The certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 about the disclosure contained in this Annual Report on Form 10-K are attached hereto and available on our website. Our Chief Executive Officer certified to the New York Stock Exchange (“NYSE”) in May 2004, pursuant to Section 303A.12 of the NYSE listing standards, that he was unaware of any violation by Argosy of the NYSE corporate governance listing standards as of that date.
The following summarizes our casino properties:
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Casino Name |
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Principal Metropolitan |
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2004 Net |
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Approximate |
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(in thousands) |
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Argosy Casino Lawrenceburg |
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Cincinnati, Ohio |
|
|
$ |
441,279 |
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|
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2,875 |
|
|
|
Empress Casino Joliet |
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Chicago, Illinois |
|
|
220,255 |
|
|
|
1,333 |
|
|
|
|
Argosy Casino Riverside |
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Kansas City, Missouri |
|
|
143,406 |
|
|
|
2,020 |
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|
|
|
Argosy Casino Alton |
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St. Louis, Missouri |
|
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102,320 |
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|
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1,190 |
|
|
|
|
Argosy Casino Baton Rouge |
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Baton Rouge, Louisiana |
|
|
85,232 |
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|
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1,054 |
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|
|
|
Argosy Casino Sioux City |
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Sioux City, Iowa |
|
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48,358 |
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|
|
739 |
|
|
|
On November 3, 2004, we entered into a definitive merger agreement with Penn National Gaming, Inc. (“Penn”) under which Penn will acquire all of the outstanding shares of Argosy for $47 per share and assume all of our outstanding indebtedness for aggregate consideration of approximately $2.2 billion. Argosy stockholders approved the transaction on January 20, 2005. The transaction is still subject to approval by each company’s respective state regulatory bodies, and to certain other necessary regulatory approvals and other customary closing conditions contained in the merger agreement. The transaction is not conditioned on financing and, pending regulatory approvals, is expected to close in the second half of 2005. For more information on our pending merger with Penn, see the definitive proxy
statement/prospectus that is part of the Definitive Proxy Statement filed by us with the SEC dated December 23, 2004.
Business Strategy
By capitalizing on the extensive gaming industry experience of our management team, we have developed a strategy to maximize the performance of our operating assets and improve financial results. We continue to implement changes at each of our properties to improve our competitive position, increase gaming revenues and enhance profitability. The key elements of our business strategy include:
· Provide our customers with a superior entertainment experience. We operate casinos catering to “locals” customers who generally live within an hour’s drive of our casinos. Based on our surveys, our regular customers game an average of three times a month, unlike a destination gaming market, such as the Las Vegas strip, where people visit less frequently. We believe that exceptional customer service and an enjoyable gaming experience are critical to fostering customer loyalty. We regularly survey our customers to ensure that we take their preferences into account when implementing our operating and capital spending plans. Our customers consistently indicate that cleanliness, a comfortable atmosphere, attentive staff, availability of games, and a feeling of fun and excitement are the important factors to a satisfying gaming experience. We allocate the majority of our maintenance capital expenditures at each property to address issues of importance to customers, much of which is spent to keep our gaming product fresh.
· Focus on our most valuable customers and enhance profitability. Our primary marketing focus is through direct and relationship marketing to encourage repeat business with our customers. We have upgraded and refined the use of our sophisticated player tracking systems to identify and reward premium players and our most loyal and profitable customers. Based on a player’s gaming activity, we create promotions including targeted direct mail coin offers and “members only” concerts, parties, tournaments, sweepstakes and special entertainment events. We constantly monitor our marketing initiatives, mix of casino games and costs and expenses in response to the prevailing regulatory and market environment in order to enhance our profitability. For instance, in response to a 2003 gaming tax increase in Illinois, we developed a strategy to minimize the impact of such increase. We made several operational adjustments at our Illinois casinos, including refocusing capital spent on marketing, adjusting hours of restaurant operations and pricing for food and beverage operations, implementing admission fees at the Joliet casino, reducing the number of participation games and table games while increasing the number of slot machines and reducing the hours of casino operations to benefit from a corresponding decline in operational costs. During 2004, we further modified our operations in response to current market conditions.
· Invest in new gaming equipment. Slot machines contributed approximately 87% of our casino revenues in 2004 and are an important element of our profitability. We continually upgrade our gaming product with state-of-the-art slot machines. We believe that regularly replacing slot machines with the most popular products creates a more exciting gaming experience and increases profitability. We also continued to invest in cashless ticket-in, ticket-out, or “TITO”, slot machines and have become 100% TITO operational in early 2005. The TITO machines are more convenient to our customers and their implementation results in operational efficiencies.
