the column labeled "Guarantors" represents
each of the Company's direct subsidiaries, all of which are wholly-owned by
the parent company, and the column labeled "Non-Guarantors" represents the
partnerships which operate the Company's casinos in Sioux City, Iowa and
Lawrenceburg, Indiana. The Company believes that separate financial
statements and other disclosures regarding the Guarantors, except as
otherwise required under Regulation S-X, are not material to investors.
9
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Summarized balance sheet information as of March 31, 1999 and
December 31, 1998 is as follows:
MARCH 31, 1999
-----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
ASSETS:
Current assets $ 70,314 $ 29,315 $ 24,222 $ (8,750) $ 115,101
Non-current assets 350,029 374,589 225,748 (491,661) 458,705
-------- --------- --------- ---------- ---------
$420,343 $ 403,904 $ 249,970 $ (500,411) $ 573,806
-------- --------- --------- ---------- ---------
-------- --------- --------- ---------- ---------
LIABILITIES AND EQUITY:
Current liabilities $ 21,179 $ 68,096 $ 51,599 $ (60,713) $ 80,161
Non-current liabilities 349,974 256,203 102,449 (264,171) 444,455
Stockholders' equity 49,190 79,605 95,922 (175,527) 49,190
-------- --------- --------- ---------- ---------
$420,343 $ 403,904 $ 249,970 $ (500,411) $ 573,806
-------- --------- --------- ---------- ---------
-------- --------- --------- ---------- ---------
DECEMBER 31, 1998
-----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
ASSETS:
Current assets $ 55,896 $ 22,236 $ 29,585 $ (8,461) $ 99,256
Non-current assets 347,441 360,354 227,439 (471,738) 463,496
-------- --------- --------- ---------- ---------
$403,337 $ 382,590 $ 257,024 $ (480,199) $ 562,752
-------- --------- --------- ---------- ---------
-------- --------- --------- ---------- ---------
LIABILITIES AND EQUITY:
Current liabilities $ 7,134 $ 47,507 $ 59,116 $ (42,372) $ 71,385
Non-current liabilities 350,000 269,878 111,208 (285,922) 445,164
Convertible preferred stock 5,340 - - - 5,340
Stockholders' equity 40,863 65,205 86,700 (151,905) 40,863
-------- --------- --------- ---------- ---------
$403,337 $ 382,590 $ 257,024 $ (480,199) $ 562,752
-------- --------- --------- ---------- ---------
-------- --------- --------- ---------- ---------
10
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands, Except Share and Per Share Data)
Summarized operating statement information for the three months ended
March 31, 1999 and 1998 is as follows:
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
Net revenues $ 665 $ 62,552 $ 84,837 $ (10,663) $ 137,391
Costs and expenses 5,025 46,600 62,041 (866) 112,800
Net interest expense (income) 9,738 (704) 4,193 - 13,227
Net (loss) income 2,894 9,767 17,278 (27,045) 2,894
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
Net revenues $ 167 $ 55,620 $ 65,228 $ (5,315) $ 115,700
Costs and expenses 2,873 48,444 49,505 (773) 100,049
Net interest expense (income) 9,536 (1,305) 4,900 351 13,482
Net (loss) income (2,537) 4,547 9,421 (13,968) (2,537)
11
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 9,373 $ 4,383
Other current assets 1,719 1,727
-------- --------
Total current assets 11,092 6,110
DUE FROM AFFILIATES 9,360 10,046
NET PROPERTY AND EQUIPMENT 27,042 26,808
OTHER ASSETS 2 2
-------- --------
TOTAL ASSETS $ 47,496 $ 42,966
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 1,814 $ 1,597
Other accrued liabilities 6,989 4,624
-------- --------
Total current liabilities 8,803 6,221
-------- --------
OTHER LONG-TERM OBLIGATIONS 205 201
DEFERRED INCOME TAXES 3,104 3,201
STOCKHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares
authorized, issued and outstanding 1 1
Capital in excess of par 256 256
Retained earnings 35,127 33,086
-------- --------
Total stockholder's equity 35,384 33,343
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 47,496 $ 42,966
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
12
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 18,109 $ 17,029
Food, beverage and other 1,494 1,633
--------- ---------
19,603 18,662
Less promotional allowances (610) (604)
--------- ---------
Net revenues 18,993 18,058
COSTS AND EXPENSES
Casino 8,409 7,948
Food, beverage and other 1,149 1,503
Other operating expenses 1,429 1,347
Selling, general and administrative 2,998 2,903
Depreciation and amortization 1,026 964
Management fees - related party 634 661
--------- ---------
15,645 15,326
--------- ---------
Income from operations 3,348 2,732
--------- ---------
OTHER INCOME (EXPENSE)
Interest income 33 24
Interest expense (29) (4)
--------- ---------
4 20
--------- ---------
Income before income taxes 3,352 2,752
Income tax expense 1,311 1,069
--------- ---------
Net income $ 2,041 $ 1,683
--------- ---------
--------- ---------
See accompanying notes to condensed financial statements.
13
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,041 $ 1,683
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,026 964
Deferred income taxes (97) 39
Changes in operating assets and liabilities:
Other current assets 8 105
Accounts payable 217 (237)
Income taxes payable to affiliate 1,408 1,031
Other accrued liabilities 957 360
--------- ---------
Net cash provided by operating activities 5,560 3,945
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,260) (190)
--------- ---------
Net cash used in investing activities (1,260) (190)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliates 686 (3,772)
Increase in other long-term obligations 4 3
--------- ---------
Net cash provided by (used in) financing activities 690 (3,769)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,990 (14)
Cash and cash equivalents, beginning of period 4,383 3,807
--------- ---------
Cash and cash equivalents, end of period $ 9,373 $ 3,793
--------- ---------
--------- ---------
See accompanying notes to condensed financial statements.
14
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Alton Gaming Company ("Company"), an Illinois
Corporation and a wholly-owned subsidiary of Argosy Gaming Company
("Argosy"), is engaged in the business of providing casino-style gaming and
related entertainment to the public through the operation of the Alton Belle
Casino in Alton, Illinois.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results
which may be expected for any other interim period or for the year as a
whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1998 included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals.
