<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1996
REGISTRATION NO. 333-05213
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
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 NUMBER)
2390 EAST CAMELBACK ROAD, SUITE 400, PHOENIX, ARIZONA 85016
(602) 381-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT M. HADDOCK
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
2390 EAST CAMELBACK ROAD, SUITE 400, PHOENIX, ARIZONA 85016
(602) 381-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID FOX, ESQ. ALLAN G. SPERLING, ESQ.
NICHOLAS P. SAGGESE, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
SKADDEN, ARPS, SLATE, MEAGHER & FLOM ONE LIBERTY PLAZA
300 SOUTH GRAND AVENUE, SUITE 3400 NEW YORK, NEW YORK 10006
LOS ANGELES, CALIFORNIA 90071 (212) 225-2000
(213) 687-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
-------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
AMOUNT TO PROPOSED MAXIMUM
BE MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION
REGISTERED (1) PER SHARE (2) (2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share
(includes Preferred
Share Purchase
Rights).............. 6,900,000 $11.875 $81,937,500 $28,255 (3)
</TABLE>
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(1) Includes 900,000 shares to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JULY 15, 1996
PROSPECTUS
6,000,000 SHARES
[LOGO OF AZTAR CORPORATION]
AZTAR CORPORATION
COMMON STOCK
($.01 PAR VALUE)
All of the shares of Common Stock offered hereby are being sold by Aztar
Corporation ("Aztar" or the "Company").
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the trading symbol "AZR." On July 12, 1996, the last reported sale price
of the Common Stock as reported on the New York Stock Exchange was $12.00 per
share. See "Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
NONE OF THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
THE NEW JERSEY CASINO CONTROL COMMISSION, THE MISSOURI GAMING COMMISSION NOR
THE INDIANA GAMING COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY (1)
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (2).................................. $ $ $
</TABLE>
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(1) Before deducting expenses payable by the Company estimated to be $747,500.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 900,000 additional shares of Common Stock at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock will be made at the
office of Salomon Brothers Inc, Seven World Trade Center, New York, New York,
or through the facilities of The Depository Trust Company, on or about
, 1996.
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
DEAN WITTER REYNOLDS INC.
The date of this Prospectus is , 1996.
<PAGE>
Aztar prospectus inside front cover
Tropicana Casino and Resort (Atlantic City, New Jersey): caption
As a result of a recently completed major expansion and upgrade, Tropicana
Casino and Resort, formerly TropWorld, has become the largest hotel in Atlantic
City and New Jersey, with 1,624 guest rooms, including more than 300 suites, in
an upscale resort atmosphere. The property offers 110,000 square feet of casino
space with 3,240 slot machines and 154 table games, a new baccarat lounge and a
new Asian games room catering to high-end casino clientele, and a large new
poker room.
Other key features include a 1,700-seat theatrical showroom that regularly
features headliner entertainment; 80,000 square feet of meeting, convention and
banquet space; parking for 2,700 vehicles; and extensive resort amenities
including gourmet and medium-priced restaurants; indoor and outdoor swimming
pools, tennis courts, a health and fitness club, and 220 yards of ocean
beachfront along the Boardwalk.
Tropicana Casino and Resort (Las Vegas, Nevada): caption
Aztar is evaluating proposals for a major redevelopment of the Tropicana Resort
and Casino (in photo at left and in left foreground of aerial photo below). The
Tropicana is located on the rapidly expanding "New Four Corners" of the Las
Vegas Strip, bordered by (photo below, clockwise from left): Luxor, Excalibur,
New York - New York, Monte Carlo and MGM Grand.
Casino Aztar (Evansville, Indiana): caption
Permanent facilities at Aztar's riverboat casino in Evansville, Indiana,
including a large passenger ticketing and entertainment pavilion, a 250-room
hotel and a 1,600-vehicle garage, are scheduled for completion by December
1996. (artist's rendering shown above)
Casino Aztar Evansville has operated since December 1995 utilizing temporary
boarding facilities while construction of permanent facilities is completed.
(site shown, right)
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the Commission's Regional Offices at Citicorp Center, 500 West
Madison Street, Judiciary Plaza, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048 and inspected and
copied or obtained by mail at prescribed rates from the public reference
facilities maintained by the Commission at its principal offices: Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company.
The Company's Common Stock is listed on the New York Stock Exchange. The
Company's reports, proxy statements and other information can be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 under the Securities Act of 1933, as amended, with respect to the Common
Stock described in this Prospectus. This Prospectus does not contain all the
information set forth in the registration statement and exhibits and schedules
thereto. For further information with respect to the Company and such Common
Stock, reference is made to the registration statement and the exhibits and
schedules filed as part thereof. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by reference to such
exhibit. The registration statement, including exhibits and schedules thereto,
may be inspected without charge or copied in whole or in part at prescribed
rates at the Commission's principal offices set forth above.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus: (a) Annual Report on Form 10-K
for the fiscal year ended December 28, 1995, as amended by the Form 10-K/A
filed June 5, 1996, (b) Quarterly Report on Form 10-Q for the fiscal quarter
ended March 28, 1996 and (c) Current Report on Form 8-K, dated July 11, 1996.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of Common Stock
hereunder shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the filing date of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein, or in any other
subsequently filed document that is also incorporated or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. Subject to
the foregoing, all information appearing in this Prospectus is qualified in
its entirety by the information appearing in the documents incorporated by
reference herein.
The Company will provide a copy of the documents incorporated by reference
herein (other than exhibits to such documents) without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request by such person. Requests should be addressed to: Aztar
Corporation, 2390 East Camelback Road, Suite 400, Phoenix, Arizona 85016,
Attention: Corporate Communications Office, telephone (602) 381-4111.
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements (including notes thereto) appearing
elsewhere in this Prospectus or incorporated herein by reference. Unless the
context indicates otherwise, references in this Prospectus to the "Company" or
to "Aztar" are to Aztar Corporation and its consolidated subsidiaries. This
Prospectus contains forward-looking information that involves risks and
uncertainties, and such information is subject to the assumptions set forth in
connection therewith and the information contained or incorporated by reference
herein.
THE COMPANY
Aztar is a leading multi-jurisdictional gaming company whose properties
include Tropicana Casino and Resort in Atlantic City, New Jersey (which had
been known as "TropWorld Casino and Entertainment Resort" and was renamed in
July 1996 in connection with the grand opening of its expansion and
renovation); Tropicana Resort and Casino in Las Vegas, Nevada; Ramada Express
Hotel and Casino in Laughlin, Nevada; the Casino Aztar riverboat in Evansville,
Indiana; and the Casino Aztar riverboat in Caruthersville, Missouri. In total,
giving effect to the Atlantic City Tropicana expansion, the Company operates
approximately 258,000 square feet of casino space with 8,236 slot machines and
342 table games, along with more than 5,000 hotel rooms. The Company's
properties collectively have more than 180,000 square feet of meeting space,
large entertainment facilities and more than 40 restaurants and lounges. For
the 12 months ended March 28, 1996, the Company's consolidated revenues totaled
$617.5 million and total assets at period end were $1.0 billion.
BUSINESS STRATEGY: DEVELOPMENT AND OPERATIONS
The key elements of the Company's development strategy are:
. Redevelop the Las Vegas Tropicana. The Company believes that its Las Vegas
Tropicana casino resort, which enjoys a premier location at the "New Four
Corners" area of the Las Vegas Strip, presents a unique opportunity for a
major redevelopment.
. Complete Development of the Atlantic City Tropicana. The Company is
finishing a major expansion and upgrade of the Atlantic City Tropicana,
including 604 additional hotel rooms and major enhancements to the casino
and food and beverage facilities.
. Complete Development of Evansville Casino Project. The Company's riverboat
casino in Evansville, Indiana opened with temporary facilities in December
1995, and its permanent land-based facilities are scheduled to be completed
by the end of 1996. Using its temporary facilities, the property generated
revenue of $25.9 million, operating income of $6.8 million and operating
cash flow of $9.3 million in its first full fiscal quarter of operations.
The key elements of the Company's operations strategy are:
. Expand Table Games Segment. The Company is increasing its emphasis on the
table games segment at its two resort properties, Tropicana Atlantic City
and Tropicana Las Vegas. The Company has recently added an experienced
operating team with particular expertise in developing and marketing the
table games segment. This team is overseeing significant casino
enhancements and new marketing initiatives at both of the resort
properties. The completion of the Tropicana Atlantic City tower provides
the Company with the additional capacity needed to better execute this
strategy.
5
<PAGE>
. Capitalize on the "Tropicana" Name. The Company used the Fourth of July
1996 weekend grand opening celebration of its new facilities in Atlantic
City as an opportunity to rename TropWorld "Tropicana Casino and Resort".
The Company believes the "Tropicana" name is one of the most highly
recognized names in the gaming industry and has long been associated with
the glamour and excitement of gaming entertainment. This brand name will be
promoted to emphasize the identity and appeal of the Company's two resort
properties.
. Maintain Preeminence in Slot Segment. The Company believes it holds a
leading market position in the slot machine segment, which it intends to
maintain and enhance through the use of its database marketing system and
its ability to provide a high-quality experience to its loyal base of
premium slot players.
Tropicana Atlantic City
Tropicana Casino and Resort ("Tropicana Atlantic City" or "Atlantic City
Tropicana") encompasses approximately 10 acres and has ocean beach frontage of
220 yards along the Boardwalk in Atlantic City. Giving effect to the expansion
described below, the approximately 110,000-square-foot casino of Tropicana
Atlantic City contains 3,240 slot machines and 154 table games, a baccarat
lounge, a poker room and keno. The Tropicana Atlantic City complex contains
1,624 hotel rooms, making it the largest hotel in New Jersey, as well as
approximately 80,000 square feet of meeting, convention and banquet space,
hosting an average of approximately 180 meetings a year. The facility also
includes parking for 2,700 vehicles and a 1,700-seat theatrical showroom which
regularly presents headliner entertainment. Other amenities include two gourmet
restaurants, several medium-priced restaurants, indoor and outdoor swimming
pools, tennis courts, a health and fitness club and a jogging track.
Tropicana Atlantic City is nearing completion of a $75 million expansion and
renovation designed to attract more high-end players as well as to capitalize
on recent and anticipated growth of Atlantic City resulting from the new
Atlantic City Convention Center, airport expansion and other market
enhancements. The new 604-room hotel tower, which opened in late April 1996,
will include a concierge floor of six large penthouse suites currently being
completed to attract high-end players. Concurrent modifications made to the
existing facilities include the construction of a new hotel lobby,
refurbishment of all existing hotel rooms and extensive improvements to the
casino. Renovations to the casino include the development of a new entrance
designed to improve traffic circulation throughout the casino, the addition of
295 slot machines, the upgrade of 620 slot machines, and the introduction of a
new baccarat room and a new Asian games room. To cater to high-end players, the
new baccarat room is among the most attractive baccarat facilities in Atlantic
City, with private dining areas, as well as private access from a new table
player lounge and VIP entry. The new games room caters to the Asian gaming
community by offering pai gow, tile games and mini-baccarat.
Atlantic City is, after Las Vegas, the second largest gaming destination in
the United States. More than 58 million people (approximately 23.5% of the
United States population) live within 300 miles of Atlantic City, and more than
17.8 million people live within 100 miles. The Atlantic City gaming market has
demonstrated continued growth despite the proliferation of new gaming venues
across the country. The 12 hotel casinos in Atlantic City generated
approximately $3.7 billion in gaming revenues in 1995, a 9.3% increase over
1994. Major infrastructure improvements underway in Atlantic City include,
among other projects, new housing and retail development, the $125 million
upgrade and expansion of the Atlantic City International Airport and the $254
million convention center having the largest exhibition space between New York
and Washington, D.C. There are also plans for the expansion of existing gaming
capacity in Atlantic City, as well as the development of new gaming projects.
Several major casino operators have announced plans to develop projects in the
Marina and Boardwalk areas, in addition to casino operators having already
expanded or planning to expand their existing facilities.
6
<PAGE>
Tropicana Las Vegas
Tropicana Resort and Casino ("Tropicana Las Vegas" or "Las Vegas Tropicana")
is located on a 34-acre site at the intersection of Las Vegas Boulevard (the
famed Strip) and Tropicana Avenue (known as the "New Four Corners") in Las
Vegas, Nevada. Tropicana Las Vegas, which has a tropical island theme and is
promoted as "The Island of Las Vegas," boasts one of the world's largest
indoor/outdoor swimming pools, as well as a five-acre water park and tropical
garden. Both interior and exterior areas feature exhibits of live tropical
birds, animals and fish. The casino occupies approximately 50,000 square feet
and contains 1,614 slot machines and 55 table games. The hotel has 1,900 rooms
and suites as well as approximately 100,000 square feet of convention and
exhibit space, plus an array of fine restaurants and extensive parking.
Tropicana Las Vegas is home for the Folies Bergere, the longest-running
production show in Las Vegas.
The Company is in the process of evaluating proposals for a major
redevelopment of Tropicana Las Vegas. The Company believes redevelopment of
this property presents a unique opportunity, given the outstanding location of
Tropicana Las Vegas at the New Four Corners. With its proximity to McCarran
International Airport, this intersection has become the gateway to the Strip
and its casino entertainment resorts. New mega-resorts have been or are being
constructed on each of the other three corners of this intersection, and all
four sites are connected by elevated walkways. The goal of management is to
capitalize on the "Tropicana" name and the "island get-away" theme while
creating a premier destination resort in the heart of Las Vegas. Management
currently anticipates selecting a development plan in 1996, commencing
construction in 1997 and opening the new facility in late 1998 or early 1999.
