<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21122
ARGOSY GAMING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 37-1304247
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 24,333,333 shares
of Common Stock, $.01 par value per share, as of November 13, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . $ 67,577 $ 16,159
Income taxes receivable . . . . . . . . . . . . . 10,656 2,197
Other current assets. . . . . . . . . . . . . . . 12,562 10,136
--------- ---------
Total current assets. . . . . . . . . . . . . . . 90,795 28,492
--------- ---------
PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . . . 293,818 239,480
--------- ---------
OTHER ASSETS:
Cash and cash equivalents held by Trustee . . . . 83,029
Goodwill, net . . . . . . . . . . . . . . . . . . 23,072 23,519
Other, net. . . . . . . . . . . . . . . . . . . . 25,599 18,391
--------- ---------
Total other assets . . . . . . . . . . . . . . 131,700 41,910
--------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $ 516,313 $ 309,882
--------- ---------
--------- ---------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities. . . . . $ 36,685 $ 26,941
Other current liabilities . . . . . . . . . . . . 9,411 8,388
--------- ---------
Total current liabilities. . . . . . . . . . . 46,096 35,329
--------- ---------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . 362,249 169,303
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED
SUBSIDIARIES. . . . . . . . . . . . . . . . . . . 18,850 2,543
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . 5,154 5,167
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares
authorized; 24,333,333 shares issued and
outstanding. . . . . . . . . . . . . . . . . . 243 243
Capital in excess of par. . . . . . . . . . . . . 71,865 71,865
Retained earnings . . . . . . . . . . . . . . . . 11,856 25,432
--------- ---------
Total stockholders' equity . . . . . . . . . . 83,964 97,540
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . $ 516,313 $ 309,882
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino. . . . . . . . . . . . . . . . . . . . . . $ 173,924 $ 180,294
Admissions. . . . . . . . . . . . . . . . . . . . 1,983 12,055
Food, beverage and other. . . . . . . . . . . . . 20,110 13,476
--------- ---------
196,017 205,825
Less: promotional allowances . . . . . . . . . . (10,040) (13,652)
--------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . 185,977 192,173
--------- ---------
COSTS AND EXPENSES:
Casino. . . . . . . . . . . . . . . . . . . . . . 89,190 88,780
Food, beverage and other. . . . . . . . . . . . . 17,622 12,749
Other operating expenses . . . . . . . . . . . . 13,631 10,620
Selling, general and administrative . . . . . . . 38,937 36,354
Depreciation and amortization . . . . . . . . . . 17,066 15,218
Development and preopening costs. . . . . . . . . 7,372 2,141
Notes receivable allowance - St. Louis. . . . . . 3,477
Lease termination costs . . . . . . . . . . . . . 3,508
Referendum expenses . . . . . . . . . . . . . . . 383
--------- ---------
187,709 169,339
--------- ---------
Income (loss) from operations. . . . . . . . . . . . (1,732) 22,834
--------- ---------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . 2,524 465
Interest expense. . . . . . . . . . . . . . . . . (23,681) (12,047)
--------- ---------
(21,157) (11,582)
--------- ---------
Income (loss) before income taxes, minority
interests and extraordinary item. . . . . . . . . (22,889) 11,252
Income tax (expense) benefit . . . . . . . . . . . . 8,646 (4,714)
Minority interests . . . . . . . . . . . . . . . . . 1,557 (103)
--------- ---------
Income (loss) before extraordinary item. . . . . . . (12,686) 6,435
Extraordinary loss on extinguishment of debt
(net of income tax benefit of $594) . . . . . . . (890)
--------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . $ (13,576) $ 6,435
--------- ---------
--------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM PER SHARE. . $ (.52) $ .26
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT PER
SHARE (NET OF INCOME TAX BENEFIT OF $.02) . . . . (.04)
--------- ---------
NET INCOME (LOSS) PER SHARE. . . . . . . . . . . . . $ (.56) $ .26
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino. . . . . . . . . . . . . . . . . . . . . . $ 55,778 $ 62,504
Admissions. . . . . . . . . . . . . . . . . . . . 3,711
Food, beverage and other. . . . . . . . . . . . . 7,244 5,340
---------- ---------
63,022 71,555
Less: promotional allowances . . . . . . . . . . (3,000) (4,918)
---------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . 60,022 66,637
---------- ---------
COSTS AND EXPENSES:
Casino. . . . . . . . . . . . . . . . . . . . . . 29,925 30,410
Food, beverage and other. . . . . . . . . . . . . 6,294 4,689
Other operating expenses. . . . . . . . . . . . . 4,899 3,998
Selling, general and administrative . . . . . . . 12,606 11,295
Depreciation and amortization . . . . . . . . . . 5,982 5,180
Development and preopening costs. . . . . . . . . 3,681 1,003
Notes receivable allowance - St. Louis. . . . . . 3,477
Referendum expenses . . . . . . . . . . . . . . . 383
---------- ---------
63,770 60,052
---------- ---------
Income (loss) from operations. . . . . . . . . . . . (3,748) 6,585
---------- ---------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . 1,884 251
Interest expense. . . . . . . . . . . . . . . . . (12,135) (4,130)
---------- ---------
(10,251) (3,879)
---------- ---------
Income (loss) before income taxes and minority
interests. . . . . . . . . . . . . . . . . . . . . (13,999) 2,706
Income tax (expense) benefit . . . . . . . . . . . . 5,447 (1,002)
Minority interests . . . . . . . . . . . . . . . . . 844 (50)
---------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . $ (7,708) $ 1,654
---------- ---------
---------- ---------
NET INCOME (LOSS) PER SHARE. . . . . . . . . . . . . $ (.32) $ .07
---------- ---------
---------- ---------
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . $ (13,576) $ 6,435
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . 18,350 15,987
Deferred income taxes . . . . . . . . . . . . . . (102) 896
Increase in notes receivable allowance. . . . . . 3,477
Minority interests. . . . . . . . . . . . . . . . (1,557) 103
Extraordinary item. . . . . . . . . . . . . . . . 890
Lease termination costs . . . . . . . . . . . . . 2,223
Changes in operating assets and liabilities,
(net of the effects of the purchase of
Jazz Enterprises, Inc. in 1995)
Income taxes receivable . . . . . . . . . . . . . (8,459)
Other current assets. . . . . . . . . . . . . . . (1,601) 161
Other current liabilities . . . . . . . . . . . . (405) 2,436
Accounts payable and accrued liabilities. . . . . 13,359 10,511
--------- ---------
Net cash provided by operating activities. . . 9,122 40,006
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities. . . . . . . . . . 459
Increase in notes receivable. . . . . . . . . . . (399)
Purchases of property and equipment . . . . . . . (73,322) (43,368)
Deposits. . . . . . . . . . . . . . . . . . . . . (989) (223)
Goodwill. . . . . . . . . . . . . . . . . . . . . (9,388)
Increase in cash and cash equivalents
held by trustee. . . . . . . . . . . . . . . . . (83,029)
--------- ---------
Net cash used in investing activities. . . . . (157,340) (52,919)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit. . . . . . . . . . . 44,500 25,000
Repayment of line of credit . . . . . . . . . . . (90,000) (4,000)
Proceeds from sale of first mortgage notes. . . . 235,000
Payments on long-term debt and installment
contracts. . . . . . . . . . . . . . . . . . . (4,437) (6,266)
Capital equity contributions from partner . . . . 19,044
Proceeds from partner loans to Partnership. . . . 5,449
Increase in other assets. . . . . . . . . . . . . (9,920) (3,876)
--------- ---------
Net cash provided by
financing activities. . . . . . . . . . . . 199,636 10,858
--------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . 51,418 (2,055)
Cash and cash equivalents, beginning of period . . . 16,159 18,291
--------- ---------
Cash and cash equivalents, end of period . . . . . . $ 67,577 $ 16,236
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands, Except 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, operates
riverboat casinos in Alton, Illinois; Riverside, Missouri; Baton Rouge,
Louisiana; and Sioux City, Iowa. Also, Indiana Gaming Company, L.P., ("Indiana
Partnership") a limited partnership in which the Company is general partner and
holds a 57.5% partnership interest, holds a preliminary certificate of
suitability from the Indiana Gaming Commission and is developing a riverboat
casino and related entertainment and support facilities in Lawrenceburg, Indiana
("Lawrenceburg Project").
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, 1995, included in the Company's Annual
Report on Form 10-K (File No. 0-21122). The accompanying unaudited condensed
consolidated financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals. Certain 1995 amounts have been reclassified to
conform to the 1996 financial statement presentation.
5
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
2. LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
First mortgage notes due June 1, 2004 interest payable
semiannually at 13 1/4% . . . . . . . . . . . . . . . . . $ 235,000
Senior secured line of credit . . . . . . . . . . . . . . . 45,500
Convertible subordinated notes due June 1, 2001,
convertible into common stock at $17.70 per
share, interest payable semi-annually at 12%. . . . . . . 115,000 115,000
Notes payable, principal and interest payments due
quarterly through September 2015, discounted
at 10.5%. . . . . . . . . . . . . . . . . . . . . . . . . 6,800 9,202
Other payable at prime plus 6%. . . . . . . . . . . . . . . 5,449
---------- ----------
362,249 169,702
Less: Current maturities . . . . . . . . . . . . . . . . . 399
---------- ----------
Long-term debt, less current maturities . . . . . . . . . . $ 362,249 $ 169,303
---------- ----------
---------- ----------
</TABLE>
On June 5, 1996 the Company issued $235,000 of First Mortgage Notes due
2004 ("Mortgage Notes"). The Mortgage Notes are senior obligations of the
Company secured by substantially all of its assets, except for the assets of the
Indiana Partnership.
The Mortgage Notes contain certain restrictions on the payment of dividends
on the Company's common stock and the occurrence of additional indebtedness, as
well as other covenants customary in senior secured financings. In addition,
$94,300 of the proceeds of the Mortgage Notes were placed in a disbursement
account which can only be used to fund the company's obligations for the
construction of the Lawrenceburg Project.