2. COMMITMENTS AND CONTINGENCIES
A predecessor entity to the Company ("Predecessor"), as a result of a
certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has identified the S-Corporation status as one of the
issues, although the IRS has yet to make a formal claim of deficiency. If the
IRS successfully challenges the Predecessor's S-Corporation status, the
Company would be required to pay federal and certain state income taxes on
the Predecessor's taxable income from the commencement of its operations
until February 25, 1993 (plus interest and penalties, if any, thereon until
the date of payment). If the Predecessor was required to pay federal and
certain state income taxes on its taxable earnings through February 25, 1993,
such payments could amount to approximately $13,800, including interest
through March 31, 1999, but excluding penalties, if any. While the Company
believes the Predecessor has legal authority for its position that it is not
subject to federal and certain state income taxes because it met the
S-Corporation requirements, no assurances can be given that the Predecessor's
position will be upheld. No provision has been made for this contingency in
the accompanying condensed financial statements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes"). The assets of the Company are pledged as collateral, and
the Company is a guarantor, under the terms of the Mortgage Notes.
15
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 5,081 $ 3,905
Other current assets 1,590 1,671
-------- --------
Total current assets 6,671 5,576
NET PROPERTY AND EQUIPMENT 65,715 66,819
OTHER ASSETS 1,095 1,134
-------- --------
TOTAL ASSETS $ 73,481 $ 73,529
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 876 $ 1,405
Other accrued liabilities 6,055 4,414
-------- --------
Total current liabilities 6,931 5,819
-------- --------
DUE TO AFFILIATES 47,002 49,056
DEFERRED INCOME TAXES 2,442 2,260
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares
authorized issued and outstanding
Capital in excess of par 5,000 5,000
Retained earnings 12,106 11,394
-------- --------
Total stockholder's equity 17,106 16,394
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 73,481 $ 73,529
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
16
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino $ 19,198 $ 18,359
Food, beverage and other 2,759 3,053
-------- --------
21,957 21,412
Less promotional allowances (1,542) (1,798)
-------- --------
Net revenues 20,415 19,614
-------- --------
COSTS AND EXPENSES
Casino 9,946 10,101
Food, beverage and other 1,990 2,362
Other operating expenses 1,104 1,105
Selling, general and administrative 3,881 3,955
Depreciation and amortization 1,459 1,477
-------- --------
18,380 19,000
-------- --------
Income from operations 2,035 614
-------- --------
OTHER INCOME (EXPENSE):
Interest income 6 17
Interest expense (889) (1,208)
-------- --------
(883) (1,191)
-------- --------
Income (loss) before income taxes 1,152 (577)
Income tax expense (benefit) 440 (161)
-------- --------
Net income (loss) $ 712 $ (416)
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
17
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 712 $ (416)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,419 1,437
Amortization 40 40
Deferred income taxes 124 85
Changes in operating assets and liabilities:
Income taxes payable to (receivable from) affiliate 316 (246)
Other current assets 138 357
Accounts payable (529) 305
Other accrued liabilities 1,413 1,057
-------- --------
Net cash provided by operating activities 3,633 2,619
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (315) (110)
-------- --------
Net cash used in investing activities (315) (110)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (88) -
Due to affiliates (2,054) (1,722)
-------- --------
Net cash used in financing activities (2,142) (1,722)
-------- --------
Net increase in cash and cash equivalents 1,176 787
Cash and cash equivalents, beginning of period 3,905 3,629
-------- --------
Cash and cash equivalents, end of period $ 5,081 $ 4,416
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
18
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Missouri Gaming Company ("Company") (a Missouri corporation and a
wholly owned subsidiary of Argosy Gaming Company, ("Argosy")) owns and
operates a riverboat casino and related facilities in Riverside, Missouri.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results
which may be expected for any other interim period or for the year as a
whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1998 included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position
and the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1998 amounts have been
reclassified to conform to the 1999 presentation.
2. COMMITMENTS AND CONTINGENCIES
The Company is restricted from making certain distributions to Argosy
and other affiliates unless approved by state gaming authorities.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due
2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of the Mortgage
Notes.
19
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 4,052 $ 3,025
Other current assets 1,660 1,595
-------- --------
Total current assets 5,712 4,620
NET PROPERTY AND EQUIPMENT 38,886 39,670
OTHER ASSETS 1,686 1,713
-------- --------
TOTAL ASSETS $ 46,284 $ 46,003
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 549 $ 595
Due to affiliates 4,432 3,149
Other accrued liabilities 4,574 4,653
Accrued interest - related party 2,655 2,304
Current maturities of long-term debt-related party 13,349 13,349
-------- --------
Total current liabilities 25,559 24,050
-------- --------
LONG-TERM DEBT-RELATED PARTY 34,709 34,709
DEFERRED INCOME TAXES 432 432
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 1,363 1,484
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares
authorized issued and outstanding 1 1
Accumulated deficit (15,780) (14,673)
-------- --------
Total stockholder's deficit (15,779) (14,672)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 46,284 $ 46,003
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
20
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino $ 12,579 $ 12,104
Food, beverage and other 1,297 1,684
-------- --------
13,876 13,788
Less promotional allowances (850) (1,084)
-------- --------
Net revenues 13,026 12,704
-------- --------
COST AND EXPENSES
Casino 7,439 7,472
Food, beverage and other 1,117 1,498
Other operating expenses 1,211 1,390
Selling, general and administrative 2,775 3,322
Depreciation and amortization 1,371 1,293
-------- --------
13,913 14,975
-------- --------
Loss from operations (887) (2,271)
Interest (expense) income net:
Interest to related party (351) (351)
Other 10 20
-------- --------
Loss before minority interest (1,228) (2,602)
Minority interest 121 254
-------- --------
Net loss $ (1,107) $ (2,348)
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
21
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,107) $ (2,348)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,344 1,266
Amortization 27 27
Minority interest (121) (254)
Changes in operating assets and liabilities:
Other current assets (65) 833
Accounts payable (46) 68
Other accrued liabilities 310 314
-------- --------
Net cash provided by (used in) operating activities 342 (94)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (560) (417)
-------- --------
Net cash used in investing activities (560) (417)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (38) -
Increase in due to affiliates 1,283 253
-------- --------
Net cash provided by financing activities 1,245 253
-------- --------
Net increase (decrease) in cash and cash equivalents 1,027 (258)
Cash and cash equivalents, beginning of period 3,025 3,429
-------- --------
Cash and cash equivalents, end of period $ 4,052 $ 3,171
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
22
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Argosy of Louisiana, Inc. (collectively with its controlled partnership
Catfish Queen Partnership in Commendam ("Partnership") "the Company") was
formed on July 29, 1993. The Company entered a partnership agreement with
Jazz Enterprises, Inc. ("Jazz") to form the Partnership to provide
riverboat gaming and related entertainment in Baton Rouge, Louisiana. The
Company is the 90% general partner of the Partnership, along with the 10%
partner in commendam Jazz. Both the Company and Jazz are wholly owned
subsidiaries of Argosy Gaming Company ("Argosy").