The Tropicana Las Vegas site and facility are leased by the Company from an
unconsolidated partnership in which the Company has a 50% interest. The Company
is exploring alternatives for amending or restructuring the arrangement with
its partners. Any development plans that the Company pursues for the Las Vegas
Tropicana will be conditioned upon a satisfactory amendment or restructuring of
the arrangement, as well as other conditions typically associated with the
development of a major casino resort.
Las Vegas is one of the largest and fastest growing entertainment markets in
the country. The number of visitors traveling to Las Vegas has increased from
15.2 million in 1986 to more than 29 million in 1995, a compound annual growth
rate of 7.5%, according to the Las Vegas Convention & Visitors Authority (the
"LVCVA"). Las Vegas Strip gaming revenues have increased at a compound annual
growth rate of 9.5%, from $1.4 billion in 1986 to $3.6 billion in 1995. The
Company believes the growth in the Las Vegas market has been driven by the
development in recent years of large themed destination resorts and the
increased capacity of McCarran International Airport. Las Vegas was the largest
convention market in the country in 1995, according to the LVCVA.
Ramada Express
Ramada Express Hotel and Casino ("Ramada Express") is located on
approximately 28 acres in Laughlin, Nevada, which is situated on the Colorado
River at Nevada's southern tip. The facility contains approximately 50,000
square feet of casino space (with 1,670 slot machines and 36 table games),
1,500 hotel rooms and several restaurants and lounges. The property features a
Victorian era railroad theme, which includes a train that carries guests
between parking areas and the casino hotel.
Ramada Express has established a strong reputation for friendly service and
an outstanding casino experience, and has consistently had a strong share of
the Laughlin market, with its casino win (constituting gross revenue from
gaming activities, which is the excess of gaming win over gaming losses, before
deducting costs and expenses) growing from 7.0% of the market in 1991 to 11.7%
of the market in 1995. In addition, a major manufacturers' outlet mall,
scheduled to open in July 1996, is being built near the Ramada Express. With
almost 260,000 square feet in its initial phase, the mall will feature 50
stores, including Polo(R), Guess(R) and Reebok(R) outlets.
7
<PAGE>
Casino Aztar Evansville
Casino Aztar Evansville, the first casino gaming facility to open in Indiana,
operates on the Ohio River in Evansville, Indiana. The casino riverboat is
certified to carry 2,700 passengers and a crew of 300. The facility contains
approximately 37,250 square feet of casino space with 1,267 slot machines and
70 table games. The casino opened in December 1995 with temporary facilities,
including an approximately 13,000-square-foot pavilion and surface parking.
During its first full quarter of operations, Casino Aztar Evansville produced
an operating margin of 35.9%. These results were achieved despite severe
weather conditions and land-based amenities being limited to a temporary
boarding facility. Permanent facilities will include an approximately 44,000-
square-foot passenger boarding facility, a 250-room hotel and a 1,600-vehicle
parking garage which are scheduled for completion by December 1996. The
pavilion will include three restaurants, a lounge and picturesque ticketing and
pre-boarding spaces.
Approximately 650,000 persons live within 50 miles of Casino Aztar
Evansville, and more than 3 million persons live within 120 miles, including
the metropolitan Louisville, Kentucky area. The Company intends to draw on its
database marketing system to expand mid-level slot and table games play. The
Company believes that Casino Aztar Evansville is well placed to further
solidify its position in the regional market prior to additional competition
emerging on the Ohio River. Direct competition nearer to the Louisville market
is not expected until early- to mid-1997.
Casino Aztar Caruthersville
Casino Aztar Caruthersville operates on a 37-acre site on the Mississippi
River in Caruthersville, Missouri near Interstates 55 and 155. The casino
riverboat has a capacity of 800 passengers plus crew and contains approximately
10,400 square feet of casino space with 445 slot machines and 27 table games. A
passenger pavilion provides ticketing and pre-boarding facilities, including a
restaurant, a sports lounge, a snack bar and other amenities. Other main
elements are a barge at river's edge for passenger boarding and disembarking,
and parking for more than 1,000 vehicles, including recreational vehicles.
Casino Aztar Caruthersville opened in April 1995 with limited dockside
facilities for embarking and disembarking guests. The permanent pavilion opened
in July 1995.
Approximately 634,000 persons live within 60 miles of Casino Aztar
Caruthersville in a relatively rural region whose population is widely
dispersed and has proven difficult to attract. Approximately 2.2 million people
live within 100 miles of Casino Aztar Caruthersville, an area which encompasses
Memphis, Tennessee. Despite its position in a dispersed rural market, the Aztar
property has been slowly increasing revenue, primarily as a result of a revised
marketing plan.
SENIOR MANAGEMENT
The Company's experienced team of casino executives was strengthened in 1995
by the addition of key personnel and the establishment of a Resort Operations
Division in late 1995 to focus on revenue growth, especially in the table games
segment. To head the division, the Company hired Dennis C. Gomes, formerly
president and chief operating officer of the Trump Taj Mahal in Atlantic City.
The casino properties in both the Atlantic City and Las Vegas markets at which
Mr. Gomes has been a member of senior management have had an outstanding record
of increasing revenues and cash flows during his tenure.
8
<PAGE>
EXPANSION INTO NEW MARKETS
In addition to further development of its existing casino properties, the
Company believes it is well-positioned to expand its operations should
additional states and local jurisdictions adopt casino gaming. The Company has
successfully obtained licenses in Indiana and Missouri, each a new market in
which there was vigorous competition for a limited number of sites. The Company
has an option to purchase approximately 21 acres of land on the Delaware River
in the Philadelphia, Pennsylvania metropolitan area for development in the
event casino gaming is adopted. The Company has been selected by the City of
Newport News, Virginia to develop and operate a casino facility in the event
casino gaming is adopted. The Company also has an option to purchase land in
Black Hawk, Colorado, where casino gaming is permitted, and is currently
assessing the prospects for the development of a casino. The Company's plans
for development and acquisition of additional gaming ventures are speculative,
and any decisions whether to proceed will be dependent upon future economic and
regulatory factors, the availability of financing and competitive and strategic
considerations, many of which are beyond the Company's control.
----------------
The Company's principal executive offices are located at 2390 East Camelback
Road, Suite 400, Phoenix, Arizona 85016, and its telephone number is (602) 381-
4100.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company........................... 6,000,000(1)
Common Stock Outstanding
Immediately After the Offering.... 44,352,798(1)(2)
Use of Proceeds.................... General corporate purposes, including
ongoing and potential development of casino
and hotel facilities. Pending specific
application, the Company will use the net
proceeds to reduce amounts outstanding (and
permitted to be reborrowed, subject to the
conditions contained therein) under its
reducing revolving credit facility. See
"Use of Proceeds."
New York Stock Exchange Symbol..... AZR
</TABLE>
- --------
(1) Excludes 900,000 shares of Common Stock to be issued if the over-allotment
option is exercised in full.
(2) Excludes 3,540,000 shares subject to options outstanding under the
Company's stock option plans, an additional 1,075,000 shares reserved for
future grants thereunder, 973,000 shares reserved for conversion of the
Company's Series B ESOP Convertible Preferred Stock and 387,000 treasury
shares issuable when claimed by shareholders of a predecessor of the
Company, in each case as of March 28, 1996.
RISK FACTORS
Prospective purchasers of the securities offered hereby should carefully read
the specific factors set forth under "Risk Factors" as well as the other
information set forth in this Prospectus or incorporated herein by reference.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial and
operating data of the Company and its subsidiaries. The summary historical
financial operating and balance sheet data as of and for each of the five
fiscal years in the period ended December 28, 1995 were derived from the
audited consolidated financial statements of the Company and its subsidiaries.
The summary historical financial data of the Company and its subsidiaries as of
March 28, 1996 and for the quarter then ended and as of March 30, 1995 and for
the quarter then ended are unaudited, but, in the opinion of management, all
adjustments necessary to present fairly the financial data for such periods
have been made, none of which were other than normal accruals. The results for
the interim periods are not necessarily indicative of the results of the full
fiscal year. For additional information, see the consolidated financial
statements of the Company and its subsidiaries appearing elsewhere in this
Prospectus. The summary historical financial data should also be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
-------------------- ------------------------------------------------
MARCH 28, MARCH 30,
1996 1995 1995 1994 1993 1992 1991
--------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $180,206 $135,568 $572,869 $541,440 $518,762 $512,045 $481,285
Operating income (a).... 15,613 15,763 42,701 69,407 37,419 32,609 13,654
Net interest income (ex-
pense) (a)............. (13,053) (11,391) (47,801) (46,572) (21,191) (2,477) (5,856)
Income (loss) from
continuing operations
before extraordinary
items and cumulative
effect of accounting
change................. 769 1,960 (4,994) 16,804 11,382 16,378 2,708
Net income (loss)(b).... 769 1,960 (4,994) 14,096 11,382 19,805 6,498
Income (loss) from con-
tinuing operations be-
fore extraordinary
items and cumulative
effect of accounting
change:
Earnings per common and
common equivalent
share................. .02 .05 (.14) .42 .28 .41 .05
Earnings per common
share assuming full
dilution.............. .02 .05 * .41 .27 .40 .05
Weighted average common
shares applicable to:
Earnings per common and
common equivalent
share................. 39,235 38,605 39,026 38,196 38,367 38,212 38,782
Earnings per common
share assuming full
dilution.............. 40,255 39,782 * 39,224 39,429 39,311 39,939
OTHER DATA(c):
Number of hotel rooms... 4,428 4,428 4,428 4,426 4,427 3,334 3,332
Average daily occupancy
rate................... 90.2% 87.5% 87.4% 87.2% 85.5% 84.2% 82.8%
Casino square footage... 239,841 187,191 239,841 187,118 187,191 165,774 165,774
Number of slot machines. 7,946 6,026 8,081 6,033 5,835 5,033 4,697
Number of table games... 291 192 290 193 180 184 233
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 28, 1996
---------------------
AS
ACTUAL ADJUSTED(d)
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 32,343 $ 32,343
Total assets.............................................. 1,037,470 1,037,470
Long-term debt (net of current maturities)................ 519,833 452,361
Series B ESOP convertible preferred stock................. 5,646 5,646
Shareholders' equity...................................... 360,806 428,278
</TABLE>
- -------
*Anti-dilutive
(a) See "Note 14. Acquisition" of the Notes to Consolidated Financial
Statements on page F-20.
(b) The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109") in 1992 and
elected not to restate prior year financial statements. The effect from
prior years of adopting SFAS 109 as of the beginning of fiscal 1992 was a
net deferred income tax benefit of $7,500,000, and it was reflected in the
1992 Consolidated Statement of Operations as the "Cumulative effect of
accounting change."
(c) Other Data represents end of period data.
(d) As Adjusted amounts reflect the application of the net proceeds from the
sale of the 6,000,000 shares of Common Stock offered hereby at an assumed
price of $12.00 per share (assuming no exercise of the over-allotment
option). See "Use of Proceeds."
10
<PAGE>
RISK FACTORS
Before making a decision to purchase any of the shares of Common Stock
offered hereby, prospective purchasers of the Common Stock should consider
carefully the specific risk factors set forth below as well as the other
information contained in this Prospectus or incorporated herein by reference.
HIGH LEVERAGE AND DEBT SERVICE
The Company has substantial fixed charges arising from debt service and
rental payment obligations. As of March 28, 1996, the Company had
approximately $520 million of total indebtedness on a consolidated basis.
After giving effect to this offering and the anticipated use of the net
proceeds therefrom, such total indebtedness will be reduced to approximately
$453 million, although additional amounts may be reborrowed under the
Company's reducing revolving credit facility. See "Use of Proceeds" and
"Capitalization." Substantially all the Company's properties are pledged as
collateral under long-term debt agreements, which also contain numerous
financial and operating covenants, including limitations on the incurrence of
additional indebtedness and the payment of cash dividends.
In addition to the Company's consolidated indebtedness, as of March 28,
1996, there was approximately $68 million of off-balance sheet bank financing
outstanding at Tropicana Enterprises, the partnership that owns the land and
improvements constituting Tropicana Las Vegas. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Liquidity and
Capital Resources." Hotel Ramada of Nevada ("HRN"), a wholly-owned subsidiary
of the Company, leases Tropicana Las Vegas from Tropicana Enterprises, an
unconsolidated partnership in which the Company has a 50% interest, under a
lease which expires in 2011 (the "Tropicana Las Vegas Lease"). HRN's lease
payments under the Tropicana Las Vegas Lease finance the payments required
under Tropicana Enterprises' bank term loan (the "Tropicana Las Vegas Loan").
Certain property of HRN, including furniture, fixtures and equipment, is
pledged as collateral for the Tropicana Las Vegas Loan pursuant to the
Tropicana Las Vegas Lease. The Company has guaranteed the performance of HRN's
obligations under the Tropicana Las Vegas Lease, including the payment of
rent.
