SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-K/A
Amendment No. 1
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1995
----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5440
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AZTAR CORPORATION
- ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0636534
- ---------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2390 East Camelback Road, Suite 400, Phoenix, Arizona 85016
- ------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 381-4100
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common stock, $.01 par value New York
Preferred share purchase rights New York
Securities registered pursuant to Section 12(g) of the Act:
None
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
--- ---
<PAGE>
Facing Page (Continued)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $289,490,013 at February 22, 1996 and is based on a
closing price of $7.63 and 37,941,024 common shares outstanding.
At February 22, 1996, the registrant had outstanding 38,341,106 shares
of its common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant's 1996 definitive Proxy
Statement, to be filed with the Commission, is incorporated by reference
into this Form 10-K. The following cross-referenced index details the page
location of such information. All other sections of the 1996 Proxy
Statement are not required in Form 10-K and should not be considered a part
thereof.
Part and Item of the Form 10-K 1996 Proxy Statement
- ------------------------------ --------------------
PART III
--------
ITEM 10. Directors and Executive
- ------- Officers of the Registrant Pages 2 and 3 under
caption "Election of
Directors of the Company"
and page 5 under caption
"Compliance with Section
16(a) of the Exchange Act"
ITEM 11. Executive Compensation Pages 6 through 8 except
- ------- under caption "Board
Compensation Committee
Report"
ITEM 12. Security Ownership of
- ------- Certain Beneficial Owners
and Management Page 4 under captions "5%
Beneficial Owners" and
"Directors and Executive
Officers"
ITEM 13. Certain Relationships
- ------- and Related Transactions Page 5 under caption
"Transactions with
Management and Others"
2
<PAGE>
The financial statements, reported under Part II, Item 8. Financial
Statements and Supplementary Data, are being resubmitted to correct
maturities of long-term debt for the five years subsequent to December 28,
1995, as follows:
Maturities of long-term debt for the five years subsequent to December 28,
1995 are as follows (in thousands):
As Reported As Amended
------------ ----------
Year
1996 $ 466 $ 466
1997 439 439
1998 462 4,585
1999 403 26,653
2000 116,909 86,536
3
<PAGE>
PART II
-------
ITEM 8
- ------
The information required by Item 8 is included in this report on F-1
through F-28.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AZTAR CORPORATION By ROBERT M. HADDOCK June 4, 1996
----------------- ------------------------- ------------------
Registrant Robert M. Haddock Date
Executive Vice President and
Chief Financial Officer
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Aztar Corporation
We have audited the consolidated balance sheets of Aztar Corporation and
Subsidiaries as of December 28, 1995 and December 29, 1994, and the related
consolidated statements of operations, cash flows and shareholders' equity
for each of the three years in the period ended December 28, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Aztar Corporation and Subsidiaries as of December 28, 1995 and
December 29, 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
28, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
February 14, 1996
F-1
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, 1995 and December 29, 1994
----------------------------------------
(in thousands, except share data)
1995 1994
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 26,527 $ 43,861
Short-term investments -- 8,250
Accounts receivable, net 21,325 17,391
Refundable income taxes 1,261 723
Inventories 6,591 5,693
Prepaid expenses 9,417 9,992
Deferred income taxes 8,013 7,894
---------- ---------
Total current assets 73,134 93,804
Investments in and advances to unconsolidated
partnership 11,467 12,627
Other investments 27,964 24,928
Property and equipment:
Buildings, riverboats and equipment, net 711,454 635,678
Land 95,589 81,795
Construction in progress 46,102 37,965
Leased under capital leases, net 535 852
---------- ---------
853,680 756,290
Deferred charges and other assets 46,993 27,710
---------- ---------
$1,013,238 $ 915,359
========== =========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
December 28, 1995 and December 29, 1994
----------------------------------------
(in thousands, except share data)
1995 1994
--------- ---------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accruals $ 60,226 $ 39,447
Accrued payroll and employee benefits 18,012 15,467
Accrued interest payable 14,995 13,847
Income taxes payable 2,197 2,608
Current portion of long-term debt 466 666
Current portion of other long-term liabilities 6,172 636
---------- ---------
Total current liabilities 102,068 72,671
Long-term debt 496,439 430,212
Other long-term liabilities 30,699 21,986
Deferred income taxes 18,914 24,411
Contingencies and commitments
Series B ESOP convertible preferred stock
(redemption value $6,114 and $4,900) 5,459 4,711
Shareholders' equity:
Common stock, $.01 par value (38,265,813
and 37,459,228 shares outstanding) 422 414
Paid-in capital 352,221 347,284
Retained earnings 24,922 30,555
Less: Treasury stock (17,027) (16,885)
Unearned compensation (879) --
---------- ---------
Total shareholders' equity 359,659 361,368
---------- ---------
$1,013,238 $ 915,359
========== =========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-----------------------------------
(in thousands, except per share data)
1995 1994 1993
Revenues --------- --------- ---------
Casino $469,211 $443,392 $439,294
Rooms 40,543 41,514 32,248
Food and beverage 47,343 42,657 36,357
Other 15,772 13,877 10,863
-------- -------- --------
572,869 541,440 518,762
Costs and expenses
Casino 226,239 205,995 219,721
Rooms 24,967 25,268 19,495
Food and beverage 44,320 39,361 34,773
Other 10,250 7,753 6,737
Marketing 57,445 44,494 42,793
General and administrative 50,292 47,895 45,981
Utilities 13,605 13,556 12,328
Repairs and maintenance 20,986 19,905 19,953
Provision for doubtful accounts 3,611 3,102 1,566
Property taxes and insurance 19,927 17,781 16,729
Net rent 11,308 9,951 27,747
Depreciation and amortization 39,494 36,972 32,652
Preopening costs 7,724 -- 868
-------- -------- --------
530,168 472,033 481,343
-------- -------- --------
Operating income 42,701 69,407 37,419
Interest income 3,251 3,139 24,172
Interest expense (51,052) (49,711) (45,363)
-------- -------- --------
Income (loss) before other items, income
taxes and extraordinary items (5,100) 22,835 16,228
Equity in unconsolidated partnership's loss (5,081) (4,169) (3,822)
-------- -------- --------
Income (loss) before income taxes and
extraordinary items (10,181) 18,666 12,406
Income taxes 5,187 (1,862) (1,024)
-------- -------- --------
