<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
----------------------
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 21, 1997
-------------------
ARGOSY GAMING COMPANY
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-21122 37-1304247
------------------- ---------------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
219 PIASA STREET, ALTON, IL 62002 62002
- ----------------------------------------------- ----------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (618) 474-7500
---------------------------
No Change
------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ARGOSY GAMING COMPANY
The purpose of this Current Report is to file certain financial information
regarding the Registrant (Argosy Gaming Company) and its subsidiaries. Such
financial information is set forth in the exhibits to this Current Report.
ITEM 5: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
----------------------------------------------------------------------
(c) EXHIBITS
23.1 Consent of Independent Auditors
27 Financial Data Schedule
99 Argosy Gaming Company and Subsidiary Companies - Certain Financial
Information as of and for the Year Ended December 31, 1996:
- Consolidated Balance Sheets
- Consolidated Statements of Operations
- Consolidated Statements of Cash Flows
- Consolidated Statements of Stockholders' Equity
- Notes to Consolidated Financial Statements
- Report of Independent Auditors
- Management's Discussion and Analysis of Financial
Condition and Results of Operations
<PAGE>
ARGOSY GAMING COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARGOSY GAMING
COMPANY
(Registrant)
Dated: March 21, 1997
/s/ Joseph G. Uram
Joseph G. Uram
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
-------
Consent of Independent Auditors 23.1
Financial Data Schedule 27
Argosy Gaming Company and Subsidiary Companies 99
- Certain Financial Information as of and for the
Year Ended December 31, 1996
- Consolidated Balance Sheets
- Consolidated Statements of Operations
- Consolidated Statements of Cash Flows
- Consolidated Statements of Stockholders' Equity
- Notes to Consolidated Financial Statements
- Report of Independent Auditors
- Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-76418) pertaining to the Stock Option Plan and
Director Option Plan of Argosy Gaming Company of our report dated
February 6, 1997, with respect to the consolidated financial statements of
Argosy Gaming Company filed as an Exhibit to this Form 8-K for the year ended
December 31, 1996.
/s/ Ernst & Young LLP
Chicago, Illinois
March 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 ANNUAL
REPORT OF ARGOSY GAMING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 38284
<SECURITIES> 126
<RECEIVABLES> 1918
<ALLOWANCES> 1271
<INVENTORY> 1069
<CURRENT-ASSETS> 58841
<PP&E> 361544
<DEPRECIATION> 47064
<TOTAL-ASSETS> 532159
<CURRENT-LIABILITIES> 44966
<BONDS> 350000
0
0
<COMMON> 243
<OTHER-SE> 72458
<TOTAL-LIABILITY-AND-EQUITY> 532159
<SALES> 0
<TOTAL-REVENUES> 244817
<CGS> 0
<TOTAL-COSTS> 255568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34842
<INCOME-PRETAX> (41358)
<INCOME-TAX> (14418)
<INCOME-CONTINUING> (24839)
<DISCONTINUED> 0
<EXTRAORDINARY> (890)
<CHANGES> 0
<NET-INCOME> (24839)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands except share data)
DECEMBER 31,
--------------------------
1996 1995
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 38,284 $ 16,159
Marketable securities.................... 126 1,952
Accounts receivable, net of
allowance for doubtful accounts of
$1,271 and $346, respectively.......... 1,918 3,197
Income taxes receivable.................. 11,111 2,197
Deferred income taxes.................... 1,372
Other current assets..................... 7,402 3,615
----------- -----------
Total current assets................... 58,841 28,492
----------- -----------
NET PROPERTY AND EQUIPMENT.................... 314,480 239,480
----------- -----------
OTHER ASSETS:
Restricted cash and cash equivalents..... 84,551
Notes receivable......................... 1,893 1,893
Deposits................................. 627 2,051
Prepaid rent............................. 1,917 2,917
Deferred finance costs, net of
accumulated amortization of $2,386
in 1996 and $1,813 in 1995............. 12,096 5,404
Goodwill, net of accumulated
amortization of $945 in 1996 and
$349 in 1995........................... 22,923 23,519
Deferred income taxes.................... 1,631
Other intangible assets.................. 33,200 6,126
----------- -----------
TOTAL OTHER ASSETS 158,838 41,910
----------- -----------
TOTAL ASSETS $532,159 $309,882
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ 15,293 $ 16,921
Accrued payroll and related expenses.... 6,772 6,684
Other accrued liabilities............... 14,655 7,960
Installment contracts payable........... 3,346 1,147
Slot club liability..................... 2,000 2,060
Current maturities of long-term debt.... 2,900 399
----------- -----------
Total current liabilities....... 44,966 35,171
----------- -----------
LONG TERM DEBT............................... 377,308 169,303
DEFERRED INCOME TAXES........................ 5,167
OTHER LONG-TERM OBLIGATIONS.................. 20,340 158
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED
SUBSIDIARIES............................ 16,844 2,543
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTE 13)....................................