The Company's ability to service or refinance its debt and rental
obligations is dependent upon the future performance of the Company's
operations. This performance will be influenced by prevailing economic
conditions and competitive, regulatory and other factors, many of which are
beyond the Company's control. While the Company expects that its operating
cash flow will be sufficient to cover its expenses, including interest cost,
there can be no assurance with respect thereto. If the Company is unable to
generate sufficient cash flow, it could be required to adopt one or more
alternatives, such as reducing or delaying expansions or capital expenditures,
selling or leasing assets, restructuring debt or obtaining additional debt or
equity capital. There can be no assurance that any of these alternatives could
be effected on satisfactory terms, and any resort to alternative sources of
funds could impair the Company's competitive position and reduce its future
cash flow. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition--Liquidity and Capital Resources."
DEPENDENCE ON RESULTS OF TROPICANA ATLANTIC CITY
Approximately 58.1% and 46.5%, respectively, of the Company's consolidated
revenues for the year ended December 28, 1995 and for the three months ended
March 28, 1996 were derived from the operations of Tropicana Atlantic City.
Because of the importance of the Atlantic City Tropicana to the Company's
consolidated operating results, poor performance at Tropicana Atlantic City
could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Operating Results--Recent Results." Tropicana Atlantic City experiences
seasonal fluctuations in casino play that management believes are typical of
casino hotel operations in Atlantic City. Operating results indicate that
casino play is seasonally higher from May
11
<PAGE>
through October; consequently, the Company's revenues during the first and
fourth quarters have generally been lower than for the second and third
quarters, and from time to time the Company has experienced losses in the
first and fourth quarters. Any event that adversely affects the operating
results of Tropicana Atlantic City during the summer months could have a
material adverse effect on the Company's operations and financial condition.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition--Operating Results." In addition, competition is expected
to intensify in the Atlantic City market in light of recent and proposed
expansion and new development activities. See "--Competition."
COMPETITION
The Company faces intense competition in each of the markets in which its
land-based gaming facilities are located from other companies in the gaming
industry, some of which have significantly greater financial resources than
the Company. Such competition results, in part, from the geographic
concentration of competitors. All of the Company's land-based casinos
primarily compete with other casinos in their immediate geographic area.
Substantial new expansion and development activity has recently been completed
or is underway in the Atlantic City and Las Vegas markets, which may be
expected to intensify competitive pressures on the Company's resort
properties. The Company's riverboat casinos primarily compete with other
riverboat casinos in nearby states, such as the riverboat casino in
Metropolis, Illinois . In addition, riverboat casinos in Mississippi attract
residents of Casino Aztar Caruthersville's secondary Memphis, Tennessee
market. Casino Aztar Caruthersville also competes to a lesser extent with
riverboat casinos in other cities in Missouri, none of which are in its
primary 60-mile radius market area. Casino Aztar Evansville will also be
competing with other Indiana riverboat casinos, including the holders of the
four other licenses awarded or to be awarded for sites on the Ohio River. All
of the Company's casinos compete to a lesser extent with casinos in other
locations, including Native American lands and on cruise ships, and with other
forms of legalized gaming in the United States, including state-sponsored
lotteries, off-track wagering and card parlors. Several states have considered
legalizing casino gaming and others may in the future. Legalization of large-
scale, unlimited casino gaming in or near any major metropolitan area or
increased gaming in other areas could have an adverse economic impact on the
business of any or all of the Company's gaming facilities. There can be no
assurance that the Company will be able to continue to compete successfully in
these markets.
UNCERTAINTIES REGARDING POTENTIAL TROPICANA LAS VEGAS EXPANSION; NEED FOR
ADDITIONAL FINANCING
The Company is in the process of evaluating proposals for a major expansion
and modernization of its facilities at Tropicana Las Vegas. Such plans remain
speculative at this time. To engage in large scale development activities as
contemplated would require financing from third parties, which the Company may
not be able to obtain on satisfactory terms, if at all. A project of this
nature can entail significant development and construction risks which can
give rise to delays or cost overruns, would cause major disruptions to
existing operations and might require a temporary closing of part or all of
the operations of Tropicana Las Vegas. In addition, the Company would need to
obtain state and local approvals, as well as a satisfactory amendment or
restructuring of the Company's relationship with Tropicana Enterprises. There
can be no assurance that the Company will complete these or other steps
necessary to permit the expansion project to occur within the anticipated time
frame, or at all.
FLUCTUATIONS IN OPERATING RESULTS
The Company has historically experienced fluctuations in its operating
results. For the years 1995 through 1991, net income (loss) was $(5.0)
million, $14.1 million, $11.4 million, $19.8 million and $6.5 million,
respectively, and earnings per common and common equivalent share were $(.14),
$.42, $.28, $.41 and $.05, respectively. No assurance can be made that the
Company will not continue to experience fluctuations in operating results in
the future, which may adversely affect its activities and the price of the
Common Stock. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Operating Results--Recent Results."
12
<PAGE>
STRICT REGULATION BY GAMING AUTHORITIES
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. The states of Nevada, New Jersey,
Missouri and Indiana and the applicable local authorities require various
licenses, findings of suitability, registrations, permits and approvals to be
held by the Company and its subsidiaries. The gaming commissions of such
states may, among other things, limit, condition, suspend or revoke a license
or approval to own the stock of any of the Company's regulated subsidiaries,
for any cause deemed reasonable by such licensing authority. Substantial fines
or forfeiture of assets for violations of gaming laws or regulations may be
levied against the Company, such subsidiaries and the persons involved. The
suspension or revocation of any of the Company's licenses or the levy on the
Company of substantial fines or forfeiture of assets would have a material
adverse effect on the business of the Company. See "Regulation."
To date, the Company has obtained all governmental licenses, registrations,
permits and approvals necessary for the operation of its gaming activities.
However, gaming licenses and related approvals are deemed to be privileges
under state law, and no assurances can be given that any new licenses, permits
and approvals that may be required in the future will be given or that
existing ones will not be revoked. In particular, any expansion of the
Company's gaming operations into new jurisdictions will require various
licenses, findings of suitability, registrations and approvals of the gaming
authorities, which approval process can be time-consuming and costly and has
no assurance of success.
Gaming authorities may, in their discretion, require the holder of any
security of the Company, such as the Common Stock, to file applications, be
investigated and be found suitable to own such security of the Company. If a
record or beneficial owner of Common Stock is required by a gaming authority
to be found suitable, such owner will be required to apply for a finding of
suitability generally within 30 days after request by such gaming authority,
or within such earlier time as required by such gaming authority. As a general
matter, assuming a passive investment intent, only owners in excess of
specified percentages of the Company's securities are required to be found
suitable, absent unusual circumstances, which percentage is typically between
5% to 15%. See "Regulation." The Company's Restated Certificate of
Incorporation requires that holders of 5% or more of the Common Stock be
qualified by applicable regulatory authorities as well, and contains
significant rights and limitations affecting certain "disqualified" or
"unqualified" holders (as defined therein). See "Description of Capital
Stock--Certain Additional Provisions of the Certificate of Incorporation."
RISKS WITH RESPECT TO NEW GAMING JURISDICTIONS
The Company intends to continue to evaluate and pursue new gaming
opportunities in current and emerging markets, potentially including land-
based, dockside, riverboat and Indian gaming. The realization of such
opportunities is dependent in part on the legalization of casino gaming in
various jurisdictions. There can be no assurance that legislation to legalize
gaming will be enacted in any additional jurisdictions, that any properties in
which the Company may have invested will be compatible with any gaming
legislation so enacted, that legalized gaming will continue to be authorized
in any jurisdiction or that the Company will be able to obtain the required
licenses in any jurisdiction. Furthermore, competition for the development of
new gaming opportunities has intensified as gaming companies compete for a
limited number of sites and licenses. There can be no assurance that
attractive opportunities to develop new gaming operations will be available to
the Company or that the Company will be able to recover its investment in any
such opportunity or in any of its recent developments.
13
<PAGE>
RELIANCE ON KEY PERSONNEL
The success of the Company will be dependent, to a significant extent, upon
the continued services of a relatively small group of executive personnel. In
recent years, the casino industry has from time to time experienced shortages
of experienced management. The loss or unavailability of one or more of such
executive officers or the inability to attract or retain key employees in the
future could have an adverse effect upon the Company's operations.
ANTI-TAKEOVER PROVISIONS; CHARTER AND BY-LAW RESTRICTIONS
The Delaware General Corporation Law, the Company's Restated Certificate of
Incorporation, By-Laws and shareholder rights plan and its employment and
severance arrangements and loan agreements contain provisions, requirements
and limitations that may have the effect of discouraging unsolicited
shareholder action or takeover bids from third parties. For example, the
Company's Restated Certificate of Incorporation and By-Laws contain
limitations on matters such as the removal of directors, the ability of
shareholders to call meetings or act without a duly called meeting, the
liability of directors for certain breaches of their fiduciary duty of care
and the ability of shareholders to amend the Company's By-Laws, and further
permit the Company's Board of Directors to consider the interests of
constituents of the Company other than the Company's shareholders in
evaluating certain takeover proposals. See "Description of Capital Stock."
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock could be subject to wide fluctuations
in response to periodic variations in operating results and other events or
factors, including the success of the Company's development activities,
legislation approving, defeating or restricting gaming, other governmental
actions, developments in the gaming industry generally and announcements by
the Company or by competitors. In addition, the stock market, and the gaming
industry in particular, have experienced extreme price and volume fluctuations
in a manner which has often been unrelated to the operating performance of
such companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. A shift away from investor interest in
gaming in general could adversely affect the trading price of the Common Stock
in a manner unrelated to the Company's operating performance.
14
<PAGE>
USE OF PROCEEDS
The Company expects to use the net proceeds from the sale of the Common
Stock at an assumed offering price of $12.00 per share, estimated to be
approximately $67.5 million ($77.7 million if the Underwriters' over-allotment
option is exercised in full), after deducting the Underwriters' discount and
estimated expenses payable by the Company in connection with this offering,
for general corporate purposes, including ongoing and potential development of
casino and hotel facilities. Except as disclosed herein, the Company has no
agreement or binding commitment to engage in any such development projects.
Pending specific application, the Company will use such net proceeds to
reduce amounts outstanding (and permitted to be reborrowed, subject to the
conditions contained therein) under its reducing revolving credit facility,
which matures on December 31, 1999. Borrowings under this facility bear
interest at floating rates which averaged 8.2% per annum for the three months
ended March 28, 1996. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low sales prices for the
Company's Common Stock for the periods indicated as reported by the New York
Stock Exchange. As of May 31, 1996, there were 10,922 holders of record of
Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE
------------
FISCAL QUARTER HIGH LOW
-------------- ------ -----
<C> <S> <C> <C>
1994 -- First................................................. $ 7.88 $6.25
Second................................................ 7.13 5.38
Third................................................. 7.38 5.75
Fourth................................................ 7.00 5.38
1995 -- First................................................. 9.13 5.63
Second................................................ 10.00 8.00
Third................................................. 10.50 7.63
Fourth................................................ 9.13 6.88
1996 -- First................................................. 9.00 7.38
Second................................................ 14.13 8.38
Third (through July 12, 1996)......................... 13.75 9.88
</TABLE>
The last reported sale price of the Company's Common Stock on July 12, 1996
was $12.00 per share.
DIVIDEND POLICY
No cash dividends were paid during the past six fiscal years as the Company
continued its policy of retaining all internally generated funds to support
the long-term growth of the Company and to retire debt obligations. In
addition, the Company's long-term debt instruments contain various
restrictions on the payment of cash dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the total consolidated capitalization of the
Company as of March 28, 1996, and as adjusted to reflect the sale of the
6,000,000 shares of Common Stock offered hereby (assuming no exercise of the
Underwriters' over-allotment option) at an assumed price of $12.00 per share,
after deducting estimated underwriting discount and expenses of the offering
payable by the Company, and the anticipated use of net proceeds from the
offering. See "Use of Proceeds."
<TABLE>
<CAPTION>
AT MARCH 28, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt..................... $ 408 $ 408
-------- --------
Long-term debt, net of current maturities
11% Senior Subordinated Notes Due 2002................. 200,000 200,000
13 3/4% Senior Subordinated Notes Due 2004............. 177,800 177,800
Reducing revolving credit note (floating rate); matures
December 31, 1999..................................... 140,000 72,528
Other notes payable; 7% to 14.6%; maturities to 2002... 1,520 1,520
Obligations under capital leases....................... 513 513
-------- --------
Total long-term debt................................. 519,833 452,361
-------- --------
Total debt......................................... 520,241 452,769
Series B ESOP convertible preferred stock................ 5,646 5,646
Shareholders' equity
Common stock, par value $.01 per share, authorized
100,000,000 shares, issued and outstanding 38,352,798
and 44,352,798(1)..................................... 423 483
Paid-in capital........................................ 352,680 420,092
Retained earnings...................................... 25,531 25,531
Less: Treasury stock................................... (17,040) (17,040)
Unearned compensation............................... (788) (788)
-------- --------
Total shareholders' equity............................... 360,806 428,278
-------- --------
Total capitalization................................. $886,693 $886,693
======== ========
</TABLE>
- --------
(1) Excludes 3,540,000 shares subject to options outstanding under the
Company's stock option plans, an additional 1,075,000 shares reserved for
future grants thereunder, 973,000 shares reserved for conversion of the
Company's Series B ESOP Convertible Preferred Stock and 387,000 treasury
shares issuable when claimed by shareholders of a predecessor of the
Company, in each case as of March 28, 1996.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OPERATING RESULTS
The following table sets forth the Company's revenues and operating income
on a consolidated basis and portions thereof generated by each of the
Company's five casino properties.
