<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
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 May 14, 1997.
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<PAGE>
TABLE OF CONTENTS
PART I
FINANCIAL STATEMENTS OF ARGOSY GAMING COMPANY
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
FINANCIAL STATEMENTS OF GUARANTOR SUBSIDIARIES OF THE COMPANY'S FIRST MORTGAGE
NOTES PROVIDED PURSUANT TO RULE 3-10 OF REGULATION S-X.
FINANCIAL STATEMENTS OF ALTON GAMING COMPANY
Condensed Balance Sheets 9
Condensed Statements of Income 10
Condensed Statements of Cash Flows 11
Notes to Condensed Financial Statements 12
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 13
Condensed Statements of Income 14
Condensed Statements of Cash Flows 15
Notes to Condensed Financial Statements 16
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 18
Condensed Consolidated Statements of Operations 19
Condensed Consolidated Statements of Cash Flows 20
Notes to Condensed Consolidated Financial Statements 21
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 22
Condensed Statements of Operations 23
Condensed Statements of Cash Flows 24
Notes to Condensed Financial Statements 25
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 26
Condensed Statements of Operations 27
Condensed Statements of Cash Flows 28
Notes to Condensed Financial Statements 29
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 30
Condensed Consolidated Statements of Operations 31
Condensed Consolidated Statements of Cash Flows 32
Notes to Condensed Consolidated Financial Statements 33
<PAGE>
TABLE OF CONTENTS (CONTINUED)
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 35
Condensed Statements of Operations 36
Condensed Statements of Cash Flows 37
Notes to Condensed Financial Statements 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS 40
PART II
Item 1 Legal Proceedings 46
Item 2 Changes in Securities 49
Item 3 Defaults Upon Senior Securities 49
Item 4 Submission of Matters to a Vote of Security Holders 49
Item 5 Other Information 49
Item 6 Exhibits and Reports on Form 8-K 49
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 50,830 $ 38,284
Income taxes receivable 1,972 11,111
Other current assets 11,369 9,446
---------- ------------
Total current assets 64,171 58,841
---------- ------------
PROPERTY AND EQUIPMENT, NET 323,343 314,480
---------- ------------
OTHER ASSETS:
Restricted cash and cash equivalents 80,625 84,551
Goodwill, net 22,774 22,923
Other, net 50,962 51,364
---------- ------------
Total other assets 154,361 158,838
---------- ------------
TOTAL ASSETS $ 541,875 $ 532,159
---------- ------------
---------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 28,456 $ 29,948
Other current liabilities 37,156 15,018
---------- ------------
Total current liabilities 65,612 44,966
---------- ------------
Long-term debt 382,342 377,308
Other long-term obligations 13,452 20,340
Minority interests in equity of
consolidated subsidiaries 16,785 16,844
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 (deficit) earnings (8,424) 593
---------- ------------
Total stockholders' equity 63,684 72,701
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 541,875 $ 532,159
---------- ------------
---------- ------------
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
---------- ------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 76,292 $ 58,791
Admissions 4,023 1,995
Food, beverage and other 8,362 6,055
---------- ------------
88,677 66,841
Less promotional allowances (6,182) (4,152)
---------- ------------
Net revenues 82,495 62,689
---------- ------------
COSTS AND EXPENSES:
Casino 39,221 29,071
Food, beverage and other 6,891 5,276
Other operating expenses 6,974 4,368
Selling, general and administrative 17,641 14,318
Depreciation and amortization 7,894 5,889
Development and preopening costs 163 1,855
Severance expense 1,750
---------- ------------
80,534 60,777
---------- ------------
Income from operations 1,961 1,912
---------- ------------
OTHER INCOME (EXPENSE):
Interest income 1,442 90
Interest expense (11,902) (4,211)
---------- ------------
(10,460) (4,121)
---------- ------------
Loss before income taxes and minority interests (8,499) (2,209)
Income tax benefit 867
Minority interests (518) 295
---------- ------------
Net loss $ (9,017) $ (1,047)
---------- ------------
---------- ------------
Net loss per share $ (0.37) $ (0.04)
---------- ------------
---------- ------------
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
---------- ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,017) $ (1,047)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 7,379 5,687
Amortization 1,037 627
Minority interests 518 (295)
Changes in operating assets and liabilities:
Income taxes receivable 9,139
Other current assets (1,669) (57)
Deposits (170) (132)
Accounts payable and other current liabilities 15,969 841
---------- ------------
Net cash provided by operating activities 23,186 5,624
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,242) (29,283)
Increase in restricted cash held by trustees 3,926
Decrease in long term obligations (1,719)
Increase in other assets (379) (144)
---------- ------------
Net cash used in investing activities (14,414) (29,427)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 25,500
Payments on long-term debt and installment
contracts (1,819) (345)
Capital contributions from partner 10,389
Proceeds from partner loans 5,782
Decrease (increase) in other assets (189) 229
---------- ------------
Net cash provided by financing activities 3,774 35,773
---------- ------------
Net increase in cash and cash equivalents 12,546 11,970
Cash and cash equivalents, beginning of period 38,284 16,159
---------- ------------
Cash and cash equivalents, end of period $ 50,830 $ 28,129
---------- ------------
---------- ------------
See accompanying notes to condensed consolidated financial statements.
3
<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; 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 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, 1996, 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 1996 amounts have been reclassified to conform
to the 1997 financial statement presentation.
As of March 31, 1997 the Company is in a net operating loss position and,
therefore, has recorded a valuation allowance of $4.4 million against its
deferred tax assets.
4
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
2. 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 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 Partnership may only operate at its temporary site for one year. The
completion of the permanent facility is subject to the satisfaction of
numerous conditions including weather conditions and the receipt of numerous
permits and licenses. There can be no assurance that the permanent facility
will be open within one year of the opening of the temporary facility.
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 $12,900, including interest through March 31,
1997, 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.
5
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the financial
condition of the Company.
3. SUBSIDIARY GUARANTORS
On June 5, 1996, the Company issued its $235 million First Mortgage Notes,
due 2004, ("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
proposed Lawrenceburg Casino project. The collateral for the Mortgage Notes
does not include assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of March 31, 1997 and December 31, 1996 and summarized operating
statement information for the three months ended March 31, 1997 and 1996.
The column labeled "Parent Company" represents the holding company for each
of the Company's direct subsidiaries, the column labeled "Guarantors"
represents each of the Company's direct subsidiaries, all of which are
wholly-owned by the parent company, and the column labeled "Non-Guarantors"
represents the partnerships which operate the Company's casino in Sioux City
and Lawrenceburg, Indiana. The Company believes that separate financial
statements and other disclosures regarding the Guarantors, except as
otherwise required under Regulation S-X, are not material to investors.
