<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 JUNE 30, 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: 24,498,333 shares of Common
Stock, $.01 par value per share, as of August 11, 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 4
Notes to Condensed Consolidated Financial Statements 5
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 10
Condensed Statements of Income 11
Condensed Statements of Cash Flows 13
Notes to Condensed Financial Statements 14
FINANCIAL STATEMENTS OF MISSOURI GAMING COMPANY
Condensed Balance Sheets 15
Condensed Statements of Operations 16
Condensed Statements of Cash Flows 18
Notes to Condensed Financial Statements 19
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Condensed Consolidated Balance Sheets 20
Condensed Consolidated Statements of Operations 21
Condensed Consolidated Statements of Cash Flows 23
Notes to Condensed Consolidated Financial Statements 24
FINANCIAL STATEMENTS OF CATFISH QUEEN PARTNERSHIP IN COMMENDAM
Condensed Balance Sheets 25
Condensed Statements of Operations 26
Condensed Statements of Cash Flows 28
Notes to Condensed Financial Statements 29
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Condensed Balance Sheets 30
Condensed Statements of Operations 31
Condensed Statements of Cash Flows 33
Notes to Condensed Financial Statements 34
FINANCIAL STATEMENTS OF THE INDIANA GAMING COMPANY
Condensed Consolidated Balance Sheets 35
Condensed Consolidated Statements of Operations 36
Condensed Consolidated Statements of Cash Flows 38
Notes to Condensed Consolidated Financial Statements 39
<PAGE>
TABLE OF CONTENTS (CONTINUED)
FINANCIAL STATEMENTS OF INDIANA GAMING COMPANY, L.P.
Condensed Balance Sheets 41
Condensed Statements of Operations 42
Condensed Statements of Cash Flows 44
Notes to Condensed Financial Statements 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS 47
PART II
Item 1 Legal Proceedings 54
Item 2 Changes in Securities 56
Item 3 Defaults upon Senior Securities 56
Item 4 Submission of Matters to a Vote of Security Holders 56
Item 5 Other Information 56
Item 6 Exhibits and Reports on Form 8-K 56
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 45,154 $ 38,284
Income taxes receivable 1,967 11,111
Other current assets 8,423 9,446
-------- --------
Total current assets 55,544 58,841
-------- --------
PROPERTY AND EQUIPMENT, NET 345,599 314,480
-------- --------
OTHER ASSETS:
Restricted cash and cash equivalents 66,568 84,551
Goodwill, net 22,625 22,923
Other, net 50,676 51,364
-------- --------
Total other assets 139,869 158,838
-------- --------
TOTAL ASSETS $541,012 $532,159
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 24,642 $ 29,948
Other current liabilities 27,017 15,018
-------- --------
Total current liabilities 51,659 44,966
-------- --------
LONG-TERM DEBT 400,077 377,308
OTHER LONG-TERM OBLIGATIONS 12,163 20,340
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES 17,650 16,844
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized;
24,498,333 shares issued and outstanding 245 243
Capital in excess of par 71,907 71,865
Retained (deficit) earnings (12,689) 593
-------- --------
Total stockholders' equity 59,463 72,701
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $541,012 $532,159
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 157,584 118,147
Admissions 8,592 1,995
Food, beverage and other 17,161 12,853
----------- -----------
183,337 132,995
Less promotional allowances (13,333) (7,041)
----------- -----------
Net revenues 170,004 125,954
----------- -----------
COSTS AND EXPENSES:
Casino 79,586 59,264
Food, beverage and other 14,083 11,329
Other operating expenses 13,752 8,732
Selling, general and administrative 35,041 26,231
Depreciation and amortization 16,402 11,085
Development and preopening costs 323 3,790
Severance expense 1,750
Lease termination costs 3,508
----------- -----------
160,937 123,939
----------- -----------
Income from operations 9,067 2,015
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 2,835 640
Interest expense (23,215) (11,546)
----------- -----------
(20,380) (10,906)
----------- -----------
Loss before income taxes, minority interests and
extraordinary item (11,313) (8,891)
Income tax benefit 3,200
Minority interests (1,969) 713
----------- -----------
Loss before extraordinary item (13,282) (4,978)
Extraordinary loss on extinguishment of debt
(net of income tax benefit of $594) (890)
----------- -----------
Net loss $ (13,282) (5,868)
----------- -----------
----------- -----------
Loss before extraordinary item per share $ (0.54) (0.20)
Extraordinary loss on extinguishment of debt per
share (net of income tax benefit of $.02) (0.04)
----------- -----------
Net loss per share $ (0.54) (0.24)
----------- -----------
----------- -----------
Weighted average shares outstanding 24,383,332 24,333,333
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 81,292 $ 59,356
Admissions 4,569
Food, beverage and other 8,799 6,798
----------- -----------
94,660 66,154
Less promotional allowances (7,151) (2,889)
----------- -----------
Net revenues 87,509 63,265
----------- -----------
COSTS AND EXPENSES:
Casino 40,365 30,193
Food, beverage and other 7,192 6,053
Other operating expenses 6,778 4,364
Selling, general and administrative 17,400 11,913
Depreciation and amortization 8,508 5,196
Development and preopening costs 160 1,935
Lease termination costs 3,508
----------- -----------
80,403 63,162
----------- -----------
Income from operations 7,106 103
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 1,393 550
Interest expense (11,313) (7,335)
----------- -----------
(9,920) (6,785)
----------- -----------
Loss before income taxes, minority interests and
extraordinary item (2,814) (6,682)
Income tax benefit 2,333
Minority interests (1,451) 418
----------- -----------
Loss before extraordinary item (4,265) (3,931)
Extraordinary loss on extinguishment of debt
(net of income tax benefit of $594) (890)
----------- -----------
Net loss $ (4,265) $ (4,821)
----------- -----------
----------- -----------
Loss before extraordinary item per share $ (0.17) $ (0.16)
Extraordinary loss on extinguishment of debt per
share (net of income tax benefit of $.02) (0.04)
----------- -----------
Net loss per share $ (0.17) $ (0.20)
----------- -----------
----------- -----------
Weighted average shares outstanding 24,432,784 24,333,333
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,282) $ (5,868)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 15,367 10,640
Amortization 2,017 1,269
Deferred income taxes (3,198)
Minority interests 1,969 (713)
Extraordinary item 890
Lease termination costs 3,151
Changes in operating assets and liabilities:
Income taxes receivable 9,144
Other current assets 1,530 (1,442)
Deposits (917) (656)
Accounts payable and other current liabilities 720 1,386
-------- ---------
Net cash provided by operating activities 16,548 5,459
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (46,486) (62,083)
Decrease (increase) in restricted cash held by trustees 17,983 (94,484)
Decrease in long term obligations (3,015)
Increase in other assets (381)
-------- ---------
Net cash used in investing activities (31,899) (156,567)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 44,500
Repayment of line of credit (90,000)
Payments on long-term debt and installment contracts (3,184) (752)
Capital contributions from partner 19,676
Proceeds from sale of first mortgage notes 235,000
Proceeds from partner loans 26,815
Repayment of partner loans (690)
Payment of preferred equity return to partner (489)
Increase in other assets (231) (9,585)
-------- ---------
Net cash provided by financing activities 22,221 198,839
-------- ---------
Net increase in cash and cash equivalents 6,870 47,731
Cash and cash equivalents, beginning of period 38,284 16,159
-------- ---------
Cash and cash equivalents, end of period $ 45,154 $ 63,890
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In Thousands)
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 June 30, 1997 the Company is in a net operating loss position and,
therefore, has recorded a valuation allowance of $6.5 million against its
deferred tax assets.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and restate all prior
periods. The adoption of Statement 128 has no effect on the Company's
calculation of primary earnings per share.