· Renovate and upgrade our properties. To maintain an exciting gaming experience for our customers, we have systematically renovated and improved our casino and entertainment facilities in response to customer preferences and market opportunities. For example, we opened our approximately $43 million new two-level casino in Joliet in May 2003, our approximately $105 million new casino in Kansas City in December 2003 and spent approximately $6 million to renovate our riverboat formerly used in Kansas City that was placed in service at our Sioux City property in September 2004. We have begun construction in 2004 of a new parking garage in Kansas City that will be part of a $75 million project that includes the addition of a premier hotel. We are also
finalizing details of a major capital project including a new casino facility at our Lawrenceburg location. This will provide additional gaming positions and incremental parking. We are currently evaluating options for the use of our current Lawrenceburg casino upon replacement with the new casino. In addition, we spent approximately $39 million on maintenance capital in 2004 across all our properties, primarily in TITO slot purchases, to continue to provide a quality environment for our customers. We tailor our expansion plans to suit the market opportunity while focusing on our profitability.
Casino Properties
Argosy Casino Lawrenceburg
Property: The Argosy Casino Lawrenceburg is located on the Ohio River in Lawrenceburg, Indiana approximately 15 miles west of Cincinnati and is the closest casino to the Cincinnati metropolitan area. The Lawrenceburg casino is one of the largest casinos in the central United States with 74,300 square feet of gaming space on three levels with approximately 2,353 slot machines and 87 table games. In 2002, the Indiana Gaming Commission approved dockside gaming and our Lawrenceburg casino commenced dockside gaming on August 1, 2002. The complex also features a 300 room hotel, a 200,000 square foot land-based entertainment pavilion and support facility featuring a 350 seat buffet restaurant, two specialty restaurants, an entertainment lounge, an 1,800 space parking garage and a 1,400 space remote lot.
Capital Improvements: In 2004, we spent approximately $19.2 million on maintenance capital improvements (including the purchase of $5.1 million of land for future development).
Gaming Market: The Lawrenceburg casino draws customers from a population of approximately 2.0 million residents in the Cincinnati metropolitan area and an additional approximately 5.6 million people who reside within 100 miles of Lawrenceburg, including the major metropolitan markets of Dayton and Columbus, Ohio and, to a lesser extent, Indianapolis, Indiana and Lexington, Kentucky. In the Cincinnati market, the Lawrenceburg casino directly competes with two other riverboat casinos. The three riverboat casinos operating in the Cincinnati market generated $734.5 million of gaming revenues in 2004, a 7.3% increase from 2003. In 2004, the Lawrenceburg casino represented 44.9% of gaming position capacity in the Cincinnati market, and captured 59.8% of the market’s gaming revenues.
The Lawrenceburg casino is the closest casino to the Cincinnati metropolitan area. Our nearest competitor is located approximately 15 miles further south of Lawrenceburg in Rising Sun, Indiana. Another competitor is located 40 miles from Lawrenceburg in Switzerland County, Indiana. Secondarily, we compete with a riverboat casino in Bridgeport, Indiana in the Louisville, Kentucky area approximately 100 miles from Lawrenceburg.
Regulatory: Indiana gaming law currently limits the number of gaming licenses to be issued in the state to a total of 11, including a maximum of 5 licenses along the Ohio River and a limit of one license per county. Indiana gaming law does not restrict the size of a licensee’s gaming facility or place limits on customer losses or betting levels. Our Indiana gaming license is subject to renewal on an annual basis. Effective August 1, 2002, our casino commenced dockside gaming, which allows our customers unlimited ingress and egress during the casino’s hours of operation. At the same time, Indiana enacted legislation to increase gaming tax rates for those casinos adopting dockside gaming. In 2003, the Indiana legislature enacted legislation applying certain provisions of tax increases enacted during 2002 on a retroactive basis and eliminating the existing restrictions on owning more than one Indiana casino.
Casino gaming is not currently permitted under the laws of either Ohio or Kentucky. The Ohio legislature has considered, at various times, legislation that would allow certain types of casino-style gaming at Ohio racetracks. Legislation has been introduced to allow Kentucky racetracks to have slot machines. The Kentucky legislation would allow any kind of electronic games, from slots to keno to video poker as well as wide area progressives. To date, Ohio, Kentucky and Indiana have not enacted such
proposed legislation. Enactment of such legislation by Ohio, Kentucky or Indiana could have an adverse affect on the financial results of our Lawrenceburg casino.
