<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 June 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 August 9, 1996.
- ------------------------------------------------------------------------------
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<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 63,890 $ 16,159
Other current assets. . . . . . . . . . . . . . . . . 18,465 12,333
--------- ------------
Total current assets. . . . . . . . . . . . . . . 82,355 28,492
--------- ------------
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . 284,163 239,480
--------- ------------
OTHER ASSETS:
Cash and cash equivalents held by Trustee . . . . . . 94,484
Goodwill, net . . . . . . . . . . . . . . . . . . . . 23,222 23,519
Other, net. . . . . . . . . . . . . . . . . . . . . . 25,673 18,391
--------- ------------
Total other assets. . . . . . . . . . . . . . . . 143,379 41,910
--------- ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $509,897 $309,882
--------- ------------
--------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities. . . . . . . $ 24,684 $ 26,941
Other current liabilities . . . . . . . . . . . . . . 7,290 8,388
--------- ------------
Total current liabilities . . . . . . . . . . . . 31,974 35,329
--------- ------------
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . 358,587 169,303
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED
SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . 21,506 2,543
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 6,158 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 . . . . . . . . . . . . . . . . . . 19,564 25,432
--------- ------------
Total stockholders' equity. . . . . . . . . . . . 91,672 97,540
--------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . $509,897 $309,882
--------- ------------
--------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
JUNE 30, JUNE 30,
1996 1995
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . $118,147 $117,791
Admissions. . . . . . . . . . . . . . . . . . . . . . . . 1,995 8,344
Food, beverage and other. . . . . . . . . . . . . . . . . 12,853 8,136
-------------- --------------
132,995 134,271
Less: promotional allowances . . . . . . . . . . . . . . (7,041) (8,735)
-------------- --------------
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . 125,954 125,536
-------------- --------------
COSTS AND EXPENSES:
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . 59,264 58,753
Food, beverage and other. . . . . . . . . . . . . . . . . 11,329 7,977
Other operating expenses . . . . . . . . . . . . . . . . 8,732 7,802
Selling, general and administrative . . . . . . . . . . . 26,231 23,579
Depreciation and amortization . . . . . . . . . . . . . . 11,085 10,038
Development and preopening costs. . . . . . . . . . . . . 3,790 1,138
Lease termination costs . . . . . . . . . . . . . . . . . 3,508
-------------- --------------
123,939 109,287
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . 2,015 16,249
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . . . . . 640 214
Interest expense. . . . . . . . . . . . . . . . . . . . . (11,546) (7,917)
-------------- --------------
(10,906) (7,703)
-------------- --------------
Income (loss) before income taxes, minority interests
and extraordinary item. . . . . . . . . . . . . . . . . . (8,891) 8,546
Income tax (expense) benefit. . . . . . . . . . . . . . . . . 3,200 (3,711)
Minority interests. . . . . . . . . . . . . . . . . . . . . . 713 (54)
-------------- --------------
Income (loss) before extraordinary item . . . . . . . . . . . (4,978) 4,781
Extraordinary loss on extinguishment of debt (net of
income tax benefit of $594) . . . . . . . . . . . . . . . (890)
-------------- --------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $(5,868) $4,781
-------------- --------------
-------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM PER SHARE . . . . . . $ (.20) $ .20
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT PER
SHARE (NET OF INCOME TAX BENEFIT OF $.02) . . . . . . . . (.04)
-------------- --------------
NET INCOME (LOSS) PER SHARE . . . . . . . . . . . . . . . . . $ (.24) $ .20
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
JUNE 30, JUNE 30,
1996 1995
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,356 $ 61,198
Admissions. . . . . . . . . . . . . . . . . . . . . . . . - 4,175
Food, beverage and other. . . . . . . . . . . . . . . . . 6,798 4,433
---------- ----------
66,154 69,806
Less: promotional allowances. . . . . . . . . . . . . . (2,889) (4,644)
---------- ----------
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . 63,265 65,162
---------- ----------
COSTS AND EXPENSES:
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . 30,193 29,766
Food, beverage and other. . . . . . . . . . . . . . . . . 6,053 3,817
Other operating expenses . . . . . . . . . . . . . . . . 4,364 4,418
Selling, general and administrative . . . . . . . . . . . 11,913 11,002
Depreciation and amortization . . . . . . . . . . . . . . 5,196 5,459
Development and preopening costs. . . . . . . . . . . . . 1,935 672
Lease termination costs . . . . . . . . . . . . . . . . . 3,508
---------- ----------
63,162 55,134
---------- ----------
Income from operations. . . . . . . . . . . . . . . . . . . . 103 10,028