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000
shares authorized; 24,333,333
shares issued and outstanding in
1996 and 1995........................ 243 243
Capital in excess of par................ 71,865 71,865
Retained earnings....................... 593 25,432
----------- -----------
Total stockholders' equity....... 72,701 97,540
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $532,159 $309,882
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
3
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Casino......................... $ 228,388 $ 237,613 $ 138,425
Admissions..................... 2,759 15,300 12,177
Food, beverage and other....... 29,212 18,537 12,036
----------- ----------- -----------
260,359 271,450 162,638
Less promotional allowances.... (15,542) (18,759) (9,593)
----------- ----------- -----------
Net revenues........................ 244,817 252,691 153,045
----------- ----------- -----------
COSTS AND EXPENSES:
Casino......................... 121,004 117,284 65,176
Food, beverage and other....... 23,769 17,242 11,876
Other operating expenses....... 19,111 15,616 8,486
Selling, general and
administrative................ 52,048 47,549 24,906
Depreciation and
amortization.................. 22,416 20,450 9,846
Development and
preopening costs.............. 12,365 3,411 9,761
Notes receivable write-off..... 3,477
Lease termination costs........ 3,508
Referendum expenses............ 1,347
------------ ----------- -----------
255,568 225,029 130,051
------------ ----------- -----------
(LOSS) INCOME FROM OPERATIONS (10,751) 27,662 22,994
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income................ 4,235 436 1,081
Interest expense............... (34,842) (14,708) (8,182)
----------- ----------- -----------
(30,607) (14,272) (7,101)
----------- ----------- -----------
(Loss) income before income taxes,
minority interests
and extraordinary item (41,358) 13,390 15,893
Income tax benefit (expense) 14,418 (6,621) (6,453)
Minority interests 2,991 184 195
----------- ----------- -----------
Net (loss) income before
extraordinary item................. (23,949) 6,953 9,635
Extraordinary loss on
extinguishment of debt (net of
income tax benefit of $594)........ (890)
----------- ----------- -----------
Net (loss) income $ (24,839) $ 6,953 $ 9,635
----------- ----------- -----------
----------- ----------- -----------
(Loss) income before
extraordinary item per share....... $(.98) $.29 $.40
Extraordinary loss on
extinguishment of debt per
share (net of income tax
benefit of $.02)................... (.04)
----------- ----------- -----------
Net (loss) income per share $(1.02) $.29 $.40
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
-------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................... $ (24,839) $ 6,953 $ 9,635
Adjustments to reconcile net (loss) income
to net cash (used in) provided from
operating activities:
Depreciation............................... 21,501 19,593 9,728
Amortization............................... 2,660 2,287 724
Deferred income taxes...................... (5,426) 4,381 830
Notes receivable write-off................. 3,477
Gain on sale of assets..................... (153)
Minority interests......................... (2,991) (184)
Lease termination costs.................... 1,941
Extraordinary item......................... 890
Changes in operating assets and
liabilities (net of the effects of
the purchase of Jazz Enterprises, Inc.
in 1995)..................................
Accounts receivable....................... 1,279 (289) (2,387)
Other current assets...................... (2,803) (699) (1,198)
Deposits.................................. 770
Accounts payable.......................... 3,011 12,058 1,761
Accrued liabilities....................... 5,614 2,810 5,405
Income taxes receivable................... (8,914) (823) 285
----------- ----------- -----------
Net cash (used in) provided from
operating activities................... (7,460) 49,564 24,783
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities............. 1,952 548 4,250
Purchases of marketable securities......... (126)
Proceeds from sales of property
and equipment............................. 153
Increase in notes receivable............... (5,178) (9,606)
Purchases of property and equipment........ (97,409) (71,854) (112,013)
Goodwill................................... (9,388)
Other...................................... 171 (772) (1,345)
Restricted cash held by trustees........... (84,551)
----------- ----------- -----------
Net cash used in investing activities.... (179,810) (86,644) (118,714)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt... 235,000 115,000
Proceeds from line of credit............... 44,500 49,500
Repayment of line of credit................ (90,000) (4,000)
Payments on installment contracts.......... (2,991) (6,268) (3,124)
Payments on long-term debt................. (2,191) (186) (3,901)
Increase in deferred finance costs......... (9,716) (2,441) (4,775)
Proceeds from partner loans................ 23,197
Capital contributions from partner......... 19,044 1,718
Other...................................... (7,448) (3,375) 1,618
----------- ----------- -----------
Net cash provided from financing
activities.............................. 209,395 34,948 104,818
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.......................... 22,125 (2,132) 10,887
Cash and cash equivalents,
beginning of year......................... 16,159 18,291 7,404
----------- ----------- -----------
Cash and cash equivalents, end of year..... $38,284 $16,159 $18,291
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
TOTAL
COMMON CAPITAL IN RETAINED STOCKHOLDERS'
SHARES STOCK EXCESS OF PAR EARNIINGS EQUITY
---------- ----------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 . . . . 24,333,333 $ 243 $71,865 $ 8,844 $80,952
Net income . . . . . . . . . . . . 9,635 9,635
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 . . . . 24,333,333 243 71,865 18,479 90,587
Net income . . . . . . . . . . . 6,953 6,953
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 . . . . 24,333,333 243 71,865 25,432 97,540
Net loss . . . . . . . . . . . . (24,839) (24,839)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 . . . . 24,333,333 $ 243 $71,865 $ 593 $72,701
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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; Lawrenceburg, Indiana; Riverside,
Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa. Indiana Gaming Company,
L.P., ("Indiana Partnership") a limited partnership in which the Company is
general partner and holds a 57.5% partnership interest, opened a riverboat
casino and related entertainment and support facilities at a temporary site in
Lawrenceburg, Indiana on December 10, 1996. The Indiana Partnership is
developing its permanent facility which is expected to open in December 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
consolidated financial statements include the accounts of Argosy and its
controlled subsidiaries and partnerships. All significant intercompany
transactions have been eliminated. Under certain conditions, subsidiaries are
required to obtain approval from state gaming authorities before making
distributions to Argosy.
CASH AND CASH EQUIVALENTS -- The Company considers cash and all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES -- Marketable securities, classified as available for
sale, are recorded at fair market value which approximates cost.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Leasehold improvements are amortized over the life of the respective lease.
Depreciation is computed on the straight-line method over the following
estimated useful lives:
Buildings and shore improvements 5 to 31 years
Riverboats, docks and improvements 5 to 20 years
Furniture, fixtures and equipment 5 to 10 years
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
DEFERRED FINANCE COSTS -- Deferred finance costs are amortized over
the life of the respective loans using the effective interest method.
GOODWILL AND OTHER INTANGIBLE ASSETS -- Goodwill represents the cost
in excess of fair value of net assets acquired, and is amortized over 40 years.