The Company used a portion of the proceeds from the issuance of the
Mortgage Notes to repay and terminate its senior secured line of credit ("Line
of Credit"). In connection with this early termination of the Line of Credit,
the Company expensed approximately $1,484 of deferred finance costs ($890 net of
tax).
The convertible subordinated notes ("Convertible Notes") are convertible
into common stock at any time and may be redeemed by the Company on or after
June 1, 1997, in whole or in part at specified percentages of principal plus
accrued and unpaid interest to the date of redemption. The Convertible Notes
are subordinated to prior payment in full of all senior indebtedness, including
the Mortgage Notes and
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
senior indebtedness incurred in the future.
3. ACQUISITION OF JAZZ ENTERPRISES, INC.
Effective May 30, 1995 the Company acquired 100% of the stock of Jazz
Enterprises, Inc. ("Jazz"), formerly a 10% partner in the Company's Baton Rouge,
Louisiana riverboat casino. The acquisition was accounted for as a purchase.
The table below sets forth the pro forma operating results of the Company
for the three month and nine month periods ended September 30, 1996 and 1995
giving effect to the acquisition as if the acquisition occurred on January 1,
1995. The pro forma operating results for the three months and nine months
ended September 30, 1996 and 1995 were prepared using the Company's historical
operating results and Jazz's operating results for the applicable periods
through May 30, 1995 (the effective date which Jazz became a wholly owned
subsidiary of the Company).
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net Revenues $ 185,977 $ 192,201 $ 60,022 $ 66,637
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss)
before extraordinary
item $ (12,686) $ 5,194 $ (7,708) $ 1,654
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss)
before extraordinary
item per share $ (.52) $ .21 $ (.32) $ .07
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The unaudited pro forma condensed statements of operations are not
necessarily indicative of either future results of operations or results that
might have been achieved if the foregoing transactions had been consummated as
of the indicated dates.
4. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA DEVELOPMENT--On June 30, 1995 the Indiana Partnership
was awarded a preliminary suitability certificate from the Indiana Gaming
Commission to develop a riverboat casino project on the Ohio River in
Lawrenceburg, Indiana. The Indiana Partnership's preliminary certificate of
suitability has been extended through February 16, 1997 by the Indiana Gaming
Commission. The Company is a 57.5% general partner in the Indiana Partnership.
Provisions of the partnership agreement governing the Indiana Partnership
stipulate that capital contributions up to a total project cost of $225 million,
will be made on the same basis as the partners' equity ownership with any excess
project cost being the responsibility of the Company. Funding for the Indiana
Partnership is to be provided by capital equity contributions for the first
$52,500 and capital loans by the partners for the balance.
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
Under terms of the Lawrenceburg partnership agreement, after the third
anniversary date of commencement of operations at the Lawrenceburg casino, each
limited partner has the right to sell its interest to the other partners (pro
rata in accordance with their respective percentage interests).
This proposed gaming project is subject to the satisfaction of numerous
conditions. Before gaming can commence, the Company must obtain numerous
permits and licenses, including permits from the U.S. Army Corps of
Engineers, licensing for its employees as well as final licensing from the
gaming commission of the State. In addition, the Company must construct its
permanent gaming facilities, which must be open within twelve months of the
opening of the temporary casino. There can be no assurance that this
proposed gaming project will become operational.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result of
a certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has asserted the S-Corporation status as one of the issues
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and state income
taxes on its taxable earnings through February 25, 1993, such payments could
amount to approximately $12,500, including interest through September 30, 1996,
but excluding penalties, if any. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no assurances
can be given that the Predecessor's position will be upheld. This contingent
liability could have a material adverse effect on the Company's results of
operations, financial condition and cash flows. No provision has been made for
this contingency in the accompanying condensed consolidated financial
statements.
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit specified individual
types of gaming, including riverboat gaming, in Louisiana on a parish-by-parish
basis. The referendum was brought before the Louisiana voters on November 5,
1996. The voters in East Baton Rouge Parish, Louisiana approved the proposition
to allow riverboat gaming to continue in their Parish. Additionally, the voters
rejected a proposition to allow video poker to continue operating at lounges,
restaurants and truck stops located throughout this Parish.
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.
5. SUBSIDIARY GUARANTORS
On June 5, 1996, the Company issued the Mortgage Notes in a private
placement transaction. In October 1996, the Company exchanged all of the
outstanding privately placed Mortgage Notes
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
for a like amount of identical Mortgage Notes registered with the Securities
and Exchange Commission. The Mortgage Notes rank senior in right of payment
to all existing and future indebtedness of the Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and several
basis, by the following wholly-owned subsidiaries of the Company, Alton Gaming
Company, The Missouri Gaming Company, The St. Louis Gaming Company, Iowa Gaming
Company, Jazz Enterprises, Inc., Argosy of Louisiana, Inc., Catfish Queen
Partnership in Commendam and The Indiana Gaming Company (the "Guarantors"). The
Mortgage Notes are secured, subject to certain prior liens, by a first lien on
(i) substantially all of the assets of the Company including the assets used in
the Company's Alton, Riverside, Baton Rouge and Sioux City operations, (ii) a
pledge of all the capital stock of, and partnership interests in, the Company's
subsidiaries, excluding the Company's partnership interest in its Sioux City
property, (iii) a pledge of the intercompany notes payable to the Company from
its subsidiaries and (iv) an assignment of the proceeds of the management
agreement relating to the proposed Lawrenceburg Casino project. The collateral
for the Mortgage Notes does not include assets of the Lawrenceburg Partnership.
The following tables present summarized balance sheet and operating
statement information of the Company as of September 30, 1996 and December
31, 1995 and for the nine months and three months ended September 30, 1996
and 1995. 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
casino in Sioux City and its proposed casino in 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
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
Summarized balance sheet information as of September 30, 1996 and
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets. . . . . . . . . $ 53,209 $ 31,666 $ 15,452 $ (9,532) $ 90,795
Non-current assets. . . . . . . 391,506 298,778 61,948 (326,714) 425,518
---------- ---------- ---------- ---------- ----------
$ 444,715 $ 330,444 $ 77,400 $ (336,246) $ 516,313
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LIABILITIES AND EQUITY:
Current liabilities . . . . . . $ 12,391 $ 28,888 $ 11,433 $ (6,616) $ 46,096
Non-current liabilities . . . . 348,360 248,117 25,556 (235,780) 386,253
Stockholder's equity. . . . . . 83,964 53,439 40,411 (93,850) 83,964
---------- ---------- ---------- ---------- ----------
$ 444,715 $ 330,444 $ 77,400 $ (336,246) $ 516,313
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets. . . . . . . . . $ 5,998 $ 23,567 $ 2,904 $ (3,977) $ 28,492
Non-current assets. . . . . . . 259,670 260,517 21,140 (259,937) 281,390
---------- ---------- ---------- ---------- ----------
$ 265,668 $ 284,084 $ 24,044 $ (263,914) $ 309,882
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LIABILITIES AND EQUITY:
Current liabilities . . . . . . $ 6,648 $ 27,316 $ 3,861 $ (2,496) $ 35,329
Non-current liabilities . . . . 161,480 192,681 3,401 (180,549) 177,013
Stockholder's equity. . . . . . 97,540 64,087 16,782 (80,869) 97,540
---------- ---------- ---------- ---------- ----------
$ 265,668 $ 284,084 $ 24,044 $ (263,914) $ 309,882
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Summarized operating statement information for the nine months and three
months ended September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
--------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . $ 359 $ 170,764 $ 14,964 $ (110) $ 185,977
Costs and expenses . . . . . . . . 9,272 161,693 20,935 (4,191) 187,709
Net interest expense . . . . . . . (15,952) (4,687) (418) (100) (21,157)
Net income (loss). . . . . . . . . (16,033) 3,424 (6,390) 5,423 (13,576)
</TABLE>
10
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . $ - $ 177,549 $ 16,697 $ (2,073) $ 192,173
Costs and expenses . . . . . . . . 8,568 146,369 15,418 (1,016) 169,339
Net interest expense . . . . . . . (7,656) (3,887) (39) - (11,582)
Net income (loss). . . . . . . . . (9,127) 15,377 1,237 (1,052) 6,435
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . $ 117 $ 54,830 $ 4,796 $ 279 $ 60,022
Costs and expenses . . . . . . . . 2,695 56,422 8,165 (3,512) 63,770
Net interest expense . . . . . . . (8,315) (1,589) (247) (100) (10,251)
Net income (loss). . . . . . . . . (8,497) (727) (3,615) 5,131 (7,708)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1995
--------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . $ - $ 61,461 $ 5,866 $ (690) $ 66,637
Costs and expenses . . . . . . . . 2,764 52,059 5,785 (556) 60,052
Net interest expense . . . . . . . (2,675) (1,190) (14) - (3,879)
Net income (loss). . . . . . . . . (2,891) 4,615 66 (136) 1,654
</TABLE>
11
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . $ 4,387 $ 3,873
Accounts receivable. . . . . . . . . . . . . . . 420 430
Deferred income taxes. . . . . . . . . . . . . . 687 687
Other current assets . . . . . . . . . . . . . . 1,026 916
---------- ----------
Total current assets . . . . . . . . . . . . . 6,520 5,906
---------- ----------
DUE FROM AFFILIATES. . . . . . . . . . . . . . . . 19,657 10,929
NET PROPERTY AND EQUIPMENT . . . . . . . . . . . . 30,610 32,929
OTHER ASSETS . . . . . . . . . . . . . . . . . . . 4 173
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $ 56,791 $ 49,937
---------- ----------
---------- ----------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . $ 1,452 $ 1,172
Accrued payroll and related expenses . . . . . . 1,516 2,337
Slot club liability. . . . . . . . . . . . . . . 826 1,319
Other accrued liabilities. . . . . . . . . . . . 2,367 2,146
Income taxes payable to affiliate. . . . . . . . 8,171 5,570
---------- ----------
Total current liabilities. . . . . . . . . . . 14,332 12,544
---------- ----------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY. . . . 168 158
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 3,416 2,953
STOCKHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares
authorized, issued and outstanding . . . . . . 1 1
Capital in excess of par . . . . . . . . . . . . 256 256
Retained earnings. . . . . . . . . . . . . . . . 38,618 34,025
---------- ----------
Total stockholder's equity . . . . . . . . . . 38,875 34,282
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY . . . . $ 56,791 $ 49,937
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
12
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino . . . . . . . . . . . . . . . . . . . . . . $ 56,084 $ 62,293
Food, beverage and other . . . . . . . . . . . . . 5,909 5,833
--------- ---------
61,993 68,126
Less promotional allowances. . . . . . . . . . . . (1,728) (2,426)
--------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . 60,265 65,700
COSTS AND EXPENSES