Income (loss) before extraordinary items (4,994) 16,804 11,382
Extraordinary items -- (2,708) --
-------- -------- --------
Net income (loss) $ (4,994) $ 14,096 $ 11,382
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-----------------------------------
(in thousands, except per share data)
1995 1994 1993
-------- -------- --------
Earnings per common and common equivalent
share:
Income (loss) before extraordinary
items $ (.14) $ .42 $ .28
Extraordinary items -- (.07) --
-------- -------- --------
Net income (loss) $ (.14) $ .35 $ .28
======== ======== ========
Earnings per common share assuming full
dilution:
Income (loss) before extraordinary
items * $ .41 $ .27
Extraordinary items * (.07) --
-------- --------
Net income (loss) * $ .34 $ .27
======== ========
Weighted average common shares
applicable to:
Earnings per common and common
equivalent share 39,026 38,196 38,367
Earnings per common share assuming
full dilution * 39,224 39,429
* Anti-dilutive
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
--------------
(in thousands)
1995 1994 1993
---------- ---------- ----------
Cash Flows from Operating Activities
Net income (loss) $ (4,994) $ 14,096 $ 11,382
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 42,808 39,529 34,577
Provision for losses on accounts
receivable 3,611 3,102 1,566
Loss on reinvestment obligation -- 950 991
Interest income -- -- 1,889
Rent expense (636) (5) (880)
Distribution in excess of equity in
income of partnership 1,160 1,149 1,449
Deferred income taxes (5,616) (3,043) (1,280)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (7,545) (1,577) (1,442)
(Increase) decrease in refundable
income taxes (538) 1,339 --
(Increase) decrease in inventories
and prepaid expenses (516) (1,121) (1,969)
Increase (decrease) in accounts payable,
accrued expenses and income taxes
payable 25,066 1,434 1,955
Other items, net 6,375 5,780 2,087
--------- --------- ---------
Net cash provided by (used in) operating
activities 59,175 61,633 50,325
--------- --------- ---------
Cash Flows from Investing Activities
(Increase) decrease in invested funds 8,250 (8,250) --
Payments received on TropWorld second
mortgage -- -- 24,400
Payments received on other notes receivable 1,009 965 2,191
Reduction in other investments 11,950 -- --
Increase in TropWorld second mortgage -- -- (24,400)
Increase in other notes receivable -- -- (419)
Purchases of property and equipment (135,863) (54,442) (77,804)
Acquisition of AREI/AGP partnership
interests, net of cash acquired -- -- (61,859)
Additions to other long-term assets (28,463) (6,682) (6,391)
--------- --------- ---------
Net cash provided by (used in) investing
activities $(143,117) $ (68,409) $(144,282)
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
--------------
(in thousands)
1995 1994 1993
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt $ 83,600 $254,795 $ 35,000
Proceeds from issuance of common stock 1,977 274 2,149
Principal payments on long-term debt (17,837) (231,507) (2,157)
Debt issuance costs (80) (11,473) (969)
Preferred stock dividend (754) (773) (787)
Redemption of preferred stock (298) (230) (131)
-------- -------- --------
Net cash provided by (used in)
financing activities 66,608 11,086 33,105
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (17,334) 4,310 (60,852)
Cash and cash equivalents at beginning
of year 43,861 39,551 100,403
-------- -------- --------
Cash and cash equivalents at end
of year $ 26,527 $ 43,861 $ 39,551
======== ======== ========
Supplemental Cash Flow Disclosures
Acquisition of AREI/AGP partnership interests:
Working capital, other than cash $ -- $ -- $ 3,370
Notes receivable -- -- 242,605
Building and equipment -- -- (307,582)
Capital lease assets, net -- -- 6,703
Long-term debt -- -- (5,682)
Other long-term liabilities -- -- (1,273)
-------- -------- --------
Net cash used in acquisition -- -- (61,859)
Summary of non-cash investing and
financing activities:
Capital lease obligations incurred
for property and equipment $ 41 $ 75 $ 385
Other long-term liabilities incurred
for deferred charges and other assets 13,400 -- --
Other long-term liabilities incurred
for property and equipment 535 -- --
Tax benefit from stock options
and preferred stock dividend 907 722 431
Issuance of restricted stock 2,189 -- --
Forfeiture of restricted stock 142 -- --
Cash flow during the year for the following:
Interest paid, net of amount capitalized $ 47,758 $ 47,087 $ 43,160
Income taxes paid 471 2,065 1,997
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-------------
(in thousands)
Unearned
Common Paid-in Retained Treasury Compen-
Stock Capital Earnings Stock sation Total
-------- -------- --------- --------- --------- --------
Balance,
December 31, 1992 $ 410 $344,574 $ 5,787 $(16,885) $ (137) $333,749
Stock options
exercised 4 2,145 2,149
Tax benefit
from stock
options exercised 246 246
Preferred stock
dividend, net of
income tax benefit (610) (610)
Amortization of
unearned
compensation 72 72
Net income 11,382 11,382
-------- -------- -------- -------- -------- --------
Balance,
December 30, 1993 414 346,965 16,559 (16,885) (65) 346,988
Stock options
exercised 274 274
Tax benefit
from stock
options exercised 45 45
Reduction in income
tax valuation
allowance 520 520
Preferred stock
dividend, net of
income tax benefit (620) (620)
Amortization of
unearned
compensation 65 65
Net income 14,096 14,096
-------- -------- -------- -------- -------- --------
Balance,
December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-------------
(in thousands)
Unearned
Common Paid-in Retained Treasury Compen-
Stock Capital Earnings Stock sation Total
------- -------- --------- --------- --------- --------
Balance,
December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368
Stock options
exercised 5 1,972 1,977
Issuance of
restricted stock 3 2,186 (2,189) --
Tax benefit
from stock
options exercised 779 779
Preferred stock
dividend, net of
income tax benefit (639) (639)
Forfeiture of
restricted stock (142) 142 --
Amortization of
unearned 1,168 1,168
compensation
Net income (loss) (4,994) (4,994)
------- -------- -------- -------- -------- --------
Balance,
December 28, 1995 $ 422 $352,221 $ 24,922 $(17,027) $ (879) $359,659
======= ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidated Statements
Aztar Corporation ("Aztar" or the "Company") was incorporated in Delaware
in June 1989 to operate the gaming business of Ramada Inc. ("Ramada") after
the restructuring of Ramada (the "Restructuring"). The Restructuring
involved the disposition of Ramada's hotel and restaurant businesses with
Ramada's shareholders retaining their interest in the gaming business. As
part of the Restructuring, the gaming business and certain other assets and
liabilities of Ramada were transferred to Aztar, and a wholly-owned
subsidiary of New World Hotels (U.S.A.), Inc. was merged with Ramada (the
"Merger"). In the Merger, each share of Ramada common stock was converted
into the right to receive $1.00 and one share of Aztar common stock. For
accounting purposes Aztar is treated as the continuing accounting entity
that is the successor to the historical Ramada and that has discontinued
the hotel and restaurant businesses.