Empress Casino Joliet
Property: The Empress Casino Joliet is located on the Des Plaines River in Joliet, Illinois on a 300-acre site approximately 40 miles southwest of Chicago. This barge-based casino provides approximately 50,000 square feet of gaming space on two levels with approximately 1,183 slot machines and 25 table games. The casino theme evokes Northern California’s wine country and features a 150,000 square foot entertainment pavilion with three restaurants, an entertainment lounge and banquet/conference facilities. The complex also includes a 102-room hotel, surface parking areas with approximately 2,350 spaces and an 80-space recreational vehicle park.
Capital Improvements: In 2004, we spent approximately $3.0 million in maintenance capital expenditures.
Gaming Market: The Empress Casino Joliet draws from a population of approximately 8.0 million people who reside mainly within 50 miles of Joliet, including Chicago, which has the largest local population of any state-licensed gaming market and is the third largest gaming market in the United States. The target customers of the Empress Casino Joliet are drawn largely from the southern and western regions of the greater Chicago metropolitan area, as well as portions of north central Illinois. The eight riverboat casinos operating in the Chicago market generated approximately $2.114 billion of gaming revenues in 2004, a 2.7% increase from 2003. In 2004, the Empress Casino Joliet had 9.6% of gaming position capacity in the Chicago market and captured 10.8% of the market’s casino revenues.
Regulatory: Illinois gaming law currently limits the number of gaming licenses to be issued in the state to ten, nine of which are currently held by operating casinos. Each license permits the operation of up to two boats as part of a single riverboat gaming operation with a combined maximum of 1,200 gaming positions as defined by the state. Our Illinois license for Joliet was issued at the time of our acquisition of Empress Casino Joliet and was renewed in July 2002 for four years. During the second quarter 2002 and the second quarter of 2003, Illinois enacted legislation increasing gaming and admission tax rates. According to the 2003 legislation, the current rates are scheduled to be rolled-back to pre-July 2003 rates effective July 1, 2005. The govenor of Illinois submitted a proposed fiscal 2006 state budget which does not include the scheduled roll-back. The state budget discussions are in the preliminary stage and there is no assurance as to whether the scheduled roll-back will occur.
Argosy Casino Alton
Property: The Argosy Casino Alton is located on the Mississippi River in Alton, Illinois approximately 20 miles northeast of downtown St. Louis. We commenced operations in Alton, Illinois in September 1991 as the first gaming facility in Illinois and the St. Louis metropolitan market. We operate our casino on a three-deck gaming facility featuring 26,700 square feet of gaming space with approximately 1,068 slot machines and 20 table games. In June 1999, Illinois passed a law permitting casinos to offer continuous dockside gaming. The Alton property includes an approximately 60,000 square foot entertainment pavilion and features a 124-seat buffet, a restaurant and a 400-seat main showroom. Self-parking is available adjacent to the casino, as well as valet parking.
Capital Improvements: In 2004, we spent approximately $4.1 million on maintenance capital improvements.
Gaming Market: The Argosy Casino Alton generally draws from a population of approximately 2.7 million residents within the St. Louis metropolitan area and an additional approximately 1.2 million people within a 100-mile radius of the City of St. Louis. The target customers of the Argosy Casino Alton are drawn largely from the northern and eastern regions of the greater St. Louis metropolitan area, as well as portions of central and southern Illinois.
The Argosy Casino Alton faces competition from four other riverboat casino companies currently operating in the St. Louis area, including one other Illinois licensee. In addition, two casino projects (one
in downtown St. Louis and another in south St. Louis County) are proposed and are pending regulatory approvals. As an Illinois licensee, the Argosy Casino Alton is not subject to Missouri’s $500 loss limit. The riverboat casinos operating in the St. Louis market generated $921.0 million of gaming revenues in 2004, a 9.3% increase from 2003. In 2004, the Argosy Casino Alton represented approximately 11.0% of gaming position capacity in the St. Louis market and captured approximately 11.6% of the market’s gaming revenues.
Regulatory: Illinois gaming law currently limits the number of gaming licenses to be issued in the state to ten, of which nine are currently held by operating casinos. Each license permits the operation of up to two boats as part of a single riverboat gaming operation with a combined maximum of 1,200 gaming positions as defined by the state. Our Illinois gaming license was renewed in October 2003 with a four year term and requiring annual updates. During the second quarter 2002 and the second quarter of 2003, Illinois enacted legislation increasing gaming and admission tax rates. According to the 2003 legislation, the current rates are scheduled to be rolled-back to pre-July 2003 rates effective July 1, 2005. The govenor of Illinois submitted a proposed fiscal 2006 state budget which does not include the scheduled roll-back. The state budget discussions are in the preliminary stage and there is no assurance as to whether the scheduled roll-back will occur.