Casino . . . . . . . . . . . . . . . . . . . . . . 26,869 27,803
Food, beverage and other . . . . . . . . . . . . . 5,586 5,154
Other operating expenses . . . . . . . . . . . . . 4,254 4,206
Selling, general and administrative. . . . . . . . 9,390 7,379
Depreciation and amortization. . . . . . . . . . . 3,141 3,137
Management fees - related party. . . . . . . . . . 3,380 3,115
--------- ---------
52,620 50,794
--------- ---------
Income from operations . . . . . . . . . . . . . . . 7,645 14,906
OTHER INCOME (EXPENSE)
Interest income. . . . . . . . . . . . . . . . . . 38 65
Interest expense . . . . . . . . . . . . . . . . . (29) (53)
--------- ---------
9 12
--------- ---------
Income before income taxes . . . . . . . . . . . . . 7,654 14,918
Income tax expense . . . . . . . . . . . . . . . . . (3,061) (5,967)
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . $ 4,593 $ 8,951
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
13
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------- ---------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino . . . . . . . . . . . . . . . . . . . . . . $ 18,642 $ 21,804
Food, beverage and other . . . . . . . . . . . . . 2,217 2,197
--------- ---------
20,859 24,001
Less promotional allowances. . . . . . . . . . . . (535) (880)
--------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . 20,324 23,121
COSTS AND EXPENSES
Casino . . . . . . . . . . . . . . . . . . . . . . 9,378 9,677
Food, beverage and other . . . . . . . . . . . . . 2,097 1,923
Other operating expenses . . . . . . . . . . . . . 1,521 1,411
Selling, general and administrative. . . . . . . . 3,196 2,397
Depreciation and amortization. . . . . . . . . . . 1,070 1,072
Management fees - related party. . . . . . . . . . 1,507 1,098
--------- ---------
18,769 17,578
--------- ---------
Income from operations . . . . . . . . . . . . . . . 1,555 5,543
OTHER INCOME (EXPENSE)
Interest income. . . . . . . . . . . . . . . . . . 13 25
Interest expense . . . . . . . . . . . . . . . . . (8) (15)
--------- ---------
5 10
--------- ---------
Income before income taxes . . . . . . . . . . . . . 1,560 5,553
Income tax expense . . . . . . . . . . . . . . . . . (624) (2,221)
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . $ 936 $ 3,332
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
14
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 4,593 $ 8,951
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 3,141 3,137
Deferred income taxes. . . . . . . . . . . . . . 463 586
Changes in operating assets
and liabilities:
Accounts receivable. . . . . . . . . . . . . . 9 (35)
Other current assets . . . . . . . . . . . . . (111) 404
Other assets . . . . . . . . . . . . . . . . . 170 232
Accounts payable . . . . . . . . . . . . . . . 280 (450)
Accrued payroll and related expenses . . . . . (821) 169
Accrued liabilities. . . . . . . . . . . . . . (766) 523
Slot club liability. . . . . . . . . . . . . . 493 469
Income taxes payable to
affiliate. . . . . . . . . . . . . . . . . . 2,601 (136)
--------- ---------
Net cash provided by
operating activities . . . . . . . . . . . . 10,052 13,850
--------- ---------
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment. . . . . . . . . (1,175) (1,296)
--------- ---------
Net cash used in investing
activities . . . . . . . . . . . . . . . . . . (1,175) (1,296)
--------- ---------
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt -
related party. . . . . . . . . . . . . . . . . . . (431)
Due from affiliate . . . . . . . . . . . . . . . . . (8,373) (12,309)
Increase (decrease) in other long-term
obligations - related party. . . . . . . . . . . . 10 48
--------- ---------
Net cash used in financing
activities . . . . . . . . . . . . . . . . . . (8,363) (12,692)
--------- ---------
--------- ---------
Net increase (decrease) in cash. . . . . . . . . . . 514 (138)
Cash, beginning of year. . . . . . . . . . . . . . . 3,873 2,907
--------- ---------
Cash, end of year. . . . . . . . . . . . . . . . . . $ 4,387 $ 2,769
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
15
<PAGE>
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars In Thousands)
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. 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 1995 amounts have been reclassified to
conform to the 1996 presentation.
2. COMMITMENTS AND CONTINGENCIES
A predecessor entity to the Company ("Predecessor"), as a result of a certain
shareholder loan transaction, could be subject to federal and certain state
income taxes (plus interest and penalties, if any) if it is determined that it
failed to satisfy all of the requirements of the S-Corporation provisions of the
Internal Revenue Code relating to the prohibition concerning a second class of
stock. An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has asserted the S-Corporation status as one of the issues
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and certain state
income taxes on its taxable earnings through February 25, 1993, such payments
could amount to approximately $12,500, including interest through September 30,
1996, but excluding penalties, if any. While the Company believes the
Predecessor has legal authority for its position that it is not subject to
federal and certain state income taxes because it met the S-Corporation
requirements, no assurances can be given that the Predecessor's position will be
upheld. This contingent liability could have a material adverse effect on the
Company's results of operations, financial condition and cash flows. No
provision has been made for this contingency in the accompanying financial
statements.
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage Notes, due
2004 ("Mortgage Notes"). The assets of the Company are pledged as collateral,
and the Company is a guarantor, under the terms of the Mortgage Notes.
16
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1996 1995
------------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . $ 2,263 $ 5,201
Accounts receivable, net . . . . . . . . . . 128 796
Income taxes receivable from affiliate . . . . . 1,694 696
Prepaid assets . . . . . . . . . . . . . . . . . 834 686
Other current assets . . . . . . . . . . . . . . 389 369
---------- ----------
Total current assets. . . . . . . . . . . . . 5,308 7,748
---------- ----------
NET PROPERTY AND EQUIPMENT . . . . . . . . . . . . 60,454 64,715
OTHER ASSETS:
Deposits . . . . . . . . . . . . . . . . . . . . 13 82
Deferred lease acquisition cost, net . . . . . . 1,970 2,051
Deferred licensing cost, net . . . . . . . . . . 463 741
---------- ----------
Total other assets . . . . . . . . . . . . . . 2,446 2,874
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $ 68,208 $ 75,337
---------- ----------
---------- ----------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . $ 1,156 $ 1,318
Accrued payroll and related expenses . . . . . . 619 611
Other accrued liabilities. . . . . . . . . . . . 1,635 1,140
Accrued gaming and admission taxes . . . . . . . 299 560
Current maturities of long-term debt . . . . . . 5 390
---------- ----------
Total current liabilities. . . . . . . . . . . 3,714 4,019
---------- ----------
DUE TO AFFILIATES. . . . . . . . . . . . . . . . . 56,229 64,222
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . 3,050 1,974
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP. . . 3,331 3,319
STOCKHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares
authorized, issued and outstanding . . . . . . 1 1
Retained earnings. . . . . . . . . . . . . . . . 1,883 1,802
---------- ----------
1,884 1,803
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY . . . . $ 68,208 $ 75,337
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino . . . . . . . . . . . . . . . . . . . . . . $ 38,995 36,514
Food, beverage and other . . . . . . . . . . . . . 4,038 2,401
--------- ---------
43,033 38,915
Less promotional allowances. . . . . . . . . . . . (2,388) (1,489)
--------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . 40,645 37,426
--------- ---------
COSTS AND EXPENSES
Casino . . . . . . . . . . . . . . . . . . . . . . 19,794 19,453
Food, beverage and other . . . . . . . . . . . . . 3,549 2,788
Other operating expenses . . . . . . . . . . . . . 3,764 2,297
Selling, general and administrative. . . . . . . . 5,882 7,661
Depreciation and amortization. . . . . . . . . . . 4,661 4,410
Referendum costs . . . . . . . . . . . . . . . . . 383
Rent expense . . . . . . . . . . . . . . . . . . . 2,351 1,021
--------- ---------
40,384 37,630
--------- ---------
Income (loss) from operations. . . . . . . . . . . . 261 (204)
Interest, net. . . . . . . . . . . . . . . . . . . 95 (136)
--------- ---------
Income (loss) before income taxes and
minority interest. . . . . . . . . . . . . . . . . 356 (340)
Income tax (expense) benefit . . . . . . . . . . . . (263) 136
Minority interest. . . . . . . . . . . . . . . . . . (12) 88
--------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . $ 81 $ (116)
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino . . . . . . . . . . . . . . . . . . . . . . $ 11,959 12,480
Food, beverage and other . . . . . . . . . . . . . 1,489 1,090
--------- ---------
13,448 13,570
Less promotional allowances. . . . . . . . . . . . (893) (715)
--------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . 12,555 12,855
--------- ---------
COSTS AND EXPENSES
Casino . . . . . . . . . . . . . . . . . . . . . . 6,431 6,532
Food, beverage and other . . . . . . . . . . . . . 1,254 1,049
Other operating expenses . . . . . . . . . . . . . 1,414 821
Selling, general and administrative. . . . . . . . 2,034 2,176
Depreciation and amortization. . . . . . . . . . . 1,930 1,688
Referendum costs . . . . . . . . . . . . . . . . . 383
Rent expense . . . . . . . . . . . . . . . . . . . 718 768
--------- ---------
14,164 13,034
--------- ---------
Loss from operations . . . . . . . . . . . . . . . . (1,609) (179)
Interest, net. . . . . . . . . . . . . . . . . . . 24 25
--------- ---------
Income (loss) before income taxes and
minority interest. . . . . . . . . . . . . . . . . (1,585) (154)
Income tax (expense) benefit . . . . . . . . . . . . 684 13
Minority interest. . . . . . . . . . . . . . . . . . 65 63
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (836) $ (78)
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . $ 81 $ (116)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 4,661 4,410
Minority interest. . . . . . . . . . . . . . . . 12 (88)
Deferred income taxes. . . . . . . . . . . . . . 1,076 1,692
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . 668 (420)
Other current assets . . . . . . . . . . . . . (20) 750
Income taxes receivable from affiliate . . . . (998) (1,680)
Prepaid assets . . . . . . . . . . . . . . . . (148) 36
Accounts payable . . . . . . . . . . . . . . . (162) (753)
Accrued payroll and related expenses . . . . . 9 226
Accrued gaming and admission taxes . . . . . . (261) (118)
Other accrued liabilities . . . . . . . . . . 495 1,300
------- -------
Net cash provided by operating activities. . . 5,413 5,239
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment. . . . . . . . . (516) (13,946)
------- -------
Net cash used in investing activities. . . . . . (516) (13,946)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates . . (7,519) 6,746
Payments on notes payable and long-term debt . . . . (385) (2,771)
Notes receivable-affiliate . . . . . . . . . . . . . 2,801
(Increase) decrease in other assets. . . . . . . . . 69 (14)
------- -------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . (7,835) 6,762
------- -------
Net increase (decrease) in cash and cash equivalents (2,938) (1,945)
Cash and cash equivalents, beginning of period . . . 5,201 6,073
------- -------
Cash and cash equivalents, end of period . . . . . . $ 2,263 $ 4,128
------- -------
------- -------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Argosy of Louisiana, Inc. (collectively with its controlled partnership
Catfish Queen Partnership in Commendam ("Partnership") "the Company") was
formed on July 29, 1993. The Company entered a partnership agreement with
Jazz Enterprises, Inc. ("Jazz") to form the Partnership to provide
riverboat gaming and related entertainment in Baton Rouge, Louisiana. The
Company, a wholly owned subsidiary of Argosy Gaming Company (Argosy), is
the 90% general partner of the Partnership, along with the 10% partner in
commendam Jazz, which became a wholly owned subsidiary of Argosy in 1995.