Other intangible assets, primarily payments to cities, are amortized over the
lives of the respective leases or development agreements including extensions.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES -- The Company recognizes
as casino revenues the net win from gaming activities, which is the difference
between gaming wins and losses. The retail value of admissions and food and
beverage, which were provided to customers without charge, has been included in
revenues, and a corresponding amount has been deducted as promotional
allowances. The estimated cost of providing promotional allowances has been
included in costs and expenses as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
Admissions. . . . . . . . . . $ 505 $ 4,601 $ 3,399
Food, beverage and other. . . 4,054 2,989 2,775
ADMISSIONS REVENUE -- Admissions revenue is recognized at the time the
related service is performed.
ADVERTISING COSTS -- The Company expenses advertising costs as incurred.
Advertising expense was $9,192, $7,908, and $4,448 in 1996, 1995 and 1994
respectively.
DEVELOPMENT AND PREOPENING COSTS -- Development costs incurred in an effort
to identify and develop new gaming locations are expensed as incurred, as there
can be no assurance that such costs, if capitalized, would be realizable.
Preopening costs are expensed as incurred.
RECLASSIFICATIONS -- Certain amounts in prior years' financial statements
have been reclassified to conform to the 1996 presentation.
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
--------------------------
1996 1995
-------- --------
Land......................................... $ 40,252 $ 18,828
Buildings, leasehold and shore improvements.. 92,256 14,449
Riverboats, docks and improvements........... 122,555 113,707
Furniture, fixtures and equipment............ 67,198 48,936
Construction in progress..................... 39,283 77,188
-------- --------
361,544 273,108
Less accumulated depreciation and
amortization................................ (47,064) (33,628)
Net property and equipment............... $314,480 $239,480
-------- --------
-------- --------
3. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
--------------------------
1996 1995
-------- --------
First mortgage notes due June 1, 2004,
interest payable semi-annually at 13 1/4%... $ 235,000 $
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
Senior secured line of credit................ 45,500
Notes payable, principal and interest
payments due quarterly through September
2015, discounted at 10.5%................... 7,011 9,202
Loans from partner, principal due in equal
annual installments through 2004, interest
payable at prime + 6%....................... 23,197
-------- --------
380,208 169,702
Less: current maturities.................... 2,900 399
-------- --------
Long-term debt, less current maturities...... $ 377,308 $169,303
-------- --------
-------- --------
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 the assets of the
Indiana Partnership.
9
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
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. Under terms of
the indenture governing the Mortgage Notes, Argosy is required to make offers to
purchase notes, at 101, at an amount equal to 50% of the proceeds from certain
distributions, above specified levels, received from the Indiana Partnership.
In addition, $94,300 of the proceeds of the Mortgage Notes were initially placed
in a disbursement account which can only be used to fund the company's
obligations for the construction of the Lawrenceburg project. Approximately
$69,600 of this amount remains and is included in restricted cash and cash
equivalents at December 31, 1996.
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 ("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 Notes are subordinated to prior
payment in full of all senior indebtedness as defined, including such
indebtedness incurred in the future.
Interest expense for the years ended December 31, 1996, 1995 and 1994 was
$34,842 (net of $3,033 capitalized), $14,708 (net of $3,203 capitalized) and
$8,182 (net of $1,665 capitalized), respectively.
Maturities of long-term debt at December 31, 1996 are as follows:
1997............................... $ 2,900
1998............................... 2,900
1999............................... 2,900
2000............................... 3,191
2001............................... 118,570
Thereafter......................... 249,747
4. OTHER LONG-TERM OBLIGATIONS
Included in Other long-term obligations is approximately $20,000
representing the remaining grants and infrastructure payments due from the
Indiana Partnership under terms of a development agreement with the City of
Lawrenceburg. Argosy's portion of this obligation will be funded from the
Lawrenceburg disbursement account.
10
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
5. INCOME TAXES
Income tax benefit (expense) for the years ended December 31, 1996, 1995 and
1994 consists of the following:
1996 1995 1994
----------- ----------- -----------
CURRENT:
Federal.................... $ 7,877 $ (1,522) $ (4,316)
State...................... 1,117 (760) (1,307)
---------- ---------- ----------
8,994 (2,282) (5,623)
---------- ---------- ----------
DEFERRED:
Federal.................... 4,173 (3,704) (815)
State...................... 1,251 (635) (15)
---------- ---------- ----------
5,424 (4,339) (830)
---------- ---------- ----------
Income tax benefit (expense) $ 14,418 $ (6,621) $ (6,453)
---------- ---------- ----------
---------- ---------- ----------
11
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
The provision for income taxes for the years ended December 31, 1996, 1995 and
1994 differs from that computed at the federal statutory corporate tax rate as
follows:
1996 1995 1994
-------- -------- --------
Federal statutory rate................ (35.0) % 35.0 % 35.0 %
State income taxes, net of federal
benefit............................ (2.5) 6.8 5.0
Prior year taxes...................... 4.4
Goodwill amortization................. 0.5 0.9
Tax-exempt interest income............ (0.7)
Other, net............................ 2.1 2.3 1.3
--------- -------- --------
(34.9) % 49.4 % 40.6 %
--------- -------- --------
--------- -------- --------
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1996 and 1995 are as follows:
1996 1995
---------- ---------
Depreciation.................................. $ (11,605) $ (8,684)
Preopening.................................... 8,086 4,609
Benefit of net operating loss carry forward... 6,464
Other, net.................................... (390) 875
--------- ---------
2,555 (3,200)
Valuation allowance (924) (595)
--------- ---------
Net deferred tax asset (liability) $1,631 $(3,795)
--------- ---------
--------- ---------
The valuation allowance relates to deferred tax assets established under
SFAS 109 for net operating loss carry forwards of approximately $6,500. These
unutilized loss carry forwards, which will expire through 2011, will be carried
forward to future years for possible utilization.