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year
as a whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1998 included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed consolidated financial statements contain all adjustments which
are, in the opinion of management, necessary to present fairly the
financial position and the results of operations for the periods indicated.
Such adjustments include only normal recurring accruals. Certain 1998
amounts have been reclassified to conform to the 1999 presentation.
2. COMMITMENTS
The City of Baton Rouge and the Parish of East Baton Rouge
(collectively referred to as "City-Parish") and Jazz have an agreement
which requires Jazz and the Company to pay to the City-Parish $2.50 per
passenger. Additionally, Jazz agreed to pay to the City-Parish an
additional passenger fee which is now $2.50 per passenger, until actual
construction of a hotel commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if required,
for the initial five-year certification term approved by the Louisiana
Riverboat Gaming Commission. Through March 31, 1999, the Company has paid
all admission payments due under the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due
2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of the Mortgage
Notes.
23
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 4,052 $ 3,025
Other current assets 829 764
-------- --------
Total current assets 4,881 3,789
NET PROPERTY AND EQUIPMENT 38,886 39,670
OTHER ASSETS 1,686 1,713
-------- --------
TOTAL ASSETS $ 45,453 $ 45,172
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 549 $ 595
Other accrued liabilities 4,489 4,591
Accrued interest-related party 2,655 2,304
Due to affiliates 4,432 3,149
Notes payable and current maturities of
long-term debt-related party 13,349 13,349
-------- --------
Total current liabilities 25,474 23,988
LONG-TERM DEBT-RELATED PARTY 6,022 6,022
PARTNERS' EQUITY 13,957 15,162
-------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 45,453 $ 45,172
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
24
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 12,579 $ 12,104
Food, beverage and other 1,297 1,684
-------- --------
13,876 13,788
Less promotional allowances (850) (1,084)
-------- --------
Net revenues 13,026 12,704
-------- --------
COSTS AND EXPENSES
Casino 7,439 7,472
Food, beverage and other 1,117 1,498
Other operating expenses 1,211 1,390
Selling, general and administrative 2,752 3,262
Depreciation and amortization 1,371 1,293
-------- --------
13,890 14,915
-------- --------
Loss from operations (864) (2,211)
INTEREST (EXPENSE) INCOME (NET):
Related parties (351) (351)
Other 10 20
-------- --------
(341) (331)
-------- --------
Net loss $ (1,205) $ (2,542)
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
25
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,205) $ (2,542)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 1,344 1,266
Amortization 27 27
Changes in operating assets and liabilities:
Other current assets (65) 94
Accounts payable (46) (215)
Accrued interest to related parties 351 351
Other accrued liabilities (64) 925
-------- --------
Net cash provided by (used in) operating activities 342 (94)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (560) (417)
-------- --------
Net cash used in investing activities (560) (417)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (38) -
Increase in due to affiliates 1,283 253
-------- --------
Net cash provided by financing activities 1,245 253
-------- --------
Net increase (decrease) in cash and cash equivalents 1,027 (258)
Cash and cash equivalents, beginning of period 3,025 3,429
-------- --------
Cash and cash equivalents, end of period $ 4,052 $ 3,171
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
26
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Catfish Queen Partnership in Commendam
("Partnership") provides riverboat gaming and related entertainment in Baton
Rouge, Louisiana. The Partnership is comprised of a 90% general partner,
Argosy of Louisiana, Inc. ("General Partner"), and a 10% partner in
commendam, Jazz Enterprises, Inc. ("Jazz") both wholly owned subsidiaries of
Argosy Gaming Company ("Argosy").
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1998, included in the
Argosy's Annual Report on Form 10-K (File No. 1-11853). The accompanying
unaudited condensed financial statements contain all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals.
2. COMMITMENTS
The City of Baton Rouge and the Parish of East Baton Rouge
(collectively referred to as "City-Parish") and Jazz have an agreement which
requires Jazz and the Company to pay to the City-Parish $2.50 per passenger.
Additionally, Jazz agreed to pay to the City-Parish an additional passenger
fee, which is now $2.50 per passenger, until actual construction of a hotel
commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if
required, for the initial five-year certification term approved by the
Louisiana Riverboat Gaming Commission. Through March 31, 1999, the
Partnership has paid all admission payments due under the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due
2004 ("Mortgage Notes") . The assets of the Partnership are pledged as
collateral, and the Partnership is a guarantor, under the terms of the
Mortgage Notes.
27
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 34 $ -
Other current assets 66 110
-------- --------
Total current assets 100 110
NET PROPERTY AND EQUIPMENT 52,207 52,733
GOODWILL, NET 19,189 19,325
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 1,503 1,636
-------- --------
TOTAL ASSETS $ 74,891 $ 75,696
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 2,824 $ 2,843
Current maturities of long-term debt 545 545
-------- --------
Total current liabilities 3,369 3,388
-------- --------
LONG-TERM DEBT 6,388 6,552
LONG-TERM DEBT - RELATED PARTY 75,804 75,625
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares
authorized, 200 shares issued and outstanding
Accumulated deficit (10,670) (9,869)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 74,891 $ 75,696
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
28
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue $ 757 $ 754
Rent revenue 120 89
-------- --------
877 843
-------- --------
COSTS AND EXPENSES:
Operating expenses 277 260
Selling, general and administrative 399 396
Depreciation and amortization 675 652
-------- --------
1,351 1,308
-------- --------
Loss from operations (474) (465)
OTHER EXPENSE:
Interest expense (206) (220)
Equity in loss of unconsolidated partnership (121) (254)
-------- --------
Net loss $ (801) $ (939)
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
29
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (801) $ (939)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 526 439
Amortization 149 213
Equity in loss of unconsolidated partnership 121 254
Other current assets 44 (158)
Accounts payable and accrued liabilities (20) 241
-------- --------
Net cash provided by operating activities 19 50
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (81)
-------- --------
Net cash used in investing activities - (81)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (164) (123)
Advances from affiliate 179 134
-------- --------
Net cash provided by financing activities 15 11
-------- --------
Net increase (decrease) in cash and cash equivalents 34 (20)
Cash and cash equivalents, beginning of period - 20
-------- --------
Cash and cash equivalents, end of period $ 34 $ -
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
30
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Jazz Enterprises, Inc., ("Jazz" or "the
Company") a Louisiana corporation and a wholly owned subsidiary of Argosy
Gaming Company ("Argosy") was incorporated for the purpose of developing a
riverboat gaming operation and an entertainment complex known as "Catfish
Town" in Baton Rouge, Louisiana.