On September 21, 1994, Jazz contributed its State of Louisiana Riverboat
Gaming License and certain leases with a fair value of $3,271 to the
Company. On September 21, 1994, the Company's riverboat casino, Belle of
Baton Rouge, commenced operations.
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. 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 1995 amounts have been
reclassified to conform to the 1996 presentation.
21
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
(continued)
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East Baton
Rouge (collectively referred to as "City-Parish") and Jazz entered into an
agreement which requires Jazz and the Company to pay to the City-Parish
$2.50 per passenger. Additionally, Jazz agreed to pay to the City-Parish
an additional $1.25 per passenger for two years or until construction of a
convention-size hotel is begun. This additional $1.25 per passenger
payment is limited to a total of $1,000,000 per year for each of the first
and second years of operation of the riverboat. Beginning October 1, 1996
Jazz is required to pay to the City-Parish $2.50 per passenger, until
actual construction of the hotel commences.
Argosy has guaranteed the additional $1.25 per passenger payment for the
first two years, subject to the $1,000,000 annual limitation, and the
additional $2.50 per passenger payment after year two, if required, for the
initial five-year certification term approved by the Louisiana Riverboat
Gaming Commission.
The Company leases certain premises under noncancelable operating leases
that expire in 1997.
On June 5, 1996 Argosy issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of Mortgage
Notes.
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit specified
individual types of gaming, including riverboat gaming, in Louisiana on a
parish-by-parish basis. The referendum was brought before the Louisiana
voters on November 5, 1996. The voters in East Baton Rouge Parish,
Louisiana approved the proposition to allow riverboat gaming to continue in
their parish. Additionally, the voters rejected a proposition to allow
video poker to continue operating at lounges, restaurants and truck stops
throughout this Parish.
22
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . $ 13,001 $ 4,131
Other current assets . . . . . . . . . . . . . . 2,261 1,977
---------- ----------
Total current assets . . . . . . . . . . . . . 15,262 6,108
---------- ----------
Net property and equipment . . . . . . . . . . . . 75,917 68,991
Other assets . . . . . . . . . . . . . . . . . . . 3,582 5,006
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . $ 94,761 $ 80,105
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $ 2,956 $ 7,159
Income taxes payable to affiliate. . . . . . . . 5,636 6,022
Accrued payroll and related expenses . . . . . . 1,791 1,104
Other accrued liabilities. . . . . . . . . . . . 3,403 2,871
---------- ----------
Total current liabilities. . . . . . . . . . . 13,786 17,156
---------- ----------
Due to affiliates. . . . . . . . . . . . . . . . . 62,882 45,570
Deferred income taxes. . . . . . . . . . . . . . . 325
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. . . . . . . . . . . . . . . . 12,768 12,379
---------- ----------
Total stockholder's equity . . . . . . . . . . 17,768 17,379
---------- ----------
Total liabilities and stockholder's equity . . . . $ 94,761 $ 80,105
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
23
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino . . . . . . . . . . . . . . . . . . . . . . $ 64,706 $ 65,552
Admissions . . . . . . . . . . . . . . . . . . . . 1,983 12,055
Food, beverage and other . . . . . . . . . . . . . 8,145 3,707
-------- --------
74,834 81,314
Less promotional allowances. . . . . . . . . . . . (5,360) (9,339)
-------- --------
Net revenues . . . . . . . . . . . . . . . . . . . . 69,474 71,975
-------- --------
COSTS AND EXPENSES
Casino . . . . . . . . . . . . . . . . . . . . . . 33,402 31,215
Food, beverage and other . . . . . . . . . . . . . 7,169 3,508
Other operating expenses . . . . . . . . . . . . . 3,594 3,311
Selling, general and administrative. . . . . . . . 10,271 9,579
Depreciation and amortization. . . . . . . . . . . 5,751 5,179
Preopening costs . . . . . . . . . . . . . . . . . 383
Lease termination costs. . . . . . . . . . . . . . 3,508
-------- --------
64,078 52,792
-------- --------
Income from operations . . . . . . . . . . . . . . . 5,396 19,183
-------- --------
Interest expense . . . . . . . . . . . . . . . . . . (4,545) (3,578)
-------- --------
(4,545) (3,578)
-------- --------
Income before income taxes . . . . . . . . . . . . . 851 15,605
Income tax expense . . . . . . . . . . . . . . . . . (462) (6,714)
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . $ 389 $ 8,891
-------- --------
-------- --------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
24
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino . . . . . . . . . . . . . . . . . . . . . . $ 20,704 $ 22,663
Admissions . . . . . . . . . . . . . . . . . . . . 3,712
Food, beverage and other . . . . . . . . . . . . . 2,790 1,453
-------- --------
23,494 27,828
Less promotional allowances. . . . . . . . . . . . (1,350) (3,159)
-------- --------
Net revenues . . . . . . . . . . . . . . . . . . . . 22,144 24,669
-------- --------
COSTS AND EXPENSES
Casino . . . . . . . . . . . . . . . . . . . . . . 11,011 10,749
Food, beverage and other . . . . . . . . . . . . . 2,457 1,263
Other operating expenses . . . . . . . . . . . . . 1,252 1,024
Selling, general and administrative. . . . . . . . 3,215 3,210
Depreciation and amortization. . . . . . . . . . . 1,500 1,677
Preopening costs . . . . . . . . . . . . . . . . . 61
-------- --------
19,496 17,923
-------- --------
Income from operations . . . . . . . . . . . . . . . 2,648 6,746
Interest expense . . . . . . . . . . . . . . . . . . (1,631) (1,088)
-------- --------
Income before income taxes . . . . . . . . . 1,017 5,658
Income tax expense . . . . . . . . . . . . . . . . . (526) (2,433)
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . $ 491 $ 3,225
-------- --------
-------- --------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
25
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . $ 389 $ 8,891
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . 5,751 5,179
Deferred income taxes. . . . . . . . . . . . . . 622 788
Lease termination costs. . . . . . . . . . . . . 2,223
Changes in operating assets and liabilities:
Other current assets . . . . . . . . . . . . . 463 1,489
Accounts payable . . . . . . . . . . . . . . . 397 1,762
Accrued liabilities. . . . . . . . . . . . . . 768 939
Accrued payroll and related expenses . . . . . 687 253
Income taxes payable to affiliate. . . . . . . (386) 4,315
------- -------
Net cash provided by (used by)
operating activities . . . . . . . . . . . . 10,914 23,616
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment. . . . . . . . . (18,488) (19,028)
------- -------
Net cash used in investing activities. . . . . (18,488) (19,028)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts. . . . . . . . . . (588) (2,971)
Due from affiliate . . . . . . . . . . . . . . . . . 16,832 (1,487)
Decrease (increase) in deposits. . . . . . . . . . . 200 201
------- -------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . 16,444 (4,257)
------- -------
Net increase (decrease) in cash. . . . . . . . . . . 8,870 331
Cash, beginning of year. . . . . . . . . . . . . . . 4,131 5,087
------- -------
Cash, end of year. . . . . . . . . . . . . . . . . . $13,001 $ 5,418
------- -------
------- -------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
26
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars In Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Missouri Gaming Company (a Missouri corporation and a wholly owned
subsidiary of Argosy Gaming Company, ("Argosy")) owns and operates a
riverboat casino and related facilities in Riverside, Missouri. The
Company commenced operations on June 22, 1994, with the opening of the
Argosy Riverside Casino, at a temporary facility. The Company began
construction of a permanent facility during 1995. The permanent facility
was opened to the public on January 15, 1996 and serves as a dining and
entertainment outlet to the riverboat casino.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results
which may be expected for any other interim period or for the year as a
whole. 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 1995 amounts have been reclassified to conform to the
1996 presentation.