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
Summarized balance sheet information as of March 31, 1997 and December 31,
1996 is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 29,445 $ 31,003 $ 16,288 $ (12,565) $ 64,171
Non-current assets 408,123 314,657 130,015 (375,091) 477,704
------- ---------- ---------- ------------ ------------
$437,568 $345,660 $146,303 $(387,656) $541,875
------- ---------- ---------- ------------ ------------
------- ---------- ---------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities $ 23,884 $ 33,748 $ 34,792 $ (26,812) $ 65,612
Non-current liabilities 350,000 270,370 77,504 (285,295) 412,579
Stockholders' equity 63,684 41,542 34,007 (75,549) 63,684
------- ---------- ---------- ------------ ------------
$437,568 $345,660 $146,303 $(387,656) $541,875
------- ---------- ---------- ------------ ------------
------- ---------- ---------- ------------ ------------
<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
------- ---------- ---------- ------------ ------------
------- ---------- ---------- ------------ ------------
</TABLE>
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands, Except Per Share Data)
Summarized operating statement information for the three months ended
March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,858 $48,830 $33,012 $(1,205) $82,495
Costs and expenses 5,724 46,718 29,715 (1,623) 80,534
Net interest expense 8,067 554 1,359 480 10,460
Net (loss) income $(9,017) $ 740 $ 575 $(1,315) $(9,017)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,169 $57,684 $5,084 $(1,248) $62,689
Costs and expenses 5,403 50,913 4,989 (528) 60,777
Net interest expense 2,640 1,394 87 - 4,121
Net (loss) income $(1,047) $ 3,417 $ 7 $(3,424) $(1,047)
</TABLE>
8
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,847 $ 3,563
Other current assets 1,744 1,482
---------- -----------
Total current assets 4,591 5,045
---------- -----------
DUE FROM AFFILIATES 13,519 10,592
NET PROPERTY AND EQUIPMENT 29,344 30,112
OTHER ASSETS 6 7
---------- -----------
TOTAL ASSETS $ 47,460 $ 45,756
---------- -----------
---------- -----------
CURRENT LIABILITIES:
Accounts payable $ 945 $ 1,547
Other accrued liabilities 4,710 4,299
Income taxes payable to affiliate 721
----------- -----------
Total current liabilities 6,376 5,846
---------- -----------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY 175 171
DEFERRED INCOME TAXES 3,575 3,494
STOCKHOLDER'S EQUITY:
Common stock - $1 par value, 1,000 shares
authorized, issued and outstanding 1 1
Capital in excess of par 256 256
Retained earnings 37,077 35,988
---------- -----------
Total stockholder's equity 37,334 36,245
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 47,460 $ 45,756
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
9
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, MARCH 31,
1997 1996
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 16,422 $ 18,498
Food, beverage and other 1,817 1,792
----------- ------------
18,239 20,290
Less promotional allowances (497) (627)
----------- ------------
Net revenues 17,742 19,663
COSTS AND EXPENSES
Casino 8,139 8,592
Food, beverage and other 1,770 1,683
Other operating expenses 1,452 1,380
Selling, general and administrative 2,731 3,057
Depreciation and amortization 1,020 1,032
Management fees - related party 821 925
------------ ------------
15,933 16,669
------------ ------------
Income from operations 1,809 2,994
OTHER INCOME (EXPENSE)
Interest income 9 7
Interest expense (3) (10)
------------ -------------
6 (3)
------------ ------------
Income before income taxes 1,815 2,991
Income tax expense 726 1,321
------------ ------------
Net income $ 1,089 $ 1,670
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
10
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
1997 1996
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,089 $ 1,670
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,020 1,032
Deferred income taxes 6 115
Changes in operating assets and liabilities:
Other current assets (185) 55
Accounts payable (602) (512)
Accrued liabilities 411 (1,111)
Income taxes payable to affiliate 721 1,207
---------- ----------
Net cash provided by operating activities 2,460 2,456
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (252) (172)
---------- -----------
Net cash used in investing activities (252) (172)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliate (2,928) (2,632)
Increase in other long-term obligations - related party 4 8
---------- -----------
Net cash used in financing activities (2,924) (2,624)
---------- -----------
Net decrease in cash and cash equivalents (716) (340)
Cash and cash equivalents, beginning of period 3,563 3,873
---------- -----------
Cash and cash equivalents, end of period $ 2,847 $ 3,533
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
11
<PAGE>
ALTON GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Alton Gaming Company ("Company"), an Illinois
Corporation and a wholly-owned subsidiary of Argosy Gaming Company
("Argosy"), is engaged in the business of providing casino-style gaming and
related entertainment to the public through the operation of the Alton Belle
Casino in Alton, Illinois.
The accompanying unaudited condensed financial statements have been prepared
in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results
which may be expected for any other interim period or for the year as a
whole. For further information refer to the financial statements and
footnotes thereto for the year ended December 31, 1996 included in Argosy's
Annual Report on Form 10-K (File No. 0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals. Certain 1996 amounts have been reclassified
to conform to the 1997 presentation.
2. COMMITMENTS AND CONTINGENCIES
A predecessor entity to the Company ("Predecessor"), as a result of a certain
shareholder loan transaction, could be subject to federal and certain state
income taxes (plus interest and penalties, if any) if it is determined that
it failed to satisfy all of the requirements of the S-Corporation provisions
of the Internal Revenue Code relating to the prohibition concerning a second
class of stock. An audit is currently being conducted by the Internal
Revenue Service ("IRS") of the Company's federal income tax returns for the
1992 and 1993 tax years and the IRS has asserted the S-Corporation status as
one of the issues although the IRS has yet to make a formal claim of
deficiency. If the IRS successfully challenges the Predecessor's
S-Corporation status, the Company would be required to pay federal and
certain state income taxes on the Predecessor's taxable income from the
commencement of its operations until February 25, 1993 (plus interest and
penalties, if any, thereon until the date of payment). If the Predecessor
was required to pay federal and certain state income taxes on its taxable
earnings through February 25, 1993, such payments could amount to
approximately $12,900, including interest through March 31, 1997, but
excluding penalties, if any. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and
certain state income taxes because it met the S-Corporation requirements, no
assurances can be given that the Predecessor's position will be upheld. This
contingent liability could have a material adverse effect on the Company's
results of operations, financial condition and cash flows. No provision has
been made for this contingency in the accompanying financial statements.
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of the Mortgage
Notes.
12
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 8,580 $ 6,143
Other current assets 2,066 1,563
------- -------
Total current assets 10,646 7,706
------- -------
------- -------
NET PROPERTY AND EQUIPMENT 75,058 75,773
OTHER ASSETS 2,962 3,272
------- -------
TOTAL ASSETS $88,666 $86,751
------- -------
------- -------
CURRENT LIABILITIES:
Accounts payable $ 2,021 $ 3,505
Income taxes payable to affiliate 4,821 4,435
Other accrued liabilities 5,358 4,244
------- -------
Total current liabilities 12,200 12,184
------- -------
------- -------
DUE TO AFFILIATES 57,841 56,345
DEFERRED INCOME TAXES 1,162 907
STOCKHOLDER'S EQUITY:
Common stock - $.01 par value, 1000 shares
authorized issued and outstanding
Capital in excess of par 5,000 5,000
Retained earnings 12,463 12,315
------- -------
Total stockholder's equity 17,463 17,315
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $88,666 $86,751
------- -------
------- -------
See accompanying notes to condensed financial statements.
13
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1997 1996
------------ -----------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino $16,450 $22,165
Admissions 1,995
Food, beverage and other 2,497 2,454
------- -------
18,947 26,614
Less promotional allowances (1,160) (2,710)
------- -------
Net revenues 17,787 23,904
------- -------
COSTS AND EXPENSES
Casino 8,758 11,297
Food, beverage and other 2,096 2,279
Other operating expenses 960 1,255
Selling, general and administrative 2,960 3,765
Depreciation and amortization 1,369 2,498
Preopening costs 322
------- -------
16,143 21,416
------- -------
Income from operations 1,644 2,488
OTHER INCOME (EXPENSE):
Interest income 35
Interest expense (1,394) (1,298)
------- -------
(1,359) (1,298)
------- -------
Income before income taxes 285 1,190
Income tax expense 137 441
------- -------
Net income $ 148 $ 749
------- -------
------- -------
See accompanying notes to condensed financial statements.
14
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1997 1996
------------ -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 148 $ 749
Adjustments to reconcile net income provided by
operating activities
Depreciation 1,309 2,438
Amortization 60 60
Deferred income taxes (249) 256
Changes in operating assets and liabilities:
Other current assets 134 224
Accounts payable (1,484) 730
Accrued liabilities 1,327 946
Income taxes payable to affiliate 386 185
------- -------
Net cash provided by operating activities 1,631 5,588
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (595) (10,570)
------- -------
Net cash used in investing activities (595) (10,570)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (95) (211)
Due from affiliate 1,496 9,336
------- -------
Net cash provided by financing activities 1,401 9,125
------- -------
Net increase in cash and cash equivalents 2,437 4,143
Cash and cash equivalents, beginning of period 6,143 4,131
------- -------
Cash and cash equivalents, end of period $ 8,580 $ 8,274
------- -------
------- -------
See accompanying notes to condensed financial statements.