The Company entered into a partnership ("Partnership") with Argosy
of Louisiana, Inc. (a wholly owned subsidiary of Argosy) ("ALI") in which the
Company owns 10% and ALI owns 90%, to operate a riverboat casino in Baton
Rouge, Louisiana.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1998, included in the
Argosy's Annual Report on Form 10-K (File No. 1-11853). The accompanying
unaudited condensed financial statements contain all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals.
2. COMMITMENTS
The City of Baton Rouge and the Parish of East Baton Rouge (collectively
referred to as "City-Parish") and the Company entered into an agreement which
required the Company and the partnership to pay to the City-Parish $2.50 per
passenger. Additionally, the Company agreed to pay to the City-Parish an
additional passenger fee which is now $2.50 per passenger until construction
of a hotel commences by the Company or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if required,
for the initial five-year certification term approved by the Louisiana
Riverboat Gaming Commission. Through March 31, 1999, the partnership has paid
all admission payments due under the above agreements.
Argosy has issued $235 million of 13 1/4% First Mortgage Notes, due 2004
("Mortgage Notes") The assets of the Company are pledged as collateral, and
the Company is a guarantor, under the terms of Mortgage Notes.
31
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 20,649 $ 25,491
Other current assets 1,275 1,603
-------- --------
Total current assets 21,924 27,094
-------- --------
NET PROPERTY AND EQUIPMENT 192,668 194,731
-------- --------
OTHER ASSETS:
Deposits 46 -
Intangible assets, net 29,220 29,566
Deferred income taxes 379 722
-------- --------
Total other assets 29,645 30,288
-------- --------
TOTAL ASSETS $244,237 $252,113
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 1,310 $ 1,974
Accrued interest and dividends payable-related parties 1,600 2,183
Other accrued liabilities 20,276 26,393
Current maturities of long-term debt 11,204 11,095
Income taxes payable 30,070 24,534
-------- --------
Total current liabilities 64,460 66,179
-------- --------
LONG-TERM DEBT 100,303 118,933
MINORITY INTERESTS 34,224 30,516
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1,000 shares
authorized issued and outstanding
Retained earnings 45,250 36,485
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $244,237 $252,113
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
32
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 73,079 $ 55,570
Admissions 4,278 3,191
Food, beverage and other 7,523 4,187
-------- --------
84,880 62,948
Less promotional allowances (6,411) (3,197)
-------- --------
Net revenues 78,469 59,751
-------- --------
COST AND EXPENSES:
Casino 30,368 24,032
Food, beverage and other 5,006 3,583
Other operating expenses 2,023 1,991
Selling, general and administrative 11,873 8,916
Depreciation and amortization 3,328 2,894
Management fees-related parties 1,460 1,061
-------- --------
54,058 42,477
-------- --------
Income from operations 24,411 17,274
-------- --------
OTHER INCOME (EXPENSE):
Interest income 99 445
Interest expense (2,172) (2,677)
-------- --------
(2,073) (2,232)
-------- --------
Income before minority interests and income taxes 22,338 15,042
Minority interests (7,693) (4,620)
Income tax expense (5,880) (4,111)
-------- --------
Net income $ 8,765 $ 6,311
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
33
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,765 $ 6,311
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,982 2,548
Amortization 346 346
Deferred income taxes 343 380
Minority interests 7,693 4,620
Changes in operating assets and liabilities:
Other current assets and deposits 282 12
Accounts payable (664) (3,498)
Accrued interest payable to related parties (21) (2,759)
Accrued liabilities 313 7,800
-------- --------
Net cash provided by operating activities 20,039 15,760
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow - 6,486
Purchases of property and equipment (919) (14,253)
Other - (1,520)
-------- --------
Net cash used in investing activities (919) (9,287)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (894) (435)
Repayment of long-term debt (15,153) (9,111)
Repayment of partnership loans (3,368) (5,236)
Payment of preferred equity return to partner (1,123) (75)
Partnership equity distributions (3,424) (1,714)
-------- --------
Net cash used in financing activities (23,962) (16,571)
-------- --------
Net decrease in cash and cash equivalents (4,842) (10,098)
Cash and cash equivalents, beginning of period 25,491 41,257
-------- --------
Cash and cash equivalents, end of period $ 20,649 $ 31,159
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
34
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-The Indiana Gaming Company, a wholly owned
subsidiary of Argosy Gaming Company ("Argosy") (collectively with its
controlled partnership Indiana Gaming Company L.P. ("Partnership") "the
Company") was formed effective April 11, 1994 to provide riverboat gaming and
related entertainment in Lawrenceburg, Indiana. The Company is a 57.5%
general partner in the Partnership, together with, three limited partners
including, Conseco Entertainment, L.L.C., ("Conseco") a 29% limited partner,
Centaur, Inc., a 9.5% limited partner and RJ Investments, Inc., a 4% limited
partner.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Interim results may not
necessarily be indicative of results which may be expected for any other
interim period or for the year as a whole. For further information refer to
the financial statements and footnotes thereto for the year ended December
31, 1998, included in Argosy's Annual Report on Form 10-K (File No. 1-11853).
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which are, in the opinion of management, necessary to
present fairly the financial position and the results of operations for the
periods indicated. Such adjustments include only normal recurring accruals.
Certain 1998 amounts have been reclassified to conform to the 1999 financial
statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of a Development Agreement, the Company entered into a lease
with the City of Lawrenceburg for docking privileges for its riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Company. Under the terms of the Development
Agreement, the Company pays an annual fee to the City of Lawrenceburg ranging
from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of $6
million per year.
BONDING OBLIGATION-The Company is required, by Indiana Gaming Statute,
to post a bond in favor of the Indiana Gaming Commission to collateralize
certain obligations to the City of Lawrenceburg under the Development
Agreement, and to the State of Indiana. This bond is collateralized by
certain real estate of the Company.
TERMINATION OF LAWRENCEBURG PARTNERSHIP-Under the terms of the
partnership agreement, after December 10, 1999, each limited partner has the
right to sell its interest to the other partners (pro rata in accordance with
their respective percentage interests). In the event of this occurrence, if
the partners cannot agree on a selling price, the Partnership will be sold in
its entirety.
GUARANTY OF PARENT OBLIGATIONS-Argosy has issued $235 million of 13 1/4%
First Mortgage Notes, due 2004 ("Mortgage Notes"). The Company has pledged
its interest in the Partnership, and its rights to certain payments from the
Partnership, as collateral, under the terms of the Mortgage Notes.
Additionally, the Company is a guarantor of the Mortgage Notes.