The Company operates casino hotels in Atlantic City, New Jersey, at
TropWorld and in Las Vegas and Laughlin, Nevada, at Tropicana and Ramada
Express, respectively. The Company began operations of casino riverboats
on April 28, 1995, in Caruthersville, Missouri, and on December 7, 1995, in
Evansville, Indiana. A substantial portion of the Company's consolidated
revenues and assets are concentrated at TropWorld.
The consolidated financial statements include the accounts of Aztar and all
of its controlled subsidiaries and partnerships. All subsidiary companies
are wholly owned. In consolidating, all material intercompany transactions
are eliminated. The Company uses a 52/53 week fiscal year ending on the
Thursday nearest December 31, which includes 52 weeks in 1995, 1994 and
1993.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Highly liquid investments purchased with an original maturity of three
months or less are classified as cash equivalents. These instruments are
stated at cost, which approximates fair value because of their short
maturity.
Short-term Investments
Short-term investments purchased with an original maturity of over three
months but less than one year are stated at cost, which approximates fair
value because of their short maturity. Short-term investments at
December 29, 1994, consisted of a bank certificate of deposit.
F-10
<PAGE>
Inventories
Inventories, which consist primarily of food, beverage and operating
supplies, are stated at the lower of cost or market value. Costs are
determined using the first-in, first-out method.
Advertising Costs
Costs for advertising are expensed as incurred, except costs for direct-
response advertising, which are capitalized and amortized over the period
of the related program. Direct-response advertising costs consist
primarily of mailing costs associated with direct-mail programs.
Capitalized advertising costs, included in prepaid expenses, were
immaterial at December 28, 1995 and December 29, 1994. Advertising costs
that were expensed during the year were $12,951,000 in 1995, $9,001,000 in
1994 and $8,892,000 in 1993.
Other Investments
The Casino Reinvestment Development Authority ("CRDA") bonds are classified
as held-to-maturity securities and are carried at amortized cost.
Property and Equipment
Property and equipment are stated at cost. During construction, the
Company capitalizes interest and other direct and indirect development
costs. Interest is capitalized monthly by applying the effective interest
rate on certain borrowings to the average balance of expenditures. The
interest that was capitalized during the year was $5,290,000 in 1995,
$2,664,000 in 1994 and $3,491,000 in 1993.
Depreciation and amortization are computed by the straight-line method
based upon the following useful lives: buildings and improvements, 3-40
years; riverboats, barge, docking facilities and improvements, 3-25 years;
furniture and equipment, 3-15 years; and leasehold improvements, shorter of
lease term or asset useful life. Accumulated depreciation and amortization
on buildings, riverboats and equipment was $202,897,000 at December 28,
1995 and $172,812,000 at December 29, 1994.
Improvements, renewals and extraordinary repairs that extend the life of
the asset are capitalized; other repairs and maintenance are expensed. The
cost and accumulated depreciation applicable to assets retired are removed
from the accounts and the gain or loss, if any, on disposition is
recognized in income as realized.
Deferred Charges
Debt issuance costs are capitalized as incurred and amortized using the
interest method. Capitalized debt issuance costs, net of accumulated
amortization of $3,012,000 and $1,147,000, were $15,063,000 and $16,847,000
at December 28, 1995 and December 29, 1994, respectively.
F-11
<PAGE>
Costs incurred to obtain initial gaming licenses to operate a casino are
capitalized as incurred and amortized evenly over ten years beginning with
the commencement of operations; subsequent renewal costs are amortized
evenly over the renewal period. Deferred licensing costs consist primarily
of payments or obligations to civic and community organizations, legal and
consulting fees, application and selection fees with associated
investigative costs and direct internal salaries and related costs of
development personnel. Deferred licensing costs in connection with initial
gaming licenses of open and operating locations, net of accumulated
amortization of $1,723,000 and $1,265,000, were $19,951,000 and $1,092,000
at December 28, 1995 and December 29, 1994, respectively.
Preopening costs directly related to the opening of a gaming operation or
major addition to a gaming operation are capitalized as incurred and
expensed in the period the related facility commences operations.
Preopening costs consist primarily of salaries and wages, marketing,
temporary office expenses, professional fees and training costs. There
were no capitalized preopening costs at December 28, 1995. Capitalized
preopening costs were $817,000 at December 29, 1994.
The Company is actively pursuing new development opportunities in certain
gaming jurisdictions, as well as in jurisdictions in which gaming has not
been approved. Development costs associated with these pursuits are
expensed as incurred until such time as a particular opportunity is
determined to be viable, generally when the Company has been selected as
the operator of a new gaming facility, has applied for a gaming license or
has obtained rights to a specific site. Development costs incurred
subsequent to these criteria being met are capitalized. Development costs
consist of deferred licensing costs and site acquisition costs. In
jurisdictions in which gaming has not been approved, only site acquisition
costs are capitalized. In the event a project is later determined not to
be viable or the Company is not licensed to operate a facility at a site,
the capitalized costs related to this project or site would be expensed.
At December 28, 1995 and December 29, 1994, the Company had capitalized
costs of $1,458,000 and $2,856,000, respectively, related to various
development projects. It is reasonably possible that management's estimate
of viability with regard to development projects may change in the near
term.
Equity Instruments
The fair value based method of accounting is used for equity instruments
issued to nonemployees for goods or services. The intrinsic value based
method of accounting is used for stock-based employee compensation plans.
F-12
<PAGE>
Revenue Recognition
Casino revenue consists of gaming win net of losses. Revenues exclude the
retail value of complimentary food and beverage, accommodations and other
goods and services provided to customers. The estimated costs of providing
such complimentaries have been classified as casino expenses through
interdepartmental allocations as follows (in thousands):
1995 1994 1993
-------- -------- --------
Rooms $ 19,329 $ 17,767 $ 18,992
Food and beverage 34,369 33,610 33,287
Other 3,894 4,741 6,666
-------- -------- --------
$ 57,592 $ 56,118 $ 58,945
======== ======== ========
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been included in the financial
statements or income tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted rates expected to apply to
taxable income in the years in which those differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes
the enactment date.
Earnings Per Share
Earnings per common and common equivalent share are computed based on the
weighted average number of common shares outstanding after consideration of
the dilutive effect of restricted stock and stock options. Earnings per
common share, assuming full dilution, are computed based on the weighted
average number of common shares outstanding after consideration of the
dilutive effect of restricted stock, stock options and the assumed
conversion of the preferred stock at the stated rate.