6. SUPPLEMENTAL CASH FLOW INFORMATION
The Company acquired equipment in the amounts of $5,191, $1,681 and $9,564
in 1996, 1995 and 1994, respectively, which was financed through installment
contracts.
The Company paid $33,302, $16,052 and $8,220 for interest, and $332, $3,105
and $5,325 for income taxes in 1996, 1995 and 1994 respectively.
12
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
7 . LEASES
Future minimum lease payments for operating leases with initial terms in
excess of one year as of December 31, 1996 are as follows:
YEARS ENDING DECEMBER 31,
- -------------------------
1997 ...................................................... $ 3,336
1998 ...................................................... 983
1999 ...................................................... 738
2000 ...................................................... 521
2001 ...................................................... 411
Thereafter ................................................ 15,350
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$6,204, $4,947, and $2,221, respectively.
8. STOCK OPTION PLANS
The Company adopted the Argosy Gaming Company Stock Option Plan, as
amended ("Stock Option Plan"), which provides for the grant of non-qualified
stock options for up to 2,500,000 shares of common stock to key employees of the
Company. These options expire ten years after their respective grant dates and
become exercisable over a specified vesting period. At December 31, 1996,
options for 1,033,253 shares are exercisable under the Stock Option Plan.
The Company also has adopted the Argosy Gaming Company 1993 Directors
Stock Option Plan ("Directors Option Plan"), which provides for a total of
50,000 shares of common stock to be authorized and reserved for issuance.
The Directors Option Plan provides for the grant of non-qualified stock
options at fair market value to non-employee directors of the Company as of
the date such individuals become directors of the Company. These options
expire five years after their respective grant dates and become exercisable
over a specified vesting period. At December 31, 1996, options for 19,000
shares are exercisable under the Directors' Option Plan.
13
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
STOCK OPTION PLAN DIRECTORS OPTION PLAN
--------------------------------- --------------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------------ --------------- ------------- --------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993 147,158 $19.00 - $19.38 18,000 $19.00
Granted................... 2,200,000 $16.75
Forfeited................. (1,196) $19.00 - $19.38 (3,000) $19.00
------------ ------------
Outstanding, December 31, 1994 2,345,962 $16.75 - $19.38 15,000 $19.00
Granted................... 150,000 $16.75 6,000 $11.50
Forfeited................. (50,709) $16.75 - $19.38
------------ ------------
Outstanding, December 31, 1995 2,445,253 $16.75 - $19.38 21,000 $11.50 - $19.00
Forfeited................. (10,000) $16.75
------------ ------------
Outstanding, December 31, 1996 2,435,253 $16.75 - $19.38 21,000 $11.50 - $19.00
============ ============
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25), and related interpretations in
accounting for its employee stock options. Under APB 25, when the exercise
price of employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for Stock
Based Compensation. Accordingly, no compensation expense has been recognized
for either stock option plan. The compensation expense related to the 1995
stock option grants was zero.
9. EMPLOYEES BENEFIT PLAN
The Company established a 401(k) defined-contribution plan which covers
substantially all of its full-time employees. Participants can contribute a
maximum of 10% of their eligible salaries (as defined) subject to limits, as
determined by provisions of the Internal Revenue Code, and the Company will
match 100% of participants' contributions up to 5% of their eligible salaries.
Expense recognized under the Plan was approximately $1,546, $1,708 and $587 in
1996, 1995 and 1994, respectively.
14
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
10. 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 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 Lawrenceburg casino project. The collateral for the
Mortgage Notes does not include assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of December 31, 1996 and 1995, and summarized operating statement
information for the years ended December 31, 1996, 1995 and 1994. The column
labeled "Parent Company" represents the holding company for each of the
Company's direct subsidiaries, the column labeled "Guarantors" represents each
of the Company's direct subsidiaries, all of which are wholly-owned by the
parent company, and the column labeled "Non-Guarantors" represents the
partnerships which operate the Company's casinos in Sioux City and in
Lawrenceburg. 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.
15
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
Summarized balance sheet information as of December 31, 1996 and 1995, is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets........... $ 29,353 $ 25,301 $ 13,191 $ (9,004) $ 58,841
Non-current assets....... 403,873 314,287 119,727 (364,569) 473,318
------------ ----------- ----------- ----------- ----------
$ 433,226 $ 339,588 $ 132,918 $ (373,573) $ 532,159
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
LIABILITIES AND EQUITY:
Current liabilities...... $ 10,525 $ 26,939 $ 20,630 $ (13,128) $ 44,966
Non-current liabilities.. 350,000 267,428 78,856 (281,792) 414,492
Stockholders' equity..... 72,701 45,221 33,432 (78,653) 72,701
------------ ----------- ----------- ---------- ----------
$ 433,226 $ 339,588 $ 132,918 $ (373,573) $ 532,159
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
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
Stockholders' equity..... 97,540 64,087 16,782 (80,869) 97,540
----------- ----------- ----------- ----------- -----------
$265,668 $284,084 $24,044 $(263,914) $309,882
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
</TABLE>
16
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
Summarized operating statement information for the years ended December 31,
1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 4,875 $ 211,319 $ 24,299 $ 4,324 $ 244,817
Costs and expenses............ 16,043 209,955 35,552 (5,982) 255,568
Net interest expense......... 22,177 7,176 738 516 30,607
Net (loss) income............. (24,839) (2,297) (15,718) 18,015 (24,839)
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 4,071 $ 233,205 $ 21,994 $ (6,579) $ 252,691
Costs and expenses............ 14,161 195,517 21,930 (6,579) 225,029
Net interest expense.......... 8,964 5,185 123 14,272
Net income (loss)............. 6,953 18,101 (59) (18,042) 6,953
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 4,844 $ 152,654 $ $(4,453) $153,045
Costs and expenses............ 9,521 124,144 839 (4,453) 130,051
Net interest income
(expense).................... 6,620 481 7,101
Net income (loss)............. 9,635 17,252 (839) (16,413) 9,635
</TABLE>
11. PURCHASE 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.
Terms of the transaction allowed the Company to acquire Jazz's 10% limited
partnership interest in the Company's Baton Rouge casino and all of Jazz's
interest in the Catfish Town real estate development.