---------- ----------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . . . . . 550 116
Interest expense. . . . . . . . . . . . . . . . . . . . . (7,335) (3,975)
---------- ----------
(6,785) (3,859)
---------- ----------
Income (loss) before income taxes, minority interests
and extraordinary item. . . . . . . . . . . . . . . . . . (6,682) 6,169
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . 2,333 (2,778)
Minority interests. . . . . . . . . . . . . . . . . . . . . . 418 (79)
---------- ----------
Income (loss) before extraordinary item . . . . . . . . . . . (3,931) 3,312
Extraordinary loss on extinguishment of debt (net of
income tax benefit of $594) . . . . . . . . . . . . . . . (890)
---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (4,821) $ 3,312
---------- ----------
---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM PER SHARE . . . . . . $ (.16) $ .14
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT PER
SHARE (NET OF INCOME TAX BENEFIT OF $.02) . . . . . . . . (.04)
---------- ----------
NET INCOME (LOSS) PER SHARE . . . . . . . . . . . . . . . . . $ (.20) $ 0.14
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 30,
1996 1995
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . $ (5,868) $ 4,781
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . 11,909 10,444
Deferred income taxes . . . . . . . . . . . (3,198) 896
Minority interests. . . . . . . . . . . . . (713) 54
Extraordinary item. . . . . . . . . . . . . 890
Lease termination costs . . . . . . . . . . 3,151
Changes in operating assets and liabilities,
net of the effects of the purchase of Jazz
Enterprises, Inc.:
Other current assets . . . . . . . . . . (1,442) (30)
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . 1,386 8,382
---------- -----------
Net cash provided by operating
activities. . . . . . . . . . . . . . 6,115 24,527
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable. . . . . . . . (349)
Purchases of property and equipment . . . . (62,083) (24,157)
Deposits. . . . . . . . . . . . . . . . . . (656) (220)
Goodwill. . . . . . . . . . . . . . . . . . (9,388)
Increase in cash and cash equivalents
held by trustee . . . . . . . . . . . . . (94,484)
---------- -----------
Net cash used in investing activities (157,223) (34,114)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit. . . . . . . . 44,500 14,000
Repayment of line of credit . . . . . . . . (90,000) (2,000)
Proceeds from sale of first mortgage notes 235,000
Payments on long-term debt and
installment contracts . . . . . . . . . . (752) (4,656)
Capital contributions from partner. . . . . 19,676
Increase in other assets . . . . . . . . (9,585) (2,037)
---------- -----------
Net cash provided by
financing activities . . . . . . . 198,839 5,307
---------- -----------
Net increase (decrease) in cash and cash equivalents 47,731 (4,280)
Cash and cash equivalents, beginning of period. 16,159 18,291
---------- -----------
Cash and cash equivalents, end of period. . . . $ 63,890 $ 14,011
---------- -----------
---------- -----------
</TABLE>
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., 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>
2. LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 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% . . . . . . . . . . . . . . . . . . . . . . 9,202 9,202
---------- --------------
359,202 169,702
Less: Current maturities . . . . . . . . . . . . . . . 615 399
---------- --------------
Long-term debt, less current maturities . . . . . . . . $358,587 $ 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 Company's joint venture, Indiana Gaming Company, L.P.
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
financing. 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 senior indebtedness incurred
in the future.
6
<PAGE>
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 six month periods ended June 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 ended
June 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>
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------------------- -------------------------------------
JUNE 30, 1966 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Revenues $125,954 $125,564 $63,265 $65,162
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Net Income (loss)
before extraordinary item (4,978) $ 3,540 (3,931) 2,284
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Net Income (loss)
before extraordinary
item per share (.20) .15 (.16) .12
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</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 Indiana Gaming
Company, L.P. (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
Company is a 57.5% general partner in the Indiana Partnership. The renewal
of the Indiana Partnership's preliminary certificate of suitability will be
considered at a hearing of the Indiana Gaming Commission to be held on
August 20, 1996.
Capital contributions to the Indiana Partnership, 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 expected to be provided by
capital contributions and capital loans by the partners. The Indiana
Partnership's estimate for the development and construction costs for the
Lawrenceburg Project is $210 million.