15
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars In Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Missouri Gaming Company (a Missouri corporation and a wholly owned
subsidiary of Argosy Gaming Company, ("Argosy")) owns and operates a
riverboat casino and related facilities in Riverside, Missouri. The
Company commenced operations on June 22, 1994, at a temporary facility.
The Company began construction of a permanent facility during 1995.
The permanent facility was opened to the public on January 15, 1996
and serves as a dining and entertainment outlet to the riverboat casino.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative
of results which may be expected for any other interim period or for the
year as a whole. For further information refer to the financial
statements and footnotes thereto for the year ended December 31, 1996
included in Argosy's Annual Report on Form 10-K (File No. 0-21122). The
accompanying unaudited condensed financial statements contain all
adjustments which are, in the opinion of management, necessary to present
fairly the financial position and the results of operations for the
periods indicated. Such adjustments include only normal recurring
accruals. Certain 1996 amounts have been reclassified to conform to
the 1997 presentation.
2. RIVERSIDE AGREEMENT
The Company entered into a Lease and Development Agreement ("Agreement")
with the City of Riverside, Missouri. The Agreement, as amended, required
the Company to pay $1,600 for the construction of a city park and for the
development of a golf course. These payments were capitalized and are being
amortized over ten years using the straight-line method. The unamortized
portion of these payments is included in other assets in the accompanying
balance sheets.
Under the terms of the Agreement, the Company leases a portion of its
docking site from the City of Riverside. The $5,000 minimum rent
due for the initial five-year term of the lease was paid in advance
as required by the Agreement. In addition to minimum rent, during
the initial five-year lease term, percentage rent is payable at 3% of
adjusted gross receipts ("AGR"), as defined, over $100 million annually.
The Company has the option to extend the Agreement for three successive
five-year terms. In all extension periods, there will be no minimum rent
and percentage rent will be payable as follows: (i) 3% on the first
$50 million of AGR; (ii) 4% on AGR between $50 million and $100 million;
and (iii) 5% on AGR in excess of $100 million
The Agreement requires the Company to maintain a net worth of $5,000 at
all times, unless approved by the City of Riverside.
16
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars In Thousands)
(continued)
3. COMMITMENTS AND CONTINGENCIES
The Company is restricted from making certain distributions to Argosy and
other affiliates unless approved by state gaming authorities.
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage
Notes, due 2004 ("Mortgage Notes"). Substantially all of the assets of the
Company are pledged as collateral, and the Company is a guarantor under
terms of the Mortgage Notes.
17
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 3,775 $ 3,051
Other current assets 2,871 2,776
----------- ------------
Total current assets 6,646 5,827
----------- ------------
NET PROPERTY AND EQUIPMENT 47,864 49,021
OTHER ASSETS 2,087 2,206
----------- ------------
TOTAL ASSETS $56,597 $57,054
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 1,530 $ 1,127
Other accrued liabilities 3,489 3,497
Current maturities of long-term
debt-related party 5,578 5,578
----------- ------------
Total current liabilities 10,597 10,202
----------- ------------
LONG-TERM DEBT-RELATED PARTY 43,399 42,812
DEFERRED INCOME TAXES 807 1,160
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 3,085 3,174
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares
authorized issued and outstanding 1 1
Accumulated deficit (1,292) (295)
----------- ------------
Total stockholder's deficit (1,291) (294)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $56,597 $57,054
----------- ------------
----------- ------------
See accompanying notes to condensed consolidated financial statements.
18
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1997 1996
---------- ---------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino $12,791 $13,271
Food, beverage and other 1,713 1,099
---------- ---------
14,504 14,370
Less promotional allowances (991) (675)
---------- ---------
Net revenues 13,513 13,695
---------- ---------
COST AND EXPENSES
Casino 7,331 6,271
Food, beverage and other 1,634 911
Other operating expenses 1,324 1,104
Selling, general and administrative 3,014 2,618
Depreciation and amortization 1,392 1,357
---------- ---------
14,695 12,261
---------- ---------
(Loss) income from operations (1,182) 1,434
Interest (expense) income net:
Interest to related party (401) (401)
Other 20 44
---------- ---------
(Loss) income before income taxes and minority
interest (1,563) 1,077
Income tax benefit (expense) 477 (68)
Minority interest 89 (69)
---------- ---------
Net (loss) income $ (997) $ 940
---------- ---------
---------- ---------
See accompanying notes to condensed consolidated financial statements.
19
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1997 1996
----------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (997) $ 940
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 1,272 1,237
Amortization 120 120
Minority interest (89) 69
Deferred income taxes (382) 340
Changes in operating assets and liabilities:
Other current assets (65) 172
Accounts payable 403 (224)
Other accrued liabilities (8) 629
----------- ----------
Net cash provided by operating activities 254 3,283
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (117) (9,674)
----------- ----------
Net cash used in investing activities (117) (9,674)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 587 6,098
Payments on notes payable and long-term debt (134)
Decrease in other assets 69
----------- ----------
Net cash provided by financing activities 587 6,033
----------- ----------
Net increase (decrease) in cash and cash equivalents 724 (358)
Cash and cash equivalents, beginning of period 3,051 5,201
----------- ----------
Cash and cash equivalents, end of period $3,775 $4,843
----------- ----------
----------- ----------
See accompanying notes to condensed consolidated financial statements.
20
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Argosy of Louisiana, Inc. (collectively with its controlled partnership
Catfish Queen Partnership in Commendam ("Partnership") "the Company") was
formed on July 29, 1993. The Company entered a partnership agreement with
Jazz Enterprises, Inc. ("Jazz") to form the Partnership to provide
riverboat gaming and related entertainment in Baton Rouge, Louisiana. The
Company, a wholly owned subsidiary of Argosy Gaming Company (Argosy), is
the 90% general partner of the Partnership, along with the 10% partner in
commendam Jazz, which became a wholly owned subsidiary of Argosy in 1995.
On September 21, 1994, Jazz contributed its State of Louisiana Riverboat
Gaming License and certain leases with a fair value of $3,271 to the
Company. On September 21, 1994, the Company's riverboat casino, Belle of
Baton Rouge, commenced operations.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. Interim results may not necessarily be
indicative of results which may be expected for any other interim period
or for the year as a whole. For further information refer to the
financial statements and footnotes thereto for the year ended December 31,
1996 included in Argosy'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 1996 amounts have been reclassified to conform to the
1997 presentation.
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East
Baton Rouge (collectively referred to as "City-Parish") and Jazz entered
into an agreement which requires Jazz and the Company to pay to the
City-Parish $2.50 per passenger. Additionally, Jazz agreed to pay to the
City-Parish an additional fee which is now $2.50 per passenger until
construction of a hotel commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger, if required, for
the initial five-year certification term approved by the Louisiana
Gaming Control Board. Through March 31, 1997, the Company has paid
all admission payments due under the above agreements.
On June 5, 1996 Argosy issued $235 million of 13 1/4% First Mortgage
Notes, due 2004 ("Mortgage Notes"). The assets of the Company are pledged
as collateral, and the Company is a guarantor, under the terms of Mortgage
Notes.
21
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1997 1996
-------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 3,775 $ 3,051
Other current assets 1,108 1,134
------- -------
Total current assets 4,883 4,185
------- -------
NET PROPERTY AND EQUIPMENT 47,549 48,704
OTHER ASSETS 2,087 2,206
------- -------
TOTAL ASSETS $54,519 $55,095
------- -------
------- -------
CURRENT LIABILITIES
Accounts payable $ 1,530 $ 1,127
Other accrued liabilities 3,613 3,497
Accrued interest-related party 401
Notes payable and current
maturities of long-term
debt-related party 5,578 5,578
------- -------
Total current liabilities 11,122 10,202
------- -------
LONG-TERM DEBT-RELATED PARTY 13,793 13,793
PARTNERS' EQUITY 29,604 31,100
------- -------
TOTAL LIABILITIES AND PARTNERS'
EQUITY $54,519 $55,095
------- -------
------- -------
See accompanying notes to condensed financial statements.