In calculating the 1995, 1994 and 1993 earnings per share for both
computations, dividends of $639,000, $620,000 and $610,000, respectively,
on the Series B ESOP Convertible Preferred Stock are deducted in arriving
at income applicable to the common stock. The 1995, 1994 and 1993
dividends are net of income tax benefits of $128,000, $157,000 and
$185,000, respectively.
Reclassifications
Certain reclassifications have been made in the 1994 Consolidated Balance
Sheet and the 1994 and 1993 Consolidated Statements of Operations in order
to be comparable with the 1995 presentations.
F-13
<PAGE>
NOTE 2. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments, long-term investments and trade
accounts receivable. The Company places its cash and temporary cash
investments with high-credit-quality financial institutions. At times,
such investments may be in excess of the FDIC and SIPC insurance limits.
The Company had certificates of deposit at one financial institution that
were classified as other investments at December 28, 1995 and as short-term
investments at December 29, 1994.
TropWorld has a concentration of credit risk in the northeast region of
the U.S. Approximately 40% of the receivables at the Nevada operations are
concentrated in Asian and Latin American customers and the remainder of
their receivables are concentrated in California and the southwest region
of the U.S. As a general policy, the Company does not require collateral
for these receivables. At December 28, 1995 and December 29, 1994, the net
receivables at TropWorld were $9,503,000 and $7,951,000, respectively, and
the net receivables at Tropicana and Ramada Express combined were
$11,395,000 and $9,394,000, respectively.
An allowance for doubtful accounts is maintained at a level considered
adequate to provide for possible future losses; however, it is reasonably
possible that this estimate could change in the near term. At December 28,
1995 and December 29, 1994, the allowance for doubtful accounts was
$9,905,000 and $10,720,000, respectively.
NOTE 3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIP
The Company's investment in unconsolidated partnership is a noncontrolling
partnership interest of 50% in Tropicana Enterprises, a Nevada general
partnership that owns the real property and certain personal property that
the Company leases in the operation of Tropicana. The Company uses the
equity method of accounting for this investment and in connection with the
lease expensed rents of $17,098,000 in 1995, $15,267,000 in 1994 and
$12,684,000 in 1993, of which 50% was eliminated in consolidation.
F-14
<PAGE>
Summarized balance sheet information and operating results for the
unconsolidated partnership are as follows (in thousands):
1995 1994
-------- --------
Current assets $ 835 $ 636
Noncurrent assets 73,440 77,427
Current liabilities 915 983
Noncurrent liabilities 68,845 71,339
1995 1994 1993
-------- -------- --------
Revenues $ 17,166 $ 15,360 $ 12,815
Operating expenses (2,743) (2,748) (2,755)
-------- -------- --------
Operating income 14,423 12,612 10,060
Interest expense (6,323) (4,492) (3,793)
-------- -------- --------
Net income $ 8,100 $ 8,120 $ 6,267
======== ======== ========
The Company's share of the above operating results, after intercompany
eliminations, is as follows (in thousands):
1995 1994 1993
-------- -------- --------
Equity in unconsolidated
partnership's loss $ (5,081) $ (4,169) $ (3,822)
NOTE 4. OTHER INVESTMENTS
At December 28, 1995 and December 29, 1994, other investments consisted of
(in thousands):
1995 1994
-------- --------
CRDA deposits, net of a valuation
allowance of $5,927 and $9,233 $16,596 $22,089
CRDA bonds, net of an unamortized
discount of $1,420 and $1,311 3,118 2,839
Certificate of deposit 8,250 --
------- -------
$27,964 $24,928
======= =======
The Company deposits funds with the CRDA to satisfy a New Jersey assessment
based upon its casino revenues. Deposits with the CRDA bear interest at
two-thirds of market rates resulting in a fair value lower than cost. If
not used for other purposes, the CRDA deposits are used to invest in bonds
issued by the CRDA as they become available that also bear interest at two-
thirds of market rates. The CRDA bonds have various contractual maturities
that range from 29 to 50 years. Actual maturities may differ from
contractual maturities because of prepayment rights.
F-15
<PAGE>
The Company has executed an agreement with the CRDA for approximately
$25,000,000 in funding in connection with an expansion project at
TropWorld. Construction of the expansion commenced in February 1995 and is
scheduled for completion in May 1996. The expansion will consist primarily
of a new 604-room hotel tower, with additional restaurant and support
facilities in the existing operation. The Company receives funds from the
CRDA based on expenditures made for the project to the extent that the
Company has available funds on deposit with the CRDA that qualify for this
funding. During 1995, the Company received approximately $11,900,000 in
funding from the CRDA under this agreement. At December 28, 1995, the
Company had approximately $900,000 in available deposits with the CRDA that
qualified. The balance of funding will result from portions of future CRDA
deposits.
The Company has a certificate of deposit which is pledged as collateral for
a $13,450,000 letter of credit. The letter of credit was obtained in
connection with the Company's obligation to make certain payments over the
next five years to the City of Evansville, Indiana as well as other civic
and community organizations. The letter of credit will be reduced as
certain of these payments are made and the collateral will be released as
the letter of credit is reduced below $8,250,000.
NOTE 5. LONG-TERM DEBT
At December 28, 1995 and December 29, 1994, long-term debt included (in
thousands):
1995 1994
-------- --------
11% Senior Subordinated Notes Due 2002; redeemable
beginning October 1, 1997 at 103.143% $200,000 $200,000
13 3/4% Senior Subordinated Notes Due 2004 ($180,000
principal amount, 14% effective interest rate);
redeemable beginning October 1, 1999 at 106.875%;
net of unamortized discount 177,768 177,650
Reducing revolving credit note; floating rate,
8.39% at December 28, 1995; matures December 31, 1999 116,600 50,000
Other notes payable; 7% to 14.6%; maturities to 2002 1,814 2,115
Obligations under capital leases 723 1,113
-------- --------
496,905 430,878
Less current portion (466) (666)
-------- --------
$496,439 $430,212
======== ========
Maturities of long-term debt for the five years subsequent to December 28,
1995 are as follows (in thousands):
Year
1996 $ 466
1997 439
1998 4,585
1999 26,653
2000 86,536
F-16
<PAGE>
The 11% Senior Subordinated Notes (the "11% Notes") are due on October 1,
2002. Interest on the 11% Notes is payable semiannually on April 1 and
October 1. The 11% Notes are redeemable at the option of the Company, in
whole or in part, on or after October 1, 1997, at prices from 103.143% of
the principal amount plus interest declining to 100% plus interest
beginning October 1, 1999.