7
<PAGE>
Additionally, 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 licensing for its employees as well as final
licensing from the gaming commission of the State. In addition, the Company
must construct gaming facilities. 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 $12,000, including interest through June 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 will be brought before the Louisiana
voters in November, 1996. There can be no assurance that the voters of East
Baton Rouge Parish will not vote to prohibit riverboat gaming. If such a
vote to prohibit riverboat gaming occurs, the Company will be required to
discontinue gaming activity in East Baton Rouge Parish upon the expiration of
its current gaming license in September 1999. The discontinuance of gaming
operations in East Baton Rouge Parish would have a material adverse effect on
the Company, both in terms of the loss of revenues and cash flow generated by
the Belle of Baton Rouge and the impairment of the significant capital
investment that the Company has in its riverboat casino and related
facilities, including the Catfish Town development. The Company would be
required, under the indenture provisions of the Mortgage Notes, to offer to
repurchase a defined amount of the Mortgage Notes in the event that it
discontinued gaming operations in Baton Rouge.
The Company is subject, from time to time, to various legal and
regulatory proceedings, in the ordinary course of business. The Company
believes that these proceedings will not have a material effect on the
financial condition of the Company.
8
<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 and with a permanent
gaming facility not later than 12 months thereafter. There can be no
assurance that the projected opening date will be met, as the opening is
subject to numerous conditions, including licensing, permitting and
construction.
The Company's results of operations for the six months ended June 30,
1996 were adversely affected by increased competition at its Alton and
Riverside 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 may 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, 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.
9
<PAGE>
The following table highlights the results of operations for the
Company's operating Casinos (amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
----------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
GROSS REVENUES
Alton Belle Casino . . . . . . . . . . . $ 41,135 $ 44,125 $ 20,845 $ 23,285
Argosy Casino Riverside . . . . . . . . . 51,339 53,486 24,725 27,181
Belle of Baton Rouge Casino . . . . . . . 29,769 25,517 15,299 13,597
Belle of Sioux City Casino. . . . . . . . 10,497 11,058 5,280 5,659
-------- --------- --------- ---------
Total Properties. . . . . . . . . . . . $132,740 $134,186 $ 66,149 $ 69,722
-------- --------- --------- ---------
-------- --------- --------- ---------
NET REVENUE
Alton Belle Casino . . . . . . . . . . . $ 39,942 $ 42,578 $ 20,279 $ 22,438
Argosy Casino Riverside . . . . . . . . . 47,329 47,306 23,425 23,953
Belle of Baton Rouge Casino . . . . . . . 28,274 24,742 14,479 13,168
Belle of Sioux City Casino. . . . . . . . 10,167 10,831 5,083 5,520
-------- --------- --------- ---------
Total Properties. . . . . . . . . . . . $125,712 $125,457 $ 63,266 $ 65,079
-------- --------- --------- ---------
-------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS
Alton Belle Casino(1) . . . . . . . . . . $ 7,965 $ 11,380 $ 4,046 $ 6,061
Argosy Casino Riverside(2). . . . . . . . 6,252 12,437 3,764 6,326
Belle of Baton Rouge Casino(3). . . . . . 3,658 (264) 1,349 1,132
Belle of Sioux City Casino(1) . . . . . . 578 2,066 164 1,073
-------- --------- --------- ---------
Total Properties. . . . . . . . . . . . $ 18,453 $ 25,619 $ 9,323 $ 14,592
-------- --------- --------- ---------
-------- --------- --------- ---------
EBITDA(4)
Alton Belle Casino(1) . . . . . . . . . . $ 10,036 $ 13,446 $ 5,085 $ 7,098
Argosy Casino Riverside(2). . . . . . . . 10,504 15,938 5,518 8,266
Belle of Baton Rouge Casino(3). . . . . . 6,387 2,459 2,721 2,553
Belle of Sioux City Casino(1) . . . . . . 961 2,201 362 1,174
-------- --------- --------- ---------
Total Properties. . . . . . . . . . . . $ 27,888 $ 34,044 $ 13,686 $ 19,091
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
(1) Income from operations and EBITDA for the Belle of Sioux City Casino and
the Alton Belle Casino are presented before consideration of the Company's
management fee and in the case of the Belle of Sioux City before
the 30% minority interest.
(2) Excludes $3,508 for the six months and three months ended June 30, 1996
related to lease termination costs in connection with assets formerly
used at the Riverside temporary facility.
(3) Excludes operating loss of approximately $1,260 and $353 for the six
months ended June 30, 1996, and 1995, respectively and $726 and $353 for
the three months ended June 30, 1996, and 1995, respectively primarily
depreciation, amortization and operating expenses related to the Catfish
Town land based development in Baton Rouge.