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
------------------- ----------------------
MARCH 28, MARCH 30,
1996 1995 1995 1994 1993
--------- --------- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Tropicana Atlantic City........... $ 83.8 $ 80.0 $332.7 $320.1 $327.7
Tropicana Las Vegas .............. 41.6 34.2 138.0 140.3 134.9
Ramada Express.................... 22.1 21.4 80.4 81.0 56.2
Casino Aztar Evansville........... 25.9 -- 5.5 -- --
Casino Aztar Caruthersville....... 6.8 -- 16.3 -- --
------ ------ ------ ------ ------
Consolidated.................... 180.2 135.6 572.9 541.4 518.8
OPERATING INCOME (LOSS):
Tropicana Atlantic City........... $ 6.4 $ 13.9 $ 54.5 $ 54.2 $ 33.5
Tropicana Las Vegas............... 1.7 (0.1) (3.9) 8.9 7.2
Ramada Express.................... 4.7 4.5 12.0 15.9 5.5
Casino Aztar Evansville........... 6.8 -- (4.3) -- --
Casino Aztar Caruthersville....... (0.7) -- (4.8) -- --
Corporate......................... (3.3) (2.5) (10.8) (9.6) (8.8)
------ ------ ------ ------ ------
Consolidated.................... 15.6 15.8 42.7 69.4 37.4
</TABLE>
Recent Results
The Company has reported increased revenues and operating income for its
1996 second quarter ended June 27, 1996 compared with the 1995 second quarter,
and breakeven net results, compared with net income of $525,000, or one cent
per share, fully diluted, in the 1995 second quarter. Revenues for the 1996
second quarter were $189.5 million, up $44.1 million, or 30%, from $145.4
million in the 1995 second quarter. Operating income was $15.4 million, an
increase of $1.6 million, or 12%, compared with $13.8 million in the 1995
second quarter. Revenues increased largely as the result of operations at the
Company's riverboat casino in Evansville, Indiana, which opened in December
1995. Operating income reflects a $641,000 pretax charge for disposal of
assets related to construction of new facilities. 1996 second quarter results
were significantly impeded by disruption to operations at Tropicana Atlantic
City due to the expansion and renovation activities at the property, as well
as by increased costs associated with the marketing and opening of the new
facilities. See "Risk Factors--Dependence on Results of Tropicana Atlantic
City."
First Quarter 1996 Versus First Quarter 1995
The Company's consolidated revenues for the 1996 first quarter were $180.2
million, a 33% increase over $135.6 million for the 1995 first quarter
reflecting added revenues attributable to the Company's riverboat casinos in
Evansville and Caruthersville and higher total revenues at all three of the
Company's land-based facilities. Casino Aztar Evansville began operations on
December 7, 1995 and Casino Aztar Caruthersville began operations on April 28,
1995. Consolidated operating income for the first quarter of 1996 was $15.6
million, down slightly from $15.8 million for the first quarter of 1995. A
strong operating performance by Casino Aztar Evansville combined with improved
operating results at Tropicana Las Vegas were not sufficient to offset lower
operating results at Tropicana Atlantic City. The Atlantic City Tropicana's
results for the 1996 first quarter were reduced as a result of severe winter
weather, ongoing disruption from the construction of the Atlantic City
Tropicana's hotel expansion and related casino facilities, and promotional
programs implemented to increase market share in anticipation of the opening
of the new facilities.
For a discussion of income taxes, refer to "Note 4: Income Taxes" of the
Notes to Consolidated Financial Statements on page F-28.
17
<PAGE>
Tropicana Atlantic City. Total revenues at Tropicana Atlantic City were
$83.8 million in the 1996 first quarter, up 5% from $80.0 million in last
year's first quarter. Casino revenue was 4% higher in the 1996 versus 1995
first quarter, primarily reflecting a $1.9 million increase in games revenue
as well as an increase in slot revenue due to an increase in coin redemptions
mainly associated with the bus segment of the market.
Tropicana Atlantic City had operating income of $6.4 million in the first
quarter of 1996, down 53% from $13.9 million in the first quarter of 1995. The
Atlantic City Tropicana's results for the 1996 first quarter were reduced as a
result of the factors noted above. Casino costs were 13% higher in the 1996
versus 1995 first quarter as a result of the increase in coin redemptions and
increased direct costs associated with the increase in the games business.
Marketing costs were $4.0 million, or 54%, higher in the 1996 versus 1995
first quarter primarily due to an increased number of promotions and special
events as well as increased advertising and contract entertainment costs. The
provision for doubtful accounts increased by $0.3 million in the 1996 first
quarter compared to the 1995 first quarter as a result of increasing the
allowance for potential uncollectible markers associated with the increase in
the games business. Operating income is after rent and depreciation and
amortization expenses. Rent expense was $0.4 million in the 1996 first quarter
compared to $0.3 million in the 1995 first quarter. Depreciation and
amortization was $4.9 million in the 1996 first quarter compared to $5.5
million in the 1995 first quarter.
Tropicana Las Vegas. At Tropicana Las Vegas, total revenues were $41.6
million in the 1996 first quarter compared to $34.2 million in the 1995 first
quarter, a 22% increase reflecting increases in all revenue components. Casino
revenue was 24% higher in the 1996 versus 1995 first quarter, primarily
reflecting a substantial increase in baccarat revenue. In mid-1995, the
Company adopted new marketing initiatives at Tropicana Las Vegas to increase
premium table game business while maintaining slot revenue. Rooms revenue
increased by 18% in the 1996 versus 1995 first quarter due to an increase in
average daily room rates as well as an increase in the number of occupied
rooms. Food and beverage revenue was 18% higher in the 1996 first quarter due
to higher volume associated with the introduction of a buffet in mid-1995 and
capital improvements associated with two restaurants.
Tropicana Las Vegas had operating income of $1.7 million for the first
quarter of 1996 compared to an operating loss of $0.1 million for last year's
first quarter. Casino costs were 22% higher in the 1996 versus 1995 first
quarter, primarily reflecting the higher costs associated with increasing the
premium table game business. Consistent with the increases in rooms and food
and beverage revenues were increases in rooms and food and beverage costs as a
result of increased direct costs. The provision for doubtful accounts was $0.2
million, or 37%, higher in the 1996 versus 1995 first quarter as a result of
increasing the allowance for potential uncollectible markers associated with
the increase in the premium table game business. Operating income is after
rent and depreciation and amortization expenses. Rent expense was $2.2 million
in the 1996 first quarter compared to $2.4 million in the 1995 first quarter.
Depreciation and amortization was $2.4 million in the 1996 first quarter
compared to $1.7 million in the 1995 first quarter.
Ramada Express. At Ramada Express, total revenues were $22.1 million in the
1996 first quarter, up slightly from $21.4 million in last year's first
quarter. Operating income was $4.7 million in the first quarter of 1996, an
increase from $4.5 million in last year's first quarter. Operating income is
after rent and depreciation and amortization expenses. Rent expense was $0.1
million in the 1996 first quarter; rent expense was insignificant in the 1995
first quarter. Depreciation and amortization was $1.8 million in both periods.
Casino Aztar Evansville. Casino Aztar Evansville, which opened on December
7, 1995, added $25.9 million to total consolidated revenues in the first
quarter of 1996 and contributed $6.8 million to consolidated operating income.
Operating income is after rent expense of $0.5 million and depreciation and
amortization of $2.0 million.
Casino Aztar Caruthersville. Casino Aztar Caruthersville, which opened on
April 28, 1995, added $6.8 million to total consolidated revenues in the 1996
first quarter and had an operating loss of $0.7 million after depreciation and
amortization of $0.8 million.
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1995 Versus 1994
The Company's consolidated revenues were $572.9 million for 1995, an
increase of 6% from $541.4 million in 1994. An increase in total revenues at
Tropicana Atlantic City combined with added revenues from the Company's
riverboat operations that opened in 1995 more than offset a decrease in total
revenues at Tropicana Las Vegas and Ramada Express. Casino Aztar
Caruthersville began operations on April 28, 1995, and Casino Aztar Evansville
began operations on December 7, 1995. Games revenue in 1995 at the Company's
land-based properties was down only slightly from 1994 and slot revenue in
1995 was up only slightly from 1994, resulting in a nominal increase in casino
revenue at the Company's land-based properties in 1995 compared with 1994.
Consolidated operating income in 1995 was $50.4 million before the effects
of $7.7 million in preopening cost writeoffs in connection with the riverboat
operations, compared with $69.4 million consolidated operating income in 1994.
In addition to the effect of the 1995 writeoffs of preopening costs,
consolidated operating income was lower in 1995 compared with 1994 because of
lower operating results at Tropicana Las Vegas and Ramada Express.
Consolidated marketing costs were up $13 million or 29% in 1995 compared with
1994 primarily due to an increased number of promotions and special events as
well as increased advertising and contract entertainment costs at Tropicana
Atlantic City, combined with the added marketing costs associated with opening
operations in new locations as well as attempting to maintain revenues in the
declining Laughlin, Nevada market. The consolidated provision for doubtful
accounts increased 16% in 1995 compared with 1994 as a result of increasing
the allowance for potential uncollectible markers associated with the premium
table game business in Las Vegas, Nevada.
Tropicana Atlantic City. Tropicana Atlantic City had total revenues of
$332.7 million in 1995 compared with $320.1 million in 1994 and operating
income of $54.5 million in 1995 compared with $54.2 million in 1994. The
principal reason for the increase in total revenues was an increase of $11.5
million or 4% in casino revenue in 1995 compared to 1994. One factor in this
1995 increase was that casino revenue was reduced in 1994 as a result of
severe weather conditions in the East during January and February. Another
reason for the increase in casino revenue was an increase in coin redemptions.
Tropicana Atlantic City also benefited from a strong market growth rate of 10%
in the Atlantic City market during 1995.
The trend of declining games revenue at Tropicana Atlantic City was reversed
in 1995. Games revenue increased by $2.9 million in 1995 compared with 1994.
This follows year-over-year decreases of $0.5 million in 1994, $10.4 million
in 1993 and $6.6 million in 1992. The slot revenue percentage of total casino
revenue held at 76% in 1995, the same percentage as in 1994 and 1993, compared
to 73% in 1992 and 69% in 1991.
Consistent with the increase in casino revenue was an increase in casino
costs of $6.6 million or 5% in 1995 compared with 1994 as a result of
increased direct costs and coin redemptions. In addition, marketing costs were
27% higher in 1995 compared with 1994 as a result of an increase in the number
of special events and promotions at the property combined with increases in
expenses relating to contract entertainers and advertising.
Operating income is after depreciation and amortization of $21.7 million in
1995 compared with $22.5 million in 1994 and rent of $1.4 million in both 1995
and 1994.
Tropicana Las Vegas. Tropicana Las Vegas in 1995 ended its string of year-
over-year improvements that began in 1992. Total revenues were $138.0 million
in 1995 compared with $140.3 million in 1994. Tropicana Las Vegas had a $3.9
million operating loss in 1995 compared with $8.9 million operating income in
1994. Operating loss or income is after rent expense of $9.2 million in 1995
compared with $8.1 million in 1994. Rent expense increased as a result of a
higher interest component of rent payments made to the Company's
unconsolidated partnership. The interest
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component was higher due to higher interest rates. Operating loss or income is
also after depreciation and amortization of $7.8 million in 1995 compared with
$6.5 million in 1994. Depreciation and amortization increased in 1995 as a
result of improvements and renovations at the property that were completed in
mid-1994 and 1995.
The games revenue at Tropicana Las Vegas decreased by 13% in 1995 compared
with 1994. Games revenue has declined over the previous several years as the
Company shifted its focus from premium table games to slot machines. In 1995,
the Company began an effort to recapture some premium table game business
while maintaining slot revenue. Tropicana Las Vegas did maintain slot revenue
in 1995 compared with 1994 and increased table games volume by 9%; however,
the baccarat hold percentage was 3% in 1995 compared with 26% in 1994 and 22%
to 40% in 1993 to 1991. Baccarat revenue as a percent of casino revenue was
1%, 4%, 3%, 7% and 10% for the years 1995, 1994, 1993, 1992 and 1991,
respectively. The mix of slot revenue to total casino revenue was 64%, 61% and
63% in 1995, 1994 and 1993, respectively; compared with 56% and 49% in 1992
and 1991, respectively. The Las Vegas Tropicana's casino costs were up
approximately 6% in 1995 compared with 1994, reflecting the higher costs
associated with increasing the table games volume. The combination of a
decrease in casino revenue combined with an increase in casino direct costs
caused a decrease in the casino operating profit margin from 44% in 1994 to
37% in 1995.
Food and beverage revenue increased by 8% in 1995 over 1994 as a result of
an increase in volume associated with the introduction of a buffet in 1995 and
capital improvements associated with two restaurants. However, food and
beverage costs increased by 15% in 1995 compared with 1994 as a result of
higher food costs and increased payroll costs.
The provision for doubtful accounts increased by $0.6 million in 1995
compared with 1994 as a result of increasing the allowance for potential
uncollectible markers associated with the premium table game business.