22
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
(UNAUDITED) (UNAUDITED)
REVENUES
Casino $ 12,791 $ 13,271
Food, beverage and other 1,713 1,099
-------- --------
14,504 14,370
Less promotional allowances (991) (675)
-------- --------
Net revenues 13,513 13,695
-------- --------
COSTS AND EXPENSES
Casino 7,331 6,271
Food, beverage and other 1,634 911
Other operating expenses 1,324 1,104
Selling, general and administrative 2,947 2,538
Depreciation and amortization 1,392 1,357
--------- ---------
14,628 12,181
-------- --------
(Loss) income from operations (1,115) 1,514
INTEREST (EXPENSE) INCOME (NET):
Related parties (401) (401)
Other 20 44
--------- ---------
381 357
--------- ---------
Net (loss) income $ (1,496) $ 1,157
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
23
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
--------------------
MARCH 31, MARCH 31,
1997 1996
--------- --------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,496) $ 1,157
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation 1,272 1,237
Amortization 120 120
Changes in operating assets and liabilities:
Other current assets 26 604
Accounts payable 403 (200)
Accrued interest to related parties 401 401
Other accrued liabilities (472) 12
--------- --------
Net cash provided by operating activities 254 3,331
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (117) (278)
--------- --------
Net cash used in investing activities (117) (278)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in advances from affiliates 587 (4,141)
Payments on notes payable and long-term debt (134)
Decrease in other assets 69
--------- --------
Net cash provided by (used in) financing
activities 587 (4,206)
--------- --------
Net increase (decrease) in cash and cash
equivalents 724 (1,153)
Cash and cash equivalents, beginning of period 3,051 5,201
--------- --------
Cash and cash equivalents, end of period $ 3,775 $ 4,048
--------- --------
--------- --------
See accompanying notes to condensed financial statements.
24
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Catfish Queen Partnership in Commendam ("Partnership") was formed to
provide riverboat gaming and related entertainment in Baton Rouge, Louisiana.
The Partnership is comprised of a 90% general partner, Argosy of Louisiana,
Inc. ("General Partner"), a wholly owned subsidiary of Argosy Gaming Company
("Argosy"), and a 10% partner in commendam, Jazz Enterprises, Inc. ("Jazz")
which became a wholly owned subsidiary of Argosy in 1995. On September 21,
1994, the General Partner contributed the riverboat, all passenger ramps,
walkways, passenger moving systems, and certain tenant build-out and
improvements with a fair value of $29,441 to the Partnership and Jazz
contributed its Certificate of Preliminary Approval and certain leases with a
fair value of $3,271 to the Partnership. On September 21, 1994, the
Partnership's riverboat casino, Belle of Baton Rouge, commenced operations.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1996, included in the
Argosy's Annual Report on Form 10-K (File No. 0-21122). The accompanying
unaudited condensed financial statements contain all adjustments which are,
in the opinion of management, necessary to present fairly the financial
position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals. Certain 1996 amounts
have been reclassified to conform to the 1997 financial statement
presentation.
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East
Baton Rouge (collectively referred to as "City-Parish") and Jazz entered into
an agreement which requires Jazz and the Company to pay to the City-Parish
$2.50 per passenger. Additionally, Jazz agreed to pay to the City-Parish an
additional passenger fee which is now $2.50 per passenger until actual
construction of a hotel commences by Jazz or another Argosy affiliate.
Argosy has guaranteed the additional $2.50 per passenger if required, for
the initial five-year certification term approved by the Louisiana Gaming
Control Board. Through March 31, 1997, the Partnership has paid all
admission payments due under the above agreements.
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage
Notes, due 2004 ("Mortgage Notes"). The assets of the Partnership are
pledged as collateral, and the Partnership is a guarantor, under the terms of
Mortgage Notes.
25
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 15 $
Other current assets 33 78
---------- ------------
Total current assets 48 78
---------- ------------
NET PROPERTY AND EQUIPMENT 55,755 57,297
Goodwill, net 20,369 20,519
Note receivable 1,892 1,892
Other assets 3,913 3,685
---------- ------------
TOTAL ASSETS $ 81,977 $ 83,471
---------- ------------
---------- ------------
CURRENT LIABILITIES: $ 3,815 $ 3,478
Accounts payable and accrued liabilities
LONG-TERM DEBT 80,251 81,485
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares
authorized, 200 shares issued and outstanding
Retained deficit (2,089) (1,492)
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 81,977 $ 83,471
---------- ------------
---------- ------------
See accompanying notes to condensed financial statements.
26
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
---------- ------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Lease revenue $ 767 $ 796
Rent revenue 89 98
---------- ------------
856 894
---------- ------------
COSTS AND EXPENSES:
Operating expenses 145 89
Selling, general and administrative 339 268
Depreciation and amortization 589 175
Preopening costs 100
---------- ------------
1,073 632
---------- ------------
(Loss) income from operations (217) 262
OTHER (EXPENSE) INCOME:
Interest expense (230) (241)
Equity in (loss) income of unconsolidated
partnership (150) 116
---------- ------------
(Loss) income before income taxes (597) 137
Income tax expense 55
---------- ------------
Net (loss) income $ (597) $ 82
---------- ------------
---------- ------------
See accompanying notes to condensed financial statements.
27
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1997 1996
---------- ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (597) $ 82
Adjustments to reconcile net (loss) income
provided by operating activities:
Depreciation 439 25
Amortization 150 150
Equity in (loss) income of unconsolidated
partnership 150 (116)
Other current assets 45
Accounts payable and accrued liabilities 337 424
---------- ------------
Net cash provided by operating
activities 524 565
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (745) (7,528)
---------- ------------
Net cash used in investing activities (745) (7,528)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (25)
Advances from affiliate 639 6,947
Increase in other assets (378)
---------- ------------
Net cash provided by financing activities 236 6,947
---------- ------------
Net increase (decrease) in cash and cash
equivalents 15 (16)
Cash and cash equivalents, beginning of period 0 32
---------- ------------
Cash and cash equivalents, end of period $ 15 $ 16
---------- ------------
---------- ------------
See accompanying notes to condensed financial statements.
28
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Jazz Enterprises, Inc., ("Jazz" or "the Company") a Louisiana corporation
was incorporated on June 10, 1992 for the purpose of developing a riverboat
gaming operation and an entertainment complex known as "Catfish Town" in Baton
Rouge, Louisiana.
In July 1993, the Company entered into a partnership with Argosy of
Louisiana, Inc. (a wholly owned subsidiary of Argosy Gaming Company ("Argosy")
("ALI") in which the Company owns 10% and ALI owns 90%, to operate a riverboat
casino in Baton Rouge, Louisiana, which opened September 30, 1994. The Company
contributed its Certificate of Preliminary Approval and certain leases to the
partnership.
On December 5, 1994, the stockholders of Jazz entered in an agreement to
sell 100% of the common stock of Jazz to Argosy. The transaction was
consummated on May 30, 1995 and was accounted for as a purchase, therefore
establishing a new basis of accounting. Terms of the transaction allowed Argosy
to acquire Jazz's 10% limited partnership interest in the Baton Rouge casino and
all of Jazz's interest in Catfish Town real estate development.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as a
whole. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1996, included in the Argosy's Annual
Report on Form 10-K (File No. 0-21122). The accompanying unaudited condensed
financial statements contain all adjustments which are, in the opinion of
management, necessary to present fairly the financial position and the results
of operations for the periods indicated. Such adjustments include only normal
recurring accruals. Certain 1996 amounts have been reclassified to conform to
the 1997 financial statement presentation.
2. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East Baton
Rouge (collectively referred to as "City-Parish") and the Company entered into
an agreement which required the Company and the partnership to pay to the City-
Parish $2.50 per passenger. Additionally, the Company agreed to pay to the
City-Parish an additional passenger fee which is now $2.50 per passenger until
actual construction of a hotel commences by the Company or another Argosy
affiliate.