(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.
10
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
CASINO-- Casino revenues for the six months ended June 30, 1996 increased
to $118.1 million from $117.8 million for the six months ended June 30, 1995.
Alton casino revenues decreased from $40.5 million to $37.4 million due to
severe weather conditions in January and February 1996. 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 increased from $42.9 million to $44.0 million due to the
opening of the Company's permanent land based entertainment pavilion on
January 15, 1996, offset by the severe weather conditions experienced in
January and February 1996 and additional competition in the Kansas City
market. Baton Rouge casino revenues increased $3.0 million from $24.0
million to $27.0 million. Sioux City casino revenues decreased $.7 million
to $9.7 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 increased from $58.8 million for the six months ended
June 30, 1995 to $59.3 million for the six months ended June 30, 1996
primarily related to increases in gaming taxes and admission taxes which
increased proportionately with the increases in casino revenues and customer
boardings respectively.
ADMISSIONS-- Admissions revenue (net of complimentary admissions)
decreased from $3.4 million for the six months ended June 30, 1995 to $.2
million for the six months ended June 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 AND BEVERAGE-- Food, beverage and other revenues increased $4.8
million to $12.9 million for the six month period ended June 30, 1996
primarily due to increased food, beverage and other sales at the expanded
Riverside and Baton Rouge facilities. Riverside revenues increased from $2.3
million to $5.3 million while Baton Rouge revenues increased from $1.3
million to $2.5 million. Alton's food, beverage and other revenues remained
stable with the six month period ending June 30, 1995 while Sioux City's
food, beverage and other revenues increased .2 million over the prior six
month period. Food beverage and other net profit improved $1.3 million to
$1.5 million for the six months ended June 30, 1996 due primarily to improved
operating efficiencies in the Company's food and beverage operations.
OTHER OPERATING EXPENSES--Other operating expenses increased $.9 million
to $8.7 million for the six months ended June 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 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 $26.2 million for the three months ended
June 30, 1996. Increases of $1.8 million and $.9 million, respectively, in
Alton and Riverside 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.
11
<PAGE>
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$1.1 million from $10.0 million for the six months ended June 30, 1995 to
$11.1 million for the six months ended June 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.
Development and Preopening costs--Development and preopening costs
increased from $1.1 million for the six month period ending June 30, 1995 to
$3.8 million for the six month period ending June 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 $3.2 million to $10.9
million for the six months ended June 30, 1996. The increase is attributable
to interest expense on the increased borrowings, used to fund the Company's
expansion and development program, on the $100 million Line of Credit
through June 5, 1996 and interest expense related to the $235 million First
Mortgage Notes issued June 5, 1996.
NET INCOME (LOSS) -- Net income decreased from $4.8 million for the six
months ended June 30, 1995 to a net loss of $5.9 million for the six 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.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
CASINO-- Casino revenues for the three months ended June 30, 1996
decreased to $59.4 from $61.2 million for the three months ended June 30,
1995. Alton casino revenues decreased from $21.3 million to $18.9 million.
The decrease is attributable to increased competition in the St. Louis market
as well as Alton benefitting from flooding which temporarily closed two
competing riverboat casinos in the St. Louis area in 1995. Riverside casino
revenues remained the same at $21.8 million due to the opening of the
Company's permanent land based entertainment pavilion on January 15, 1996
offset by additional competition in the Kansas City area. Baton Rouge casino
revenues increased $1.1 million from $12.7 million to $13.8 million due
primarily to the opening of a permanent land based entertainment facility in
April 1996. Sioux City casino revenues decreased $.5 million to $4.8
million.
Casino expenses increased from $29.8 million for the three months ended
June 30, 1995 to $30.2 million for the three months ended June 30, 1996.
Gaming taxes decreased to $11.7 million for the three month period ended June
30, 1996 from $12.0 million in 1995 which is proportionate with the decrease
in casino revenues, while admissions taxes increased to $4.8 million in 1996
from $4.3 million in 1995 due to an increase in customer boardings. Other
casino operating expenses remained approximately the same in 1996 as in 1995.
ADMISSIONS-- Admissions revenue (net of complimentary admissions)
decreased from $1.7 million for the three months ended June 30, 1995 to $0
for the three months ended June 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.
12
<PAGE>
FOOD AND BEVERAGE-- Food, Beverage and other revenues increased $2.4
million to $6.8 million for the three month period ended June 30, 1996
primarily due to increased food, beverage and other sales at the expanded
Riverside and Baton Rouge facilities. Riverside revenues increased from $1.2
million to $2.9 million while Baton Rouge revenues increased from $.7 million
to $1.5 million. Food beverage and other net profit remained approximately
the same for the three months ended June 30, 1996.