Ramada Express. Ramada Express Hotel and Casino in Laughlin, Nevada had
revenues that were down slightly in 1995 from 1994. The decrease in the
property's revenues reflected an overall market in Laughlin that was also down
in most of 1995 from 1994. Total revenues for Ramada Express were $80.4
million in 1995 compared with $81.0 million in 1994. Operating income was
$12.0 million in 1995 compared with $15.9 million in 1994. Operating income is
after depreciation and amortization of $7.2 million in 1995 compared with $7.6
million in 1994. Rent expense was not significant in either year. The Laughlin
market declined in 1995 from 1994 primarily because of competition from Indian
casinos in Arizona and California, the addition of a casino at Stateline,
Nevada and the additional capacity on the Boulder Highway in Las Vegas.
The operating margin, as measured by operating income before depreciation
and amortization, declined in 1995 to 24% from 29% in 1994. The decline is
attributable to higher costs associated with attracting and retaining business
in a declining market, combined with higher employee benefit costs.
Casino Aztar Caruthersville. Casino Aztar Caruthersville in Caruthersville,
Missouri began operations on April 28, 1995; however, the full project was not
completed until July 1995 with the opening of a pavilion that included a
restaurant, sports lounge, snack bar and other amenities. Total revenues at
Caruthersville were $16.3 million. Before the effect of a $2.6 million
writeoff of preopening costs, Caruthersville had an operating loss of $2.2
million. The operating loss is after depreciation and amortization of $2.0
million.
Because this was a start-up operation in a new market in 1995, the Company
incurred more marketing costs as a percentage of casino revenue than at its
more established locations. Marketing costs, consisting primarily of radio,
newspaper and outdoor advertising, were 19% of casino revenue compared to 12%
of casino revenue for the Company on a consolidated basis. Another reason for
this percentage to be high is that revenues were lower than expected due to a
shortfall in expected
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admissions. Caruthersville is located in a rural market that has proven to be
difficult to capture and the riverboat was constrained by its capacity on
weekends. The Company has revised its marketing plan to include television
advertising and, at the end of December 1995, through modifications to the
riverboat, has increased its passenger capacity.
Casino Aztar Evansville. Casino Aztar Evansville in Evansville, Indiana
began operations on December 7, 1995, utilizing temporary facilities that
included surface parking and a 13,000-square-foot pavilion for passenger
ticketing and related services. The permanent land-based facilities, including
a 250-room hotel, parking garage and entertainment complex, are under
construction and scheduled for completion by December 1996. Total revenues at
Evansville were $5.5 million. Before the effect of a $5.1 million writeoff of
preopening costs, Evansville had operating income of $0.8 million. Operating
results are after depreciation and amortization of $0.6 million. The facility
opened during the traditional pre-Christmas slowdown in the casino business
without the benefit of the strong New Year's Eve business because the
Company's fiscal year ended on December 28, 1995.
Development Costs. In mid-1993, the Company began pursuing the development
of its business in certain gaming jurisdictions, as well as in jurisdictions
in which gaming has not been approved. In connection with these efforts, the
Company expensed approximately $1.9 million in 1995 and $1.6 million in 1994.
Interest Expense. Interest expense in 1995 was $51.1 million compared with
$49.7 million in 1994. There was no substantial increase in interest expense
in spite of the higher level of debt outstanding in 1995 because $5.3 million
of interest associated with construction activities was capitalized in 1995
compared with $2.7 million in 1994.
Equity in Unconsolidated Partnership. The Company's loss on its equity share
in Tropicana Enterprises increased as a result of higher interest expense due
to the increase in interest rates in 1995 on the floating rate bank financing
of Tropicana Enterprises. The Company is a noncontrolling 50% partner in
Tropicana Enterprises.
Extraordinary Items. The Company had an extraordinary loss in 1994 of $2.7
million, which was net of an income tax benefit of $1.8 million, related to
the early redemption of the Company's 13 1/2% First Mortgage Notes Due 1996
and the early repayment of a revolving credit facility also due in 1996 that
was collateralized by Ramada Express. The loss consisted of the writeoff of
the unamortized deferred financing costs and unamortized discount associated
with the debt that was repaid early.
1994 Versus 1993
The Company's consolidated revenues were $541.4 million for 1994, an
increase of 4% from $518.8 million in 1993. Increases in total revenues at
Ramada Express and Tropicana Las Vegas more than offset a decrease in total
revenues at Tropicana Atlantic City. The primary reason for the increase in
consolidated revenues was the major expansion of the Ramada Express facility
completed in September 1993. Consolidated casino revenue was up $4.1 million
or 1% in 1994 compared to 1993 as the increase at Ramada Express offset a
decrease at Tropicana Atlantic City. The trend in the mix of consolidated
casino revenue in 1993 and 1992, wherein games revenue was decreasing and slot
revenue was increasing, was broken in 1994. Games revenue in 1994 remained
basically even with 1993. Slot revenue also remained even in 1994, with an
increase in slot revenue at Ramada Express due to the expansion offsetting a
decrease at Tropicana Atlantic City.
Consolidated operating income was $69.4 million in 1994 compared with $37.4
million in 1993. The primary reasons for the increase in consolidated
operating income were the reduction in net rent at Tropicana Atlantic City and
the expansion at Ramada Express. The reduction in net rent was caused by the
purchase in July 1993 of the partnership interests in Ambassador Real Estate
Investors, L.P.
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("AREI") and Ambassador General Partnership ("AGP"), which eliminated the rent
the Company incurred for the portion of Tropicana Atlantic City that was owned
by AREI/AGP. The net rent reduction was partially offset by an increase in
depreciation and amortization that was caused by this purchase.
Ramada Express. Ramada Express had a very good year in 1994, despite a flat
overall market, as a result of a major expansion that was completed in
September 1993. The expansion added 1,100 hotel rooms for a total of 1,500
hotel rooms and added 20,000 square feet of casino space for a total of 50,000
square feet of casino space.
As a result of this significant expansion, operating results for 1994 are
not comparable with 1993's. Ramada Express revenues were $81.0 million in 1994
compared with $56.2 million in 1993. Operating income was $15.9 million in
1994 compared with $5.5 million in 1993, an increase of 189%. Operating income
is after depreciation and amortization of $7.6 million in 1994 compared with
$5.4 million in 1993. Net rent was not significant in either year.
All revenue and cost components were higher in 1994 than in 1993. In spite
of the substantial increase in available rooms at Ramada Express in 1994
compared with 1993, the hotel occupancy rate was 87% in 1994 versus 80% in
1993. The operating margin, as measured by operating income before
depreciation and amortization, was 29% in 1994 compared with 19% in 1993. The
1993 results were affected by the disruption to its operations associated with
the construction activities and by additional costs incurred to minimize that
disruption. The Company also expensed $0.9 million of preopening costs in 1993
in connection with the expanded facilities.
Tropicana Las Vegas. Tropicana Las Vegas continued to improve in 1994 on top
of an improvement in 1993 over 1992. Total revenues for Tropicana Las Vegas
were $140.3 million in 1994 compared with $134.9 million in 1993 and operating
income was $8.9 million in 1994 compared with $7.2 million in 1993. Operating
income increased $1.7 million in spite of a $1.3 million increase in net rent
to $8.1 million in 1994 from $6.8 million in 1993. Net rent increased as a
result of a consumer price index adjustment, which took place in late 1993,
and an increase in the component of rent that is attributable to the increase
in interest rates in 1994 over 1993. The next consumer price index adjustment
occurs in late 1998. Operating income is also after depreciation and
amortization of $6.5 million in both 1994 and 1993.
The games revenue at Tropicana Las Vegas in 1994 was basically flat with
1993 after decreases of 8% in 1993 and 7% in 1992. Games revenue had been
declining as a result of lower baccarat revenue as the Company shifted from a
historical dependence on premium table games to the slot segment of the
business.
Rooms revenue increased 20% in 1994 over 1993 as a combined result of higher
room rates and a 14% reduction in the number of occupied rooms provided on a
complimentary basis. Rooms cost increased 13% in 1994 over 1993 primarily as a
result of a decrease in the interdepartmental allocation to the casino
department caused by the reduction in the use of complimentary rooms as a
means of promoting casino activity.
The provision for doubtful accounts increased $1.4 million in 1994 compared
to 1993 as a result of increasing the allowance for potential uncollectible
markers associated with the premium table game business.
Tropicana Atlantic City. Tropicana Atlantic City had a year in 1994, as was
also the case in 1993, in which total revenues decreased and operating income
increased. Total revenues decreased 2% to $320.1 million in 1994 from
$327.7 million in 1993 while operating income increased 62% to $54.2 million
from $33.5 million. The principal reason for the decrease in total revenues
was a decrease of $10.0 million or 3% in casino revenue in 1994 compared to
1993. This decrease in casino
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revenue is attributable to a $10.5 million decrease in coin redemptions and
also a decrease in the use of complimentary rooms and food and beverage
service as a means of promoting casino activity. In addition, severe weather
conditions in the East were, in large part, the cause of declines in the
market's growth rate for casino revenue during January and February 1994. A
benefit associated with the reductions in coin redemptions and complimentaries
was a decrease in costs, which is one of the reasons for the increase in
operating income. Casino costs decreased $14.2 million or 10% in 1994 compared
to 1993.
The primary reason for the increase in operating income of Tropicana
Atlantic City was the effects of the AREI/AGP acquisition, which resulted in a
reduction in net rent and an increase in depreciation and amortization. Net
rent in 1994 was $1.4 million compared with $20.4 million in 1993 and
depreciation and amortization in 1994 was $22.5 million compared with $20.4
million in 1993.
Development Costs. In mid-1993, the Company began pursuing the development
of its business in certain gaming jurisdictions, as well as in jurisdictions
in which gaming has not been approved. In connection with these efforts, the
Company expensed approximately $1.6 million and $1.3 million of development
costs in 1994 and 1993, respectively.
Interest Income and Expense. Interest income declined by $21.0 million in
1994 from 1993 as a result of the AREI/AGP acquisition. In this acquisition,
the cash paid by Aztar and notes receivable from AGP were replaced on the
Company's balance sheet by the assets acquired. The reduction in the Company's
interest income from the replacement of the AGP notes receivable was for the
most part offset by a reduction in rent expense at Tropicana Atlantic City.
This acquisition transaction also resulted in an increase in depreciation and
amortization at Tropicana Atlantic City.
Interest expense increased by $4.3 million or 10% in 1994 from 1993. The
increase is primarily attributable to a reduction in interest being
capitalized in association with construction projects and the refinancing that
took place in October 1994. The refinancing resulted in approximately $2
million of higher interest expense in as much as the 13 3/4% Notes were issued
on October 4, 1994, and the First Mortgage Notes were not redeemed until
November 2, 1994, resulting in approximately 30 days of duplicate interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital. The Company's financial resources, in
addition to cash from operations, primarily consist of a base level of debt
and a reducing revolving credit facility.
The base level of debt consists of two public debt issues and a bank term
loan. The public debt issues are ranked pari passu and consist of $200 million
of 11% Senior Subordinated Notes Due 2002 (the "11% Notes") that were issued
in 1992 and $180 million of 13 3/4% Senior Subordinated Notes Due 2004 (the
"13 3/4% Notes") that were issued in 1994. Interest on the 11% Notes and the
13 3/4% Notes is payable semi-annually on April 1 and October 1. Except for a
change of control situation, the 11% Notes are not redeemable until October 1,
1997 and the 13 3/4% Notes are not redeemable until October 1, 1999. The
Tropicana Las Vegas Loan is an off-balance-sheet loan payable by Tropicana
Enterprises, a Nevada general partnership in which the Company is a
noncontrolling 50% partner. Tropicana Enterprises owns the real property and
certain personal property that the Company leases in the Tropicana Las Vegas
operation. The Tropicana Las Vegas Loan is serviced through the Company's rent
payments. The Tropicana Las Vegas Loan matures on December 31, 1999, and calls
for principal payments of between $2.5 million and $3.3 million each year,
with a final payment of approximately $57 million due at maturity. The
Tropicana Las Vegas Loan balance at March 28, 1996 was approximately $68
million.
The reducing revolving credit facility (the "Credit Facility") was provided
in October 1994 by a group of banks led by Bank of America as managing agent
and it matures on December 31, 1999.
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The maximum amount of this facility will reduce from $207 million quarterly
beginning on March 31, 1996 in the annual amounts of $25 million in 1996 and
$35 million in each year thereafter until maturity. The Credit Facility bears
a floating rate of interest that is payable at least quarterly and sometimes
more often depending on the interest option selected by the Company. At
December 29, 1994, the outstanding balance under the Credit Facility was $50
million. During 1995, the Company repaid $17 million and borrowed $83.6
million, leaving an outstanding balance under the Credit Facility of $116.6
million at December 28, 1995. During the 1996 first quarter, the Company
repaid $35.2 million and borrowed $58.6 million, leaving an outstanding
balance of $140 million at March 28, 1996. The funds from the Credit Facility
were used in the expansion of the Company's existing businesses and the
development of businesses in new gaming jurisdictions as discussed later.
Pending specific application, the Company expects to use the net proceeds from
this offering to reduce the amount outstanding (and permitted to be
reborrowed, subject to the conditions of the Credit Facility) under the Credit
Facility.