The Company has not yet determined what the impact of Statement 128 will be
on the calculation of fully diluted earnings per share.
5
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands)
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. 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 from
the opening of the temporary facility. 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 $13,200, including interest through June 30, 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.
6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) CONTINUED
(In Thousands)
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 June 30, 1997 and December 31, 1996 and summarized operating
statement information for the six and three months ended June 30, 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.
7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands)
Summarized balance sheet information as of June 30, 1997 and December 31,
1996 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 23,116 $ 27,500 $ 21,888 $ (16,960) $ 55,544
Non-current assets 397,908 358,303 160,532 (431,275) 485,468
----------- ----------- ----------- ------------ ------------
$ 421,024 $ 385,803 $ 182,420 $ (448,235) $ 541,012
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities $ 11,561 $ 38,080 $ 35,582 $ (33,564) $ 51,659
Non-current liabilities 350,000 303,239 108,512 (331,861) 429,890
Stockholders' equity 59,463 44,484 38,326 (82,810) 59,463
----------- ----------- ----------- ------------ ------------
$ 421,024 $ 385,803 $ 182,420 $ (448,235) $ 541,012
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets $ 29,353 $ 25,301 $ 13,191 $ (9,004) $ 58,841
Non-current assets 403,873 314,287 119,727 (364,569) 473,318
----------- ----------- ----------- ------------ -----------
$ 433,226 $ 339,588 $ 132,918 $ (373,573) $ 532,159
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
LIABILITIES AND EQUITY:
Current liabilities $ 10,525 $ 26,939 $ 20,630 $ (13,128) $ 44,966
Non-current liabilities 350,000 267,428 78,856 (281,792) 414,492
Stockholders' equity 72,701 45,221 33,432 (78,653) 72,701
----------- ----------- ----------- ------------ -----------
$ 433,226 $ 339,588 $ 132,918 $ (373,573) $ 532,159
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
</TABLE>
8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) CONTINUED
(In Thousands)
Summarized operating statement information for the six and three months
ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,358 $ 100,973 $ 72,608 $ (6,935) $ 170,004
Costs and expenses 8,975 93,539 62,885 (4,462) 160,937
Net interest expense 15,972 535 2,086 1,787 20,380
Net (loss) income $ (13,282) $ 3,680 $ 4,896 $ (8,576) $ (13,282)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 2,114 $ 115,933 $ 10,167 $ (2,260) $ 125,954
Costs and expenses 8,446 105,033 12,770 (2,310) 123,939
Net interest expense 7,638 3,098 170 -- 10,906
Net (loss) income $ (5,868) $ 4,450 $ (2,774) $ (1,676) $ (5,868)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,500 $ 52,143 $ 39,596 $ (5,730) $ 87,509
Costs and expenses 3,251 46,821 33,170 (2,839) 80,403
Net interest expense 7,905 (19) 727 1,307 9,920
Net (loss) income $ (4,265) $ 2,940 $ 4,321 $ (7,261) $ (4,265)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
-------------------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 945 $ 58,249 $ 5,083 $ (1,012) $ 63,265
Costs and expenses 3,043 54,120 7,781 (1,782) 63,162
Net interest expense 4,998 1,704 83 -- 6,785
Net (loss) income $ (4,821) $ 1,033 $ (2,781) $ 1,748 $ (4,821)
</TABLE>
9
<PAGE>
ALTON GAMING COMPANY
CONDENSED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,592 $ 3,563
Other current assets 1,745 1,482
-------- --------
Total current assets 5,337 5,045
-------- --------
DUE FROM AFFILIATES 14,102 10,592
NET PROPERTY AND EQUIPMENT 29,326 30,112
OTHER ASSETS 4 7
-------- --------
TOTAL ASSETS $ 48,769 $ 45,756
-------- --------
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 527 $ 1,547
Other accrued liabilities 4,211 4,299
Income taxes payable to affiliate 1,528
-------- --------
Total current liabilities 6,266 5,846
-------- --------
OTHER LONG-TERM OBLIGATIONS - RELATED PARTY 178 171
DEFERRED INCOME TAXES 3,656 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 38,412 35,988
-------- --------
Total stockholder's equity 38,669 36,245
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 48,769 $ 45,756
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed financial statements.
10
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 32,055 $ 37,442
Food, beverage and other 3,613 3,693
--------- ---------
35,668 41,135
Less promotional allowances (983) (1,193)
--------- ---------
Net revenues 34,685 39,942
--------- ---------
COSTS AND EXPENSES
Casino 15,848 17,490
Food, beverage and other 3,423 3,489
Other operating expenses 2,737 2,732
Selling, general and administrative 5,260 6,194
Depreciation and amortization 2,109 2,071
Management fees - related party 1,288 1,872
--------- ---------
30,665 33,848
--------- ---------
Income from operations 4,020 6,094
OTHER INCOME (EXPENSE)
Interest income 23 23
Interest expense (7) (21)
--------- ---------
16 2
--------- ---------
Income before income taxes 4,036 6,096
Income tax expense (1,612) (2,439)
--------- ---------
Net income $ 2,424 $ 3,657
--------- ---------
--------- ---------
See accompanying notes to condensed financial statements.