Under terms of the purchase agreement, the Company made initial cash
payments to Jazz totalling $8,500 and is required to make additional payments of
$1,350 annually for ten years, and payments of $500 annually for the following
ten years. The net present value of these additional payments was approximately
$9,400 assuming a discount rate of 10.5%, and is included in long-term debt in
the accompanying balance sheets. In addition, the Company forgave loans to Jazz
and its principals of approximately $20,700 and assumed certain construction
obligations, ordinary course accounts payable and other liabilities totalling
approximately $7,300, and paid expenses of approximately $900. Under terms of
the Purchase Agreement substantially all other obligations of Jazz existing at
the time of the purchase remain the responsibility of the former owners of Jazz.
17
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
The table below sets forth the pro forma historical operating results of
the Company for the years ended December 31, 1995 and 1994, giving effect to the
acquisition as if the acquisition occurred on January 1, 1994. The Company's
fiscal year end is December 31 and Jazz's year end is February 28. The pro
forma operating results of the years ended December 31, 1995 and 1994 were
prepared using the Company's operating results for the years ended December 31,
1995 and 1994, and Jazz's operating results for period January 1, 1995 through
May 30, 1995 (the effective date which Jazz became a wholly owned subsidiary of
the Company), and year ended February 28, 1995. Jazz's revenues and net loss
for the months of January and February 1995 are immaterial.
YEARS ENDED
DECEMBER 31,
1995 1994
------------- -------------
(UNAUDITED)
Net revenues....................... $ 252,719 $ 153,862
Income from operations............. 26,762 18,746
Interest expense................... 15,480 10,156
Net income......................... 5,712 5,393
Net income per share............... .23 .22
The 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.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at
December 31, 1996 are as follows:
CARRYING
AMOUNT FAIR VALUE
------------------------------------
Cash and cash equivalents.......... $ 38,284 $ 38,284
Marketable securities.............. 126 126
First mortgage notes............... 235,000 220,266
Convertible subordinated notes..... 115,000 92,575
Other.............................. 30,208 30,208
The fair value of the first mortgage notes and the convertible subordinated
notes are based on quoted market prices. Market quotes for the fair value of
the remainder of the Company's debt are not available.
18
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and Per Share Data)
13. 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 Company is a 57.5% general partner in the Indiana
Partnership. On December 10, 1996 the Indiana Partnership was awarded a gaming
license and commenced operations at a temporary facility. The Indiana
Partnership is in the process of constructing its permanent facility which is
expected to open in December 1997.
Provisions of the partnership agreement governing the Indiana Partnership
stipulate that capital contributions up to a total project cost of $225 million,
will be made on the same basis as the partners' equity ownership with any excess
project cost being the sole responsibility of the Company. Funding for the
Indiana Partnership is to be provided by capital equity contributions for the
first $52,500 and capital loans by the partners for the balance.
Under terms of the Lawrenceburg partnership agreement, after the third
anniversary date of commencement of operations at the Lawrenceburg casino, each
limited partner has the right to sell its interest to the other partners (pro
rata in accordance with their respective percentage interests). In the event of
this occurrence, if the partners cannot agree on a selling price, the Indiana
Partnership will be sold in its entirety.
The completion of the permanent facility is subject to the satisfaction of
numerous conditions. The Indiana Partnership must obtain numerous permits and
licenses. In addition, the Company must complete the construction of its
permanent gaming facilities, which must be open within 12 months of the opening
of the temporary casino. There can be no assurance that this schedule will be
met.
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 relating to the prohibition concerning a
second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has identified the S-Corporation status as one of the issues,
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and state income
taxes on its taxable earnings through February 25, 1993, such payments could
amount to approximately $12,600, including interest through December 31, 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 consolidated financial statements.
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the
19
<PAGE>
AGROSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Share and per Share Data)
financial condition of the Company.
<TABLE>
<CAPTION>
14. QUARTERLY FINANCIAL INFORMATION (unaudited)
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
1996:
Net revenues . . . . . . . . . . . . . . $62,689 $63,265 $60,022 $58,841
Income (loss) from operations(a) . . . . 1,912 103 (3,748) (9,018)
Other expense, net . . . . . . . . . . . 4,121 6,785 10,251 9,450
Loss before extraordinary item . . . . . (3,931)
Loss per share before extraordinary item (.16)
Net loss(b). . . . . . . . . . . . . . . (1,047) (4,821) (7,708) (11,263)
Net loss per share . . . . . . . . . . . (.04) (.20) (.32) (.46)
1995:
Net revenues . . . . . . . . . . . . . . $60,374 $65,162 $66,637 $60,518
Income from operations(c). . . . . . . . 6,221 10,028 6,585 4,828
Other expense, net . . . . . . . . . . . 3,844 3,859 3,879 2,690
Net income . . . . . . . . . . . . . . . 1,468 3,312 1,654 519
Net income per share . . . . . . . . . . .06 .14 .07 .02
</TABLE>
(a) Income from operations for the second quarter of 1996 includes a charge of
$3,508 related to lease termination costs associated with assets formerly
used at the Riverside temporary facility.
(b) Net loss for the second quarter of 1996 includes an after tax charge of
$890 related to an extraordinary item for the early extinguishment of a
line of credit.
(c) Income from operations for the third quarter of 1995 includes a charge of
$3,477 related to the write off of a note receivable.