35
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 20,649 $ 25,491
Other current assets 1,021 1,349
--------- ---------
Total current assets 21,670 26,840
--------- ---------
NET PROPERTY AND EQUIPMENT 191,419 193,469
--------- ---------
OTHER ASSETS:
Deposits and other assets 46 -
Intangible assets, net 29,220 29,566
--------- ---------
Total other assets 29,266 29,566
--------- ---------
TOTAL ASSETS $ 242,355 $ 249,875
--------- ---------
--------- ---------
CURRENT LIABILITIES:
Accounts payable $ 2,084 $ 2,744
Accrued interest and dividends payable-related parties 3,843 4,475
Other accrued liabilities 19,172 25,450
Due to affiliates 1,106 945
Current maturities of long-term debt 21,586 21,478
--------- ---------
Total current liabilities 47,791 55,092
--------- ---------
LONG-TERM DEBT 98,781 107,722
PARTNERS' EQUITY:
General partner 61,608 56,592
Limited partners 34,175 30,469
--------- ---------
Total partners' equity 95,783 87,061
--------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 242,355 $ 249,875
--------- ---------
--------- ---------
See accompanying notes to condensed financial statements.
36
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 73,079 $ 55,570
Admissions 4,278 3,191
Food, beverage and other 7,523 4,187
-------- --------
84,880 62,948
Less promotional allowances (6,411) (3,197)
-------- --------
Net revenues 78,469 59,751
-------- --------
COST AND EXPENSES:
Casino 30,368 24,032
Food, beverage and other 5,006 3,583
Other operating expenses 2,023 1,991
Selling, general and administrative 11,873 8,916
Depreciation and amortization 3,315 2,880
Management fees-related parties 3,650 2,654
-------- --------
56,235 44,056
-------- --------
Income from operations 22,234 15,695
-------- --------
OTHER INCOME (EXPENSE):
Interest income 99 446
Interest expense (4,233) (5,271)
-------- --------
(4,134) (4,825)
-------- --------
Net income prior to preferred equity return 18,100 10,870
Preferred equity return (1,322) (1,402)
-------- --------
Net income attributable to common equity partners $ 16,778 $ 9,468
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
37
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share and Per Share Data)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,778 $ 9,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,969 2,533
Amortization 346 346
Accrued preferred equity dividends 1,322 1,402
Changes in operating assets and liabilities:
Due from affiliates 161 (1,251)
Other current assets 281 (199)
Accounts payable (660) (2,944)
Accrued interest payable to related parties 689 (3,641)
Accrued liabilities (5,383) 4,331
-------- --------
Net cash provided by operating activities 16,503 10,045
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow - 6,487
Payments under development agreement and
other infrastructure improvements - (1,250)
Purchases of property and equipment (919) (14,283)
-------- --------
Net cash used in investing activities (919) (9,046)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (894) (435)
Payment of preferred return to partners (2,643) (177)
Partnership equity distributions (8,056) (4,034)
Payments on long-term debt and partner loans (8,833) (6,451)
-------- --------
Net cash used in financing activities (20,426) (11,097)
-------- --------
Net decrease in cash and cash equivalents (4,842) (10,098)
Cash and cash equivalents, beginning of period 25,491 41,257
-------- --------
Cash and cash equivalents, end of period $ 20,649 $ 31,159
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
38
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Indiana Gaming Company, L.P. ("Partnership"), an
Indiana limited partnership was formed to provide riverboat gaming and
related entertainment in Lawrenceburg, Indiana. The Partnership is comprised
of a 57.5% general partner, The Indiana Gaming Company ("General Partner"), a
wholly owned subsidiary of Argosy Gaming Company, ("Argosy"), and three
limited partners including, Conseco Entertainment, L.L.C., ("Conseco") a 29%
limited partner, Centaur, Inc., a 9.5% limited partner and RJ Investments,
Inc., a 4% limited partner. Net income (loss) is allocated to the partners
based on their respective ownership interests.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1998, included in Argosy's
Annual Report on Form 10-K (File No. 1-11853). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals. Certain 1998 amounts have been reclassified
to conform to the 1999 financial statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of a Development Agreement, the Partnership entered into a
lease with the City of Lawrenceburg for docking privileges for its riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Partnership. Under the terms of the Development
Agreement, the Partnership pays an annual fee to the City of Lawrenceburg
ranging from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of
$6 million per year.
BONDING OBLIGATION-The Partnership is required, by Indiana Gaming
Statute, to post a bond in favor of the Indiana Gaming Commission to
collateralize certain obligations to the City of Lawrenceburg under the
Development Agreement, and to the State of Indiana. This bond is
collateralized by certain real estate of the Partnership.
TERMINATION OF PARTNERSHIP-Under the terms of the Partnership
Agreement, after December 10, 1999, each limited partner has the right to
sell its interest to the other partners (pro rata in accordance with their
respective percentage interests). In the event of this occurrence, if the
partners cannot agree on a selling price, the Partnership will be sold in its
entirety.
39
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, through its subsidiaries or joint ventures, owns and
operates the Alton Belle Casino, in Alton, Illinois; the Argosy Casino in
Riverside, Missouri; the Belle of Baton Rouge Casino in Baton Rouge,
Louisiana; the Belle of Sioux City Casino in Sioux City, Iowa; and the Argosy
Casino and Hotel in Lawrenceburg, Indiana.
The Company's results of operations for the three months ended March
31, 1999 reflect increases in both revenues and operating income at all of
its casino properties over 1998 amounts. This improvement is attributed to
the Company's operating strategy, which has been developed with the goal to
position the Company as the premier riverboat casino operator. This strategy
includes capitalizing on management's significant experience and expertise in
gaming industry operations and marketing, developing the Company's marketing
strategies with an emphasis on direct marketing, and prudently investing in
gaming and gaming-related assets for its properties.
The results of operations of the Company's Baton Rouge casino are
significantly impacted by the imposition of a head tax. Under the terms of an
agreement with the City of Baton Rouge, the Company is required to pay a head
tax of $2.50 per passenger until such time as the Company commences
construction of a hotel. Once construction commences, the head tax ceases and
the Company would save approximately $3.0 million to $3.5 million annually.
The Company is in negotiations with several developers pertaining to the
construction of a hotel; however, no assurances can be given as to the timing
of the development of a hotel or as to the required financial commitment of
the Company. The Company's ability to recover the carrying amount of its
long-lived assets in Baton Rouge is dependent on several factors including
achieving anticipated operating results, the competitive environment, and the
hotel development. If the Company is unable to develop the hotel or if the
Company's operating results do not improve through cost efficiencies or
following the elimination of video poker at competing outlets, management's
evaluation of recoverability could change and the Company could record an
impairment loss amounting to a substantial portion of its $115 million Baton
Rouge investment.