11
</TABLE>
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 15,633 $ 18,944
Food, beverage and other 1,796 1,901
-------- --------
17,429 20,845
Less promotional allowances (486) (566)
-------- --------
Net revenues 16,943 20,279
-------- --------
COSTS AND EXPENSES
Casino 7,709 8,898
Food, beverage and other 1,653 1,806
Other operating expenses 1,285 1,352
Selling, general and administrative 2,529 3,138
Depreciation and amortization 1,089 1,039
Management fees - related party 467 946
-------- --------
14,732 17,179
-------- --------
Income from operations 2,211 3,100
OTHER INCOME (EXPENSE)
Interest income 14 16
Interest expense (4) (11)
-------- --------
10 5
-------- --------
Income before income taxes 2,221 3,105
Income tax expense (886) (1,118)
-------- --------
Net income $ 1,335 $ 1,987
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
</TABLE>
12
<PAGE>
ALTON GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,424 $ 3,657
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,109 2,071
Deferred income taxes 87 317
Changes in operating assets and liabilities:
Other current assets (186) 431
Accounts payable (1,020) (764)
Accrued liabilities (88) 380
Income taxes payable to affiliate 1,528 2,122
-------- --------
Net cash provided by operating activities 4,854 8,214
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,322) (690)
-------- --------
Net cash used in investing activities (1,322) (690)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from affiliate (3,510) (7,550)
Increase (decrease) in other long-term obligations - related party 7 (852)
-------- --------
Net cash used in financing activities (3,503) (8,402)
-------- --------
Net increase (decrease) in cash and cash equivalents 29 (878)
Cash and cash equivalents, beginning of period 3,563 3,873
-------- --------
Cash and cash equivalents, end of period $ 3,592 $ 2,995
-------- --------
-------- --------
See accompanying notes to condensed financial statements.
</TABLE>
13
<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 $13,200, including interest through June 30, 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.
14
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 6,626 $ 6,143
Other current assets 2,084 1,563
------------ ------------
Total current assets 8,710 7,706
------------ ------------
NET PROPERTY AND EQUIPMENT 74,075 75,773
OTHER ASSETS 2,788 3,272
------------ ------------
TOTAL ASSETS $ 85,573 $ 86,751
------------ ------------
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 1,564 $ 3,505
Income taxes payable to affiliate 4,509 4,435
Other accrued liabilities 4,299 4,244
------------ ------------
Total current liabilities 10,372 12,184
------------ ------------
DUE TO AFFILIATES 56,406 56,345
DEFERRED INCOME TAXES 1,419 907
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 12,376 12,315
------------ ------------
Total stockholder's equity 17,376 17,315
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 85,573 $ 86,751
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
15
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 31,667 $ 44,002
Admissions 1,993
Food, beverage and other 4,936 5,344
----------- -----------
36,603 51,339
Less promotional allowances (2,428) (4,010)
----------- -----------
Net revenues 34,175 47,329
----------- -----------
COSTS AND EXPENSES
Casino 16,792 22,391
Food, beverage and other 4,151 4,713
Other operating expenses 1,874 2,342
Selling, general and administrative 5,813 7,057
Depreciation and amortization 2,738 4,252
Preopening costs 322
Lease termination costs 3,508
----------- -----------
31,368 44,585
----------- -----------
Income from operations 2,807 2,744
OTHER INCOME (EXPENSE):
Interest income 94
Interest expense - related party (2,758) (2,914)
----------- -----------
(2,664) (2,914)
----------- -----------
Income (loss) before income taxes 143 (170)
Income tax (expense) benefit (82) 68
----------- -----------
Net income (loss) $ 61 $ (102)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
16
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $ 15,217 $ 21,837
Food, beverage and other 2,439 2,888
----------- -----------
17,656 24,725
Less promotional allowances (1,268) (1,300)
----------- -----------
Net revenues 16,388 23,425
----------- -----------
COSTS AND EXPENSES
Casino 8,034 11,094
Food, beverage and other 2,055 2,434
Other operating expenses 914 1,087
Selling, general and administrative 2,853 3,292
Depreciation and amortization 1,369 1,754
Lease termination costs 3,508
----------- -----------
15,225 23,169
----------- -----------
Income from operations 1,163 256
OTHER INCOME (EXPENSE):
Interest income 59
Interest expense - related party (1,364) (1,616)
----------- -----------
(1,305) (1,616)
----------- -----------
Loss before income taxes (142) (1,360)
Income tax expense 55 509
----------- -----------
Net loss $ (87) $ (851)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
17
<PAGE>
THE MISSOURI GAMING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 61 $ (102)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation 2,618 4,132
Amortization 120 120
Deferred income taxes 7 (355)
Lease termination costs 3,508
Changes in operating assets and liabilities:
Other current assets 366 (243)
Accounts payable (1,941) (6,060)
Accrued liabilities 268 1,569
Income taxes payable to affiliate 74 62
Other assets (136) 900
----------- -----------
Net cash provided by operating activities 1,437 3,531
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (921) (13,296)
----------- -----------
Net cash used in investing activities (921) (13,296)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts (94) (458)
Due to affiliate 61 14,917
----------- -----------
Net cash (used in) provided by financing activities (33) 14,459
----------- -----------
Net increase in cash and cash equivalents 483 4,694
Cash and cash equivalents, beginning of period 6,143 4,131
----------- -----------
Cash and cash equivalents, end of period $ 6,626 $ 8,825
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements.
18
<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. 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"). The assets of the Company are
pledged as collateral, and the Company is a guarantor under the terms
of the Mortgage Notes.