Argosy Casino Riverside
Property: The Argosy Casino Riverside is located on the Missouri River approximately five miles from downtown Kansas City in Riverside, Missouri on a 55-acre site. In December 2003, we opened our new, state-of-the-art Mediterranean themed casino that replaced our three-level riverboat facility providing approximately 53% in additional gaming capacity. The facility features an innovative “floating” casino floor that complies with Missouri gaming regulations and provides a seamless transition between the casino and land-based support areas. The new Las Vegas-style casino features approximately 62,000 square feet of gaming space on one level with approximately 1,762 slot machines and 44 table games. The $105 million project also included the renovation and expansion of the current pavilion to include an 85,000 square foot land-based entertainment facility featuring 5 new food and beverage areas, including a buffet, steak house, deli, coffee bar, VIP lounge and sports/entertainment lounge and 8,000 square feet of banquet/conference facilities. We have begun construction on our $75 million project beginning with a new parking garage with 1,400 spaces to replace our current 800-space garage and eventually a new premier hotel. The garage project is scheduled for completion in the third quarter 2005 and the hotel is scheduled to open near the end of 2006.
Capital Improvements: During 2004, we spent $33.3 million combined on capital improvements, including final payments on our new casino opened in December 2003 and on our new parking garage project.
Gaming Market: The Riverside casino draws from a population of approximately 440,000 residents in Kansas City and approximately 1.8 million residents in the greater Kansas City metropolitan area. The Riverside casino site offers convenient access from two major highways. The Riverside casino primarily attracts customers who reside in the northern and western regions of the Kansas City metropolitan area. We currently face competition from three other casinos in the Kansas City area. The four riverboat casinos operating in the Kansas City market generated $677.0 million of gaming revenues in 2004, a 10.2% increase from 2003. In 2004, our Riverside casino represented 21.4% of gaming position capacity in the Kansas City market and captured 21.7% of the market’s gaming revenues.
Regulatory: Our Missouri gaming license was renewed in January 2004 for a two-year term and is subject to renewal every two years thereafter. Legislation has been filed in Kansas, which, if enacted, would allow for slot machines at racetracks. Legislation has been introduced in Missouri that would increase admission and gaming taxes. Should Kansas enact such legislation or Missouri increase admission or gaming taxes, our Riverside casino’s financial results would be adversely affected.
Argosy Casino Baton Rouge
Property: The Argosy Casino Baton Rouge is located on the Mississippi River in downtown Baton Rouge, Louisiana. The casino features approximately 28,000 square feet of gaming space with approximately 863 slot machines and 30 table games. The Baton Rouge casino began operations in September 1994 as the first riverboat gaming facility in the Baton Rouge market. Louisiana adopted legislation effective April 1, 2001, that permits dockside gaming, allowing customers unlimited ingress and egress. This legislation also increased the gaming tax on riverboat operators from 18.5% to 21.5% of casino revenues. The riverboat casino is complemented by a 730-space parking garage, a 270-space surface parking lot and by our adjacent real estate development known as Catfish Town. Catfish Town is located next to Baton Rouge’s convention complex and includes a 300-room Sheraton franchised hotel, a 50,000 square foot glass-enclosed atrium, entertainment/sports lounge, buffet/coffee shop, conference facilities and approximately 150,000 square feet of leasable retail space. We own and operate the Catfish Town facility through our wholly-owned subsidiary, Jazz Enterprises, Inc., which we acquired in 1995 after Catfish Town’s developer experienced financial difficulties and put in doubt its ability to satisfy certain development obligations to the City of Baton Rouge.
Capital Improvements: During 2004, we spent approximately $5.1 million in maintenance capital improvements.
Gaming Market: The Baton Rouge casino draws from a population of approximately 0.6 million in the Baton Rouge metropolitan area. The Baton Rouge casino faces competition from one casino located in downtown Baton Rouge as well as competition from a Central-Louisiana Native American casino, a Central-Louisiana horse track and slot casino that opened in December 2003, casinos located in New Orleans and the Gulf Coast, and various video poker machine operators in non-casino locations in surrounding Louisiana parishes. The two riverboat casinos operating in Baton Rouge generated approximately $189.0 million of gaming revenues in 2004, a 2.6% increase from 2003. In 2004, the Argosy Casino Baton Rouge represented 45.2% of gaming position capacity in Baton Rouge and generated 43.9% of Baton Rouge’s gaming revenues.