The Company is in a net operating loss carryforward position at
March 31, 1999. The Company utilized approximately $3.0 million of net
operating loss carryforwards to offset its federal tax liability for the
three months ended March 31, 1999. No federal tax benefit was recorded on the
Company's operating loss for the three months ended March 31, 1998 due to the
uncertainty of realization.
40
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
Casino Revenues
Alton Belle Casino $ 18,109 $ 17,029
Argosy Casino Riverside 19,198 18,359
Belle of Baton Rouge Casino 12,579 12,104
Belle of Sioux City Casino 6,163 5,261
Argosy Casino & Hotel in Lawrenceburg 73,079 55,570
--------- ---------
Total $ 129,128 $ 108,323
--------- ---------
--------- ---------
NET REVENUES
Alton Belle Casino $ 18,993 $ 18,058
Argosy Casino Riverside 20,415 19,614
Belle of Baton Rouge Casino 13,026 12,704
Belle of Sioux City Casino 6,369 5,477
Argosy Casino & Hotel in Lawrenceburg 78,469 59,751
Other 119 96
--------- ---------
Total $ 137,391 $ 115,700
--------- ---------
--------- ---------
INCOME (LOSS) FROM OPERATIONS(1)
Alton Belle Casino $ 3,982 $ 3,393
Argosy Casino Riverside 2,035 614
Belle of Baton Rouge Casino (107) (1,457)
Belle of Sioux City Casino 845 264
Argosy Casino & Hotel in Lawrenceburg 24,424 17,287
Corporate (3) (5,026) (2,863)
Jazz (1,231) (1,220)
Other (331) (367)
--------- ---------
Total $ 24,591 $ 15,651
--------- ---------
--------- ---------
EBITDA(1)(2)
Alton Belle Casino $ 5,008 $ 4,357
Argosy Casino Riverside 3,494 2,091
Belle of Baton Rouge Casino 1,264 (164)
Belle of Sioux City Casino 1,125 518
Argosy Casino & Hotel in Lawrenceburg 27,739 20,166
Corporate (3) (5,019) (2,657)
Jazz (556) (569)
Other 9 (25)
--------- ---------
Total $ 33,064 $ 23,717
--------- ---------
--------- ---------
41
ARGOSY GAMING COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(1) Income from operations and EBITDA are presented before consideration of
any management fee paid to 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.
EBITDA may not be comparable to similarly titled measures reported by
other companies. The Company has other significant uses of cash flows,
including debt service and capital expenditures, which are not
reflected in EBITDA.
(3) Includes expenses related to a severance package and a settlement
arrangement of approximately $1.8 million for the three months ended
March 31, 1999.
42
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
CASINO--Casino revenues for the three months ended March 31, 1999
increased by $20.8 million to $129.1 million from $108.3 million for the
three months ended March 31, 1998 due primarily to a $17.5 million increase
in casino revenues at the Lawrenceburg casino, which generated total casino
revenues of $73.1 million for the three months ended March 31, 1999. The
Company's other properties reported an aggregate 6.2% increase in casino
revenues from $52.8 to $56.0 million. In particular, Alton casino revenues
increased from $17.0 to $18.1 million, Riverside casino revenues increased
from $18.4 to $19.2 million, Sioux City casino revenues increased from $5.3
to $6.2 million, and Baton Rouge casino revenues increased from $12.1 to
$12.6 million.
Casino expenses increased to $59.5 million for the three months
ended March 31, 1999 from $52.6 million for the three months ended March 31,
1998. This increase is primarily due to increased Lawrenceburg casino
expenses of $6.3 million to $30.4 million attributable to the overall
increase in Lawrenceburg casino revenues of $17.5 million. Casino expenses at
Alton increased $0.5 million due to the overall increase in Alton casino
revenues of $1.1 million.
ADMISSIONS--Admissions revenues (net of complimentary admissions)
decreased slightly by $0.3 million to $1.5 million. Although the number of
admissions increased, more complimentary admissions were given to customers
as part of increased promotions.
FOOD, BEVERAGE AND OTHER--Food, beverage and other revenues
increased $2.5 million to $13.6 million for the three month period ended
March 31, 1999. This increase is attributable to restaurants at the
Lawrenceburg property being opened the entire quarter in 1999. Food, beverage
and other net profit improved $2.2 million to $4.0 million for the three
months ended March 31, 1999. Alton and Riverside each reported decreases in
food and beverage revenues and expenses. Alton's decrease was due to the
closing of a restaurant during the entire three months ended March 31, 1999
in conjunction with a major renovation. Riverside's decreases were primarily
due to the decreased use of food and beverage as a promotional item.
The Lawrenceburg hotel, which opened in May 1998, contributed $0.8
million in net revenues and $0.2 million of operating profit. The hotel
occupancy percentage was 78% and the average daily room rate was $79.
OTHER OPERATING EXPENSES--Other operating expenses were virtually
unchanged at $6.6 million for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and
administrative expenses increased $5.3 million to $28.5 million for the three
months ended March 31, 1999 due primarily to an increase of $3.0 million at
Lawrenceburg relating to expanded promotions and additional payments due to
the city due to increased gaming revenue. Baton Rouge selling, general and
administrative expenses decreased by $0.5 million due to the elimination of
the group sales department as a result of cost reduction programs and a
decrease in insurance expense due to favorable claims experience. Corporate
expenses increased by $1.8 million due to expenses related to a severance
package and settlement arrangement.
43
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DEPRECIATION AND AMORTIZATION--Depreciation and amortization
increased $0.4 million from $8.1 million for the three months ended March 31,
1998 to $8.5 million for the three months ended March 31, 1999, due to
depreciation on the Lawrenceburg hotel which was opened in May 1998.
INTEREST EXPENSE--Net interest expense decreased $0.3 million to
$13.2 million for the three months ended March 31, 1999. This decrease is due
to a decrease in interest expense to a minority partner of $0.6 million
offset by capitalized interest of $0.5 million in the first three months of
1998.
COMPETITION
The Company's Alton Casino faces competition from five other
riverboat casino operators in the St. Louis area and expects the level of
competition to remain intense in the future. The Company's Riverside Casino
faces competition from three casino companies in the Kansas City area that
offer dockside gaming, two of which offer two gaming vessels each. Until July
1998, there was an additional competitor in the Kansas City market. 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. As a result of a 1996 general referendum by which the
public reaffirmed casino gaming in Baton Rouge, effective June 1, 1999 video
poker machines will no longer be permitted in non-casino locations in the
majority of Baton Rouge parishes. The Company is renovating the Belle of
Baton Rouge facilities to aggressively pursue the approximately $80 million
portion of the video poker market that will be eliminated. The Company faces
competition in Sioux City, Iowa, from video gaming devices in nearby South
Dakota, from two land-based Native American casinos and, to a lesser extent,
from slot machines at a pari-mutual race track in Council Bluffs, Iowa and
from two riverboat casinos in the Council Bluffs, Iowa/Omaha, Nebraska
market. The Indiana Partnership faces competition from one other riverboat
casino in the Cincinnati market. In addition, a riverboat casino opened in
November 1998 in the Louisville, Kentucky area approximately 100 miles from
the Company's Lawrenceburg facility and a competing riverboat is expected to
open approximately 45 miles from the Company's Lawrenceburg facility in 2000.