OTHER OPERATING EXPENSES--Other operating expenses remained the same at
$4.4 million for the three months ended June 30, 1996 and the six months
ended June 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $.9 million from the three months ended June 30, 1995 to
$11.9 million for the three months ended June 30, 1996. Increases of $.6
million at Alton and $.2 million at Riverside relate primarily to increases
in advertising and promotional expenses due both to increased competition and
the opening of the Riverside permanent facility.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased
$.3 million from $5.5 million for the three months ended June 30, 1995 to
$5.2 million for the three months ended June 30, 1996. This decrease is
primarily due to decreased depreciation associated with the Riverside
temporary facility offset by increased depreciation in Riverside and Baton
Rouge in connection with the Company's land based entertainment facilities
which have longer lives.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
increased from $.7 million for the three month period ending June 30, 1995 to
$1.9 million for the three month period ending June 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 $2.9 million to $6.8
million for the three months ended June 30, 1996. The increase is
attributable to interest expense on increased borrowings, used to fund the
Company's expansion and development program, on the $100 million Line of
Credit which was terminated on June 5, 1996 and interest expense related to
the $235 million First Mortgage Notes issued June 5, 1996.
NET INCOME (LOSS) -- Net income decreased from $3.3 million for the three
months ended June 30, 1995 to a net loss of $4.8 million for the three 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.
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 two casinos in the Kansas City area that offer
dockside gaming, one of which includes a second gaming vessel. Two
additional casino operators have commenced construction of gaming facilities
in Kansas City, both of which are expected to open in the second half 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 Bluffs, Iowa and from two riverboat
casinos in the Council Bluffs, Iowa/Omaha, Nebraska market, which opened in
January 1996. The Company expects each market in which it participates, both
current and prospective, to be highly competitive.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1996 the Company generated cash flows
from operating activities of $6.1 million compared to $24.5 million for the
same period in 1995. The decrease in cash flow is primarily attributed to
decreased operating margins and increased preopening and development expenses
in 1996 compared to 1995 and, additionally, to the timing of expenditures
related to operating accounts payable.
In the six months ended June 30, 1996, the Company used cash flows for
investing activities of $157.2 million versus $34.1 million for the six
months ended June 30, 1995. The primary uses of funds in 1996 were the
placement of $94.3 million of the proceeds from the Company's First Mortgage
Note offering into a disbursement account, for the Lawrenceburg casino
project, and the investment of $62.1 million in property, plant and equipment.
Riverside, Lawrenceburg and the Catfish Town facility at Baton Rouge had
capital expenditures of $17.9 million, $28.2 million and $12.1 million,
respectively, for the six month period ended June 30, 1996. The primary use
of funds for the six month period ended June 30, 1995 were capital
expenditures of $24.1 million and goodwill associated with the purchase of
Jazz of $9.4 million.
During the six months ended June 30, 1996, the Company generated $198.8
million in cash flows from financing activities compared $5.3 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 $19.7 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.
As of June 30, 1996, the Company had approximately $63.9 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 $94.5
million in a disbursement account to be used to fund the Company's portion of
the remaining Lawrenceburg construction costs. The $94.5 million cannot be
used for any other purposes. On June 5, 1996 the Company issued $235 million
of first mortgage notes which are due June 2004. $91 million of the proceeds
of the first 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.
14
<PAGE>
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 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 $5 million (primarily
tenant allowance) as of June 30, 1996. Further, if the Predecessor's status
as an S Corporation, which has been asserted as an issue by the IRS during an
ongoing audit, is successfully challenged, the Company currently estimates
that it would require up to approximately $12 million (excluding penalties)
to fund the potential income tax liability.
The Company estimates that the total costs of opening a temporary gaming
facility and completing the permanent Lawrenceburg Casino and entertainment
project is approximately $210 million. As of June 30, 1996, approximately
$44 million had been expended by the partnership, on the project. Of the
remaining $166 million in Lawrenceburg construction costs, approximately $25
million is anticipated to be funded through equipment financing from third
party lenders and approximately $141 million 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 the
budgeted $210 million total project cost 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.
15
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. Other Information
Item 1. LEGAL PROCEEDINGS -
During the quarter ended June 30, 1996 the following developments
occurred with respect to 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 and that he would not seek reelection in November 1996.