The 13 3/4% Senior Subordinated Notes (the "13 3/4% Notes") are due on
October 1, 2004. Interest on the 13 3/4% Notes is payable semiannually on
April 1 and October 1. The 13 3/4% Notes are redeemable at the option of
the Company, in whole or in part, on or after October 1, 1999, at prices
from 106.875% of the principal amount plus interest declining to 100% plus
interest beginning October 1, 2003.
The 11% Notes and 13 3/4% Notes, ranked pari passu, are general unsecured
obligations of the Company and are subordinated in right of payment to all
present and future Senior indebtedness (as defined) of the Company. Upon
change of control of the Company, the holders of the 11% Notes and 13 3/4%
Notes would have the right to require repurchase of the respective notes at
par plus accrued interest. Certain covenants in the 11% Notes and 13 3/4%
Notes limit the ability of the Company to incur indebtedness or engage in
mergers, consolidations or sales of assets.
The reducing revolving credit note (the "Bank Credit Facility") matures on
December 31, 1999. The beginning maximum amount of the Bank Credit
Facility was approximately $207,000,000. The maximum amount of the Bank
Credit Facility reduces quarterly beginning on March 31, 1996 in the annual
amounts of $25,000,000 in 1996 and $35,000,000 in each year thereafter
until maturity. The Bank Credit Facility is collateralized by all the
property of TropWorld, Ramada Express and the riverboat casino operations
and, with certain exceptions, the stock of the Company's subsidiaries.
Interest is computed on the outstanding principal balance based upon, at
the Company's option, a one-, two-, three- or six-month Eurodollar rate
plus a margin ranging from 1.25% to 2.75%, or the prime rate plus a margin
ranging from zero to 1.50%. The applicable margin is dependent upon the
Company's outstanding indebtedness (as defined) and operating cash flow.
Effective February 16, 1996, the margin was at the highest level. Interest
computed based upon the Eurodollar rate is payable quarterly or on the last
day of the applicable Eurodollar interest period, if earlier. Interest
computed based upon the prime rate is payable quarterly. The Company
incurs a commitment fee ranging from 0.375% to 0.5% per annum on the unused
portion of the Bank Credit Facility.
The reducing revolving loan agreement governing the Bank Credit Facility
(the "Loan Agreement") imposes various restrictions on the Company,
including limitations on its ability to incur additional debt, commit funds
to maintenance capital expenditures (as defined), merge or sell assets.
The Loan Agreement limits the Company on its ability to commit funds to new
venture capital expenditures (as defined) for a single project in excess of
$50,000,000 with the following exceptions: (i) a riverboat casino project
in Evansville, Indiana; (ii) a riverboat casino project in Caruthersville,
Missouri; (iii) a hotel tower expansion project at TropWorld and (iv) up to
$50,000,000 in a certain type of new venture entity. The permitted new
venture capital expenditures have certain individual project maximum
amounts and there is a certain limitation in the aggregate. The Loan
Agreement also prohibits dividends on the Company's common stock, other
than those payable in common stock, and repurchases of the Company's common
F-17
<PAGE>
stock with certain limited exceptions. In addition, the Loan Agreement
contains certain quarterly financial tests, including a minimum net worth,
a minimum debt service coverage ratio and a maximum debt to operating cash
flow ratio. The maximum debt to operating cash flow financial test was
waived at December 28, 1995. This maximum debt to operating cash flow
ratio as calculated under the Loan Agreement was 5.26 to 1 at December 28,
1995 and the allowable ratio decreases to 3.75 to 1 at January 2, 1997.
NOTE 6. LEASE OBLIGATIONS
The Company is a lessee under a number of noncancelable lease agreements
involving land, buildings, leasehold improvements and equipment, some of
which provide for contingent rentals based on revenues, the consumer price
index and/or interest rate fluctuations. The leases extend for various
periods up to 16 years and generally provide for the payment of executory
costs (taxes, insurance and maintenance) by the Company. Certain of these
leases have provisions for renewal options ranging from 1 to 15 years,
primarily under similar terms, and/or options to purchase at various dates.
Properties leased under capital leases are as follows (in thousands):
1995 1994
-------- --------
Furniture and equipment $ 9,393 $ 9,451
Less accumulated amortization (8,858) (8,599)
-------- --------
$ 535 $ 852
======== ========
Amortization of furniture and equipment leased under capital leases,
computed on a straight-line basis, was $299,000 in 1995, $289,000 in 1994
and $1,899,000 in 1993.
Minimum future lease obligations on long-term, noncancelable leases in
effect at December 28, 1995 are as follows (in thousands):
Year Capital Operating
---- -------- ---------
1996 $ 227 $ 9,807
1997 160 9,484
1998 146 9,070
1999 146 8,788
2000 146 8,508
Thereafter 37 77,471
-------- --------
862 $123,128
========
Amount representing interest (139)
--------
Net present value 723
Less current portion (180)
--------
Long-term portion $ 543
========
The above net present value is computed based on specific interest rates
determined at the inception of the leases.
F-18
<PAGE>
Net rent expense is detailed as follows (in thousands):
1995 1994 1993
-------- -------- --------
Minimum rentals $ 7,618 $ 8,121 $ 30,565
Contingent rentals 3,690 1,830 7,512
Less: Minimum lease income -- -- (2,773)
Maintenance reimbursement -- -- (7,557)
-------- -------- --------
$ 11,308 $ 9,951 $ 27,747
======== ======== ========
NOTE 7. OTHER LONG-TERM LIABILITIES
At December 28, 1995 and December 29, 1994, other long-term liabilities
consisted of (in thousands):
1995 1994
-------- --------
Accrued rent expense $ 13,043 $ 13,679
Obligation to City of Evansville
and other civic and community
organizations 13,400 --
Deferred compensation and
retirement plans 9,739 8,789
Las Vegas Boulevard
beautification assessment 535 --
Deferred income 154 154
-------- --------
36,871 22,622
Less current portion (6,172) (636)
-------- --------
$ 30,699 $ 21,986
======== ========
NOTE 8. REDEEMABLE PREFERRED STOCK
A series of preferred stock consisting of 100,000 shares has been
designated Series B ESOP Convertible Preferred Stock (the "ESOP Stock") and
those shares were issued on December 20, 1989, to the Company's Employee
Stock Ownership Plan (the "ESOP"). The ESOP purchased the shares for
$10,000,000 with funds borrowed from a subsidiary of the Company. These
funds are repayable in even semiannual payments of principal and interest
at 13 1/2% per year over a 10-year term. During 1995, 1994 and 1993,
respectively, 2,797 shares, 2,206 shares and 1,203 shares were redeemed
primarily in connection with employee terminations and at December 28,
1995, cumulative redemptions totaled 7,322 shares. The ESOP Stock has an
annual dividend rate of $8.00 per share per annum payable semiannually in
arrears. These shares have no voting rights except under certain limited,
specified conditions. Shares not allocated to participant accounts and
those shares not vested may be redeemed at $100 per share. Shares may be
converted into common stock at $9.46 and have a liquidation preference of
$100 per share.