There could be further unanticipated competition in any market which the
Company operates as a result of legislative changes or other events. The
Company expects each market in which it participates, both current and
prospective, to be highly competitive.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 1999, the Company generated cash
flows from operating activities of $30.2 million compared to $21.5 million
for the same period in 1998. This increase is attributable to improved
operations at each of the Company's five casino locations.
In the three months ended March 31, 1999, the Company used cash
flows for investing activities of $4.1 million versus $8.2 million for the
three months ended March 31, 1998. The primary use of funds in 1998 was the
completion of the construction of the Lawrenceburg facility and hotel.
Overall capital expenditures have decreased between periods reflecting the
completion of the Lawrenceburg casino.
44
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the three months ended March 31, 1999, the Company used $10.0
million in cash flows for financing activities compared to using $8.3 million
of cash flows for financing activities for the same period in 1998. The uses
of cash flows in both 1999 and 1998 were to repay loans related to the
Company's Lawrenceburg casino, partner equity distributions related to the
Lawrenceburg partnership and for payments on installment contracts and other
long-term obligations.
As of March 31, 1999, the Company had approximately $105.9 million
of cash, cash equivalents, and marketable securities, including approximately
$20.6 million held at the Indiana Partnership. The Company has outstanding
$235 million of First Mortgage Notes which were issued in June 1996 and are
due June 2004. The Mortgage Notes indenture requires the Company to make
annual cash offers to purchase the Mortgage Notes at 101% of their original
issue value in an amount equal to 50% of certain distributions from Indiana
Gaming L.P. to the Company when an aggregate of $20 million of these
distributions are reached. In the first quarter of 1999, the aggregate of $20
million of these distributions was reached and the required tender offer was
made. The tender offer expired on March 29, 1999, and a total of $26,000 of
First Mortgage Notes were repurchased. The remaining funds made available to
meet the tender obligation are now available for general corporate purposes.
Additionally, the Company has outstanding $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. During 1999, the Company expects to spend approximately
$25 million to fund its capital expenditures program principally related to
upgrading its gaming facilities and purchasing gaming equipment.
During an ongoing audit, the Internal Revenue Service (IRS) has
challenged the S-corporation status of a predecessor entity of the Company.
If the IRS challenge is successful, the Company currently estimates that it
would require up to approximately $13.8 million (excluding penalties) to fund
the potential federal and any state income tax liability. The Company
believes it has substantial legal grounds for its tax position related to
this matter and is vigorously contesting the IRS challenge; however, no
assurance can be given that the Company will not be required to pay some or
all of the disputed amount.
The Company believes that cash on hand and operating cash flows will
be sufficient to fund its current operating, capital expenditure and debt
service obligations. While the Company believes that its sources of liquidity
are sufficient to meet its cash obligations during the next 12 months, the
Company's ability to meet its operating and debt service requirements,
however, is substantially dependent upon the success of the Lawrenceburg
casino. If the operating results of the Lawrenceburg casino would deteriorate
significantly or there are any other events that materially impact its
sources or uses of cash, the Company may be unable to meet future debt
service payments without obtaining additional debt or equity financing or
without the disposition of assets. No assurance can be given that the Company
would be able to obtain such additional financing on suitable terms or sell
assets on favorable terms, if required.
45
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
YEAR 2000
The Company has determined that it will need to modify or replace
significant portions of its software so that its computer systems will
function properly with respect to dates in the Year 2000 and beyond. As the
Company is dependent on third party software for all of its major
applications the Company has initiated discussions with its significant
software vendors and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues. Through these discussions,
the Company has determined that all of the systems that are critical to the
Company's operations are either 2000 compliant or that 2000 compliant
versions exist that can be implemented by the Company.
The next phase in the Company's efforts will be to plan for and
implement the Year 2000 versions of the software into the Company's systems.
The Company has a September 1999 target date to complete its implementation
efforts.
As of March 31, 1999, the Company has incurred less than $200,000 of
costs related to Year 2000 issues. The Company estimates it will incur less
than $300,000 in future expenses to ensure all systems will function properly
with respect to dates in the Year 2000. These expenses are not expected to
have a material impact on the financial position, cash flow or operations of
the Company.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS
DOCUMENT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE" AND "EXPECT" AND
SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS,
INCLUDING THOSE REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY OR ITS MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS INCLUDING, BUT NOT LIMITED TO, (i) GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY OPERATES, (ii) INCREASED
COMPETITIVE PRESSURES IN THE MARKETS IN WHICH THE COMPANY OPERATES, (iii) THE
EFFECT OF FUTURE LEGISLATION OR REGULATORY CHANGES ON THE COMPANY'S
OPERATIONS, AND (iv) OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S
SECURITIES AND EXCHANGE COMMISSION FILINGS. THE COMPANY DOES NOT INTEND TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.
46
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
The Company is from time to time a party to legal proceedings arising
in the ordinary course of business. Other than as disclosed below, the
Company is unaware of any legal proceedings which, even if the outcome were
unfavorable to the Company, would have a material adverse impact on either
its financial condition or results of operations.
MARION COUNTY, INDIANA GRAND JURY
In March, 1996, the Company, its partners in the Lawrenceburg casino
project and certain other individuals and entities were served with document
request subpoenas issued by the Office of the Prosecuting Attorney of Marion
County in connection with a grand jury investigation (the "Marion County
Grand Jury") entitled: STATE OF INDIANA RE: ORIGINAL INVESTIGATION - OFFICIAL
MISCONDUCT. The subpoena requested a broad range of documents relating to the
current and prior ownership interests in the Company and the partners of the
Lawrenceburg Partnership and certain dealings by the Company and its partners
with Samuel Turpin, an Indiana legislator, and certain Indiana lobbyists.
Again in April, 1998, the Company and the Lawrenceburg Partnership were
served with two additional document subpoenas from the Marion County Grand
Jury relating to a lobbyist retained by the Company from time to time and the
Indiana Gaming Association (of which the Company is a member) and its
executive director. The Company believes it has fully complied with the
subpoenas, and has been advised by its Lawrenceburg partners that they have
done the same. Due to the confidential nature of grand jury proceedings, the
Company is not aware of the specific subject matter or matters of the
investigation, other than to the extent revealed by the April 28, 1997,
indictments described later herein.