2. RIVERSIDE AGREEMENT
The Company entered into a Lease and Development Agreement ("Agreement")
with the City of Riverside, Missouri. The Agreement, as amended, required
the Company to pay $1,600 for the construction of a city park and for the
development of a golf course. These payments were capitalized and are
being amortized over ten years using the straight-line method. The
unamortized portion of these payments is included in other assets in the
accompanying balance sheets.
Under the terms of the Agreement, the Company leases part of its site from
the City of Riverside. The $5,000 minimum rent due for the initial five-
year term of the lease was paid in advance as required by the Agreement. In
addition to minimum rent, during the initial five-year lease term,
percentage rent is payable at 2% of adjusted gross receipts ("AGR"), as
defined, over $100 million annually. The Company has the option to extend
the Agreement for three successive five-year terms. In all extension
periods, there will be no minimum rent and percentage rent will be payable
as follows: (i) 2% on the first $50 million of AGR; (ii) 3% on AGR between
$50 million and $100 million; and (iii) 4% on AGR in excess of $100
million. If at any time during the initial lease term or any extension,
thereof, the Company is permitted to operate permanently a dockside gaming
facility, any applicable percentage rent will increase by one percentage
point.
The Agreement requires the Company to maintain a net worth of $5,000 at all
times, unless approved by the City of Riverside.
27
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars In Thousands)
(continued)
3. RELATED PARTY TRANSACTIONS
The Company participates in Argosy's property, general liability, worker's
compensation and other insurance programs. The Company's estimated share
of these costs is allocated directly to the Company by Argosy.
The Company has outstanding long-term debt with Argosy. These amounts
represent funds received in connection with the construction of the
permanent facility. The Company accrues interest on the long-term debt at
a rate of 12% annually.
The Company also receives various management and other services from
related parties at no charge.
4. COMMITMENTS AND CONTINGENCIES
The Company is restricted from making certain distributions to Argosy and
other affiliates unless approved by state gaming authorities.
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage
Notes, due 2004 ("Mortgage Notes"). Substantially all of the assets of the
Company are pledged as collateral, and the Company is a guarantor under
terms of the Mortgage Notes.
5. LEASE TERMINATION
The Company leased a barge that it previously used as a restaurant,
entertainment and boarding facility. In 1996 the Company determined that
it no longer had a use for the barge. Accordingly, the Company expensed
the remaining lease costs and any termination costs associated with the
lease.
28
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company opened its first riverboat casino, the Alton Belle Casino, in
Alton, Illinois in September 1991. Subsequently, the Company opened the Argosy
Casino in Riverside, Missouri in June 1994; the Belle of Baton Rouge in Baton
Rouge, Louisiana in September 1994; and the Belle of Sioux City in Sioux City,
Iowa in October 1994. In addition, the Company, through its 57.5% equity
interest in Indiana Gaming L.P., is developing in Lawrenceburg, Indiana a casino
project which the Company anticipates opening with a temporary gaming facility
in the fourth quarter of 1996 with a permanent gaming facility 12 months
thereafter. There can be no assurance that the projected opening date of the
temporary or permanent casinos will be met, as the opening is subject to
numerous conditions, including licensing, permitting and construction.
The Company's results of operations for the three months and nine months
ended September 30, 1996 were adversely affected by increased competition at
its Alton, Riverside and Sioux City properties and the Company expects to
face further increased competition in the St. Louis and Kansas City areas as
new riverboat casinos are expected to open in these markets. Accordingly,
the Company believes that it will be more difficult in the future to sustain
historical levels of operating revenues and profitability at certain of its
properties. Increasing competitive pressures have also resulted in the
Company eliminating, in January, 1996, admissions fees at its current gaming
operations. In addition, the Company is incurring significant costs and
capital expenditures in developing the Lawrenceburg casino project. These
increased costs, competitive pressures on revenues and the increased interest
expense associated with the Mortgage Notes, will continue to adversely affect
the Company's results of operations until such time as the Lawrenceburg
casino is opened and generating revenues.
29
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The following table highlights the results of operations for the Company's
operating casinos (amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
GROSS REVENUES
Alton Belle Casino. . . . . . . . . . $ 61,994 $ 68,127 $ 20,859 $ 24,001
Argosy Casino Riverside . . . . . . . 74,834 81,314 23,495 27,828
Belle of Baton Rouge Casino . . . . . 43,033 38,915 13,448 13,570
Belle of Sioux City Casino. . . . . . 15,510 17,089 5,013 6,031
------------ ------------ ------------ ------------
Total Properties . . . . . . . . . $ 195,371 $ 205,445 $ 62,815 $ 71,430
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET REVENUE
Alton Belle Casino. . . . . . . . . . $ 60,266 $ 65,700 $ 20,323 $ 23,122
Argosy Casino Riverside . . . . . . . 69,474 71,975 22,145 24,669
Belle of Baton Rouge Casino . . . . . 40,645 37,426 12,555 12,856
Belle of Sioux City Casino. . . . . . 14,964 16,698 4,796 5,866
------------ ------------ ------------ ------------
Total Properties . . . . . . . . . $ 185,349 $ 191,799 $ 59,819 $ 66,513
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS
Alton Belle Casino(1) . . . . . . . . $ 11,026 $ 18,021 $ 3,060 $ 6,641
Argosy Casino Riverside(2). . . . . . 8,904 19,183 2,652 6,746
Belle of Baton Rouge Casino(1)(3) . . 3,773 455 116 720
Belle of Sioux City Casino(1) . . . . 102 3,063 (476) 997
------------ ------------ ------------ ------------
Total Properties . . . . . . . . . $ 23,805 $ 40,722 $ 5,352 $ 15,104
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
EBITDA(4)
Alton Belle Casino(1) . . . . . . . . $ 14,167 $ 21,158 $ 4,130 $ 7,712
Argosy Casino Riverside(2). . . . . . 14,655 24,362 4,152 8,423
Belle of Baton Rouge Casino(1)(3) . . 7,891 4,865 1,504 2,408
Belle of Sioux City Casino(1) . . . . 697 3,349 (263) 1,147
------------ ------------ ------------ ------------
Total Properties . . . . . . . . . $ 37,410 $ 53,734 $ 9,523 $ 19,690
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
(1) Income from operations and EBITDA for the Belle of Sioux City Casino, Belle
of Baton Rouge Casino and the Alton Belle Casino are presented before
consideration of the Company's management fee and/or other intercompany
charges and in the case of the Belle of Sioux City before the 30% minority
interest.
(2) Excludes $3,508 for the nine months ended September 30, 1996 related to
lease termination costs in connection with assets formerly used at the
Riverside temporary facility.
(3) Excludes operating loss of approximately $2,265 and $722 for the nine
months ended September 30, 1996, and 1995, respectively and $1,004 and $369
for the three months ended September 30, 1996, and 1995, respectively
primarily depreciation, amortization and operating expenses related to the
Catfish Town land based development in Baton Rouge, also excludes operating
loss of $383 for the nine months and three months ended September 30, 1996
related to referendum costs.
(4) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or as
an alternative to cash flows generated by operating, investing and
financing activities (as determined in accordance with generally accepted
accounting principles) as an indicator of cash flow or a measure of
liquidity. EBITDA is presented solely as a supplemental disclosure because
management believes that it is a widely used measure of operating
performance in the gaming industry and for companies with a significant
amount of depreciation and amortization. The Company has other significant
uses of cash flows, including capital expenditures, which are not reflected
in EBITDA.
30
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
CASINO--Casino revenues for the nine months ended September 30, 1996
decreased to $173.9 million from $180.3 million for the nine months ended
September 30, 1995. Alton casino revenues decreased from $62.3 million to $56.1
million due to severe weather conditions in January and February 1996 and the
impact of increased competition. The decrease is also attributed to flooding in
1995 as Alton benefitted when two competing riverboat casinos were temporarily
closed in the St. Louis area. Riverside casino revenues decreased to $64.7
million from $65.6 million due to severe weather conditions experienced in
January and February 1996 and additional competition in the Kansas City market,
offset by the opening of the Company's permanent land based entertainment
pavilion on January 15, 1996. Baton Rouge casino revenues increased $2.5
million from $36.5 million to $39.0 million. Sioux City casino revenues
decreased $1.8 million to $14.1 million due to severe weather conditions in
January and February 1996 and the effects of increased competition from two
riverboat casinos which opened in January 1996.
Casino expenses remained approximately the same at $88.8 million for the
nine months ended September 30, 1995 compared to $89.2 million for the nine
months ended September 30, 1996.
ADMISSIONS--Admissions revenue (net of complimentary admissions) decreased
from $6.0 million for the nine months ended September 30, 1995 to $.3 million
for the nine months ended September 30, 1996. This decrease is due to the
Company's elimination of admission fees in January 1996 in Riverside in reaction
to competitive pressures in the Kansas City market.
FOOD, BEVERAGE AND OTHER--Food, beverage and other revenues increased $6.6
million to $20.1 million for the nine month period ended September 30, 1996
primarily due to increased food, beverage and other sales at the expanded
Riverside and Baton Rouge facilities. Riverside revenues increased from $3.7
million to $8.1 million while Baton Rouge revenues increased from $2.4 million
to $4.0 million. Alton's food, beverage and other revenues remained stable with
the nine month period ending September 30, 1995 while Sioux City's food,
beverage and other revenues increased .2 million over the prior nine month
period. Food beverage and other net profit improved $1.8 million to $2.5
million for the nine months ended September 30, 1996 due primarily to improved
operating efficiencies in the Company's food and beverage operations.