19
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,450 $ 3,051
Other current assets 2,166 2,776
------- -------
Total current assets 5,616 5,827
------- -------
NET PROPERTY AND EQUIPMENT 46,728 49,021
OTHER ASSETS 1,967 2,206
------- -------
TOTAL ASSETS $54,311 $57,054
------- -------
------- -------
CURRENT LIABILITIES:
Accounts payable $ 484 $ 1,127
Other accrued liabilities 4,482 3,497
Current maturities of long-term
debt-related party 5,578 5,578
------- -------
Total current liabilities 10,544 10,202
------- -------
LONG-TERM DEBT-RELATED PARTY 43,708 42,812
DEFERRED INCOME TAXES 0 1,160
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP 2,969 3,174
STOCKHOLDER'S DEFICIT:
Common stock - $1 par value, 1,000 shares
authorized issued and outstanding 1 1
Accumulated deficit (2,911) (295)
------- -------
Total stockholder's deficit (2,910) (294)
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $54,311 $57,054
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
20
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $26,196 $27,036
Food, beverage and other 3,686 2,549
------- -------
29,882 29,585
Less promotional allowances (2,238) (1,495)
------- -------
Net revenues 27,644 28,090
------- -------
COST AND EXPENSES
Casino 15,081 13,365
Food, beverage and other 3,462 2,297
Other operating expenses 2,552 2,349
Selling, general and administrative 6,560 5,481
Depreciation and amortization 2,789 2,731
------- -------
30,444 26,223
------- -------
(Loss) income from operations (2,800) 1,867
Interest (expense) income net:
Interest to related party (802)
Other 47 75
------- -------
(Loss) income before income taxes and minority interest (3,555) 1,942
Income tax benefit (expense) 734 (947)
Minority interest 205 (78)
------- -------
Net (loss) income $(2,616) $ 917
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
21
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
Casino $13,405 $13,765
Food, beverage and other 1,973 1,450
------- -------
15,378 15,215
Less promotional allowances (1,247) (820)
------- -------
Net revenues 14,131 14,395
------- -------
COST AND EXPENSES
Casino 7,750 7,094
Food, beverage and other 1,828 1,386
Other operating expenses 1,228 1,245
Selling, general and administrative 3,546 2,863
Depreciation and amortization 1,397 1,374
------- -------
15,749 13,962
------- -------
(Loss) income from operations (1,618) 433
Interest (expense) income net:
Interest to related party (401)
Other 27 432
------- -------
(Loss) income before income taxes and minority interest (1,992) 865
Income tax benefit (expense) 257 (879)
Minority interest 116 (9)
------- -------
Net loss $(1,619) $ (23)
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
22
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(2,616) $ 917
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation 2,549 2,492
Amortization 240 239
Minority interest (205) 78
Deferred income taxes (734) 711
Changes in operating assets and liabilities:
Other current assets 185 942
Accounts payable (643) (512)
Other accrued liabilities 985 1,962
------- -------
Net cash (used in) provided by operating activities (239) 6,829
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (258) (488)
------- -------
Net cash used in investing activities (258) (488)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates 896 (6,231)
Payments on notes payable and long-term debt (292)
Decrease in other assets 69
------- -------
Net cash provided by (used in) financing activities 896 (6,454)
------- -------
Net increase (decrease) in cash and cash equivalents 399 (113)
Cash and cash equivalents, beginning of period 3,051 5,201
------- -------
Cash and cash equivalents, end of period $ 3,450 $ 5,088
------- -------
------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
23
<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 June 30, 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 the
Mortgage Notes.
24
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,450 $ 3,051
Other current assets 969 1,134
------- -------
Total current assets 4,419 4,185
------- -------
NET PROPERTY AND EQUIPMENT 46,413 48,704
OTHER ASSETS 1,968 2,206
------- -------
TOTAL ASSETS $52,800 $55,095
------- -------
------- -------
CURRENT LIABILITIES:
Accounts payable $ 483 $ 1,127
Other accrued liabilities 4,964 3,497
Accrued interest-related party 302
Notes payable and current maturities of long-term
debt-related party 5,578 5,578
------- -------
Total current liabilities 11,327 10,202
------- -------
LONG-TERM DEBT-RELATED PARTY 13,793 13,793
PARTNERS' EQUITY 27,680 31,100
------- -------
TOTAL LIABILITIES AND PARTNERS' EQUITY $52,800 $55,095
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
25
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $26,196 $27,036
Food, beverage and other 3,686 2,549
------- -------
29,882 29,585
Less promotional allowances (2,238) (1,495)
------- -------
Net revenues 27,644 28,090
------- -------
COSTS AND EXPENSES
Casino 15,081 13,365
Food, beverage and other 3,462 2,297
Other operating expenses 2,552 2,349
Selling, general and administrative 6,425 5,323
Depreciation and amortization 2,789 2,731
------- -------
30,309 26,065
------- -------
(Loss) income from operations (2,665) 2,025
INTEREST (EXPENSE) INCOME (NET):
Related parties (802) (802)
Other 47 73
------- -------
(755) (729)
------- -------
Net (loss) income $(3,420) $ 1,296
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
26
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $13,405 $13,765
Food, beverage and other 1,973 1,450
------- -------
15,378 15,215
Less promotional allowances (1,247) (820)
------- -------
Net revenues 14,131 14,395
------- -------
COSTS AND EXPENSES
Casino 7,750 7,094
Food, beverage and other 1,828 1,386
Other operating expenses 1,228 1,245
Selling, general and administrative 3,478 2,785
Depreciation and amortization 1,397 1,374
------- -------
15,681 13,884
------- -------
(Loss) income from operations (1,550) 511
INTEREST (EXPENSE) INCOME (NET):
Related parties (401) (401)
Other 27 29
------- -------
(374) (372)
------- -------
Net (loss) income $(1,924) $ 139
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
27
<PAGE>
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(3,420) $ 1,296
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation 2,549 2,492
Amortization 240 239
Changes in operating assets and liabilities:
Other current assets 165 1,010
Accounts payable (644) (489)
Accrued interest to related parties 302 802
Other accrued liabilities 448 235
------- -------
Net cash (used in) provided by operating activities (360) 5,585
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (258) (488)
------- -------
Net cash used in investing activities (258) (488)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates 1,017 (4,918)
Payments on notes payable and long-term debt (292)
------- -------
Net cash provided by (used in) financing activities 1,017 (5,210)
------- -------
Net increase (decrease) in cash and cash equivalents 399 (113)
Cash and cash equivalents, beginning of period 3,051 5,201
------- -------
Cash and cash equivalents, end of period $ 3,450 $ 5,088
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
28
<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.
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 June 30, 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
the Mortgage Notes.
29
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $
Other current assets 78
------------ ------------
Total current assets 78
------------ ------------
NET PROPERTY AND EQUIPMENT 55,514 57,297
GOODWILL, NET 20,220 20,519
NOTE RECEIVABLE 1,892 1,892
OTHER ASSETS 3,721 3,685
------------ ------------
TOTAL ASSETS $ 81,347 $ 83,471
------------ ------------
------------ ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 4,221 $ 3,478
LONG-TERM DEBT 79,922 81,485
STOCKHOLDER'S DEFICIT
Common stock, no par value, 100,000 shares authorized, 200 shares
issued and outstanding
Retained deficit (2,796) (1,492)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 81,347 $ 83,471
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
30
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue $ 1,571 $ 1,633
Rent revenue 184 184
------------ ------------
1,755 1,817
------------ ------------
COSTS AND EXPENSES:
Operating expenses 445 194
Selling, general and administrative 635 791
Depreciation and amortization 1,177 359
Preopening costs 100
------------ ------------
2,257 1,444
------------ ------------
(Loss) income from operations (502) 373
OTHER (EXPENSE) INCOME:
Interest expense (460) (481)
Equity in (loss) income of unconsolidated partnership (342) 130
------------ ------------
(Loss) income before income taxes (1,304) 22
Income tax expense (9)
------------ ------------
Net (loss) income $ (1,304) $ 13
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
31
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Lease revenue $ 804 $ 837
Rent revenue 95 86
------------ ------------
899 923
------------ ------------
COSTS AND EXPENSES:
Operating expenses 300 105
Selling, general and administrative 296 523
Depreciation and amortization 588 184
Preopening costs
------------ ------------
1,184 812
------------ ------------
(Loss) income from operations (285) 111
OTHER (EXPENSE) INCOME:
Interest expense (230) (240)
Equity in (loss) income of unconsolidated partnership (192) 14
------------ ------------
Loss before income taxes (707) (115)
Income tax benefit 46
------------ ------------
Net loss $ (707) $ (69)
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
32
<PAGE>
JAZZ ENTERPRISES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (1,304) $ 13
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 878 61
Amortization 299 298
Equity in (loss) income of unconsolidated partnership 342 (130)
Changes in operating assets and liabilities:
Other current assets 78
Accounts payable and accrued liabilities 743 526
------------ ------------
Net cash provided by operating activities 1,036 768
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (943) (12,113)
Increase in other assets (376) (143)
------------ ------------
Net cash used in investing activities (1,319) (12,256)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (89)
Advances from affiliate 372 11,477
------------ ------------
Net cash provided by financing activities 283 11,477
------------ ------------
Net increase (decrease) in cash and cash equivalents 0 (11)
Cash and cash equivalents, beginning of period 0 32
------------ ------------
Cash and cash equivalents, end of period $ - $ 21
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
33
<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 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 June 30, 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 the Mortgage
Notes.