Argosy has guaranteed the additional $2.50 per passenger if required, for
the initial five-year certification term approved by the Louisiana Riverboat
Gaming Commission. Through March 31, 1997, the partnership has paid all
admission payments due under the above agreements.
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage
Notes, due 2004 ("Mortgage Notes"). The assets of the Company are pledged as
collateral, and the Company is a guarantor, under the terms of Mortgage Notes.
29
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 11,965 $ 9,216
Other current assets 1,851 1,844
--------- ---------
Total current assets 13,816 11,060
--------- ---------
NET PROPERTY AND EQUIPMENT 79,995 69,392
OTHER ASSETS:
Deposits 76 5
Cash and cash equivalents-restricted 15,411 14,919
Intangible assets, net 31,165 31,459
--------- ---------
Total other assets 46,652 46,383
--------- ---------
TOTAL ASSETS $ 140,463 $ 126,835
--------- ---------
--------- ---------
CURRENT LIABILITIES:
Accounts payable $ 1,596 $ 3,115
Accrued interest and dividends payable-
related parties 3,753 2,198
Other accrued liabilities 7,691 5,616
Current maturities of long-term debt-
related parties 3,622 2,900
Current maturities of other long-term
obligations 5,169 5,169
--------- ---------
Total current liabilities 21,831 18,998
--------- ---------
LONG-TERM DEBT-RELATED PARTIES 97,557 86,612
OTHER LONG-TERM OBLIGATIONS 13,277 15,000
MINORITY INTERESTS 14,532 14,490
STOCKHOLDER'S DEFICIT:
Common stock - $.01 par value, 1,000
shares authorized issued and outstanding
Accumulated deficit (6,734) (8,265)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 140,463 $ 126,835
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
30
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 25,720 $
Admissions 4,023
Food, beverage and other 1,401
--------- ---------
31,144
Less promotional allowances (3,264)
--------- ---------
Net revenues 27,880
--------- ---------
COST AND EXPENSES:
Casino 11,905
Food, beverage and other 985
Other operating expenses 3,142
Selling, general and administrative 4,998
Depreciation and amortization 2,458
Management fees-related parties 342
Preopening 1,212
--------- ---------
23,830 1,212
--------- ---------
Income (loss) from operations 4,050 (1,212)
OTHER INCOME (EXPENSE):
Interest income 305
Interest expense (744)
--------- ---------
(439)
--------- ---------
Income (loss) before income taxes
and minority interests 3,611 (1,212)
Income tax expense (1,461)
Minority interests (619) 495
--------- ---------
Net income (loss) $ 1,531 $ (717)
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
31
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,531 $ (717)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 2,154 14
Amortization 304
Minority interests 619 (495)
Changes in operating assets and
liabilities:
Other current assets (88) (670)
Accounts payable (1,519) (1,448)
Accrued interest payable to related
parties 981
Accrued liabilities 3,773 32
--------- ---------
Net cash provided by (used in)
operating activities 7,755 (3,284)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow (492)
Purchases of property and equipment (12,757) (9,562)
Payments under development agreement
and other infrastructure improvements (1,723)
--------- ---------
Net cash used in investing activities (14,972) (9,562)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 5,884 4,489
Payments on installment contracts (1,699)
Proceeds from contributed capital 10,389
Proceeds from long-term debt 5,781
--------- ---------
Net cash provided by financing
activities 9,966 14,878
--------- ---------
Net increase in cash and cash equivalents 2,749 2,032
Cash and cash equivalents, beginning of
period 9,216 2
--------- ---------
Cash and cash equivalents, end of period $ 11,965 $ 2,034
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
32
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-The Indiana Gaming Company, a wholly owned
subsidiary of Argosy Gaming Company ("Argosy") (collectively with its
controlled partnership Indiana Gaming Company L.P. ("Partnership") "the
Company") was formed effective April 11, 1994 to provide riverboat gaming and
related entertainment in Lawrenceburg, Indiana. The Company is a 57 1/2%
general partner in the Partnership, together with, three limited partners
including, Conseco Entertainment, L.L.C., ("Conseco") a 29% limited partner,
Centaur, Inc., a 9.5% limited partner and RJ Investments, Inc., a 4% limited
partner. On December 10, 1996, the Company commenced operations at a
temporary site and ceased being in the development stage. The Company is
constructing its permanent site which it expects to open in December 1997.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10Q 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, 1996, included in Argosy'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 1996 amounts have been reclassified to conform to the 1997 financial
statement presentation.
2. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforward for
income tax purposes of approximately $260 and recorded a valuation allowance
against its deferred tax assets. During the three months ended March 31, 1997
the Company utilized the net operating loss carryforward.
3. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of the Development Agreement, the Company entered into a lease
with the City of Lawrenceburg for docking privileges for the riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Company. Under the terms of the Development
Agreement, the Company pays an annual fee to the City of Lawrenceburg ranging
from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of $6
million per year.
The Company has agreed to pay the City of Lawrenceburg approximately
$33,848 in reimbursements for infrastructure improvements and unrestricted
grants. These have been recorded as an intangible asset in the accompanying
balance sheets. The reimbursement for infrastructure improvements and
unrestricted city grants are being amortized over the 28 year term, including
extensions, of the Development Agreement.
33
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Included in other long term obligations at March 31, 1997 is $18,446
representing the remaining grants and infrastructure payments due by the
Company under the terms of the Riverboat Gaming Development Agreement with
the City of Lawrenceburg ("Development Agreement"). Upon the final completion
of the permanent site $8,000 is due. The remaining $10,446 is payable as
follows: $3,446 ratably over the first year subsequent to opening of the
temporary site, $5,000 ratably over the second year subsequent to the opening
of the temporary site and $2,000 ratably over the third year subsequent to
the opening of the temporary site.
COMPLETION OF PERMANENT FACILITY-Provisions of the partnership agreement
stipulate that capital contributions, including partner loans up to a total
project cost, as defined, of $225 million will be made 57 1/2% by the Company
and 42 1/2% by the limited partners with any excess project cost being the
sole responsibility of the Company.
Pursuant to Indiana gaming law, the Company may only operate at its
temporary site for one year. The completion of the permanent facility is
subject to the satisfaction of numerous conditions including weather
conditions and the receipt of numerous permits and licenses. There can be no
assurance that the permanent facility will be open within one year of the
opening of the temporary facility.
BONDING OBLIGATION-The Company is required, by Indiana Gaming Statute, to
post a bond in favor of the Indiana Gaming Commission to collateralize
certain obligations to the City of Lawrenceburg under the Development
Agreement, and to the State of Indiana. This bond is collateralized by
certain real estate of the Company.
PERMANENT RIVERBOAT CASINO-The Partnership has entered into an agreement
for the construction of its permanent riverboat facility. Total estimated
costs of this contract is approximately $39 million. As of March 31, 1997,
the Company had made approximately $23.3 million in progress payments.
TERMINATION OF LAWRENCEBURG PARTNERSHIP-Under the terms of the partnership
agreement, after the third anniversary date of commencement of operations
each limited partner has the right to sell its interest to the other partners
(pro rata in accordance with their respective percentage interests). In the
event of this occurrence, if the partners cannot agree on a selling price,
the Partnership will be sold in its entirety.
GUARANTY OF PARENT OBLIGATIONS-On June 5, 1996 Argosy issued $235 million
of 13 1/4% First Mortgage Notes, due 2004 ("Mortgage Notes"). The Company has
pledged its interest in the Partnership, and its rights to certain payments
from the Partnership, as collateral, under terms of the Mortgage Notes.
Additionally, the Company is a guarantor of the Mortgage Notes.