After the receipt of the initial subpoena in March, 1996, the
Company retained a former U.S. Attorney (James Richmond) and his law firm to
conduct, as special independent counsel ("special independent counsel"), an
internal investigation into the activities and actions of the Company and the
entities controlled by the Company or any person employed by the Company,
with respect to (i) the relationship with Samuel Turpin, (ii) matters
relating to the Company's dealings with the City of Lawrenceburg and the
awarding of the Certificate of Suitability by the Indiana Gaming Commission,
and (iii) matters relating to the Company's lobbying efforts in the Indiana
legislature. A special committee of independent directors of the Company's
Board of Directors was appointed to supervise and coordinate the special
independent counsel's investigation. The special independent counsel upon
conclusion of its investigation issued a report indicating it found no
evidence of criminal wrongdoing by the Company, any entity controlled by the
Company or person employed by the Company with respect to the matters
investigated by the special independent counsel.
Indiana law requires that at the time a target of an investigation
is determined, that entity or person must be so advised by the Office of the
Prosecuting Attorney. Neither the Company nor to its knowledge any of the
Lawrenceburg partners have been advised by the Marion County Prosecutor that
any of them are targets of the investigation.
On April 28, 1997, the Grand Jury returned felony indictments
against (i) Messrs. Willis Connor and James Wurster, principals of American
Consulting Engineers, Inc. ("ACE"), a major Indiana engineering firm that is
engaged in many state and local governmental funded construction projects and
also served as lead engineer for the Lawrenceburg casino project; (ii) Samuel
Turpin, a former Indiana state legislator and
47
Chairman of the Indiana House Ways and Means Committee until June 1996 when
he resigned and also an employee of Conseco, Inc., a Lawrenceburg partner,
and (iii) Kenneth Cragen, president of and lobbyist for the Indiana Motor
Truck Association ("IMTA").
Connor, Wurster and Turpin were each charged with one count of
bribery in connection with payments made by ACE to Turpin while he served in
the Indiana General Assembly, which payments were stated to be for consulting
fees for duties outside the legislative process, which the indictment charges
were in return for official acts by Turpin that promoted the economic
interests of ACE. The press release by the Marion County Prosecutor at the
time of the indictments described those economic interest as including "the
promoting of certain riverboat gaming interests in which ACE had a financial
interest, the diverting of state funds into highway construction and, which
Turpin was a member of the State Budget Committee, the release of state funds
that benefited particular ACE public works projects." Turpin was also charged
with five counts of filing fraudulent campaign finance reports, and one count
of perjury in connection with a sworn statement to the Indiana Bureau of
Motor Vehicles. Wurster was also charged with one Count, and Cragen with two
counts, of unlawful lobbying in connection with lobbying activities involving
IMTA and ACE.
In April, 1999, the Indiana Court of Appeals in the case entitled
JAMES WURSTER, SAMUEL TURPIN AND WILLIS CONNOR V. THE STATE OF INDIANA issued
a unanimous decision dismissing all counts of the indictment of the Marion
County Grand Jury against Messrs. Wurster and Connor and all counts of the
indictment against Turpin, except the counts dealing with reports to the
Indiana Election Commission and the Indiana Bureau of Motor Vehicles. On
April 28, 1999 the Marion County Prosecutor petitioned the Indiana Supreme
Court to review the Court of Appeals decision. Whether the Indiana Supreme
Court accepts the appeal is discretionary.
There can be no assurance that the grand jury investigation will not
lead to events having a material adverse effect on the Company.
MATTERS CONCERNING H. STEVEN NORTON
On April 20, 1999, the Company entered into a Settlement Agreement
with H. Steven Norton, the former President of the Company until his
resignation in February, 1998. Pursuant to the Settlement Agreement the
Company has agreed to pay Mr. Norton $1.825 Million and Mr. Norton (i)
dismissed with prejudice the lawsuit entitled H. STEVEN NORTON V. JOHN T.
CONNORS, ET AL., a cause of action in which Mr. Norton sought $50 Million in
damages from Mr. Connors and in which Mr. Connors advised the Company he
intended to cross-claim against the Company for any damages recoverable by
Norton, (ii) released any claims arising from his prior employment with the
Company, and (iii) released any claims against the Company relating to his
claim that the Company owed him any compensation for his bringing the
Lawrenceburg casino opportunity to the Company.
GAMEDEV OF SIOUX CITY, INC., F/K/A SIOUX CITY RIVERBOAT CORP., INC. V.
ARGOSY GAMING COMPANY AND IOWA GAMING COMPANY
This suit was filed on June 11, 1998, in the Iowa District Court in
Woodbury County, Iowa. Gamedev of Sioux City, Inc. ("Gamedev"), the limited
partner of the limited partnership, Belle of Sioux City, L.P., seeks monetary
damages and an equitable accounting based on claims of breach of fiduciary
duty and negligent misrepresentation against the defendants. Iowa Gaming
Company, a wholly-owned subsidiary of the Company, is the general partner of
the Belle of Sioux City, L.P. On July 21, 1998, the defendants responded to
the Petition by filing a motion to dismiss on the grounds that Gamedev's
claims are derivative in nature, and that Gamedev has failed to comply with
the demand requirements under Iowa limited partnership law. Also, Gamedev is
not entitled to an equitable accounting because it has an adequate remedy at
law. In
48
response, on August 4, 1998, plaintiff filed a First Amended and Substituted
Petition and added claims for fraudulent misrepresentation, breach of the
partnership agreement, and breach of the management agreement. Defendants
filed a motion to dismiss based on substantially similar grounds and
requested a more specific statement on the claims for breach of contract. On
September 25, 1998, the court denied the motion to dismiss and granted the
request for a more specific statement. Plaintiff subsequently filed a Second
Amended Petition on October 14, 1998. The court scheduled November 2, 1999
for the trial date. The discovery cutoff deadline for the parties is October
1, 1999. Plaintiff must designate it experts by June 25, 1999, and defendants
must designate their experts by August 27, 1999. Dispositive motions will be
filed per statute, and a settlement conference, if required, is set for
October 27, 1999. The parties have exchanged written discovery and are
presently responding to them. Depositions have begun. There can be no
assurance that the lawsuit will not lead to events having a material adverse
effect on the Company.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K - None
49
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: May 3, 1999 /s/ Dale R. Black
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Dale R. Black
Vice President-Chief Financial Officer
50