F-19
<PAGE>
The shares that have been allocated to the ESOP participant accounts and
have vested are redeemable at the higher of appraised value, conversion
value or $100 per share, by the participant upon termination. The excess
of the redemption value of the ESOP Stock over the carrying value is
charged to retained earnings upon redemption. In the event of default in
the payment of dividends on the ESOP Stock for six consecutive semiannual
periods, each outstanding share would have one vote per share of common
stock into which the preferred stock is convertible.
NOTE 9. CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock,
par value $.01 per share, issuable in series as the Board of Directors may
designate. Approximately 40,000 shares of preferred stock have been
designated Series A Junior Participating Preferred Stock but none have been
issued.
The Company is authorized to issue 100,000,000 shares of common stock with
a par value of $.01 per share. Shares issued were 42,222,646 at December
28, 1995, and 41,427,819 at December 29, 1994. Common stock outstanding
was net of 3,956,833 and 3,968,591 treasury shares at December 28, 1995 and
December 29, 1994, respectively. One preferred stock purchase right (a
"Right") is attached to each share of the Company's common stock. Each
Right will entitle the holder, subject to the occurrence of certain events,
to purchase a unit with no par value (a "Unit") consisting of one one-
thousandth of a share of Series A Junior Participating Preferred Stock at a
purchase price of $40.00 per Unit subject to adjustment. The Rights will
expire in December 1999 if not earlier redeemed by the Company at $.01 per
Right.
The Company issued 292,000 shares of restricted common stock in 1995 to
certain executive officers and key employees; however, 18,000 of these
shares were forfeited in 1995. The restrictions on 138,000 of the
unforfeited shares will lapse over a three-year period commencing on the
date of issuance. The restrictions on 102,000 of the unforfeited shares
lapsed during 1995 after the common stock price hit certain performance
targets. The restrictions on the remaining 34,000 of unforfeited shares
will lapse if the common stock price closes at or above $10.00 per share
for ten consecutive trading days. Compensation expense in connection with
this issuance was $1,168,000 in 1995. Compensation expense in connection
with prior issuances of restricted common stock were $65,000 and $72,000 in
1994 and 1993, respectively.
In accordance with the Merger agreement, 666,572 shares of common stock
that had not been claimed by the shareholders of Ramada were returned to
the Company in December 1990 to be held as treasury shares until claimed.
During 1995, 1994 and 1993, respectively, 29,758, 23,551 and 42,519 shares
were claimed; the balance of unclaimed shares was 393,448 as of
December 28, 1995.
During 1990, the Board of Directors authorized the Company to make
discretionary repurchases of up to 4,000,000 shares of its common stock
from time to time in the open market or otherwise and at December 28, 1995,
there remains 591,900 shares that could be repurchased under this
authority. No shares were repurchased under this program in 1995, 1994 or
1993. Repurchased and forfeited shares are stated at cost and held as
treasury shares to be used for general corporate purposes.
F-20
<PAGE>
Changes in the number of common shares reserved under the Company's stock
option plan for directors who are not employees of the Company
("Nonemployee Director Stock Option Plan") are as follows (in thousands of
shares):
Number of Price Range
Shares of Options
--------- -----------
Balance, December 31, 1992 62 $5.50-$6.75
Granted 9 $6.75
--------
Balance, December 30, 1993 71 $5.50-$6.75
Granted 13 $6.00-$6.75
Cancelled, expired or surrendered (8) $5.50-$6.75
--------
Balance, December 29, 1994 76 $5.50-$6.75
Granted 9 $9.63
--------
Balance, December 28, 1995 85 $5.50-$9.63
========
All options granted under the Nonemployee Director Stock Option Plan are
immediately exercisable on the date of grant and expire ten years from the
date of grant. At December 28, 1995, December 29, 1994 and December 30,
1993, common shares reserved for future grants of options under this plan
were 165,000, 174,000 and 179,000, respectively.
Changes in the number of common shares reserved under the Company's
employee stock option plans are as follows (in thousands of shares):
Number of Price Range
Shares of Options
--------- -----------
Balance, December 31, 1992 3,833 $3.19-$8.15
Granted 50 $7.63
Exercised (339) $3.19-$8.15
Cancelled, expired or surrendered (42) $6.49-$8.15
--------
Balance, December 30, 1993 3,502 $3.19-$8.15
Granted 110 $5.88-$7.00
Exercised (77) $3.19-$5.00
Cancelled, expired or surrendered (57) $5.00-$7.38
--------
Balance, December 29, 1994 3,478 $3.19-$8.15
Granted 670 $7.00-$9.25
Exercised (503) $3.19-$8.15
Cancelled, expired or surrendered (43) $6.05-$8.15
--------
Balance, December 28, 1995 3,602 $3.19-$9.25
========
At December 28, 1995, December 29, 1994 and December 30, 1993, options
exercisable under the Company's employee stock option plans were 2,842,000,
3,289,000 and 3,077,000, respectively; shares reserved for future grants
were 844,000, 1,745,000 and 1,797,000, respectively.
In addition to the common shares reserved under stock option plans at
December 28, 1995, the Company has 980,000 common shares reserved for the
conversion of the ESOP Stock. The Company also has 40,563 shares of
preferred stock reserved for exercise of the Rights.
F-21
<PAGE>
NOTE 10. BENEFIT PLANS
The Company has a defined benefit pension plan, which is not currently
funded, for certain former executive employees. The Company has a
nonqualified defined benefit retirement plan, which is not required to be
funded by the Company, for certain senior executives. The Company has a
defined contribution savings plan that covers substantially all employees
who are not covered by a collective bargaining unit. Contributions to the
savings plan are discretionary. Total pension and savings plan expense was
$822,000 for 1995, $782,000 for 1994 and $689,000 for 1993. The Company
also contributed $2,305,000, $2,182,000 and $1,990,000 in 1995, 1994 and
1993, respectively, to trusteed pension plans under various collective
bargaining agreements.
The Company has a deferred compensation plan for designated executives and
a similar plan for outside directors. The plans provide for the payment of
benefits commencing at retirement. The Company is substantially funding
the plans through the purchase of life insurance. Net expense recognized
in 1995, 1994 and 1993 was $183,000, $183,000 and $180,000, respectively.