34
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 11,965 $ 9,216
Other current assets 1,851 1,844
----------- ------------
Total current assets 13,816 11,060
----------- ------------
NET PROPERTY AND EQUIPMENT 78,535 68,349
OTHER ASSETS:
Deposits 76 5
Cash and cash equivalents-restricted 15,411 14,919
Intangible assets, net 31,165 31,459
----------- ------------
Total other assets 46,652 46,383
----------- ------------
TOTAL ASSETS $139,003 $125,792
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 2,119 $ 3,464
Accrued interest and dividends
payable-related parties 8,896 5,240
Other accrued liabilities 6,234 5,616
Due to affiliates 581 777
Current maturities of long-term debt-related
parties 8,479 7,066
Current maturities of other long-term
obligations 5,169 5,169
----------- ------------
Total current liabilities 31,478 27,332
----------- ------------
LONG-TERM DEBT-RELATED PARTIES 59,352 49,463
OTHER LONG-TERM OBLIGATIONS 13,277 15,000
PARTNERS' EQUITY:
General partner 20,066 19,549
Limited partners 14,830 14,448
----------- ------------
Total partners' equity 34,896 33,997
----------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $139,003 $125,792
----------- ------------
----------- ------------
See accompanying notes to condensed financial statements.
35
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1997 1996
----------- ------------
(UNAUDITED) (UNAUDITED)
REVENUES:
Casino $ 25,720 $
Admissions 4,023
Food, beverage and other 1,401
----------- ------------
31,144
Less promotional allowances (3,264)
----------- ------------
Net revenues 27,880
----------- ------------
COST AND EXPENSES:
Casino 11,905
Food, beverage and other 985
Other operating expenses 3,142
Selling, general and administrative 4,998
Depreciation and amortization 2,458
Management fees-related parties 856
Preopening 1,165
----------- ------------
24,344 1,165
----------- ------------
Income (loss) from operations 3,536 (1,165)
OTHER INCOME (EXPENSE):
Interest income 305
Interest expense (1,579)
----------- ------------
(1,274)
----------- ------------
Net income (loss) prior to preferred equity return 2,262 (1,165)
Preferred equity return (1,363)
----------- ------------
Net income (loss) attributable to common equity
partners $ 899 $(1,165)
----------- ------------
----------- ------------
See accompanying notes to condensed financial statements.
36
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1997 1996
----------- ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 899 $ (1,165)
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Depreciation 2,154 14
Amortization 304
Accrued preferred equity dividends 1,363
Changes in operating assets and liabilities:
Other current assets (88) (612)
Accounts payable (1,345) (1,448)
Accrued interest payable to related parties 2,293
Accrued liabilities 2,121 626
----------- ------------
Net cash provided by (used in) operating
activities 7,701 (2,585)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow (492)
Purchases of property and equipment (12,340) (9,282)
Payments under development agreement and other
infrastructure improvements (1,723)
----------- ------------
Net cash used in investing activities (14,555) (9,282)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (1,699)
Proceeds from contributed capital 13,899
Proceeds from long-term debt 11,302
----------- ------------
Net cash provided by financing activities 9,603 13,899
----------- ------------
Net increase in cash and cash equivalents 2,749 2,032
Cash and cash equivalents, beginning of period 9,216 2
----------- ------------
Cash and cash equivalents, end of period $ 11,965 $ 2,034
----------- ------------
----------- ------------
See accompanying notes to condensed financial statements.
37
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION-Indiana Gaming Company, L.P. ("Partnership"), an
Indiana limited partnership, was formed effective April 11, 1994 to provide
riverboat gaming and related entertainment in Lawrenceburg, Indiana. The
Partnership is comprised of a 57.5% general partner, The Indiana Gaming
Company ("General Partner"), a wholly owned subsidiary of Argosy Gaming
Company, ("Argosy"), and three limited partners including, Conseco
Entertainment, L.L.C., ("Conseco") a 29% limited partner, Centaur, Inc., a
9.5% limited partner and RJ Investments, Inc., a 4% limited partner. Net
income (loss) is allocated to the partners based on their respective
ownership interests. On December 10, 1996, the Partnership commenced
operations at a temporary site and ceased being in the development stage. The
Partnership is constructing its permanent site which it expects to open in
December 1997.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as
a whole. For further information, refer to the financial statements and
footnotes thereto for the year ended December 31, 1996, included in Argosy's
Annual Report on Form 10-K (File No.0-21122). The accompanying unaudited
condensed financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments
include only normal recurring accruals. Certain 1996 amounts have been
reclassified to conform to the 1997 financial statement presentation.
2. COMMITMENTS AND CONTINGENCIES
CITY INFRASTRUCTURE IMPROVEMENTS AND UNRESTRICTED GRANTS-In accordance
with the terms of the Development Agreement, the Partnership entered into a
lease with the City of Lawrenceburg for docking privileges for its riverboat
casino. The initial term of the lease is for six years and thereafter
automatically extends for up to nine renewal term periods of five years each,
unless terminated by the Partnership. Under the terms of the Development
Agreement, the Partnership pays an annual fee to the City of Lawrenceburg
ranging from 5%-14% of Adjusted Gross Receipts, as defined, with a minimum of
$6 million per year.
38
<PAGE>
INDIANA GAMING COMPANY, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands)
The Partnership has agreed to pay the City of Lawrenceburg $33,848 in
reimbursements for infrastructure improvements and unrestricted grants.
Subsequent to the commencement of operations at the temporary site, these
have been recorded as an intangible asset in the accompanying balance sheets.
The reimbursement for infrastructure improvements and unrestricted city
grants are being amortized over the 28 year term, including extensions, of
the Development Agreement.
Included in other long term obligations at March 31, 1997 is $18,446
representing the remaining grants and infrastructure payments due by the
Partnership under the terms of the Riverboat Gaming Development Agreement
with the City of Lawrenceburg ("Development Agreement"). Upon the final
completion of the permanent site $8,000 is due. The remaining $10,446 is
payable as follows: $3,446 ratably over the first year subsequent to opening
of the temporary site, $5,000 ratably over the second year subsequent to the
opening of the temporary site and $2,000 ratably over the third year
subsequent to the opening of the temporary site.
COMPLETION OF PERMANENT FACILITY-Provisions of the partnership agreement
stipulate that capital contributions, including partner loans up to a total
project cost, as defined, of $225 million will be made 57 1/2% by the General
Partner and 42 1/2% by the limited partners with any excess project cost
being the sole responsibility of the General Partner.
The Partnership may only operate at its temporary site for one year. The
completion of the permanent facility is subject to the satisfaction of
numerous conditions including weather conditions and the receipt of numerous
permits and licenses. There can be no assurance that the permanent facility
will be open within one year of the opening of the temporary facility.
BONDING OBLIGATION-The Partnership is required, by Indiana Gaming Statute,
to post a bond in favor of the Indiana Gaming Commission to collateralize
certain obligations to the City of Lawrenceburg under the Development
Agreement, and to the State of Indiana. This bond is collateralized by
certain real estate of the Partnership.
PERMANENT RIVERBOAT CASINO-The Partnership has entered into an agreement
for the construction of its permanent riverboat facility. Total estimated
costs of this contract is approximately $39 million. As of March 31, 1997 the
Partnership had made approximately $23.3 million in progress payments.
TERMINATION OF LAWRENCEBURG PARTNERSHIP-Under the terms of the Partnership
Agreement, after the third anniversary date of commencement of operations
each limited partner has the right to sell its interest to the other partners
(pro rata in accordance with their respective percentage interests). In the
event of this occurrence, if the partners cannot agree on a selling price,
the Partnership will be sold in its entirety.
39
<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 risks 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 Company's results of operations for the three months ended March 31,
1997 were adversely affected by increased competition at its Alton and
Riverside properties, and the Company expects the competitive environment in
the St. Louis and Kansas City areas to remain intense. The increased
competition has resulted in the Company reporting decreased revenues at its
Alton and Riverside properties in 1997. The Company believes that it will
continue to be difficult to sustain historical levels of operating revenues
and profitability at these properties. 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 March 31,
1997 and, as such, the Company has not recorded an income tax benefit on its
1997 operating losses due to the uncertainty of realization.