OTHER OPERATING EXPENSES--Other operating expenses increased $3.0 million
to $13.6 million for the nine months ended September 30, 1996. This increase is
primarily due to the opening of the permanent land based entertainment pavilion
at Riverside, the addition of expanded entertainment facilities in Sioux City,
the opening of the Catfish Town development atrium in Baton Rouge and the
additional services needed for the severe weather conditions in January and
February 1996 experienced at the Alton, Riverside and Sioux City casinos.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $2.6 million to $38.9 million for the nine months ended
September 30, 1996. Increases of $1.0 million and $1.7 million in Alton and
Riverside, respectively, relate primarily to increases in advertising and
promotional expenses due to increased competition and the opening of the
Riverside permanent facility. Additionally, the Company recorded a charge of
approximately $1.5 million, in 1996, in professional and other fees related
to its response to a Marion County, Indiana grand jury document subpoena and
the related termination of a private placement of first mortgage notes.
These increases were offset somewhat by lower general and administrative
costs in Baton Rouge.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $1.9
million from $15.2 million
31
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
for the nine months ended September 30, 1995 to $17.1 million for the nine
months ended September 30, 1996. This increase is primarily due to increased
depreciation in Riverside in connection with the Company's land based
entertainment pavilion which opened on January 15, 1996 at an approximate cost
of $45 million, and increased depreciation at the Catfish Town development in
Baton Rouge.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
increased from $2.1 million for the nine month period ending September 30, 1995
to $7.4 million for the nine month period ending September 30, 1996. The
primary increase is due to expenses related to developing the casino in
Lawrenceburg, Indiana, which has an anticipated opening date of the fourth
quarter of 1996.
INTEREST EXPENSE--Net interest expense increased $9.6 million to $21.2
million for the nine months ended September 30, 1996. The increase is
attributable to interest expense on the increased borrowings, under the $100
million Line of Credit used to fund the Company's expansion and development
program, and interest expense related to the $235 million First Mortgage Notes
issued June 5, 1996.
NET INCOME (LOSS)--Net income decreased from $6.4 million for the nine
months ended September 30, 1995 to a net loss of $13.6 million for the nine
months ended 1996 primarily for the reasons discussed above. In addition the
Company recorded a pretax charge of $3.5 million related to lease termination
costs in connection with assets formerly used at its temporary facility in
Riverside. Further, the company recorded an extraordinary loss of $.9 million
(net of tax) related to the write off of deferred finance costs associated with
extinguishment of its revolving secured line of credit in 1996. In 1995, the
Company recorded a pretax charge of approximately $3.5 million in connection
with a proposed casino development in St. Louis, Missouri.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
CASINO--Casino revenues for the three months ended September 30, 1996
decreased to $55.8 from $62.5 million for the three months ended September 30,
1995. Alton casino revenues decreased from $21.8 million to $18.6 million. The
decrease is attributable to increased competition in the St. Louis market.
Riverside casino revenues decreased $2.0 million to $20.7 million due to
additional competition in the Kansas City area offset by the opening of the
Company's permanent land based entertainment pavilion on January 15, 1996. Baton
Rouge casino revenues decreased $.5 million from $12.5 million to $12.0 million.
Sioux City casino revenues decreased $1.1 million to $4.5 million.
Casino expenses decreased from $30.4 million for the three months ended
September 30, 1995 to $29.9 million for the three months ended September 30,
1996 primarily related to decreased gaming and admissions taxes caused by the
decrease in casino revenues and admissions.
ADMISSIONS--Admissions revenue (net of complimentary admissions) decreased
from $2.6 million for the three months ended September 30, 1995 to $0 for the
three months ended September 30, 1996. This decrease is due to the Company's
elimination of admission fees in Riverside in January 1996 in reaction to
competitive pressures in the Kansas City market.
FOOD BEVERAGE AND OTHER--Food, Beverage and other revenues increased $1.9
million to $7.2 million for the three month period ended September 30, 1996
primarily due to increased food, beverage and other sales at the expanded
Riverside and Baton Rouge facilities. Riverside revenues increased from $1.5
million to $2.8
32
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
million while Baton Rouge revenues increased from $1.1 million to $1.5 million.
Food beverage and other net profit improved by $.3 million over the same period
for the three months ended September 30, 1996 due primarily to increased
revenues.
OTHER OPERATING EXPENSES--Other operating expenses increased $.9 million to
$4.9 million for the three months ended September 30, 1996. This increase is
primarily due to the opening of the permanent land based entertainment pavilion
at Riverside, the addition of expanded entertainment facilities in Sioux City
and the opening of the Catfish Town development atrium in Baton Rouge.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $1.3 million from the three months ended September 30, 1995
to $12.6 million for the three months ended September 30, 1996 primarily due to
increased advertising and promotional expenses in Alton and Riverside due to
increased competition.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$.8 million from $5.2 million for the three months ended September 30, 1995
to $6.0 million for the three months ended September 30, 1996. This increase
is primarily due to increased depreciation in Riverside and Baton Rouge in
connection with the Company's recently expanded land based entertainment
facilities.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
increased from $1.0 million for the three month period ending September 30, 1995
to $3.7 million for the three month period ending September 30, 1996. The
primary increase is due to expenses related to developing the casino in
Lawrenceburg, Indiana, which has an anticipated opening during of the fourth
quarter of 1996.
INTEREST EXPENSE--Net interest expense increased $6.4 million to $10.3
million for the three months ended September 30, 1996. The increase is
attributable to interest expense related to the $235 million First Mortgage
Notes issued June 5, 1996.
NET INCOME (LOSS)--Net income decreased from $1.7 million for the three
months ended September 30, 1995 to a net loss of $7.7 million for the three
months ended 1996 primarily for the reasons discussed above. In 1995, the
Company recorded a pretax charge of approximately $3.5 million in connection
with a proposed casino development in St. Louis, Missouri.
COMPETITION
The Company's Alton Casino faces competition from three other riverboat
casinos currently operating in the St. Louis area and expects increasing levels
of competition in the future. An additional casino complex is under construction
which will include two independently owned facilities, each of which are
expected to operate two dockside vessels. This casino complex is expected to
open in the first quarter of 1997. The Company's Riverside Casino faces
competition from three casinos in the Kansas City area that offer dockside
gaming, one of which includes a second gaming vessel. An additional casino
operator has commenced construction of gaming facilities in Kansas City, and is
expected to open in the fourth quarter of 1996. The Company's Baton Rouge
Casino faces competition from one casino located in downtown Baton Rouge, a
nearby native American casino and multiple casinos throughout Louisiana.
Currently, the Company faces competition in Sioux City, Iowa, from two land-
based Native American casinos, slot machines at a Pari-Mutual Race Track in
Council
33
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Bluffs, Iowa and from two riverboat casinos in the Council Bluffs,
Iowa/Omaha, Nebraska market, which opened in January 1996. The Indiana
Partnership will face competition from one other riverboat casino upon
opening, in the Cincinnati market which opened in October 1996. The Company
expects each market in which it participates, both current and prospective,
to be highly competitive.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 1996 the Company generated cash
flows from operating activities of $9.1 million compared to $40.0 million for
the same period in 1995. The decrease in cash flow is primarily attributed to
decreased operating income, principally at its Riverside and Alton facilities
and increased preopening and development expenses in 1996 compared to 1995.
In the nine months ended September 30, 1996, the Company used cash flows
for investing activities of $157.3 million versus $52.9 million for the nine
months ended September 30, 1995. The primary uses of funds in 1996 were the
placement of $94.3 million of the proceeds from the Mortgage Notes offering into
a disbursement account for the Lawrenceburg casino project, of which $12.6
million has been expended through September 30, 1996, and the investment of
$73.3 million in property and equipment. Riverside, Lawrenceburg and the
Catfish Town facility at Baton Rouge had capital expenditures of $18.5 million,
$39.5 million and $13.2 million, respectively, for the nine month period ended
September 30, 1996. The primary use of funds for the nine month period ended
September 30, 1995 were capital expenditures of $43.4 million and the
acquisition of Jazz.
During the nine months ended September 30, 1996, the Company generated
$199.6 million in cash flows from financing activities compared to $10.9 million
of cash flows from financing activities for the same period in 1995. The
primary sources of cash flows in 1996 were $235 million of proceeds from the
Company's First Mortgage Note Offering and $19.0 million in capital
contributions from the Company's partner in Lawrenceburg offset by the repayment
of $90 million on the company's senior secured line of credit which was
terminated on June 5, 1996.
As of September 30, 1996, the Company had approximately $67.8 million of
cash and cash equivalents and $1.9 million of marketable securities which can
be used for general working capital purposes. In addition the Company has
$83.0 million in a disbursement account to be used to fund the Company's
portion of the remaining Lawrenceburg construction costs. The $83.0 million
cannot be used for any other purpose. On June 5, 1996 the Company issued
$235 million of Mortgage Notes which are due June 2004. $91 million of the
proceeds of the Mortgage Note offering were used to retire the Company's
senior secured line of credit and accrued interest. $94.3 million were placed
in the Indiana disbursement account with the balance used to pay expenses of
the offering and available for general corporate purposes. The Company has
$115 million of Convertible Subordinated Notes outstanding which were issued
in June 1994 and are due June 2001.
The Company has made a significant investment in property and equipment and
plans to make significant additional investments at certain of its existing
properties and potentially into additional jurisdictions, particularly
Lawrenceburg, Indiana. As a result of its June 1995 acquisition of Jazz, the
Company is now the developer of the Catfish Town real estate project in Baton
Rouge, Louisiana. The Company estimates that the completion of the Catfish Town
project will cost an additional approximately $3.0 to $6.0 million (primarily
tenant allowance) as of September 30, 1996. Further, if the Predecessor's
status as an S-Corporation, which has been asserted
34
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
as an issue by the IRS during an ongoing audit, is successfully challenged, the
Company currently estimates that it would require up to approximately $12.5
million (excluding penalties) to fund the potential income tax liability.