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
ARGOSY GAMING COMPANY
We have audited the accompanying consolidated balance sheets of Argosy
Gaming Company as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Argosy Gaming Company at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 6, 1997
21
<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 Company, L.P., opened a temporary casino in
Lawrenceburg, Indiana on December 10, 1996 and expects to open the permanent
gaming facility in December 1997. The anticipated opening date of the permanent
Lawrenceburg facility is a forward looking statement that involves certain risk
and uncertainties and there can be no assurance that the projected opening date
will be met, as the opening is subject to numerous conditions, including
licensing, permitting and construction. The results of operations for the year
ended December 31, 1994 reflect a full year of operations of the Alton Belle
casino, and reflect operations from the Argosy Casino in Riverside, Belle of
Baton Rouge and Belle of Sioux City from their respective opening dates. The
results of operations for the years ended December 31, 1995 and 1996 reflect
full years of operations for each of the Company's existing gaming properties,
except that 1996 reflects the operations of the Lawrenceburg casino from
December 10, 1996 through December 31, 1996.
The Company's results of operations for the year ended December 31, 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. The increased
competition has resulted in the Company reporting decreased revenues at its
Alton and Riverside properties in 1996 and an overall increase in operating
expenses as it expanded its operations at each property in response to
competition. The Company believes that it will continue to be difficult to
sustain historical levels of operating revenues and profitability at these
properties. Increasing competitive pressures have also resulted in the
Company eliminating, in January 1996, admissions fees at all of its gaming
operations, except Lawrenceburg. In addition, the Company is incurring
significant costs and capital expenditures in developing the Lawrenceburg
casino project. These increased costs, competitive pressures on revenues and
the increased interest expense associated with the issuance, in June 1996, of
$235 million of First Mortgage Notes ("Mortgage Notes"), will continue to
adversely affect the Company's results of operations.
The Company is in a net operating loss carryforward position at December
31, 1996. Should additional operating losses be generated in 1997, the Company
may be precluded, under the provisions of SFAS No. 109, from recording a tax
benefit on such losses.
22
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
OPERATIONAL INFORMATION
The following table highlights the results of operations for the Company's
operating subsidiaries (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994(7)
----------- -------- ---------
<S> <C> <C> <C>
GROSS REVENUES
Alton Belle Casino . . . . . . . . . . . . . . . $ 80,186 $ 89,262 $104,038
Argosy Casino Riverside. . . . . . . . . . . . . 95,295 106,946 37,224
Belle of Baton Rouge Casino. . . . . . . . . . . 58,648 53,371 20,976
Belle of Sioux City Casino . . . . . . . . . . . 20,636 22,500
Argosy Casino Lawrenceburg . . . . . . . . . . . 4,873
---------- -------- --------
Total Properties. . . . . . . . . . . . . . . . $ 259,638 $272,079 $162,238
---------- -------- --------
---------- -------- --------
NET REVENUES
Alton Belle Casino . . . . . . . . . . . . . . . $ 77,933 $ 85,992 $ 96,983
Argosy Casino Riverside. . . . . . . . . . . . . 88,473 94,058 35,351
Belle of Baton Rouge Casino. . . . . . . . . . . 53,420 49,805 20,319
Belle of Sioux City Casino . . . . . . . . . . . 19,887 21,994
Argosy Casino Lawrenceburg . . . . . . . . . . . 4,412
---------- -------- --------
Total Properties. . . . . . . . . . . . . . . . $ 244,125 $251,849 $152,653
---------- -------- --------
---------- -------- --------
INCOME FROM OPERATIONS(1)
Alton Belle Casino . . . . . . . . . . . . . . . $ 12,240 $ 22,446 $ 28,817
Argosy Casino Riverside(3) . . . . . . . . . . . 9,410 22,057 2,472
Belle of Baton Rouge Casino(4),(5) . . . . . . . 3,507 2,875 1,962
Belle of Sioux City Casino . . . . . . . . . . . 295 3,137
Argosy Casino Lawrenceburg(6). . . . . . . . . . 334
---------- -------- --------
Total Properties . . . . . . . . . . . . . . . $ 25,786 $ 50,515 $ 33,251
---------- -------- --------
---------- -------- --------
EBITDA(1),(2)
Alton Belle Casino . . . . . . . . . . . . . . . $ 16,446 $ 26,734 $ 32,728
Argosy Casino Riverside(3) . . . . . . . . . . . 16,134 29,452 6,450
Belle of Baton Rouge Casino(4),(5) . . . . . . . 9,151 8,305 3,113
Belle of Sioux City Casino . . . . . . . . . . . 1,141 3,610
Argosy Casino Lawrenceburg(6). . . . . . . . . . 712
---------- -------- --------
Total Properties. . . . . . . . . . . . . . . . $ 43,584 $ 68,101 $ 42,291
---------- -------- --------
---------- -------- --------
</TABLE>
(1) Income from operations and EBITDA are presented before consideration of any
management fees paid to the Company and in the case of the Belle of Sioux
City and the Argosy Casino Lawrenceburg before the 30% and 42.5% minority
interests, respectively.
(2) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles), as an indicator of the Company's operating performance, or as
an alternative to cash flows generated by operating, investing and
financing activities (as 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
23
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
depreciation and amortization. The Company has other significant uses of
cash flows, including interest and capital expenditures, which are not
reflected in EBITDA.
(3) Excludes $3,508 for the year ended December 31, 1996 related to lease
termination costs in connection with assets formerly used at the Riverside
temporary facility.
(4) Excludes operating loss of approximately $3,677 and $1,212 for the years
ended December 31, 1996, and 1995, respectively, primarily depreciation,
amortization and operating expenses related to the Catfish Town land-based
development in Baton Rouge.
(5) Excludes operating expenses of $1,347 for the year ended December 31, 1996
related to referendum costs.
(6) Excludes pre-opening expenses of $10,979 for the year ended December 31,
1996.