34
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,028 $ 9,216
Other current assets 2,004 1,844
---------- --------
Total current assets 20,032 11,060
---------- --------
NET PROPERTY AND EQUIPMENT 106,968 69,392
OTHER ASSETS:
Deposits 777 5
Cash and cash equivalents-restricted 18,425 14,919
Intangible assets, net 30,907 31,459
---------- --------
Total other assets 50,109 46,383
---------- --------
TOTAL ASSETS $ 177,109 $ 126,835
---------- --------
---------- --------
CURRENT LIABILITIES:
Accounts payable $ 1,335 $ 3,115
Accrued interest and dividends payable-related parties 2,714 2,198
Other accrued liabilities 9,553 5,616
Current maturities of long-term debt-related parties 6,165 2,900
Current maturities of other long-term obligations 5,169 5,169
---------- --------
Total current liabilities 24,936 18,998
---------- --------
LONG-TERM DEBT-RELATED PARTY 128,413 86,612
OTHER LONG-TERM OBLIGATIONS 11,985 15,000
MINORITY INTERESTS 15,389 14,490
STOCKHOLDER'S DEFICIT:
Common stock - $.01 par value, 1,000 shares authorized
issued and outstanding
Accumulated deficit (3,614) (8,265)
---------- --------
Total liabilities and stockholder's deficit $ 177,109 $ 126,835
---------- --------
---------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
35
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 57,418
Admissions 8,592
Food, beverage and other 2,981
----------- -----------
68,991
Less promotional allowances (7,122)
----------- -----------
Net revenues 61,869
----------- -----------
COST AND EXPENSES:
Casino 25,469
Food, beverage and other 2,206
Other operating expenses 6,330
Selling, general and administrative 10,466
Depreciation and amortization 5,390
Management fees-related parties 869
Preopening 2,843
----------- -----------
50,730 2,843
----------- -----------
Income (loss) from operations 11,139 (2,843)
OTHER INCOME (EXPENSE):
Interest income 597
Interest expense (1,170)
----------- -----------
(573)
----------- -----------
Income (loss) before income taxes and minority interests 10,566 (2,843)
Income tax expense (3,854)
Minority interests (2,061) 1,165
----------- -----------
Net income (loss) $ 4,651 $ (1,678)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
36
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 31,698
Admissions 4,569
Food, beverage and other 1,580
----------- -----------
37,847
Less promotional allowances (3,858)
----------- -----------
Net revenues 33,989
----------- -----------
COST AND EXPENSES:
Casino 13,564
Food, beverage and other 1,221
Other operating expenses 3,188
Selling, general and administrative 5,468
Depreciation and amortization 2,932
Management fees-related parties 527
Preopening 1,631
----------- -----------
26,900 1,631
----------- -----------
Income (loss) from operations 7,089 (1,631)
OTHER INCOME (EXPENSE):
Interest income 292
Interest expense (426)
----------- -----------
(134)
----------- -----------
Income (loss) before income taxes and minority interests 6,955 (1,631)
Income tax expense (2,393)
Minority interests (1,442) 670
----------- -----------
Net income (loss) $ 3,120 $ (961)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
37
<PAGE>
THE INDIANA GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,651 $ (1,678)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 4,778 34
Amortization 612
Minority interests 2,061 (1,165)
Changes in operating assets and liabilities:
Other current assets (160) (963)
Deposits (772) (780)
Accounts payable (1,780) (608)
Accrued interest payable to related parties (151)
Accrued liabilities 6,930 86
----------- -----------
Net cash provided by (used in) operating activities 16,169 (5,074)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow (3,506)
Purchases of property and equipment (42,355) (27,586)
Payments under development agreement and other
infrastructure improvements (3,015)
----------- -----------
Net cash used in investing activities (48,876) (27,586)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 18,941 16,939
Payments on installment contracts (2,998)
Proceeds from contributed capital 19,043
Repayment of long term debt - related party (690)
Proceeds from long-term debt - related party 26,815 632
Payment of preferred return to partner (489)
Other (60)
----------- -----------
Net cash provided by financing activities 41,519 36,614
----------- -----------
Net increase in cash and cash equivalents 8,812 3,954
Cash and cash equivalents, beginning of period 9,216 2
----------- -----------
Cash and cash equivalents, end of period $ 18,028 $ 3,956
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
38
<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 six months ended June 30, 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.
39
<PAGE>
THE INDIANA GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Included in other long term obligations at June 30, 1997 is $17,154
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 $9,154 is payable as
follows: $2,154 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 from the opening of the temporary facility. 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 June 30, 1997, the
Company had made approximately $27.1 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 the terms of the Mortgage Notes.
Additionally, the Company is a guarantor of the Mortgage Notes.
40
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,028 $ 9,216
Other current assets 2,004 1,844
--------- --------
Total current assets 20,032 11,060
--------- --------
NET PROPERTY AND EQUIPMENT 105,707 68,349
OTHER ASSETS:
Deposits 777 5
Cash and cash equivalents-restricted 18,425 14,919
Intangible assets, net 30,963 31,459
--------- --------
Total other assets 50,165 46,383
--------- --------
TOTAL ASSETS $ 175,904 $ 125,792
--------- --------
--------- --------
CURRENT LIABILITIES:
Accounts payable $ 1,596 $ 3,464
Accrued interest and dividends payable-related parties 6,489 5,240
Other accrued liabilities 5,699 5,616
Due to affiliates 777
Current maturities of long-term debt-related parties 13,225 7,066
Current maturities of other long-term obligations 5,169 5,169
--------- --------
Total current liabilities 32,178 27,332
--------- --------
LONG-TERM DEBT-RELATED PARTIES 92,574 49,463
OTHER LONG-TERM OBLIGATIONS 11,985 15,000
PARTNERS' EQUITY:
General partner 22,522 19,549
Limited partners 16,645 14,448
--------- --------
Total partners' equity 39,167 33,997
--------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 175,904 $ 125,792
--------- --------
--------- --------
See accompanying notes to condensed financial statements.