The Company's ESOP covers substantially all non-union employees. The
Company will make contributions to the ESOP so that, after the dividends
are paid on the Company's ESOP Stock, the ESOP can make its debt service
payments to the Company. Cash dividends and contributions, respectively,
paid to the ESOP were $754,000 and $1,121,000 in 1995, $773,000 and
$1,102,000 in 1994 and $787,000 and $1,088,000 in 1993. Compensation
expense recognized in 1995, 1994 and 1993, respectively, was $1,107,000,
$1,214,000 and $1,311,000.
NOTE 11. INCOME TAXES
The (provision) benefit for income taxes before extraordinary items is
comprised of (in thousands):
1995 1994 1993
Current: -------- -------- --------
Federal $ (429) $ (4,588) $ (2,231)
State -- (317) (73)
-------- -------- --------
(429) (4,905) (2,304)
Deferred: -------- -------- --------
Federal 1,170 2,174 378
State 4,446 869 902
-------- -------- --------
5,616 3,043 1,280
-------- -------- --------
$ 5,187 $ (1,862) $ (1,024)
======== ======== ========
The Company is responsible, with certain exceptions, for the taxes of
Ramada through December 20, 1989. The Internal Revenue Service has
completed its examination of the income tax returns for the years 1986 and
1987. Ramada has signed a partial agreement for those two years and has
filed a petition with the U.S. Tax Court for two remaining issues.
Management expects those two issues to be resolved on satisfactory terms
prior to trial. The Internal Revenue Service is examining the income tax
returns for the years 1988 through 1993. The New Jersey Division of
F-22
<PAGE>
Taxation is examining the income tax returns for the years 1986 through
1989. Management believes that adequate provision for income taxes and
interest has been made in the financial statements. In connection with the
Internal Revenue Service examinations of the years 1986 through 1989,
management has been conservative in providing for amounts that could be due
upon settlement. It is reasonably possible that these examinations could
be favorably settled in the near term.
General business credits are taken as a reduction of the provision for
federal income taxes during the year such credits become available. The
following table provides a reconciliation between the federal statutory
rates and the (provision) benefit for income taxes when both are expressed
as a percentage of pretax income.
1995 1994 1993
-------- -------- --------
Tax (provision) benefit at statutory rate 35.0 % (35.0)% (35.0)%
(Increase) decrease in tax resulting from:
State income taxes (7.2) 2.5 4.3
Contributions and gifts (2.4) (.7) (.6)
Disallowance of business meals (13.5) (6.7) (4.1)
Lobbying and nondeductible dues (2.1) -- --
Restricted stock and nonqualified stock
options .7 .7 .7
IRS examination .2 (4.1) (7.9)
General business credits 4.1 2.2 4.2
Change in valuation allowance 35.6 31.4 30.3
Other, net .5 (.3) (.2)
------- ------- -------
50.9 % (10.0)% (8.3)%
======= ======= =======
The income tax effects of loss carryforwards, tax credit carryforwards and
temporary differences between financial and income tax reporting that give
rise to the deferred income tax assets and liabilities at December 28, 1995
and December 29, 1994, are as follows (in thousands):
1995 1994
--------- ---------
Net operating loss carryforward $ 18,015 $ 15,266
Accrued rent expense 5,415 4,840
Accrued bad debt expense 4,476 5,255
Accrued compensation 5,134 4,705
Accrued liabilities 3,976 2,704
General business credit carryforward 7,021 6,851
-------- --------
Gross deferred tax assets 44,037 39,621
-------- --------
Deferred tax asset valuation allowance (8,196) (11,572)
-------- --------
Other (2,049) (743)
Partnership investment (5,291) (5,250)
Depreciation and amortization (17,958) (17,129)
Ramada tax sharing agreement (21,444) (21,444)
-------- --------
Gross deferred tax liabilities (46,742) (44,566)
-------- --------
Net deferred tax liabilities $(10,901) $(16,517)
======== ========
F-23
<PAGE>
Gross deferred tax assets are reduced by a valuation allowance.
Realization of the net deferred tax asset at December 28, 1995, is
dependent on generating sufficient taxable income prior to expiration of
the net operating loss carryforward. Although realization is not assured,
management believes it is more likely than not that all of the net deferred
tax asset will be realized. The beginning-of-year valuation allowances
were reduced during 1995, 1994 and 1993 which caused a decrease in income
tax expense of $3,622,000, $6,286,000, and $3,878,000, respectively. In
addition, $520,000 that was included in the December 30, 1993 valuation
allowance was allocated to shareholders' equity during 1994.
At December 28, 1995, tax benefits are available for federal income tax
purposes as follows (in thousands):
Net operating losses $35,732
General business credits 3,390
These tax benefits will expire in the years 2003 through 2010 if not used.
The Company also has alternative minimum tax credit carryforwards of
$3,631,000 that can be carried forward indefinitely and offset against the
regular federal income tax liability. In addition, the Company has net
operating loss carryforwards for state income tax purposes that will expire
in the following years if not used (in thousands):
1996 $23,943
1997 15,310
1998 18,209
1999 12,549
2000 6,245
2001 9,606
2002 498
2010 10,272
NOTE 12. EXTRAORDINARY ITEMS
In 1994, the Company expensed the remaining unamortized deferred financing
costs and unamortized discount in connection with early redemptions of
debt. These items were reflected in the 1994 Consolidated Statement of
Operations as an extraordinary loss of $2,708,000, which was net of an
income tax benefit of $1,776,000.
NOTE 13. CONTINGENCIES AND COMMITMENTS
The Company agreed to indemnify Ramada against all monetary judgments in
lawsuits pending against Ramada and its subsidiaries as of the conclusion
of the Restructuring on December 20, 1989, as well as all related
attorneys' fees and expenses not paid at that time, except for any
judgments, fees or expenses accrued on the hotel business balance sheet and
except for any unaccrued and unreserved aggregate amount up to $5,000,000
of judgments, fees or expenses related exclusively to the hotel business.
Aztar is entitled to the benefit of any crossclaims or counterclaims
related to such lawsuits and of any insurance proceeds received. In
addition, the Company agreed to indemnify Ramada for various lease
guarantees made by Ramada relating to the restaurant business conducted
through its Marie Callender Pie Shops, Inc. subsidiary. In connection with
these matters, the Company has an accrued liability of $3,941,000 and
$3,963,000 at December 28, 1995 and December 29, 1994, respectively.
F-24
<PAGE>
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of business or asserted by way of
defense or counterclaim in actions filed by the Company. Management
believes that its defenses are substantial in each of these matters and
that the Company's legal posture can be successfully defended without
material adverse effect on its consolidated financial statements.