(7) The operations of the Belle of Sioux City have not been included in 1994 as
they are not material.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
CASINO--Casino revenues for the year ended December 31, 1996 decreased to
$228.4 million from $237.6 million for the year ended December 31, 1995. Alton
casino revenues decreased from $81.4 million to $72.4 million due to severe
weather conditions in January and February 1996, and the impact of increased
competition. This 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 $82.2 million from $86.4
million due to additional competition in the Kansas City market, which was
partially offset by the opening of the Company's permanent land-based
entertainment pavilion on January 15, 1996. Baton Rouge casino revenues
increased $2.6 million from $48.4 million to $51.0 million. Sioux City casino
revenues decreased $2.1 million to $18.8 million due to the effects of increased
competition from two riverboat casinos which opened in January 1996, and from
expanded operations at nearby Native American casinos. These decreases were
partially offset by $3.9 million of casino revenues in Lawrenceburg.
Casino expenses increased to $121.0 million for the year ended December 31,
1996 compared to $117.3 million for the year ended December 31, 1995 due
primarily to $2.1 million of casino expenses in Lawrenceburg and $1.0 million of
increased admission taxes in Riverside. In addition, admission taxes increased
by $1.25 per passenger in Baton Rouge on October 1, 1996.
ADMISSIONS--Admissions revenue (net of complimentary admissions) decreased
from $8.0 million for the year ended December 31, 1995 to $2.6 million for the
year ended December 31, 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 $10.7
million to $29.2 million for the year ended December 31, 1996 primarily due to
increased food, beverage and other sales at the expanded Riverside and Baton
Rouge facilities. Riverside revenues increased from $5.2 million to $11.1
million
24
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
while Baton Rouge revenues increased from $4.9 million to $7.6 million. Food,
beverage and other revenues remained stable with the year ended December 31,
1995 in Alton and Sioux City. Food beverage and other net profit margin
improved $4.1 million to $5.4 million for the year ended December 31, 1996 due
primarily to improved operating efficiencies in the Company's food and beverage
operations.
OTHER OPERATING EXPENSES--Other operating expenses increased $3.5 million
to $19.1 million for the year ended December 31, 1996. This increase is
primarily due to the opening of the permanent land based entertainment pavilion
at Riverside, the opening of the Catfish Town development atrium in Baton Rouge,
the addition of expanded entertainment facilities in Sioux City, and the
additional services required to operate during the severe weather conditions
experienced in January and February 1996 at the Alton, Riverside and Sioux City
casinos.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased from $47.5 million in 1995 to $52.0 million for the year
ended December 31, 1996. Selling and marketing expenses increased $3.6 million
due primarily to increases in advertising and promotional expenses necessitated
by increased competition in Alton and Riverside, and for the opening of the
Riverside permanent facility. Additionally, general and administrative expenses
increased as the Company recorded a charge in 1996 of approximately $1.5
million, for 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 the extinguishment of lease fees in connection with the temporary site in
Riverside.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $2.0
million from $20.4 million for the year ended December 31, 1995 to $22.4 million
for the year ended December 31, 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 $3.4 million for the year ended December 31, 1995 to $12.4
million for the year ended December 31, 1996. The increase is primarily due to
expenses related to developing the casino in Lawrenceburg, Indiana, which opened
at its temporary site on December 10, 1996.
INTEREST EXPENSE--Net interest expense increased from $14.3 million in 1995
to $30.6 million for the year ended December 31, 1996. The increase is
attributable to interest expense on the increased borrowings under the $100
million line of credit, which was used to fund the Company's expansion and
development program 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 $7.0 million for the year
ended December 31, 1995 to a net loss of $24.8 million for the year 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 the early extinguishment
of its line of credit in 1996 and a $1.3 million charge related to referendum
costs in Baton Rouge. In 1995, the
25
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Company recorded a pretax charge of approximately $3.5 million primarily related
to loans made pursuant to a lease option related to the development of a
downtown St. Louis casino site.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated net revenues rose from $153.0 million for the year ended
December 31, 1994 to $252.7 million for the year ended December 31, 1995.
Net revenues in Alton decreased from $97.0 million to $86.0 million due
primarily to the full year effect of increased competition in the St. Louis
market beginning in May 1994 and by the addition of slot machines in Missouri
casinos in December 1994. Additionally, due to competitive circumstances the
Company eliminated its admission fees in Alton in November 1994. Admission
revenue in Alton was $7.1 million during the year ended December 31, 1994.
Net revenues in Riverside increased $58.7 million to $94.1 million, as the
casino was open for a full year with full scale gaming as opposed to only
offering games of skill in 1994. Net revenues contributed by Baton Rouge and
Sioux City were $49.8 million and $22.0 million, respectively, for the year
ended December 31, 1995 versus $20.3 million in 1994.
CASINO -- Casino revenues for the year ended December 31, 1995 increased to
$237.6 million from $138.4 million for the year ended December 31, 1994.
Riverside, Baton Rouge and Sioux City contributed casino revenues of $86.4
million, $48.9 million and $20.9 million, respectively, for the year ended
December 31, 1995 verses a combined $49.6 million in 1994. Alton casino
revenues decreased from $88.9 million to $81.4 million due to increased
competition in the St. Louis area.
Casino and other operating expenses increased approximately $59.2 million
over 1994 due to the operating expenses of the Riverside, Baton Rouge and Sioux
City casinos. Gaming taxes and admission taxes increased $18.9 million and $8.8
million, respectively, which is proportionate with the increases in casino
revenues and customer boardings. Casino and other operating expenses were $17.5
million and $7.6 million in Baton Rouge and Sioux City, respectively for the
year ended December 31, 1995. Casino operating expenses at Riverside increased
$11.7 million to $22.7 million as a result of the casino being open for a full
year in 1995 versus six months in 1994.