</TABLE>
41
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 57,418
Admissions 8,592
Food, beverage and other 2,981
--------- --------
68,991
Less promotional allowances (7,122)
--------- --------
Net revenues 61,869
--------- --------
COST AND EXPENSES:
Casino 25,469
Food, beverage and other 2,206
Other operating expenses 6,330
Selling, general and administrative 10,466
Depreciation and amortization 5,390
Management fees-related parties 2,175
Preopening 2,742
--------- --------
52,036 2,742
--------- --------
Income (loss) from operations 9,833 (2,742)
OTHER INCOME (EXPENSE):
Interest income 597
Interest expense (2,519)
--------- --------
(1,922)
--------- --------
Net income (loss) prior to preferred equity return 7,911 (2,742)
Preferred equity return (2,741)
--------- --------
Net income (loss) attributable to common equity partners $ 5,170 $ (2,742)
--------- --------
--------- --------
See accompanying notes to condensed financial statements.
</TABLE>
42
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1997 1996
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino $ 31,698
Admissions 4,569
Food, beverage and other 1,580
--------- --------
37,847
Less promotional allowances (3,858)
--------- --------
Net revenues 33,989
--------- --------
COST AND EXPENSES:
Casino 13,564
Food, beverage and other 1,221
Other operating expenses 3,188
Selling, general and administrative 5,468
Depreciation and amortization 2,932
Management fees-related parties 1,319
Preopening 1,577
--------- --------
27,692 1,577
--------- --------
Income (loss) from operations 6,297 (1,577)
OTHER INCOME (EXPENSE):
Interest income 292
Interest expense (940)
--------- --------
(648)
--------- --------
Net income (loss) prior to preferred equity return 5,649 (1,577)
Preferred equity return (1,378)
--------- --------
Net income (loss) attributable to common equity partners $ 4,271 $ (1,577)
--------- --------
--------- --------
See accompanying notes to condensed financial statements.
</TABLE>
43
<PAGE>
INDIANA GAMING COMPANY, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,170 $ (2,742)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 4,778 34
Amortization 612
Accrued preferred equity dividends 2,741
Changes in operating assets and liabilities:
Other current assets (160) (906)
Accounts payable (1,868) (608)
Accrued interest payable to related parties (336)
Deposits (772) (780)
Accrued liabilities 2,244 93
--------- --------
Net cash provided by (used in) operating activities 12,409 (4,909)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash held in escrow (3,506)
Purchases of property and equipment (42,137) (26,886)
Payments under development agreement and other
infrastructure improvements (3,015)
--------- --------
Net cash used in investing activities (48,658) (26,886)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITES:
Payments on installment contracts (2,998)
Proceeds from contributed capital 34,264
Proceeds from long-term debt - related party 50,885 1,485
Repayment of long term debt - related party (1,615)
Payment of preferred return to partners (1,151)
Other (60)
--------- --------
Net cash provided by financing activities 45,061 35,749
--------- --------
Net increase in cash and cash equivalents 8,812 3,954
Cash and cash equivalents, beginning of period 9,216 2
--------- --------
Cash and cash equivalents, end of period $ 18,028 $ 3,956
--------- --------
--------- --------
See accompanying notes to condensed financial statements.
</TABLE>
44
<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.
45
<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 June 30, 1997 is $17,154
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 $9,154 is
payable as follows: $2,154 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 from
the opening of the temporary facility. 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 June 30, 1997 the
Partnership had made approximately $27.1 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.
46
<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 and six months
ended June 30, 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 June 30,
1997 and, as such, the Company has not recorded an income tax benefit on its
1997 operating losses due to the uncertainty of realization.
47
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
-------------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
GROSS REVENUES
Alton $ 35,668 $ 41,135 $ 17,429 $ 20,845
Riverside 36,603 51,339 17,656 24,725
Baton Rouge 29,882 29,585 15,378 15,215
Sioux City 11,296 10,497 5,897 5,280
Lawrenceburg 68,991 -- 37,847 --
Corporate 710 254 353 4
Other 187 185 100 85
----------- ----------- ----------- -----------
Total $ 183,337 $ 132,995 $ 94,660 $ 66,154
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET REVENUE
Alton $ 34,685 $ 39,942 $ 16,943 $ 20,279
Riverside 34,175 47,329 16,388 23,425
Baton Rouge 27,644 28,090 14,131 14,395
Sioux City 10,739 10,167 5,607 5,083
Lawrenceburg 61,869 -- 33,989 --
Corporate 705 241 351 --
Other 187 185 100 83
----------- ----------- ----------- -----------
Total $ 170,004 $ 125,954 $ 87,509 $ 63,265
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS(1)
Alton $ 5,308 $ 7,966 $ 2,678 $ 4,046
Riverside(4) 2,807 6,252 1,163 3,764
Baton Rouge (1,094) 3,658 (746) 1,348
Sioux City 349 578 365 164
Lawrenceburg 11,139 -- 7,089 --
Corporate(3) (6,521) (6,705) (2,901) (3,044)
Other(5) (1,171) (1,562) (542) (1,090)
----------- ----------- ----------- -----------
Total $ 10,817 $ 10,187 $ 7,106 $ 5,188
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EBITDA(1)(2)
Alton $ 7,417 $ 10,037 $ 3,767 $ 5,085
Riverside(4) 5,545 10,504 2,532 5,518
Baton Rouge 1,695 6,389 651 2,722
Sioux City 826 961 606 362
Lawrenceburg 16,529 -- 10,021 --
Corporate(3) (5,266) (5,882) (2,243) (2,629)
Other(5) 473 (737) 280 (673)
----------- ----------- ----------- -----------
Total $ 27,219 $ 21,272 $ 15,614 $ 10,385
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
48
<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
fees paid to the Company and in the case of Sioux City and Lawrenceburg
before the 30% and 42.5% minority interests, respectively.
(2) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income, or
net income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or as
an alternative to cash flows generated by operating, investing and
financing activities (as 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.
(3) Excludes severance expenses of approximately $1.8 million for the six
months ended June 30, 1997, and excludes a one-time charge of $1.5 million
in connection with the termination of a private placement for the six
months ended June 30, 1996.
(4) Excludes $3,508 for the six months and three months ended June 30, 1996
related to lease termination costs in connection with assets formerly used
at the Riverside temporary facility.