The Credit Facility imposes various restrictions on the Company, including
limitations on its ability to incur additional debt, commit funds to
maintenance capital expenditures (as defined in the Credit Facility), merge or
sell assets. The Credit Facility prohibits dividends on Common Stock, other
than those payable in Common Stock, and repurchases of Common Stock, with
certain limited exceptions. In addition, the Credit Facility 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. For
purposes of the maximum debt to operating cash flow ratio, uncollateralized
letters of credit are considered to be debt. At March 28, 1996, the Company's
actual debt to operating cash flow ratio was 4.43 to 1, and the maximum
allowable ratio under the Credit Facility (at such date and at June 27, 1996,
the end of the Company's second quarter) was 4.50 to 1. The maximum allowable
ratio decreases periodically to 3.75 to 1 at the end of fiscal 1996 and to
3.25 to 1 at the end of fiscal 1997. The Company has received a waiver from
its lenders under the Credit Facility with respect to the maximum allowable
debt to operating cash flow ratio required to be met at June 27, 1996. The
effect of this action is to waive compliance with this covenant for the entire
third quarter, and accordingly, the Company expects to have access to
borrowings under the Credit Facility during such period, even though its ratio
at June 27, 1996 was determined to have been above the maximum. A similar
waiver had been obtained at December 28, 1995, but was not necessary at March
28, 1996. The Company's ability to maintain or increase debt capacity is
contingent on increased levels of operating cash flow or deleveraging such as
will initially occur as a result of the use of proceeds from this offering.
See "Use of Proceeds" and "Capitalization."
Additional sources of funds in 1995 were $11.9 million from the Casino
Reinvestment Development Authority ("CRDA") in connection with the 604-room
hotel tower expansion project at Tropicana Atlantic City and $2.0 million from
the exercise of stock options. The CRDA funds result from an agreement
providing for approximately $25 million in funding. The Company will continue
to receive 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. At March 28, 1996, the Company had approximately
$1.3 million in available deposits with the CRDA that qualified.
At March 28, 1996, the Company had $8.25 million in a certificate of deposit
that was pledged as collateral for a $9.7 million letter of credit in
connection with the Company's commitment to make certain payments to the City
of Evansville, Indiana as well as other civic and community organizations.
Caruthersville Riverboat Casino. On April 28, 1995, the Company commenced
operations of a riverboat casino in Caruthersville, Missouri. A pavilion for
ticketing and pre-boarding facilities, including a restaurant, a sports
lounge, a snack bar and other amenities, was opened in July 1995. In December
1995, the Company made modifications to the riverboat and increased capacity
to 800 passengers
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plus crew in order to alleviate capacity constraints on weekends. The project
also includes a barge at river's edge for passenger boarding and disembarking.
The Company's expenditures for property and equipment on this project in 1995
were approximately $28.2 million. No significant expenditures for property and
equipment for this project were made in the 1996 first quarter. Total
expenditures for property and equipment on this project, including amounts
from prior years, were approximately $51.6 million at March 28, 1996.
Evansville Riverboat Casino. On December 7, 1995, the Company commenced
operations of a riverboat casino in Evansville, Indiana. Construction of a
250-room hotel, an entertainment and ticketing pavilion, a parking garage and
other amenities is on schedule for completion by December 1996. The Company's
expenditures for property and equipment on this project in 1995 and the 1996
first quarter were approximately $48.7 million and $9.5 million, respectively.
Total expenditures for property and equipment on this project, including
amounts from the prior year, were approximately $65.9 million at March 28,
1996.
Tropicana Atlantic City. In February 1995, the Company commenced
construction on an expansion of Tropicana Atlantic City, consisting primarily
of a new 604-room hotel tower, with additional restaurant and support
facilities in the existing operation. The Company's expenditures for property
and equipment on the expansion project for 1995 and the 1996 first quarter
were approximately $32.9 million and $9.8 million, respectively.
On-going Capital Expenditures. During 1995, the Company spent approximately
$26.1 million on routine purchases of property and equipment, including $4.8
million on improvements for two restaurants at Tropicana Las Vegas and
$4.3 million on a renovation of existing rooms at Tropicana Atlantic City that
was underway at December 28, 1995, to complement the new hotel tower. During
the 1996 first quarter, the Company spent approximately $6.9 million on
routine purchases of property and equipment.
Other expenditures during 1995 included $3.8 million in deposits with the
CRDA, a $2 million deposit with the Indiana Gaming Commission for the
Evansville operation, deferred licensing and preopening costs for
Caruthersville of $2.3 million and deferred licensing and preopening costs for
Evansville of $7.6 million.
Commitments. At March 28, 1996, the Company had commitments of approximately
$60 million for the purchase of property and equipment. In the last three
quarters of 1996, the Company plans to spend approximately $29 million on
routine capital expenditures, approximately $40 million on the Evansville
facility and approximately $23 million to complete the Tropicana Atlantic City
project.
The Tropicana Las Vegas Lease contains a provision that requires the Company
to maintain an additional security deposit with the lessor of approximately
$21.3 million in cash or a letter of credit if the Tropicana Las Vegas
operation fails to meet certain financial tests. This requirement was waived
at March 28, 1996. The Company expects to determine whether or not to seek a
similar waiver at June 27, 1996 if a determination is made that the financial
tests were not met for the period then ended.
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. Adoption of the
provisions of SFAS 121 is required for fiscal years beginning after December
15, 1995, with earlier adoption permitted. Restatement of previously issued
financial statements is not permitted. The Company adopted SFAS 121 in the
first quarter of 1996.
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In October 1995, the FASB adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which
has recognition provisions that establish a fair value based method of
accounting for stock-based employee compensation plans and established fair
value as the measurement basis for transactions in which an entity acquires
goods or services from nonemployees in exchange for equity instruments. SFAS
123 also has certain disclosure provisions. Adoption of the recognition
provisions of SFAS 123 with regard to these transactions with nonemployees was
required for all such transactions entered into after December 15, 1995 and
the Company adopted these provisions as required. The recognition provision
with regard to the fair value based method of accounting for stock-based
employee compensation plans is an optional choice. The Company has decided to
continue to apply Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") for its stock-based employee compensation
arrangements. APB 25 uses what is referred to as an intrinsic value based
method of accounting. The disclosure provisions of SFAS 123 are effective for
fiscal years beginning after December 15, 1995. The Company will provide the
disclosures when required.
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REGULATION
GENERAL
Regulatory aspects of the gaming business are pervasive in nature and the
following description should not be construed as a complete summary of all the
regulatory requirements faced by the Company. Gaming authorizations, once
obtained, can be suspended or revoked for a variety of reasons. If the Company
were ever precluded from operating one of its gaming facilities, it would, to
the extent permitted by law, seek to recover its investment by sale of the
property affected, but there can be no assurance that the Company would
recover its full investment. In addition, the Nevada Gaming Commission (the
"Nevada Commission") and the New Jersey Casino Control Commission (the "New
Jersey Commission") have the authority to require a holder or beneficial owner
of the Company's securities to be found to be suitable or to qualify under
applicable laws or regulations.
From time to time, legislative and regulatory changes are proposed that
could be adverse to the Company. In addition, from time to time,
investigations are conducted relating to the gaming industry. Tropicana
Atlantic City, Casino Aztar Caruthersville and Casino Aztar Evansville are
required to report certain cash transactions to the U.S. Department of the
Treasury pursuant to the Bank Secrecy Act. Violation of the reporting
requirements of the Bank Secrecy Act could result in civil as well as criminal
penalties including fines and/or imprisonment. The State of Nevada has adopted
a regulation similar to the Bank Secrecy Act which requires the Nevada
facilities to document and/or report certain currency transactions to the
Nevada Board. Violation of this regulation could result in action by the
Nevada authorities to fine or revoke, suspend, impose conditions upon or fail
to renew the Nevada facilities' licenses and/or the Company's licensing
approval. These reporting requirements are not expected to have any adverse
effects on the Company's casino operations.
REGULATION AND LICENSING--NEVADA
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulation.
The gaming operations of Tropicana Las Vegas and Ramada Express are subject to
the licensing and regulatory control of the Nevada Commission, the Nevada
Board and the Clark County Liquor and Gaming Licensing Board (the "Clark
County Board") (collectively, the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) the provision of a source of state
and local revenues through taxation and licensing fees. Change in such laws,
regulations and procedures could have an adverse effect on the Company.
HRN is the Company's wholly-owned subsidiary which operates the casino at
Tropicana Las Vegas and Ramada Express, Inc. ("Express") is the Company's
wholly-owned subsidiary which operates the casino at Ramada Express. HRN and
Express are both required to be licensed by the Nevada Gaming Authorities. The
gaming licenses require the periodic payment of fees and taxes and are not
transferable. The Company is registered by the Nevada Commission as a publicly
traded corporation ("Registered Corporation") and as such, it is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the
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Nevada Commission may require. No person may become a stockholder of, or
receive any percentage of profits from, HRN or Express without first obtaining
licenses and approvals from the Nevada Gaming Authorities. The Company, HRN
and Express have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, HRN or
Express in order to determine whether such individual is suitable or should be
licensed as a business associate of a gaming licensee. Officers, directors and
certain key employees of HRN and Express must file applications with the
Nevada Gaming Authorities and may be required to be licensed or found suitable
by the Nevada Gaming Authorities. Officers, directors and key employees of the
Company who are actively and directly involved in gaming activities of HRN and
Express may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability
is comparable to licensing, and both require submission of detailed personal
and financial information followed by a thorough investigation. The applicant
for licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, HRN or Express, the companies involved would
have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company, HRN or Express to terminate the employment
of any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to
judicial review in Nevada.
The Company, HRN and Express are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by HRN and
Express must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by HRN or Express,
the gaming licenses held by HRN or Express could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, HRN, Express, the Company and the persons
involved could be subject to substantial fines for each separate violation of
the Nevada Act at the discretion of the Nevada Commission. Further, a
supervisor could be appointed by the Nevada Commission to operate the
Company's Nevada gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable
rental value of the Company's Nevada gaming properties) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect the Company.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the Company's
voting securities determined if the Nevada Commission has reason to believe
that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation
incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial
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owners of more than 10% of the Company's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman
of the Nevada Board mails the written notice requiring such filing. Under
certain circumstances, an "institutional investor," as defined in the Nevada
Act, which acquires more than 10%, but not more than 15%, of the Company's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not
be deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of
directors of the Company, any change in the Company's corporate charter,
bylaws, management, policies or operations of the Company, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and
who holds, directly or indirectly, any beneficial ownership of the common
stock of a Registered Corporation beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal offense. The
Company is subject to disciplinary action if, after it receives notice that a
person is unsuitable to be a stockholder or to have any other relationship
with the Company, HRN or Express, the Company (i) pays that person any
dividend or interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pays remuneration in any form to that
person for services rendered or otherwise, or (iv) fails to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
for cash at fair market value. Additionally, the Clark County Board has taken
the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation such as the Company to file applications,
be investigated and be found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable
to own such security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its approvals, if without
the prior approval of the Nevada Commission, it: (i) pays to the unsuitable
person any dividend, interest, or any distribution whatsoever; (ii) recognizes
any voting right by such unsuitable person in connection with such securities;
(iii) pays the unsuitable person remuneration in any form; or (iv) makes any
payment to the unsuitable person by way of principal, redemption, conversion,
exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder
may be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record
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holder unsuitable. The Company is also required to render maximum assistance
in determining the identity of the beneficial owner. The Nevada Commission has
the power to require the Company's stock certificates to bear a legend
indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. On May 23, 1996, the Nevada Commission granted the Company prior
approval to make public offerings for a period of one year, subject to certain
conditions (the "Shelf Approval"). However, the Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. This offering is
made pursuant to such Shelf Approval. The Shelf Approval does not constitute a
finding, recommendation or approval by the Nevada Commission or the Nevada
Board as to the accuracy or adequacy of this Prospectus or the investment
merits of the securities offered. Any representation to the contrary is
unlawful.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in
a variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated
and licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof and before a
corporate acquisition opposed by management can be consummated. The Nevada Act
also requires prior approval of a plan of recapitalization proposed by the
Company's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring
control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by HRN and Express where certain entertainment
is provided in a cabaret, nightclub, cocktail lounge or casino showroom in
connection with the serving or selling of food, refreshments or merchandise.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (a "Licensee", or
collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses
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of investigation of the Nevada Board of their participation in such foreign
gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. A
Licensee is also subject to disciplinary action by the Nevada Commission if it
knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fails to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada
gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person in
the foreign operation who has been denied a license or finding of suitability
in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages is also subject to licensing, control and
regulation by the Clark County Board. All licenses are revokable and are not
transferable. The Clark County Board has full power to limit, condition,
suspend or revoke any such license and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operations of the
Company.
REGULATION AND LICENSING--NEW JERSEY
The ownership and operation of casino hotel facilities and gaming activities
in Atlantic City, New Jersey, are subject to extensive state regulation under
the New Jersey Casino Control Act (the "New Jersey Act") and the regulations
of the New Jersey Commission. In general, the New Jersey Act and regulations
provide for more extensive controls over a broader scope of gaming-related
activities than does the Nevada regulatory system.
The New Jersey Act and regulations concern primarily the financial stability
and character of casino licensees, their intermediary and holding companies,
their employees, their security holders and others financially interested in
casino operations, the nature of hotel and casino facilities and a wide range
of gaming and non-gaming related operations. The New Jersey Act and
regulations include detailed provisions concerning, among other things,
financial and accounting practices used in connection with casino operations,
residence and equal employment opportunities for employees of casino
operators, contractors for casino facilities and others; rules of games,
levels of supervision of games and methods of selling and redeeming chips;
manner of granting credit, duration of credit and enforceability of gaming
debts; manufacture, distribution and sale of gaming equipment; security
standards, management control procedures, accounting and cash control methods
and reports to gaming authorities; advertising of casinos and standards for
entertainment and distribution of alcoholic beverages in casinos. A number of
these provisions require practices which are different from those in Nevada
and some of them result in casino operating costs being higher than those in
comparable facilities in Nevada.