The Company estimates that the total costs of the Lawrenceburg Casino and
entertainment project will range from $210 to $225 million. As of September 30,
1996, approximately $52 million had been expended by the partnership, on the
project. Of the remaining Lawrenceburg construction costs, approximately $25
million is anticipated to be funded through equipment financing from third party
lenders and the balance will be funded by the Company and a partner, 57.5% of
which will be funded by the Company and 42.5% of which will be funded by its
partner. In the event project costs exceed $210 million, the Company and its
partner will fund such costs on the same percentages to a total project cost of
$225 million. Any project costs in excess of $225 million must be funded by the
Company.
The Company believes that as a result of its recent offering of Mortgage
Notes, cash on hand will be sufficient to fund its current operations and its
obligations with respect to the Lawrenceburg casino development. If there are
significant delays in opening the Lawrenceburg Casino, or the project costs
should significantly exceed $225 million, or if the company after opening the
temporary facility should fail to be able to open the permanent facility within
a 12 month period, the Company's ability to meet its debt service requirements
could be significantly impaired.
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) DELAYS AND INCREASES IN EXPECTED COSTS IN OPENING OF THE
TEMPORARY AND PERMANENT LAWRENCEBURG CASINO, (IV) DELAYS OR COST-OVERRUNS WITH
RESPECT TO THE LAWRENCEBURG CASINO WHICH COULD SIGNIFICANTLY IMPAIR THE ABILITY
OF THE COMPANY TO MEET ITS DEBT SERVICE REQUIREMENTS, (V) THE EFFECT OF FUTURE
LEGISLATION OR REGULATORY CHANGES ON THE COMPANY'S OPERATIONS; AND (VI) 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.
35
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
MARION COUNTY, INDIANA GRAND JURY DOCUMENT SUBPOENA
On or after March 15, 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, Indiana in connection with
a grand jury investigation entitled: STATE OF INDIANA V. ORIGINAL
INVESTIGATION-OFFICIAL MISCONDUCT. 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. On
March 23, 1996 the Company was advised by the Marion County prosecutor
that no target subpoenas had been issued by the grand jury in its
investigation as of that date. However, there can be no assurance
that targets will not be identified as further information and
documents are obtained and considered by the grand jury. Due to the
confidential nature of grand jury proceedings, the Company is not
aware of the specific subject matter or matters of the investigation.
The Company believes it has fully complied with its subpoena, and has
been informed by its partners that they will do the same.
The subpoenas request information regarding the current or prior
ownership interest in the Company and the partners of the Indiana
Partnership by the individuals or entities described below. The
subpoenas also request that the Company and its partners produce a
broad category of documents including documents regarding employment
and other agreements, gifts, payments and correspondence between the
Company and any of its partners on the one hand and several business
entities and individuals, including an Indiana state legislator,
certain Indiana lobbyists, and certain Lawrenceburg, Indiana city
officials and businessmen on the other hand. The Company has learned
that this legislator has served as an employee of a subsidiary of
Conseco, Inc., the parent company of the 29% limited partner in the
Indiana Partnership since September 1995. Additionally, the Company
has learned that such state legislator has served since September 1993
as a consultant to a major Indiana engineering firm that is engaged in
many state and local government funded construction projects. That
engineering firm also serves as lead engineer for the Lawrenceburg
casino project. On May 24, 1996, the Indiana House Legislative Ethics
Committee voted to reprimand, but take no further action against, this
legislator for failing to properly report the foregoing employment and
consulting arrangements on his 1993, 1994 and 1995 statements of
economic interests. On June 27, 1996, the legislator announced his
resignation as chairman of the Indiana House Ways and Means Committee.
The Company believes that neither it nor any entity controlled by or
person employed by the Company has engaged, and has been informed by
representatives of its partners that they have not engaged, in any
unlawful conduct in the pursuit by or granting to the Indiana
Partnership of the Lawrenceburg gaming license. Because the grand
jury proceedings are unlikely to be concluded quickly, on March 25,
1996, a former U.S. Attorney and his law firm were retained to
conduct, as special independent counsel (the "special independent
counsel"), an internal investigation into the
36
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
activities and actions of the Company and the entities controlled by
any person employed by the Company with respect to (i) the hiring by
Conseco, Inc. and the Indiana engineering firm of the state
legislator, (ii) the endorsement of the Indiana Partnership by the
City of Lawrenceburg and the financial affairs of certain Lawrenceburg
officials with respect to such endorsement and the awarding of the
certificate of suitability by the Indiana Gaming Commission, and (iii)
their lobbying efforts in furtherance of the Indiana legislature's
enactment of legislation authorizing gaming and limiting gaming
licenses to one per county. A special committee of independent
directors of the Company has been appointed to supervise and
coordinate the special independent counsel's investigation. The
special independent counsel has not investigated Conseco, Inc. The
Company has been advised that Conseco, Inc., with the assistance of
outside counsel, has conducted its own internal investigation of
matters that may be the subject of the grand jury proceedings and such
investigation found no wrongdoing by Conseco, Inc. or any person or
entity it controls, or is controlled by. Conseco has retained its own
special independent counsel to conduct an investigation. This
investigation is currently in process.
From March 25 to April 15, 1996, the special independent counsel
conducted its investigation and issued an interim report in which it
concluded that it found no evidence that the Company or any entity
controlled by or person employed by the Company had any involvement
in, or knowledge of, the relationship between the state legislator and
Conseco, Inc. or the Indiana engineering firm, or attempted to
improperly influence any City of Lawrenceburg official, state
legislator or Indiana Gaming Commission member or staff member in
connection with the endorsement of the partnership by the City of
Lawrenceburg and the awarding of the certificate of suitability to the
Indiana Partnership with regard to lobbying, including the lobbying
with respect to one gaming license per county legislation. The
special independent counsel found no evidence that the Company or any
entity controlled by or person employed by the Company attempted to
unduly influence any legislator in any way. However, no investigation
was made of any lobbyist's records, activities or expenditures, nor
were any outside lobbyists interviewed. The special independent
counsel also audited the Company's compliance with the lobbying
disclosure statute in Indiana and found only technical errors in the
Company's lobbying disclosure statements. No evidence was found that
these technical errors were intentional or designed to hide any
lobbying activity. In conducting its investigation, the special
independent counsel, among other things, reviewed numerous boxes of
documents produced by the executive and Lawrenceburg offices of the
Company and extensively interviewed the nine Company officers and
employees most closely related to the Lawrenceburg Casino project, as
well as the principal of R.J. Investments, Inc., a 4% limited partner
of the Indiana Partnership.
No assurance can be given, however, that the nature and scope of the
investigation conducted by the special independent counsel, which
among other things was conducted under severe time pressure and was
limited to the Company and the entities controlled by and persons
employed by the Company, was sufficient to uncover conduct that might
be considered unlawful. Further, no assurance can be given that the
special independent counsel investigation of Conseco and the other
partners when completed will not find wrongdoing by the subjects of
such investigations. In the event that the Company, any entity
controlled by the Company, any person employed by the Company, the
Indiana Partnership or any of its partners is found by the Marion
County prosecutor to have engaged in unlawful conduct, prior to the
issuance of the gaming license, there is no assurance what effect such
action would have on the Indiana Partnership's certificate of
suitability or, after issuance, the Indiana gaming license.
37
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
In the event Conseco or one of the Company's other partners in the
Lawrenceburg casino project is determined by the Indiana Gaming
Commission to be unsuitable for the ownership of a gaming license or
to have engaged in unlawful conduct, prior to the issuance of the
gaming license, the terms of the Indiana Partnership's partnership
agreement provide that the Indiana Partnership shall redeem 100% of
such unsuitable partner's interest in the partnership for an amount
equal to such partner's capital account. In the event that a partner
is determined by the Indiana Gaming Commission to be unsuitable for
ownership after the issuance of the gaming license, the terms of the
Indiana Partnership's partnership agreement provide that the Indiana
Partnership shall redeem 100% of such unsuitable partner's interest
for an amount equal to 90% of the "appraised value" of that partner's
interest, determined in accordance with the terms of the partnership
agreement. The purchase price is payable in five annual installments,
only from available cash flow or sale or financing proceeds of the
partnership, and bears interest at "prime." If such event were to
occur with respect to Conseco prior to the completion of the
Lawrenceburg casino project, the Company would have to fund any
remaining construction costs of the Lawrenceburg Casino project which
were to have been funded by Conseco. No assurance can be given that
the Company would be able to obtain funds sufficient for this purpose.
Also, there can be no assurance that the Indiana Gaming Commission
will not take other actions such as suspending, revoking or failing to
renew the Indiana Partnership's certificate of suitability, delaying
the issuance of or failing to issue the Indiana Partnership a gaming
license or, after issuance, revoking or suspending such gaming
license. The Indiana Partnership's certificate of suitability has
been extended through February 16, 1997 by the Indiana Gaming
Commission. There can be no assurance that the grand jury
investigation will not lead to events having a material adverse effect
on the Company.
DISPUTE WITH FORMER SHAREHOLDERS OF JAZZ ENTERPRISES, INC.
On March 15, 1996, a judgment for approximately $2.2 million plus
continuing interest, attorney's fees and court costs was rendered
against Jazz in the cause of action entitled MARTHA MYATT BOWLUS ET.