(5) Excludes pre-opening expenses of approximately $1.6 million and $3.2
million for the three and six months ended June 30, 1996 primarily related
to Lawrenceburg.
49
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
CASINO--Casino revenues for the six months ended June 30, 1997 increased
to $157.6 million from $118.1 million for the six months ended June 30, 1996
due to the opening of the Lawrenceburg casino, which generated $57.4 million
of casino revenues, offset by decreased revenues at the company's other
properties. Alton casino revenues decreased from $37.4 to $32.1 million and
Riverside casino revenues decreased from $44.0 to $31.7 million due to the
effects of increased competition. Baton Rouge casino revenues decreased from
$27.0 million to $26.2 million.
Casino expenses increased to $79.6 million for the six months ended June
30, 1997 from $59.3 million for the six months ended June 30, 1996 due
primarily to the opening of the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $4.3
million to $17.2 million for the six month period ended June 30, 1997, due to
the opening of the Lawrenceburg casino and increased sales in Baton Rouge.
Food, beverage and other net profit improved $1.6 million to $3.1 million for
the six months ended June 30, 1997 due primarily to the increased sales.
OTHER OPERATING EXPENSES--Other operating expenses increased $5.0 million
to $13.8 million for the six months ended June 30, 1997. This increase is
due primarily to costs associated with operating the Lawrenceburg casino.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $8.8 million to $35.0 million for the six months ended
June 30, 1997 due primarily to the opening of the Lawrenceburg casino. This
increase was somewhat offset when 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
$5.3 million from $11.1 million for the six months ended June 30, 1996 to
$16.4 million for the six months ended June 30, 1997. This increase is due
primarily to additional assets associated with the Lawrenceburg casino.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
decreased from $3.8 million for the six month period ended June 30, 1996 to
$.3 million for the six month period ended June 30, 1997. The primary
decrease is due to expenses related to developing the casino in Lawrenceburg,
Indiana in 1996.
INTEREST EXPENSE--Net interest expense increased $9.5 million to $20.4
million for the six months ended June 30, 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.
NET LOSS--Net loss increased from $5.9 million for the six months ended
June 30, 1996 to $13.3 million for the six months ended June 30, 1997
primarily for the reasons discussed above. In addition, the Company recorded
a pretax charge of $3.5 million related to lease termination costs in
connection with assets formerly used at its temporary facility in Riverside.
Also, the Company recorded an extraordinary loss of $.9 million (net of tax)
related to the write off of deferred finance costs associated with
extinguishment of its revolving secured line of credit in 1996. In 1997, the
Company is in a net operating loss position and, therefore, has not recorded
any tax benefit against its losses for the six months ended June 30, 1997.
50
<PAGE>
ARGOSY GAMING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
CASINO--Casino revenues for the three months ended June 30, 1997
increased to $81.3 million from $59.4 million for the three months ended June
30, 1996 due to the opening of the Lawrenceburg casino, which generated $31.7
million of casino revenues, offset by decreased revenues at the Company's
other properties. Alton casino revenues decreased from $18.9 to $15.6 million
and Riverside casino revenues decreased from $21.8 to $15.2 million due to
the effects of increased competition. Baton Rouge casino revenues decreased
from $13.8 million to $13.4 million.
Casino expenses increased to $40.4 million for the three months ended
June 30, 1996 from $30.2 million for the three months ended June 30, 1996 due
primarily to the opening of the Lawrenceburg casino.
FOOD AND BEVERAGE--Food, beverage and other revenues increased $2.0
million to $8.8 million for the three month period ended June 30, 1997, due
to the opening of the Lawrenceburg casino and increased sales in Baton Rouge.
Riverside revenues decreased to $2.4 million from $2.9 million while Alton
revenues decreased from $1.9 million to $1.8 million. Food, beverage and
other net profit improved $.9 million to $1.6 million for the three months
ended June 30, 1997 due primarily to the increased sales.
OTHER OPERATING EXPENSES--Other operating expenses increased $2.4 million
to $6.8 million for the three months ended June 30, 1997. This increase is
due primarily to costs associated with operating the Lawrenceburg casino.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $5.5 million to $17.4 million for the three months ended
June 30, 1997 due primarily to the opening of the Lawrenceburg casino.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
$3.3 million from $5.2 million for the three months ended June 30, 1996 to
$8.5 million for the three months ended June 30, 1997. This increase is due
primarily to additional assets associated with the Lawrenceburg casino.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs
decreased from $1.9 million for the three month period ended June 30, 1996 to
$.2 million for the three month period ended June 30, 1997. The primary
decrease is due to expenses related to developing the casino in Lawrenceburg,
Indiana in 1996.
INTEREST EXPENSE--Net interest expense increased $3.1 million to $9.9
million for the three months ended June 30, 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.
NET LOSS--Net loss decreased from $4.8 million for the three months ended
June 30, 1996 to $4.3 million for the three months ended June 30, 1997
primarily for the reasons discussed above. In addition, the Company recorded
a pretax charge of $3.5 million related to lease termination costs in
connection with assets formerly used at its temporary facility in Riverside.
Also, the Company recorded an extraordinary loss of $.9 million (net of tax)
related to the write off of deferred finance costs associated with
extinguishment of its revolving secured line of credit in 1996. In 1997, the
Company is in a net operating loss position and, therefore, has not recorded
any tax benefit against its losses for the three months ended June 30, 1997.
51
<PAGE>
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 six months ended June 30, 1997, the Company generated cash flows
from operating activities of $16.5 million compared to $5.5 million for the
same period in 1996. The increase in cash flow is primarily attributed to
the opening of the Lawrenceburg Casino and the receipt of a $9.1 million
income tax refund.
In the six months ended June 30, 1997, the Company used cash flows for
investing activities of $31.9 million versus $156.6 million for the six
months ended June 30, 1996. The primary use of funds in 1997 was the
investment in the construction of the Lawrenceburg facility. In 1996, the
Company placed $94.5 million in a restricted fund to be used for the
construction of the Lawrenceburg facility and used $62.1 million for capital
expenditures primarily at the Lawrenceburg facility.
During the six months ended June 30, 1997, the Company generated $22.2
million in cash flows from financing activities compared to generating $198.8
million of cash flows from financing activities for the same period in 1996.
The primary sources of cash flows in 1997 were $26.8 million in loans from
the Company's partner in Lawrenceburg offset by payments on installment
contracts. In 1996, the Company received proceeds from its issuance of $235
million of first mortgage notes and capital contributions from its partner of
$19.7 million offset by the repayment of $90 million on its previous line of
credit.
As of June 30, 1997, the Company had approximately $45.2 million of cash,
cash equivalents, and marketable securities, including approximately $18.0
million held at the Indiana Partnership, which can be used for general
working capital purposes. In addition, the Company had $48.1 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. In addition to the disbursement account the Indiana Partnership has
placed approximately $18.4 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.