The Tropicana lease agreement contains a provision that requires the
Company to maintain an additional security deposit with the lessor of
approximately $21,251,000 in cash or a letter of credit if the Tropicana
operation fails to meet certain financial tests. This requirement was
waived at December 28, 1995. The Company has a 50% partnership interest in
the lessor.
The Company has severance agreements with certain of its senior executives.
Severance benefits for three of the executives consist of, among other
things, a lump-sum cash payment equal to twice the sum of the executive's
annual base salary plus twice the average of the executive's annual bonuses
awarded in the three years preceding termination of employment, payment of
the value in their outstanding stock options and vesting and distribution
of any restricted stock. Certain other executives would receive a lump-sum
cash payment equal to their annual base salary plus a three-year average of
their annual bonus, plus the other described benefits. Some of the
executives would receive a lump-sum cash payment equal to their base
salary. In certain agreements, the termination must be as a result of a
change in control of the Company. Based upon current salary levels and
stock options, the aggregate commitment under the severance agreements
should all these executives be terminated, is approximately $15,300,000 as
of December 28, 1995.
At December 28, 1995, the Company had commitments of approximately
$75,000,000 for the purchase of property and equipment.
NOTE 14. ACQUISITION
In July 1993, the Company acquired the partnership interests in Ambassador
Real Estate Investors, L.P. ("AREI") and Ambassador General Partnership
("AGP"). AREI owned a 99.9% general partnership interest in AGP, which
acquired a substantial interest in TropWorld in a sale-leaseback
transaction in 1984.
The acquisition has been accounted for as a purchase by the Company. The
aggregate consideration, including costs incurred to complete the
transaction, was approximately $62,000,000 in cash. The Company had a
$10,000,000 revolving credit note to fund a portion of the purchase price.
This acquisition did not significantly change Aztar's total assets. The
cash paid by Aztar and notes receivable from AGP were replaced on Aztar's
balance sheet by the assets acquired, which consisted primarily of building
and equipment. The additional $10,000,000 of indebtedness incurred by
Aztar was more than offset by a reduction of indebtedness to AGP.
The Company's consolidated statements of operations include the results of
AGP from its acquisition until its dissolution in November 1994. After
intercompany eliminations, the acquisition has the following effects on
consolidated results: Most of the reduction in Aztar interest income from
the replacement of the AGP notes receivable is offset by a reduction in
rent expense. Aztar's net income is affected negatively primarily by an
increase in depreciation expense.
F-25
<PAGE>
If the acquisition had occurred at the beginning of the year ended December
30, 1993,the Company's results of operations would have been as follows (in
thousands, except per share data):
1993
--------
(unaudited)
Revenues $518,762
Income before extraordinary items 7,846
Net income 7,846
Earnings per common and common equivalent
share:
Income before extraordinary items $ .19
Net income .19
Earnings per common share assuming full
dilution:
Income before extraordinary items $ .18
Net income .18
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents (in thousands) the carrying amounts and
estimated fair values of the Company's financial instruments at
December 28, 1995 and December 29, 1994, respectively. The fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
Short-term investments $ -- $ -- $ 8,250 $ 8,250
Other investments 27,964 27,964 24,928 24,928
Liabilities
Current portion of long-term
debt 466 466 666 666
Current portion of other
long-term liabilities 4,900 4,854 -- --
Long-term debt 496,439 518,021 430,212 416,362
Other long-term liabilities 8,500 6,968 -- --
Off-Balance-Sheet
Letter of credit -- 13,450 -- 13,450
The carrying amounts shown in the table are included, if applicable, in the
Consolidated Balance Sheets under the indicated captions. All of the
Company's financial instruments are held or issued for purposes other than
trading.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.
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Short-term investments are valued at their carrying amounts included in the
balance sheets, which are reasonable estimates of fair value due to the
relatively short period to maturity.
Other investments consisted of deposits with the CRDA and CRDA bonds that
bear interest at two-thirds of market rates resulting in a fair value lower
than cost. The carrying amounts of these deposits and bonds are presented
net of a valuation allowance and an unamortized discount that result in an
approximation of fair values. Other investments at December 28, 1995, also
included a 90-day certificate of deposit which was valued at its carrying
amount which is a reasonable estimate of fair value due to the relatively
short period to maturity.
The fair values of the Company's publicly traded debt were estimated based
on the bid prices in the public bond markets. The carrying amounts of the
revolving credit note are reasonable estimates of fair value because this
note is carried with a floating interest rate.
The amounts reported for other long-term liabilities relate to the
Company's obligation to the City of Evansville and other civic and
community organizations. The fair values were estimated by discounting
expected cash flows using a discount rate commensurate with the risks
involved.
The fair value of the letter of credit was estimated to be the same as the
contract value based on the nature of the fee arrangement with the issuing
financial institution.
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NOTE 16. UNAUDITED QUARTERLY RESULTS/COMMON STOCK PRICES
The following unaudited information shows selected items in thousands,
except per share data, for each quarter in the years ended December 28,
1995 and December 29, 1994. The Company's common stock is listed on the
New York Stock Exchange.
First Second Third Fourth
-------- -------- -------- --------
1995
- ----
Revenues $135,568 $145,390 $154,935 $136,976
Operating income (loss) 15,763 13,792 18,994 (5,848)
Income (loss) before income
taxes 3,046 623 5,907 (19,757)
Income taxes (1,086) (98) (1,333) 7,704
Net income (loss) 1,960 525 4,574 (12,053)
Earnings per common and common
equivalent share:
Net income (loss) .05 .01 .11 (.31)
Earnings per common share assuming
full dilution:
Net income (loss) .05 .01 .11 *
1994
- ----
Revenues $130,566 $135,747 $146,847 $128,280
Operating income 16,844 18,800 22,343 11,420
Income (loss) before income
taxes and extraordinary items 4,638 6,622 10,121 (2,715)
Income taxes (85) (41) (2,554) 818
Extraordinary items -- -- -- (2,708)
Net income (loss) 4,553 6,581 7,567 (4,605)
Earnings per common and common
equivalent share:
Income (loss) before
extraordinary items .11 .17 .19 (.05)
Net income (loss) .11 .17 .19 (.12)
Earnings per common share assuming
full dilution:
Income (loss) before
extraordinary items .11 .16 .19 *
Net income (loss) .11 .16 .19 *
Common Stock Prices
- -------------------
1995 - High $ 9.13 $10.00 $10.50 $ 9.13
- Low 5.63 8.00 7.63 6.88
1994 - High 7.88 7.13 7.38 7.00
- Low 6.25 5.38 5.75 5.38
* Anti-dilutive
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