40
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED
--------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
(UNAUDITED)(UNAUDITED)
GROSS REVENUES
Alton $ 18,239 $ 20,290
Riverside 18,947 26,614
Baton Rouge 14,504 14,370
Sioux City 5,399 5,218
Lawrenceburg 31,144
Corporate 357 250
Other 87 99
--------- ---------
Total properties $ 88,677 $ 66,841
--------- ---------
--------- ---------
NET REVENUE
Alton $ 17,742 $ 19,663
Riverside 17,787 23,904
Baton Rouge 13,513 13,695
Sioux City 5,132 5,084
Lawrenceburg 27,880
Corporate 354 244
Other 87 99
--------- ---------
Total properties $ 82,495 $ 62,689
--------- ---------
--------- ---------
INCOME (LOSS) FROM OPERATIONS(1)
Alton $ 2,630 $ 3,919
Riverside 1,644 2,488
Baton Rouge(2) (348) 2,310
Sioux City (16) 414
Lawrenceburg 4,050
Corporate(4) (3,620) (3,660)
Other (629) (472)
--------- ---------
Total properties $ 3,711 $ 4,999
--------- ---------
--------- ---------
EBITDA(1)(3)
Alton $ 3,650 $ 4,951
Riverside 3,013 4,986
Baton Rouge(2) 1,044 3,667
Sioux City 220 599
Lawrenceburg 6,508
Corporate(4) (3,023) (3,252)
Other 193 (63)
--------- ---------
Total properties $ 11,605 $ 10,888
--------- ---------
--------- ---------
41
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
(1) Income from operations and EBITDA are presented before consideration of
any management fee paid to the Company and in the case of Sioux City and
Lawrenceburg before the 30% and 42.5% minority interests, respectively.
(2) Excludes operating loss of approximately $1,134 and $535 for the three
months ended March 31, 1997 and 1996, respectively, primarily
depreciation, amortization and operating expenses related to the Catfish
Town land based development in Baton Rouge.
(3) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or as
an alternative to cash flows generated by operating, investing and
financing activities (as an indicator of cash flow or a measure of
liquidity. EBITDA is presented solely as a supplemental disclosure because
management believes that it is a widely used measure of operating
performance in the gaming industry and for companies with a significant
amount of depreciation and amortization. The Company has other significant
uses of cash flows, including capital expenditures, which are not
reflected in EBITDA.
(4) Excludes severance expenses of approximately $1.8 million for the three
months ended March 31, 1997, and excludes a one-time charge of $1.5
million in connection with the termination of a private placement and
pre-opening expenses of approximately $1.6 million primarily related
to Lawrenceburg for the three months ended March 31, 1996.
42
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
CASINO--Casino revenues for the three months ended March 31, 1997
increased to $76.3 million from $58.8 million for the three months ended
March 31, 1996 due to the opening of the Lawrenceburg casino, which generated
$25.7 million of casino revenues, offset by decreasing revenues at the
company's other properties. Alton casino revenues decreased from $18.5 to
$16.4 million and Riverside casino revenues decreased from $22.2 to $16.4
million due to the effects of increased competition. Baton Rouge casino
revenues decreased from $13.3 million to $12.8 million.
Casino expenses increased to $39.2 million for the three months ended
March 31, 1996 from $29.1 million for the three months ended March 31, 1996
due primarily to the opening of the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $2.3
million to $8.4 million for the three month period ended March 31, 1997, due
to the opening of the Lawrenceburg casino and increased sales in Baton Rouge.
Riverside revenues remained approximately the same at $2.5 million. Food,
beverage and other net profit improved $.7 million to $1.5 million for the
three months ended March 31, 1996 due primarily to the increased sales.
OTHER OPERATING EXPENSES--Other operating expenses increased $2.6 million
to $7.0 million for the three months ended March 31, 1997. This increase is
due primarily to costs associated with operating the Lawrenceburg casino.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $3.3 million to $17.6 million for the three months ended
March 31, 1997 due primarily to the opening of the Lawrenceburg casino.
Additionally, the Company recorded a charge of approximately $1.5 million 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 in 1996.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$2.0 million from $5.9 million for the three months ended March 31, 1996 to
$7.9 million for the three months ended March 31, 1997. This increase is due
primarily to the opening of the Lawrenceburg casino.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
decreased from $1.9 million for the three month period ended March 31, 1996 to
$.2 million for the three month period ended March 31, 1997. The primary
decrease is due to expenses related to developing the casino in Lawrenceburg,
Indiana in 1996.
INTEREST EXPENSE--Net interest expense increased $6.4 million to $10.5
million for the three months ended March 31, 1997. The increase is attributable
to interest expense on borrowings on the Company's $235 million First Mortgage
Notes which were issued in June, 1996.
43
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
COMPETITION
The Company's Alton Casino faces competition from four other riverboat
casino facilities currently operating in the St. Louis area and expects the
level of competition to remain intense in the future. The most recent casino
complex to open includes two independently owned facilities, each of which
operate two dockside vessels. This casino complex, which increased gaming
capacity in St. Louis by approximately 50%, opened in March of 1997. The
Company's Riverside Casino faces competition from four casino companies in the
Kansas City area that offer dockside gaming, two of which offer two gaming
vessels each. 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 Indiana Partnership faces competition from one other
riverboat casino in the Cincinnati market, which opened in October 1996. There
could be further unanticipated competition in any market which the Company
operates as a result of legislative changes or other events. The Company
expects each market in which it participates, both current and prospective, to
be highly competitive.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 1997, the Company generated cash flows
from operating activities of $23.2 million compared to $5.6 million for the
same period in 1996. The increase in cash flow is primarily attributed to
the opening of the Lawrenceburg Casino, the receipt of a $9.1 million income
tax refund and, additionally, to the timing of expenditures related to
operating accounts payable.
In the three months ended March 31, 1997, the Company used cash flows for
investing activities of $14.4 million versus $29.4 million for the three
months ended March 31, 1996. The primary use of funds was the investment in
the construction of the Lawrenceburg facility.
During the three months ended March 31, 1997, the Company generated $3.8
million in cash flows from financing activities compared to generating $35.8
million of cash flows from financing activities for the same period in 1996.
The primary sources of cash flows in 1997 were $5.8 million in loans from the
Company's partner in Lawrenceburg offset by payments on installment contracts
and other long-term obligations. In 1996, the Company had proceeds from a line
of credit of $25.5 million and capital contributions from its partner of $10.4
million.
As of March 31, 1997, the Company had approximately $50.8 million of cash,
cash equivalents, and marketable securities, including approximately $12.0
million held at the Indiana Partnership, which can be used for general
working capital purposes. In addition, the Company had $65.2 million in a
disbursement account to be used to fund the Company's portion of the
remaining Lawrenceburg construction costs which cannot be used for any other
purpose. The Indiana Partnership has placed approximately $15.4 million in
an escrow account representing unbilled construction costs of the permanent
Lawrenceburg facility. On June 5, 1996 the Company issued $235 million of
First 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.
44
<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 March 31, 1997. 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 $12.9 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 March, 31, 1997, approximately $120 million has
been contributed to the partnership for 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 (57.5% ) and its
partners (42.5%). 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 First 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.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS
DOCUMENT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE" AND "EXPECT" AND
SIMILAR EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS,
INCLUDING THOSE REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY OR ITS MANAGEMENT, ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
VARIOUS FACTORS INCLUDING, BUT NOT LIMITED TO, (i) GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY OPERATES, (ii) INCREASED
COMPETITIVE PRESSURES IN THE MARKETS IN WHICH THE COMPANY OPERATES,
(iii) DELAYS OR COST-OVERRUNS WITH RESPECT TO THE LAWRENCEBURG CASINO WHICH
COULD SIGNIFICANTLY IMPAIR THE ABILITY OF THE COMPANY TO MEET ITS DEBT
SERVICE REQUIREMENTS, (iv) THE EFFECT OF FUTURE LEGISLATION OR REGULATORY
CHANGES ON THE COMPANY'S OPERATIONS, AND (v) 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.