FOOD, BEVERAGE AND OTHER -- Food, beverage and other revenues increased
$6.5 million over the prior year to $18.5 million. Alton's food, beverage and
other revenues remained relatively constant at $7.8 million as compared to $8.1
million for the year ended December 31, 1994. Riverside, Baton Rouge and Sioux
City generated $5.2 million, $3.5 million and $1.6 million, respectively, for
the year ended December 31, 1995 verses a combined $3.5 million in 1994. Food,
beverage and other net profit margin improved from $0.2 million for the year
ended December 31, 1994 to $1.3 million for the year ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE -- Selling, general and administrative
expenses increased $22.6 million to $47.5 million for the year ended December
31, 1995. The increase is due to the Company's operation of three additional
casinos for a full year in 1995 and other costs associated with the Company's
substantial growth during this period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased from $9.8 million to $20.4 million primarily as a result of opening
the three new casinos in 1994.
26
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
DEVELOPMENT, PREOPENING AND RELATED COSTS -- Development and preopening
costs decreased from $9.8 million to $3.4 million for the year ended December
31, 1995 due primarily to costs related to the opening of the three new casinos
in 1994. Preopening costs for the year ended December 31, 1994 for Riverside
and Baton Rouge were $2.5 million and $2.6 million, respectively. Additionally
during the year ended December 31, 1995 the Company recorded a $3.5 million
charge primarily related to loans made pursuant to a lease option related to the
development of a downtown St. Louis riverside casino site.
INTEREST EXPENSE -- Net interest expense increased to $14.3 million for the
year ended December 31, 1995 compared to $7.1 million for the year ended
December 31, 1994. The primary reason for the increase was the issuance of the
12% Convertible Subordinated Notes in May 1994 and increased borrowings on the
line of credit in the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
In the year ended December 31, 1996, the Company used cash flows from
operating activities of $7.5 million, compared to generating cash flow of $49.6
million in 1995. The decrease in cash flow is primarily attributed to decreased
operating income, principally at its Riverside and Alton facilities, increased
interest expense, and further, significantly increased preopening and
development expenses in 1996 compared to 1995.
In the year ended December 31, 1996, the Company used cash flows for
investing activities of $179.8 million versus $86.6 million for the year ended
December 31, 1995. The primary uses of funds in 1996 were the placement into a
disbursement account of $94.3 million of the proceeds from the Mortgage Notes to
fund the cost of developing the Lawrenceburg casino project and the investment
of $97.4 million in property and equipment. The Company made capital
expenditures in Riverside, Lawrenceburg and the Catfish Town facility at Baton
Rouge of $20.0 million, $52.0 million and $13.6 million, respectively, for the
year ended December 31, 1996. The primary use of funds for the year ended
December 31, 1995 were capital expenditures of $71.9 million and the acquisition
of Jazz.
During the year ended December 31, 1996, the Company generated $209.4
million in cash flows from financing activities compared to $34.9 million of
cash flows from financing activities in 1995. The primary sources of cash flows
in 1996 were $235.0 million of proceeds from the Company's First Mortgage Note
Offering and $42.2 million in capital contributions and loans from the Company's
partner in Lawrenceburg, offset by the repayment of $90.0 million on the
company's senior secured line of credit which was terminated on June 5, 1996.
As of December 31, 1996, the Company had approximately $38.4 million of
cash, cash equivalents, and marketable securities, including approximately $9.2
million held at the Indiana Partnership, which can be used for general working
capital purposes. In addition, the Company has $69.6 million in a disbursement
account to be used to fund the Company's portion of the remaining Lawrenceburg
construction costs. The $69.6 million cannot be used for any other purpose.
Further, the Company anticipates receiving tax refunds of approximately $11.1
million. On June 5, 1996 the Company issued $235 million of Mortgage Notes
which are due June 2004. Additionally, the Company has $115 million of
Convertible Subordinated Notes outstanding which were issued in June 1994 and
are due June 2001.
27
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company has made a significant investment in property and equipment and
plans to make significant additional investments at certain of its existing
properties, particularly Lawrenceburg, Indiana and potentially into additional
jurisdictions. As a result of its June 1995 acquisition of Jazz, the Company is
now the developer of the Catfish Town real estate project in Baton Rouge,
Louisiana. The Company estimates that the completion of the Catfish Town
project will cost an additional $2 to $5 million (primarily tenant allowance) as
of December 31, 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 $12.6 million (excluding penalties) to fund the potential
income tax liability.
The Company currently estimates that the total costs of the Lawrenceburg
Casino and entertainment project will approximate $225 million. This is a
forward looking statement that involves certain risks and uncertainties, and
this amount is subject to numerous factors including weather and other
construction risks. As of December, 31, 1996, approximately $109.0 million
had been expended by the partnership, on the project, including preopening
costs. Of the remaining Lawrenceburg construction costs, approximately $25
million is anticipated to be funded through equipment financing from third
party lenders and the balance will be funded by the Company 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 currently 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 events which negatively impact the sources or uses of cash such as an
overrun in the project costs related to the Lawrenceburg Casino, a material
deterioration in the Company's existing operations, an adverse IRS ruling, or
if the Company should fail to be able to open the permanent facility in
Lawrenceburg within a 12 month period, the Company's ability to meet its debt
service requirements could be significantly impaired.
In December 1996 the Company filed an application to develop a riverboat
casino in Osceola, Iowa ("Osceola Project"). This proposed casino operation is
subject to numerous conditions including approval and licensing by the Iowa
Racing and Gaming Commission ("IRGC"). The Company currently estimates that the
cost of developing the Osceola Project would range from $60-$70 million.
If the Osceola Project is approved by the IRGC and if the Company decides
to pursue the development of the project, the Company would be required to raise
additional capital. There is no assurance that any such financing will be
available on terms acceptable to the Company.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS DOCUMENT,
THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE" AND "EXPECT" AND SIMILAR
EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS, INCLUDING THOSE
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY OR ITS
MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES,
28
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
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 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.
29