Regulatory: The Louisiana Gaming Board renewed our license effective June 2000 for a five-year period subject to renewal in June 2005.
Argosy Casino Sioux City
Property: The Argosy Casino Sioux City is located on the Missouri River in downtown Sioux City, Iowa. The riverboat (which transferred from our Riverside location in 2004 after the opening of our new Riverside casino in December 2003) features 36,000 square feet of gaming space with approximately 625 slot machines and 19 table games. In July 2004, Iowa approved dockside gaming, which allows our customers unlimited ingress and egress. At that time, gaming tax rates also were increased. The casino is complemented by adjacent barge facilities featuring buffet dining facilities, meeting space and administrative support offices.
Capital Improvements: In 2004, we spent approximately $8.7 million in capital expenditures, including our renovation on the former Riverside boat placed in service in Sioux City in September 2004.
Gaming Market: The Argosy Casino Sioux City draws from a population of approximately 85,000 residents in Sioux City and an estimated 125,000 people in the greater Sioux City metropolitan area. The Argosy Casino Sioux City competes primarily with land-based Native American casinos that are not required to report gaming revenues and other operating statistics, therefore market comparisons cannot be made. We also compete with certain providers and operators of video gaming in the neighboring state of South Dakota. Additionally, to a lesser extent we compete with slot machines at a pari-mutual racetrack in Council Bluffs, Iowa and with two riverboat casinos in the Council Bluffs/Omaha, Nebraska market, approximately 90 miles south of Sioux City.
Regulatory: Our Iowa gaming license is subject to annual renewal each March. In addition, Iowa law stipulates that a referendum must be held every eight years to reaffirm gaming in each county that has gaming. This referendum was approved in November 2002, thus continuing gaming in the county we operate in for another six years.
Pending Acquisition—Raceway Park Toledo, Ohio
In October 2004, the Company entered into a contract to purchase Raceway Park in Toledo, Ohio for approximately $20 million, subject to various conditions including regulatory approval. The purchase also includes an off-track wagering facility.
Marketing
We focus our marketing efforts on direct and relationship marketing to encourage repeat business and foster customer loyalty. We have designed an overall marketing strategy of utilizing direct marketing as our primary means of communicating with our customers. Although the marketing plan for each of our properties is tailored to the specific needs of the site and market, the common strategic components are:
· further refine and enhance our database marketing efforts;
· continue to enhance our full-service player development program to service our most valuable customers;
· aggressively market our gaming product and facility improvements;
· refine, enhance and expand the schedule of parties, events and entertainment; and
· utilize public relations as a tool to increase awareness, and reinforce marketing efforts by publicizing winners.
A key tactic in implementing our overall strategy is the effective use of the information we obtain regarding our customers’ playing activity. At each of our properties, we encourage patrons to join the Argosy Preferred Club. We then track the member’s level of play through the use of sophisticated player tracking systems. We have upgraded and refined the use of our player tracking systems to identify and reward premium players and our most loyal and profitable customers. Based on a player’s gaming activity, we create promotions including targeted direct mail coin offers and “members only” concerts, parties, tournaments, sweepstakes and special entertainment events. Our data warehouse stores information on more than 2.6 million Argosy Preferred Club members and our active Preferred Club members account for approximately 68% of our revenues.
Competition
The U.S. gaming industry is intensely competitive and features many participants, including riverboat casinos, dockside casinos, land-based casinos, video lottery and poker machines not located in casinos, Native American gaming and other forms of gambling in the United States. Gaming competition is particularly intense in each of the markets where we operate. Historically, we have been an early entrant in each of our markets; however, as competing properties have opened, our operating results in each of these markets have been negatively affected. Many of our competitors have more gaming industry experience, are larger and have significantly greater financial and other resources. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions in terms of:
· amenities offered at the gaming facility and the related support and entertainment facilities;
· convenient parking facilities;
· a location more favorably situated to the population base of a market and ease of accessibility to the casino site; and
· favorable tax or regulatory factors.
There could be further competition in our markets as a result of the upgrading or expansion of facilities by existing market participants, the entrance of new gaming participants into a market or legislative changes. We expect each market, in which we participate, both current and prospective, to be highly competitive. The competitive position of each of our casino