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
16
<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. but is
currently in the process of investigating the other
limited partners of the Indiana Partnership. 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,
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. 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
17
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
have engaged in unlawful conduct, 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 t 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.
Renewal of the Indiana Partnership's certificate of suitability is
being considered by the Indiana Gaming Commission at a hearing to
be held on August 20, 1996 and no assurances can be given that
such certificate will be renewed. Therefore, 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. As a result of the Former
Jazz Shareholders' obligations, one of the Former Jazz
Shareholders, Mr. Steve Urie, has posted an unsecured personal
appeal bond in the amount of $2,246,187.31, and a suspensive
appeal has been filed. Under Louisiana law, if it is determined
that this suspensive appeal is proper and that the suspensive
appeal bond is valid, sufficient and proper, then after a
contradictory hearing the court may order the judgement
cancelled from the mortgage records during the pendency of the
suspensive appeal. The Bowlus plaintiffs have filed pleadings
to contest the validity, sufficiency, and propriety of the
suspensive appeal bond, and Jazz is not able to predict what
ruling the court
18
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
may make on that issue. Accordingly, since the former Jazz
Shareholders have allowed the judgment to be entered against
Jazz, and have allowed said judgment to remain in the mortgage
records, such that the judgment creates a judicial mortgage on
Jazz's immovable property, the Company withheld scheduled
payments of $337,500 each to the Former Jazz Shareholders
representing the March 31, 1996 and June 30, 1996 quarterly
installments of the deferred purchase price. 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 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.
In July, 1996, the court ruled Mr. Urie's bond insufficient and
the Company paid the $2.2 judgement on behalf of the former
shareholders of Jazz and will offset future payments against
this amount.
CHALLENGE TO CERTIFICATE OF SUITABILITY FOR LAWRENCEBURG CASINO
BY UNSUCCESSFUL APPLICANT
On March 6, 1996 Indiana Gaming Company 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 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.
19
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
(continued)
The renewal of the Indiana Partnership's Certificate will be
considered by the Indiana Gaming Commission at a hearing to be
held on August 20, 1996. The Company believes that the grounds
alleged by Empire are without merit and intends with the
Indiana Partnership to vigorously challenge any of the
aforementioned actions taken by Empire.
Additionally, the Company and the Indiana Partnership intend to
pursue their respective legal remedies against Empire and its
representatives for any damages either may suffer as a result of
any wrongful action of Empire. There can be no assurances,
however, that any actions of Empire will not result in a delay
in the opening of the temporary gaming facility in Lawrenceburg
presently scheduled for the fourth quarter of 1996 or the
opening of the permanent gaming facility scheduled twelve months
later. Any such delay could have a material adverse effect on
the Company. Additionally, the Company cannot predict the
response of the Indiana Gaming Commission or City of
Lawrenceburg to any such actions of Empire.
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.
20
<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
<TABLE>
<CAPTION>
VOTES VOTES WITHHELD/ BROKER
FOR AGAINST ABSTAIN NON-VOTES
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
Election of Directors
J. Thomas Long 20,688,209 0 32,074 0
William F. Cellini 20,689,409 0 30,874 0
William McEnery 20,689,509 0 30,774 0
</TABLE>
Item 5: OTHER INFORMATION-NONE
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27--Financial Data Schedule
(b) Reports on Form 8-K
1. Report on Form 8-K dated June 5, 1996 filed with the
Securities and Exchange Commission incorporating the
press release issued by Argosy Gaming Company
announcing the private placement of its $235
million 13 1/4% First Mortgage Notes due 2004.
21
<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: August 13, 1996 /s/ Joseph G. Uram
------------------------------
Joseph G. Uram
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 10Q OF ARGOSY GAMING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 63890
<SECURITIES> 1884
<RECEIVABLES> 1510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82355
<PP&E> 330348
<DEPRECIATION> 46185
<TOTAL-ASSETS> 509897
<CURRENT-LIABILITIES> 31974
<BONDS> 350000
0
0
<COMMON> 243
<OTHER-SE> 91429
<TOTAL-LIABILITY-AND-EQUITY> 509897
<SALES> 0
<TOTAL-REVENUES> 125954
<CGS> 0
<TOTAL-COSTS> 123939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11546
<INCOME-PRETAX> (8891)
<INCOME-TAX> (3200)
<INCOME-CONTINUING> (4978)
<DISCONTINUED> 0
<EXTRAORDINARY> (890)
<CHANGES> 0
<NET-INCOME> (5868)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