AL. V. JAZZ ENTERPRISES, INC. filed in the Nineteenth Judicial
District Court, Parish of East Baton Rouge, State of Louisiana
("Bowlus Lawsuit"). The plaintiffs sued Jazz to recover amounts due
under a promissory note issued by Jazz and secured by a mortgage on
certain property owned by Jazz located several miles south of Catfish
Town. The delay for filing for a new trial in the Bowlus Lawsuit has
elapsed and under Louisiana law a suspensive appeal from a judgment
must be filed within 30 days thereafter and any such appeal requires
the posting of an appeal bond in an amount at least equal to the
amount of the judgment. The judgment rendered in the Bowlus Lawsuit
has been recorded in the mortgage records of East Baton Rouge Parish,
and therefore the judgment now constitutes a judicial mortgage on
Jazz's immovable property located in East Baton Rouge Parish.
Pursuant to the definitive acquisition documents any and all
amounts due by Jazz under the Bowlus Lawsuit are the obligations of
the Former Jazz Shareholders. Prior to March 31, 1996, the Company
requested, in writing, that the Former Jazz Shareholders satisfy
the obligations and satisfy the judgment. Thereafter, Jazz was
advised that the Former Jazz Shareholders hoped to settle the
Bowlus Lawsuit prior to the expiration of the suspensive appeal
delay and if not so settled, they intended to suspensively appeal
the judgment. Since the former Jazz Shareholders were unable to
post an adequate suspensive appeal bond to suspend the effect of
the adverse judgment against Jazz, the Company paid the amount due
under the judgment by funding and paying $2,292,033.81 ("Bowlus
Settlement") to the plaintiffs on Monday, July 8, 1996 in full
satisfaction of the judgment rendered in the Bowlus Lawsuit. By
letter dated July 25, 1996, the Company advised the Former Jazz
Shareholders that it had paid the judgment rendered in Bowlus
Lawsuit by payment of the Bowlus Settlement to the plaintiffs and
demanded that the Former Jazz Shareholders repay to the Company the
Bowlus Settlement plus accumulated interest and all attorneys' fees
incurred by the Company in settling the Bowlus Lawsuit. Due to the
Former Jazz Shareholders' failure to repay Argosy for the Bowlus
Settlement, the Company withheld scheduled payments of $337,500
each to the former Jazz Shareholders representing the March 31,
1996, the June 30, 1996 and the September 30, 1996 quarterly
installments of the deferred purchase price. Pursuant to the terms
of the purchase agreement, the Company intends to withhold all
future payments to the former Jazz Shareholders as an offset
against the Bowlus Settlement plus accumulated interest and all
attorneys' fees incurred by the Company in settling the Bowlus
Lawsuit. The Bowlus Lawsuit is still pending on appeal, and the
Bowlus plaintiffs are seeking to have the lower court's award for
attorneys' fees increased, and Jazz (through the Former Jazz
Shareholders) is seeking to have the judgment (which Argosy paid)
reversed or reduced.
38
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
The Company believes that withholding such payment, as well as
withholding future payments, until the Former Jazz Shareholders
satisfy the Bowlus Lawsuit is within the Company's rights as
provided for in the definitive acquisition documents.
In response to the Company's withholding of the March 31, 1996
payment, Mr. Steve Urie, et. al. has filed an action in District
Court of East Baton Rouge seeking payment of the withheld amount
and has threatened, among other things, to file a class action on
behalf of the shareholders of the Company against the Company and
its directors and officers for mismanagement. The Company believes
such threatened claims are without merit and would vigorously
pursue the defense of any lawsuit filed by the Former Jazz
Shareholders. This suit seeking recovery of withheld quarterly
installments has since been voluntarily dismissed, without
prejudice, by Mr. Urie et. al.
CHALLENGE TO CERTIFICATE OF SUITABILITY FOR LAWRENCEBURG CASINO BY
UNSUCCESSFUL APPLICANT
On March 6, 1996, Indiana Gaming Company, August 12, 1996, received a
letter from counsel to Schilling Casino Corporation, d/b/a Empire
Casino & Resort ("Empire") advising the Company that Empire intended
to take legal action to seek a revocation or cancellation of the
certificate of suitability issued by the Indiana Gaming Commission to
the Indiana Partnership on June 30, 1995 to develop and operate the
Lawrenceburg Casino. Empire was one of the unsuccessful applicants
competing for the Lawrenceburg gaming license. Empire advised the
Indiana Partnership that it intended to file an application with the
Indiana Gaming Commission seeking revocation of the certificate of
suitability and that if such application is unsuccessful, Empire has
stated that it intends to file a civil action challenging the Indiana
Gaming Commission's authority to issue the certificate of suitability
and finally, if any such civil action is unsuccessful, to file an
appeal from the denial of Empire's application, which denial Empire
deems to occur upon the issuance of the gaming license to the Indiana
Partnership.
On July 19, 1996, Empire filed with the Indiana Gaming Commission an
Application for Revocation of the certificate of suitability awarded
to the Indiana Partnership for a riverboat owners license for
Lawrenceburg, Indiana. Among the grounds stated by Empire in their
application as filed were: (i) the application process followed by
the Indiana Gaming Commission did not afford Empire due process and
violated Indiana law; (ii) the Indiana Partnership has failed to
comply with the conditions in the Certificate because the temporary
vessel has not opened and certain permits have not been obtained;
(iii) the Indiana Partnership made misrepresentations to the Indiana
Gaming Commission during the licensing hearings; (iv) the Indiana
Gaming Commission could not
39
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
lawfully extend the Certificate beyond June 30, 1996 without
reconsidering all other applications; and (v) the endorsement of the
Indiana Partnership by the City of Lawrenceburg was without legal
authority.
At an Indiana Gaming Commission hearing held on August 20, 1996
Empire's Application was denied and the Indiana Partnership's
Preliminary Certificate of Suitability was renewed until February 16,
1997.
No assurances can be given that Empire will not continue to take steps
against the Partnership to prevent or delay the opening of the
Lawrenceburg casino.
H. STEVEN NORTON V. JOHN T. CONNORS, ET AL.
In September, 1993, H. Steven Norton, who was then and is now the
President of the Company, filed a cause of action against John T.
Connors, a significant shareholder of the Company and a former officer
of J. Connors Group Inc., a predecessor entity of the Company ("JCG"),
seeking $50 million in damages. Mr. Norton alleged that Mr. Connors
failed to fulfill his promise made in the summer of 1991 to establish
a partnership with Mr. Norton in which each would have an equal 50%
interest in JCG, which had a 25% partnership interest in the Company's
predecessor entity that owned the Alton Belle casino. As a result of
the reorganization effected immediately prior to its initial public
offering, the Company succeeded to all the rights, properties and
assets, and assumed all the liabilities, of all of its predecessor
entities, including JCG. Subsequent to filing the lawsuit, Mr.
Connors advised the Company that his dealings with Mr. Norton, which
are the subject of the litigation, were in his capacity as an officer
of JCG, and that the Company should assume the defense and reimburse
Mr. Connors for the approximately $130,000 spent to date on legal
fees, and that any liability resulting from the litigation was assumed
by the Company as a result of the Company's reorganization. The
Company responded to Mr. Connors that it believed that his actions and
dealings with Mr. Norton were solely in his individual capacity as a
shareholder of JCG, and the Company declined to assume the defense or
reimburse him for previously incurred legal fees, and the Company
denied that it has any liability with respect to such matter. If,
however, JCG were to have been found liable to Mr. Norton as a result
of the actions of Mr. Connors, then the Company could under certain
circumstances be liable to Mr. Norton for any damages awarded against
JCG.
In April 1995, Mssrs. Norton and Connors agreed to voluntarily dismiss
the lawsuit without prejudice. However, on May 22, 1996, Mr. Norton
refiled the suit against Mr. Connors and is again seeking $50 million
in damages. The Company believes that Mr. Connors will again seek to
cause the Company to indemnify and reimburse him from liability
thereunder. Therefore, there can be no assurance that the lawsuit
will not lead to events having a material adverse effect on the
Company.
40
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
GAMING INDUSTRY CLASS ACTIONS
The Company has been named, along with two gaming equipment suppliers,
41 of the country's largest gaming operators and four gaming
distributors (the "Gaming Industry Defendants") in three class action
lawsuits pending in Las Vegas, Nevada. The suits allege that the
Gaming Industry Defendants violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") by engaging in a course of
fraudulent and misleading conduct intended to induce people to play
their gaming machines based upon a false belief concerning how those
gaming machines actually operate, as well as the extent to which there
is actually an opportunity to win on any given play. The suits sought
unspecified compensatory and punitive damages. On April 17, 1996 the
court granted the defendants motion to dismiss one of the complaints;
however, the plaintiffs amended their complaint to cure certain
pleading defects in the prior complaint. The Company is unable at
this time to determine what effect, if any, the suit would have on its
business or operations.
Item 2: CHANGES IN SECURITIES - NONE
Item 3: DEFAULTS UPON SENIOR SECURITIES - NONE
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
Item 5: OTHER INFORMATION-NONE
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 --Financial Data Schedule
(b) Reports on Form 8-K - None
41
<PAGE>
ARGOSY GAMING COMPANY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARGOSY GAMING COMPANY
Registrant
Date: November 13, 1996 /s/ Joseph G. Uram
---------------------- -----------------------------
Joseph G. Uram
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 10Q OF ARGOSY GAMING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 67,577
<SECURITIES> 1,850
<RECEIVABLES> 1,655
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 90,795
<PP&E> 345,803
<DEPRECIATION> 51,985
<TOTAL-ASSETS> 516,313
<CURRENT-LIABILITIES> 46,096
<BONDS> 350,000
0
0
<COMMON> 243
<OTHER-SE> 83,721
<TOTAL-LIABILITY-AND-EQUITY> 516,313
<SALES> 0
<TOTAL-REVENUES> 185,977
<CGS> 0
<TOTAL-COSTS> 187,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,681
<INCOME-PRETAX> (22,889)
<INCOME-TAX> (8,646)
<INCOME-CONTINUING> (12,686)
<DISCONTINUED> 0
<EXTRAORDINARY> (890)
<CHANGES> 0
<NET-INCOME> (13,576)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