52
<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. 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 June 30, 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 $13.2 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 June 30, 1997, approximately $158 million has been
contributed to the partnership for the project by all partners, 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 cash on hand will be sufficient to
fund its current operations and its obligations with respect to the
Lawrenceburg casino development. If there are any events which negatively
impact the sources or uses of cash such as an overrun in the project costs
related to the Lawrenceburg Casino, a 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.
53
<PAGE>
ARGOSY GAMING COMPANY
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS -
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 10,
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 filed with the ALJ a motion or
summary judgment to dismiss Empire's Request; the Commission filed with
the ALJ a motion for partial summary judgment on Empire's Request; and Empire
filed with the ALJ its "discovery plan describing discovery it wished to
pursue in the matter, as to which the Company and the Indiana Partnership
filed a motion for protective order.
After briefing by the parties and a hearing before the ALJ, the ALJ
issued on June 13, 1997 his findings of fact and conclusions of law and his
recommended orders to the Commission (the "ALJ Entries") on the various
matters presented to the ALJ. The ALJ Entries rejected the claims asserted
in the Empire Request; granted the Commission's motion for partial summary
judgment; and denied the discovery sought by Empire. The ALJ Entries also
treated the motion for summary judgment filed by the Company and the Indiana
Partnership as moot (given the recommendation that the Commission's motion
for partial summary judgment be granted); and denied the Company's and
Indiana Partnership's motion to dismiss, which had been based in part on the
claim that the Empire Request did not timely comply with governing procedural
requirements for such a request. Finally, the ALJ Entries stated that Empire
would be entitled to an evidentiary hearing only for the purpose of
attempting to establish that it should have been awarded the Lawrenceburg,
Indiana riverboat owner's license, an issue on which Commission regulations
place the burden of proof on Empire.
Empire has served counsel for the Company and the Indiana Partnership with
exceptions and objections to the ALJ Entries, which Empire purports to have
filed with the Commission. The Company and the Indiana Partnership have
filed exceptions to the ALJ Entries with the Commission, to preserve for the
record those issues on which they disagree with the ALJ Entries. The
Commission will consider and act upon the ALJ Entries at a future meeting,
the date of which has not yet been set. After action by the Commission on
the ALJ entries, parties could have the opportunity to seek judicial review
of the Commission's administrative action. No assurance can be give (i) as
to the ultimate action the Commission will take in response to the ALJ
Entries; or (iii) that Empire
54
<PAGE>
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.
CAPITOL HOUSE PRESERVATION COMPANY, L.L.C. VS. JAZZ ENTERPRISES, INC., ET AL.
In July 1995, Capitol House Preservation Company, L.L.C. ("Capitol
House") filed a cause of action in the U. S. District Court of the Middle
District of Louisiana against Jazz, the former shareholders of Jazz ("Former
Jazz Shareholders"). Catfish Queen Partnership (the "Partnership"), Argosy
of Louisiana, Inc. ("Argosy Louisiana") and the Company alleging that Jazz
and Argosy obtained the gaming license for Baton Rouge based upon false and
fraudulent pretenses and declarations and financial misrepresentations. The
complain alleges tortious conduct as well as violations of RICO and seeks
damages of $158 million plus court costs and attorneys' fees. The plaintiff
was an applicant for a gaming license in Baton Rouge whose application was
denied by the Louisiana Enforcement Division. The Company believes the
allegations of the plaintiff are without merit and intends to vigorously
defend such cause of action.
On June 7, 1995, the Company consummated its purchase of all of the
outstanding capital stock of Jazz from the Former Jazz Shareholders. The
Company intends to seek indemnification form the Former Jazz Shareholders for
any liability the Company, Argosy Louisiana or Jazz suffers as a result of
such cause of action. As part of the consideration payable by the Company to
the Former Jazz Shareholder for the acquisition of Jazz, the Company agreed
at the time of such acquisition to annual deferred purchase price payments of
$1,350,000 for each of the first ten years after closing and $500,000 for
each of the next ten years. Payments are to be made quarterly by the
Company. The definitive acquisition documents provide the Company with
off-set rights against such deferred purchase price payments for
indemnification claims of the Company against the Former Jazz Shareholders
and for the liabilities that the Former Jazz Shareholder contractually agreed
to retain. There can be no assurance that the Former Jazz Shareholders will
have assets sufficient to satisfy any claim in excess of the Company's
off-set rights.
The defendants filed a Motion to Dismiss, or alternatively to abstain and
stay the action, pending resolution of certain Louisiana state court claims
filed by Capitol House. The trial court decided in favor of the defendants
and dismissed the suit without prejudice to the rights of plaintiff to revive
the suit after the conclusion of the pending state court matters. The
plaintiff appealed this dismissal to the U. S. Fifth Circuit Court of
Appeals. While the appeal was pending, several of the Louisiana state court
claims were resolved. On March 11, 1997, the U. S. Fifth Circuit Court of
Appeals vacated the trial court's dismissal and remanded the case to the
district court for further proceedings. The case is now back in the district
court and will proceed. The defendants intend to go forward with the
previously filed motion to dismiss. No date has yet been set for hearing on
the motion.
This case came up on the Call Docket recently. At that time Judge Polozola
indicated that he would continue on the motion to stay order regarding
discovery pending his ruling on the defendants motion to dismiss. He set the
case for the call docket again on September 10, 1997 at 9:00 A.M. and
indicated the he could set a trial date at that time for March-April 1998.
55
<PAGE>
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
<TABLE>
<CAPTION>
Votes For Votes Against Withheld/Abstain Broker Non-Votes
--------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Election of Directors
George L. Bristol 20,797,486 0 108,417 0
Jimmy F. Gallagher 20,795,986 0 109,917 0
</TABLE>
Item 5. OTHER INFORMATION-None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K - None
56
<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.
Date: August 12, 1997 /s/ Dale R. Black
--------------- --------------------------------------
Vice President-Corporate Controller
(Principal Accounting Officer)
57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 10Q OF ARGOSY GAMING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 45154
<SECURITIES> 0
<RECEIVABLES> 3431
<ALLOWANCES> 1725
<INVENTORY> 953
<CURRENT-ASSETS> 55544
<PP&E> 408031
<DEPRECIATION> 62432
<TOTAL-ASSETS> 541012
<CURRENT-LIABILITIES> 51659
<BONDS> 350000
0
0
<COMMON> 245
<OTHER-SE> 59218
<TOTAL-LIABILITY-AND-EQUITY> 541012
<SALES> 0
<TOTAL-REVENUES> 170004
<CGS> 0
<TOTAL-COSTS> 160937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23215
<INCOME-PRETAX> (11313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13282)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