The New Jersey Act also established the New Jersey Division of Gaming
Enforcement (the "New Jersey Division") to investigate all license
applications, enforce the provisions of the New Jersey Act and attendant
regulations and prosecute all proceedings for violations of the New Jersey Act
and regulations before the New Jersey Commission. The New Jersey Division also
conducts audits and continuing reviews of all casino operations.
Adamar of New Jersey, Inc. ("Adamar"), a wholly-owned subsidiary of the
Company, has been licensed (subject to quadrennial renewal) by the New Jersey
Commission to operate Tropicana Atlantic City. In November 1982, the New
Jersey Commission granted a plenary license to Adamar. In November 1995, the
license was renewed for a period of four years. The Company and Ramada New
Jersey Holdings Corporation ("Holdings"), another of the Company's New Jersey
gaming subsidiaries, have been approved as qualified holding companies for
Adamar's casino license. Officers and directors of the Company and Adamar and
employees who work at casino hotel facilities operated by Adamar also have
been or must be approved or licensed. In addition, all contracts affecting the
facilities have been or must be approved, and all enterprises that conduct
business with Adamar must
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register with the New Jersey Commission and those enterprises that conduct
gaming related businesses or that conduct business on a regular and continuing
basis, as defined by the regulations under the New Jersey Act, must be
licensed by the New Jersey Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. Casino licenses are not
transferable. A casino hotel facility must also continually satisfy certain
requirements concerning, among other things, the number of qualifying sleeping
units and the relationship between the number of qualifying sleeping units and
the square footage of casino space. The Company believes that Tropicana
Atlantic City continues to meet such requirements.
The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities issued
by a casino licensee or any of its intermediary or holding companies, those
persons who, in the opinion of the New Jersey Commission, have the ability to
control the casino licensee or its intermediary or holding companies or elect
a majority of the board of directors of said companies, other than a banking
or other licensed lending institution which makes a loan or holds a mortgage
or other lien acquired in the ordinary course of business, and lenders and
underwriters of said companies may be required to seek qualification from the
New Jersey Commission. However, because the Company is a publicly traded
holding company, in accordance with the provisions of the New Jersey Act, a
waiver of qualification may be granted by the New Jersey Commission, with the
concurrence of the Director of the New Jersey Division, if it is determined
that said persons or entities are not significantly involved in the activities
of Adamar and, in the case of security holders, do not have the ability to
control the Company or elect one or more of its directors. There exists a
rebuttable presumption that any person holding 5% or more of the equity
securities of a casino licensee's intermediary or holding company or a person
having the ability to elect one or more of the directors of such a company has
the ability to control the company and thus must obtain qualification from the
New Jersey Commission.
Notwithstanding this presumption of control, the New Jersey Act provides for
a waiver of qualification for passive "institutional investors," as defined by
the New Jersey Act, if the institutional investor purchased the securities for
investment purposes only and where such securities constitute (i) less than
10% of the equity securities of a casino licensee's holding or intermediary
company or (ii) debt securities of a casino licensee's holding or intermediary
company representing a percentage of the outstanding debt of such company not
exceeding 20% or a percentage of any issue of the outstanding debt of such
company not exceeding 50%. The waiver of qualification is subject to certain
conditions including, upon request of the New Jersey Commission, filing a
certified statement that the institutional investor has no intention of
influencing or affecting the affairs of the issuer. Additionally, a waiver of
qualification may also be granted to institutional investors holding a higher
percentage of securities of a casino licensee's holding or intermediary
company upon a showing of good cause.
If the institutional investor is granted such a waiver and subsequently
determines to influence or affect the affairs of the issuer, it must provide
not less than 30 days notice of such intent and file with the New Jersey
Commission an application for qualification before taking any action which may
influence or affect the affairs of the issuer, except that an institutional
investor holding voting securities shall be permitted to vote on matters put
to the vote of the holders of outstanding voting securities. If an
institutional investor that has been granted a waiver subsequently changes its
investment intent, or if the New Jersey Commission finds reasonable cause to
believe that the institutional investor may be found unqualified, no action
other than divestiture shall be taken by the investor with respect to the
security holdings until there has been compliance with the provisions of the
New Jersey Act concerning Interim Casino Authorization. The provisions of the
New Jersey Act concerning Interim Casino Authorization provide that whenever a
security holder of either equity or debt is required to qualify pursuant to
the New Jersey Act, the security holder shall, within 30 days after the New
Jersey Commission determines that qualification is required or declines to
waive qualification, (i) file a completed application for qualification, along
with an executed and approved Trust Agreement,
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wherein all securities of the holding or intermediary company held by that
security holder are placed in trust pending qualification, or (ii) file a
notice of intent to divest itself of such securities as the New Jersey
Commission may require so as to remove the need for qualification, which
securities must be divested within 120 days from the date such determination
was made.
The New Jersey Act further requires that corporate licensees and their
subsidiaries, intermediaries and holding companies adopt certain provisions in
their certificates of incorporation that require certain remedial action in
the event that an individual owner of any security of such company is found
disqualified under the New Jersey Act. The required certificate of
incorporation provisions vary depending on whether the stock of the company
subject to the requirements of the New Jersey Act is publicly or privately
traded. Pursuant to the New Jersey Act, the certificate of incorporation of a
publicly held company must provide that any securities of such corporation are
held subject to the condition that if a holder is found to be disqualified by
the New Jersey Commission pursuant to the New Jersey Act such holder shall
dispose of his interest in such company. The certificate of incorporation of a
privately held company must create the absolute right of the company to
repurchase at the market price or purchase price, whichever is the lesser, any
security, share or other interest in the company in the event the New Jersey
Commission disapproves a transfer in accordance with the provisions of the New
Jersey Act.
The Company is a publicly held company and, accordingly, a provision has
been placed in the Company's Restated Certificate of Incorporation which
provides that a holder of the Company's securities must dispose of such
securities if the holder is found disqualified under the New Jersey Act. In
addition, the Restated Certificate of Incorporation for the Company provides
that the Company may redeem the stock of any holder found to be disqualified.
If, at any time, it is determined that Adamar has violated the New Jersey
Act or regulations, or if any security holder of the Company, Adamar or
Holdings who is required to be qualified under the New Jersey Act is found
disqualified but does not dispose of the securities, Adamar could be subject
to fines or its license could be suspended or revoked. If Adamar's license is
revoked, the New Jersey Commission could appoint a conservator to operate and
to dispose of any casino hotel facilities of Adamar. Net proceeds of a sale by
a conservator and net profits of operations by a conservator (at least up to
an amount equal to a fair return on Adamar's investment which is reasonable
for casinos or hotels) would be paid to Adamar.
In addition to compliance with the New Jersey Act and regulations relating
to gaming, any facility built in Atlantic City by Adamar or any other
subsidiary of the Company must comply with the New Jersey and Atlantic City
laws and regulations relating to, among other things, the Coastal Area
Facilities Review Act, construction of buildings, environmental
considerations, operation of hotels and the sale of alcoholic beverages.
The New Jersey Commission is authorized to establish fees for the issuance
or renewal of casino licenses. Yearly casino hotel alcoholic beverage license
fees are payable for each facility in any of five specified categories in any
licensed casino hotel. There is also an annual license fee on each slot
machine. The New Jersey Commission is also authorized by regulation to
establish annual fees for the issuance and renewal of licenses other than
casino licenses.
The New Jersey Act imposes an annual tax of eight percent on gross revenues
(as defined in the New Jersey Act). In addition, casino licensees are required
to invest one and one-quarter percent of gross casino revenues for the
purchase of bonds to be issued by the Casino Reinvestment Development
Authority or make other approved investments equal to that amount; in the
event the investment requirement is not met, the casino licensee is subject to
a tax in the amount of two and one-half percent on gross revenues.
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REGULATION AND LICENSING--MISSOURI
On November 3, 1992, a statewide referendum authorized gaming in the state
of Missouri on the Missouri and the Mississippi Rivers. Local approval from
the home dock municipality, as required by the legislation, was also obtained
from the City of Caruthersville in the November 3, 1992 election. On April 29,
1993, Missouri enacted revised legislation (the "Missouri Gaming Law") which
amended the existing legislation. The Missouri Gaming Law established the
Missouri Gaming Commission, which is responsible for the licensing and
regulation of riverboat gaming in Missouri and has the discretion to approve
license applications for riverboat gaming facilities. In July 1993, the
Company was chosen by the City of Caruthersville as the preferred applicant to
develop a gaming facility, and on September 20, 1993, the Company, through its
subsidiary Aztar Missouri Gaming Corporation ("Aztar Missouri"), filed its
initial application with the Missouri Gaming Commission. The Missouri Gaming
Commission conducted a formal investigation of Aztar Missouri's application
and granted an owner/operator gaming license to Aztar Missouri on April 26,
1995.
In a statewide election held on November 8, 1994, Missouri voters approved
the adoption of an amendment to the Missouri Constitution which permits the
legislature to allow games of chance to be conducted on excursion boats and
floating facilities on the Mississippi River and the Missouri River. As a
result of the amendment, full-scale casino gaming is now available in
Missouri. This election clarified the status of the Missouri Gaming Law, which
was in flux after a decision by the Missouri Supreme Court and a narrowly
defeated statewide constitutional amendment during the early months of 1994.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
There can be no assurances that any future challenges, if brought, would not
further interfere with full-scale gaming operations in Missouri, including the
operations of Aztar Missouri. Pursuant to the Missouri Gaming Law, as revised,
the Missouri Gaming Commission has issued eight gaming licenses throughout the
state: one in Caruthersville, two in the St. Louis area, four in the Kansas
City area, and one in St. Joseph. See "Risk Factors--Competition."
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. As part of the application and licensing process for a gaming
license, the applicant must submit detailed financial, operating and other
reports to the Missouri Gaming Commission. Each applicant has an ongoing duty
to update the information provided to the Missouri Gaming Commission in the
application. In addition to the information required of the applicant,
directors, officers and other key persons must submit Personal Disclosure
Forms which include detailed personal financial information and are subject to
thorough investigations. In addition, certain officers and directors of Aztar
have submitted Personal Disclosure Forms to the Missouri Gaming Commission.
All gaming employees must obtain an occupational license issued by the
Missouri Gaming Commission.
The operators' licenses are issued through application to the Missouri
Gaming Commission, which requires, among other things, (a) investigations into
an applicant's character, financial responsibility and experience
qualifications and (b) that applicants furnish (i) an affirmative action plan
for the hiring and training of minorities and women and (ii) an economic
development or impact report. License fees are a minimum of $50,000 for the
initial application and $25,000 annually thereafter.
Licenses are to last for a term of two years, except that the first license
and initial renewal granted to each gaming operator are to be for terms of one
year. Aztar Missouri and its officers and certain employees are in the process
of the first renewal of the owner/operator license and occupational licenses.
In connection with this renewal, certain officers and directors of Aztar have
been requested to submit updated Personal Disclosure Forms. Aztar Missouri has
no reason to believe that these renewal applications will not be approved. The
Missouri Gaming Commission has begun its
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investigation of Aztar Missouri's renewal application, which is expected to
conclude in July 1996. However, there can be no assurance that Aztar
Missouri's renewal application will be approved in a timely manner or at all.
The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violations of the Missouri Gaming Law and the rules
and regulations promulgated thereunder. Penalties include forfeiture of all
gaming equipment used for improper gaming and fines of up to three times an
operator's highest daily gross adjusted receipts during the preceding twelve
months. The gaming licenses may not be transferred nor pledged as collateral,
and the Missouri Gaming Law regulations bar a licensee from taking any of the
following actions without prior approval by the Missouri Gaming Commission:
(a) any individual transfer of an interest of 5% or greater, either directly
or indirectly, in a publicly traded company which holds a license; (b)
distribution of assets in excess of 5% of accumulated earnings of a licensee
to anyone with an ownership interest in the licensee; or (c) entering into any
transaction with a dollar value in excess of a certain threshold ($500,000 to
$1,000,000). The restrictions on transfer of ownership apply to the Company as
well as the direct licensee, Aztar Missouri.
The bulk of the Missouri administrative rules contains detailed requirements
concerning the operation of a licensed excursion gaming boat facility. These
include a charge of two dollars per gaming customer that licensees must pay to
the Missouri Gaming Commission, minimum payout requirements, a 20% tax on
adjusted gross receipts, prohibitions against providing credit to gaming
customers (except for the use of credit cards and cashing checks) and a
requirement that each licensee reimburse the Missouri Gaming Commission for
all costs of any Missouri Gaming Commission staff necessary to protect the
public on the licensee's riverboat. Licensees also must submit audited
quarterly financial reports to the Missouri Gaming Commission and pay the
associated auditing fees. Other areas of operation which are subject to
regulation under the Missouri rules are the size, denomination and handling of
chips and tokens; the surveillance methods and computer monitoring of
electronic games; accounting and audit methods and procedures; and approval of
an extensive internal control system. The Missouri rules also require that all
of an operator's purchases must be from suppliers licensed by the Missouri
Gaming Commission.