45
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
MARION COUNTY, INDIANA GRAND JURY
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. As described below, the grand jury has
since handed up indictments on April 28, 1997 against four persons, but the
Company and the partners of the Indiana Partnership continue not to have been
advised by the Marion County Prosecutor that any of them is a target of the
investigation. However, there can be no assurance that further 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, other than to the extent revealed by the April
28, 1997 indictments. The Company believes it has fully complied with its
subpoena, and has been informed by its partners that they have done the same.
The subpoenas requested 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 requested
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 a then-
Indiana state legislator (Samuel Turpin), certain Indiana lobbyists, and
certain Lawrenceburg, Indiana city officials and businessmen on the other
hand. The Company has learned that this legislator (Turpin) 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 Turpin has served since September
1993 as a consultant to American Consulting Engineers, Inc. ("ACE"), a major
Indiana engineering firm that is engaged in many state and local government
funded construction projects. ACE 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,
Turpin 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, Turpin announced his resignation as chairman of the Indiana
House Ways and Means Committee. Turpin did not seek re-election in 1996 and
is no longer a member of the Indiana House of Representatives.
On April 28, 1997, the grand jury made a "First and Partial Report" that
handed up felony indictments against (1) Willis Conner, co-owner of ACE;
(2) Kenneth Cragen, president of and lobbyist for the Indiana Motor Truck
Association ("IMTA"); (3) Turpin; and (4) James Wurster, co-owner of ACE.
Conner, Wurster and Turpin are each charged with one count of bribery in
connection with payments made by ACE to Turpin while he served in the Indiana
General Assembly, which payments were stated to be for consulting fees for
duties outside the legislative process, but which the indictment charges were
in return for official acts by Turpin that promoted the economic interests of
ACE. The press release by the Marion County Prosecutor at the time of the
indictments described those economic interests as including "the promoting of
certain river boat gaming interests in which ACE had a financial interest,
the diverting of state funds into highway construction and, while Turpin was
a
46
<PAGE>
member of the State Budget Committee, the release of state funds that
benefitted particular ACE public works projects." Turpin was also charged
with five counts of filing fraudulent campaign finance reports, and one count
of perjury in connection with a sworn statement to the Indiana Bureau of
Motor Vehicles. Wurster was also charged with one count, and Cragen with two
counts, of unlawful lobbying in connection with lobbying activities involving
IMTA and ACE.
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 were unlikely
to be concluded quickly, on March 25, 1996, a former U.S. Attorney (James
Richmond) and his law firm were retained to conduct, as special independent
counsel (the "special independent counsel"), an internal investigation into
the 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 then-state legislator (Turpin),
(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 was appointed to supervise and
coordinate the special independent counsel's investigation. The special
independent counsel did not investigate Conseco, Inc. The Company was advised
that Conseco, Inc. also retained independent counsel and such counsel
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.
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 then-state legislator (Turpin) and Conseco, Inc. or
the Indiana engineering firm (ACE), 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.
Several months after the completion of his investigation, the special
independent counsel (Richmond) was retained as Acting General Counsel of the
Company on January 14, 1997.
47
<PAGE>
No assurance can be given, however, that the nature and scope of the
investigation conducted by the special independent counsel for the Company
and Conseco, was sufficient to uncover conduct that might be considered
unlawful. 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 gaming license.
In the event that a partner is determined by the Indiana Gaming Commission
to be unsuitable for ownership of a gaming license, the terms of the Indiana
Partnership's partnership agreement provide that the Indiana Partnership
shall redeem 100% of such unsuitable partner's interest for an amount equal
to 90% of the "appraised value" of that partner's interest, determined in
accordance with the terms of the partnership agreement. The purchase price is
payable in five annual installments, only from available cash flow or sale or
financing proceeds of the partnership, and bears interest at "prime." If
such event were to occur with respect to Conseco prior to the completion of
the Lawrenceburg casino project, the Company would have to fund any remaining
construction costs of the Lawrenceburg Casino project which were to have been
funded by Conseco. No assurance can be given that the Company would be able
to obtain funds sufficient for this purpose. Also, there can be no assurance
that the Indiana Gaming Commission would not take other actions such as
suspending, revoking or failing to renew the Indiana Partnership's gaming
license. There can be no assurance that the grand jury investigation will not
lead to events having a material adverse effect on the Company.
CHALLENGE TO LICENSE FOR LAWRENCEBURG CASINO BY UNSUCCESSFUL APPLICANT
On November 29, 1996, Schilling Casino Corporation d/b/a Empire Casino &
Resort ("Empire"), an unsuccessful competing applicant for the riverboat
owner's license in Lawrenceburg, Indiana that was awarded to the Indiana
Partnership by the Indiana Gaming Commission (the "Commission"), filed with
the Commission a purported "Request for Hearing" (the "Request") on the
denial of Empire's application for the Lawrenceburg license. Empire's
Request, which has been referred to an Administrative Law Judge (the "ALJ"),
did not seek a stay of the award of the license to the Indiana Partnership or
of the Indiana Partnership's commencement of regular gaming operations from
its temporary gaming facility at Lawrenceburg, which commenced December 13,
1996. The Company and the Indiana Partnership were granted leave to intervene
in the administrative proceedings on the Empire Request.
The grounds asserted in the Empire Request include claims that (i) the
application process followed by the Commission did not afford Empire due
process and violated Indiana laws; (ii) the Indiana Partnership failed to
comply with conditions in the certificate and failed to open the temporary
gaming facility in a timely fashion, (iii) the Indiana Partnership made
misrepresentations to the Commission during the licensing hearings; (iv) the
Commission could not lawfully have extended the certificate beyond June 30,
1996 (one year after the date of its initial award) without reconsidering all
other applications; and (v) the endorsement of the Indiana Partnership by the
City of Lawrenceburg was without legal authority and was given improper
weight by the Commission.
The Company and the Indiana Partnership have filed with the ALJ a motion
for summary judgment and to dismiss Empire's Request; the Commission has
filed with the ALJ a motion for partial summary judgement, on Empire's
Request; and Empire has filed with the ALJ its "discovery plan" describing
discovery it wishes to pursue in the matter, as to which the Company and the
Indiana Partnership have filed a motion for protective order. Responsive and
reply briefing by the parties has been completed, and the ALJ has reset the
hearing on the pending motions and the Empire discovery plan (originally
scheduled for April 30, 1997) to take place on May 29, 1997.
48
<PAGE>
The Company and the Indiana Partnership believe the Request is without
merit, and are contesting and intend to continue to contest the Request
vigorously. The Commission is also opposing the Empire Request. No assurance
can be given, however, as to (i) the ultimate recommendation the ALJ will
make to the Commission on the Request; (ii) the ultimate action the
Commission will take in response to that recommendation; or (iii) that Empire
will not continue to take steps to seek revocation of the license awarded to
the Indiana Partnership, including seeking judicial review of any ultimate
administrative ruling by the Commission denying the Empire Request.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
Item 5. OTHER INFORMATION-None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
1. Report on Form 8-K, dated March 21, 1997, filed with the
Securities and Exchange Commission containing certain financial
information of the Company for the year ended December 31, 1996.
49
<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.
/s/ Dale R. Black
----------------------------------------
Date: May 14, 1997 Dale R. Black
------------------ Vice President-Corporate Controller
(Principal Accounting Officer)
50
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QUARTER
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 50830
<SECURITIES> 0
<RECEIVABLES> 2827
<ALLOWANCES> 1485
<INVENTORY> 987
<CURRENT-ASSETS> 64171
<PP&E> 377787
<DEPRECIATION> 54444
<TOTAL-ASSETS> 541875
<CURRENT-LIABILITIES> 65612
<BONDS> 350000
0
0
<COMMON> 243
<OTHER-SE> 63441
<TOTAL-LIABILITY-AND-EQUITY> 541875
<SALES> 0
<TOTAL-REVENUES> 82495
<CGS> 0
<TOTAL-COSTS> 80534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11902
<INCOME-PRETAX> (8499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9017)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