Although the Missouri Gaming Law provides no limit on the amount of
riverboat space that may be used for gaming, the Missouri Gaming Commission is
empowered to impose such space limitations through the adoption of rules and
regulations. Additionally, United States Coast Guard safety regulations could
affect the amount of riverboat space that may be devoted to gaming. In
addition, the Missouri Gaming Law imposes a $500 loss limit per cruise and
requires licensees to maintain scheduled cruises or excursions with boarding
and de-boarding times, regardless of whether a gaming riverboat actually
cruises the river, or has been granted continuous docking status pursuant to
the Missouri Gaming Law, as described below.
The Missouri Gaming Commission is empowered to determine on a city and
county-specific basis where dockside gaming is appropriate and shall be
permitted. Dockside gaming in Missouri may differ from dockside gaming in
other states, because the Missouri Gaming Commission requires "simulated
cruising." This requirement permits customers to board dockside riverboats
only at specified times and prohibits boarding during the period of a
simulated cruise, which is expected to last for two to three hours. However,
customers are permitted to leave the facility at any time. The Missouri Gaming
Commission has authorized seven of eight licensed facilities to operate all or
a portion of their facilities on a continuously docked basis with a "simulated
cruise" schedule. On February 15, 1996, the Commission granted Aztar Missouri
the authority to operate gambling games on part of its floating facility,
previously used for nongaming activities, such as ticketing, under the
continuous docking provision of the Missouri Gaming Law. The Commission's
order does not affect Aztar Missouri's riverboat facility, the City of
Caruthersville, which does not have the authority to conduct gambling games
while continuously docked, unless such docking is caused by weather or other
circumstances.
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REGULATION AND LICENSING--INDIANA
The ownership and operation of riverboat casinos in certain designated
waters are subject to extensive state regulation under the Indiana Riverboat
Gambling Act (the "Indiana Act") and regulations which the Indiana Gaming
Commission is authorized to adopt under the Indiana Act. The Indiana Act and
the regulations the Indiana Gaming Commission has adopted to date and is
expected to adopt in the future are significant to the Company's prospects for
successfully operating its Evansville, Indiana based riverboat casino and
associated developments.
The Indiana Act extends broad and pervasive regulatory powers and authority
to the Indiana Gaming Commission. The Indiana Gaming Commission took office in
September 1993, and, thus far, its activities have been predominantly directed
toward establishing a regulatory and administrative infrastructure for
licensing of prospective applicants for the limited number of riverboat
owner's licenses authorized by the Indiana Act (five for operations docking on
Lake Michigan, one on a landlocked lake in Southwestern Indiana and five on
the Ohio River, including the Company's facility in Evansville, Indiana), and
on developing systems and "rules of the game" for the actual operation of
riverboat casinos. See "Risk Factors--Competition." The Indiana Gaming
Commission has adopted a set of regulations under the Indiana Act which covers
numerous operational matters concerning riverboat casinos licensed by the
Commission and has proposed other rules for adoption.
Among regulations adopted is one dealing with riverboat excursions, routes
and public safety. The Indiana Act requires licensed riverboat casinos to be
cruising vessels and the regulations carry out the legislative intent with
appropriate recognition of public safety needs. Riverboat gaming excursions
are limited to a duration of up to four hours unless expressly approved by the
Indiana Gaming Commission. No gaming may be conducted while the boat is docked
except (1) for 30-minute time periods at the beginning and end of a cruise
while the passengers are embarking and disembarking, (2) if the master of the
riverboat reasonably determines that specific weather or water conditions
present a danger to the riverboat, its passengers and crew, (3) if either the
vessel or the docking facility is undergoing mechanical or structural repair,
(4) if water traffic conditions present a danger to (A) the riverboat,
riverboat passengers and crew or (B) other vessels on the water, or (5) if the
master has been notified that a condition exists that would cause a violation
of Federal law if the riverboat were to cruise. For Ohio River excursions,
such as those the Company is conducting through its Evansville operation,
"full excursions" must be conducted at all times during a year unless the
master determines otherwise, for the above-stated reasons. A "full excursion"
is a cruise on the Ohio River.
The Company, through an Indiana subsidiary, has received from the Indiana
Gaming Commission a riverboat owner's license for the Evansville, Indiana
market. The Company has completed requirements for formal licensing and
commenced operations in Evansville on December 7, 1995. The Ohio River has
waters in both Indiana and Kentucky in the Evansville vicinity. Because
riverboat casino gambling is illegal in Kentucky, authorities of that state
have raised issues about Indiana-licensed riverboats operating in Kentucky
waters. The Company's Evansville riverboat cruises from its dock without
entering Kentucky waters, under its currently approved cruising route, thereby
avoiding those issues.
A riverboat owner's license has an initial effective period of five years
and is subject to annual renewal thereafter. The Indiana Gaming Commission has
broad discretion with respect to the initial issuance of licenses and also
with respect to the renewal, revocation, suspension and control of riverboat
owner's licenses. The Act requires a reinvestigation after three years to
ensure the owner continues to be suitable for licensure. Officers, directors
and principal owners of the actual license holder and employees who are to
work on the riverboat are subject to substantial disclosure requirements as a
part of securing and maintaining necessary licenses. Significant contracts are
subject to disclosure and approval processes. Suppliers of gaming equipment
and materials must also be licensed under the Indiana Act. The present license
expires in December 2000.
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The Indiana Act requires licensees to disclose to the Indiana Gaming
Commission the identity of all directors, officers and persons holding direct
or indirect beneficial interests of 1% or greater. The Indiana Gaming
Commission also requires a broad and comprehensive disclosure of financial and
operating information on licensees and their principal officers. The Company
has provided full information and documentation to the Indiana Gaming
Commission, and it must continue to do so, during the license.
In addition to receiving a license to conduct riverboat casino operations
from the Indiana Gaming Commission, the Company has secured permits and
approvals from the United States Army Corps of Engineers to develop the
facilities it is using to conduct operations. The Company has received two
alcoholic beverage permits: one for riverboat excursions and one for land
support facilities. All building permits and other approvals for the permanent
facilities have been received, and the project is under construction.
The Indiana Act prescribes a tax on adjusted gross receipts from gambling
games authorized under the Indiana Act at the rate of 20% on adjusted gross
receipts. For this purpose, adjusted gross receipts means the total of all
cash and property received from gaming operations less cash paid out as
winnings and uncollectible gaming receivables. The Indiana Act also prescribes
an additional tax for admissions, based upon $3 for each person admitted to a
gaming excursion. Recent legislation permits the imposition of property taxes
on riverboats at rates to be determined by local taxing authorities. Indiana
corporations are also subject to the Indiana gross income tax, the Indiana
adjusted gross income tax and the Indiana supplemental corporate net income
tax.
The Indiana Act places special emphasis upon minority and women's business
enterprise participation in the riverboat industry. Any person issued a
riverboat owner's license must establish goals of at least 10% of the total
dollar value of the licensee's contracts for goods and services with minority
business enterprises and 5% of the total dollar value of the licensee's
contracts for goods and services with women's business enterprises. The
Indiana Gaming Commission may suspend, limit or revoke the owner's license or
impose a fine for failure to comply with the statutory requirements.
Minimum and maximum wagers on games on the riverboat are left to the
discretion of the licensee. Wagering may not be conducted with money or other
negotiable currency.
An institutional investor which acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to notify the
Indiana Gaming Commission and to provide additional information, and may be
subject to a finding of suitability. A person who acquires 5% or more of any
class of voting securities of a holding company of a licensee is required to
apply to the Indiana Gaming Commission for a finding of suitability. A
riverboat licensee or an affiliate may not enter into a debt transaction of $1
million or more without approval of the Indiana Gaming Commission.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 110,000,000 shares, of
which 100,000,000 shares are Common Stock, par value $.01 per share (the
"Common Stock"), and 10,000,000 shares are Preferred Stock, $.01 par value per
share (the "Preferred Stock"), issuable in series, of which 50,000 shares have
been designated Series A Junior Participating Preferred Stock (the "Series A
Preferred Stock") and reserved for issuance pursuant to the Company's Rights
Plan (defined below) and 100,000 shares have been designated Series B ESOP
Convertible Preferred Stock (the "ESOP Stock") and issued to the Company's
Employee Stock Ownership Plan (the "ESOP"). The following summary description
of the capital stock of the Company does not purport to be complete and is
qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation, as amended (the "Aztar Certificate"), the Company's By-Laws
(the "Aztar By-Laws"), and the Rights Agreement between the Company and Wells
Fargo Bank, N.A., as rights agent thereunder, and to Delaware corporation law.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. The Company's Board of Directors (the "Aztar Board") is currently
comprised of ten members having staggered three-year terms. Holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Aztar Board out of funds legally available therefor, subject
to any preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The shares of
Common Stock outstanding immediately following the completion of this offering
will be fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock that the
Company may designate and issue. As of March 28, 1996, there were 38,352,798
shares of Common Stock outstanding. See "Capitalization." The Common Stock is
currently listed and traded on the NYSE.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series
with such designations, preferences and relative participating, optional, or
other special rights and qualifications, limitations or restrictions thereof,
as shall be stated in the resolutions adopted by the Aztar Board providing for
the issuance of such Preferred Stock or series thereof. Unless otherwise
required by applicable law or regulations, shares of Preferred Stock will be
issuable without further authorization by vote or consent of the holders of
Common Stock and on such terms and for such consideration as may be determined
by the Aztar Board. If applicable law or regulation does not require
shareholder approval as a condition to the issuance of such shares in any
particular transaction, it is expected that such approval will not be sought.
The Aztar Board has broad discretion with respect to designating and
establishing the terms of each series of Preferred Stock prior to its
issuance. In this connection, the Aztar Board may fix for each series (i) the
number of shares constituting that series, (ii) the rate of dividends, if any,
(iii) voting rights, if any, (iv) the terms and conditions on which shares may
be converted, if the shares of any series are issued with the privilege of
conversion, (v) the price at and the terms and conditions on which shares may
be redeemed, (vi) sinking fund provisions, if any, for the redemption or
purchase of shares, (vii) the amount payable upon shares in the event of
voluntary
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or involuntary liquidation, (viii) the conditions or restrictions upon the
creation of indebtedness of the Company or upon the issuance of capital stock
of the Company and (ix) the conditions or restrictions with respect to the
payment of dividends upon, or the making of other distributions to, or the
acquisition or redemption of, shares ranking junior to the Preferred Stock.
The provisions of a particular series of the Preferred Stock, as designated
by the Aztar Board, could have an adverse effect on the earnings of the
Company available for dividends on the Common Stock and for other corporate
purposes and on amounts distributable to the holders of Common Stock if the
Company were liquidated. Such provisions may include restrictions on the
ability of the Company to pay dividends on or repurchase Common Stock or to
purchase or redeem shares of a particular series of Preferred Stock. if there
exists an arrearage in dividends or sinking fund installments with respect to
any other series of Preferred Stock.
The Preferred Stock may be issued in connection with the acquisition of
other businesses or properties. However, the Company has no existing
agreements or understandings with respect to any acquisition which call for
the issuance of any shares of Preferred Stock.
The issuance of shares of Preferred Stock under particular circumstances
could be used to create voting impediments or to otherwise frustrate an
attempt to change control of the Company. Such shares could be privately
placed with purchasers friendly to the Aztar Board in opposing an unsolicited
takeover bid. In addition, the Aztar Board could authorize holders of a series
of Preferred Stock to vote as a class, either separately or with the holders
of Common Stock, on any merger, sale or exchange of assets or any other
extraordinary corporate transaction involving the Company. The existence of
the Preferred Stock might also be considered as having the effect of
discouraging an attempt by another person to acquire control of the Company
with a view to imposing a merger or other extraordinary corporate transaction
that may not be in the best interests of all of the stockholders, because the
issuance of new shares of Preferred Stock could be used to dilute stock
ownership and voting power of a person or entity seeking to obtain control of
the Company.
ESOP Stock. The 100,000 shares of ESOP Stock were purchased by the ESOP in
December 1989 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 March 28, 1996,
cumulative redemptions totaled 7,962 shares. The ESOP Stock has an annual
dividend rate of $8.00 per share per annum payable semiannually in arrears.
Each share may be converted into Common Stock at $9.46, subject to adjustment
in certain circumstances, and has a liquidation preference of $100.00 per
share. These shares have no voting rights except in the case of either
extraordinary transactions (e.g., mergers, liquidations, business
combinations, etc.) or a default in the payment of dividends on the ESOP Stock
for six consecutive semiannual periods. In the case of an extraordinary
transaction, holders of the ESOP Stock would vote with holders of the Common
Stock as a single class. In the case of a default in the payment of dividends
on the ESOP Stock, holders of ESOP Stock would be entitled to elect one
director to the Aztar Board. In such cases, each share of ESOP Stock would
have one vote per share of Common Stock into which the ESOP Stock is
convertible or exchangeable. Employees would have "pass-through" voting rights
with respect to Aztar Shares allocated to their ESOP accounts. The ESOP
trustee would vote unallocated (i.e., "suspense") Common Stock and allocated
Common Stock for which no direction is received in the same proportion that
directed Common Stock is voted. Shares not allocated to participant accounts
and those shares not vested may be redeemed at $100.00 per share. 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 $100.00 per
share, by the participant upon termination.
Series A Preferred Stock. The Series A Preferred Stock has been authorized
in connection with the Rights Plan described below. The Series A Preferred
Stock, will, if issued, be non-redeemable and
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will rank junior to all other series of Preferred Stock as to the payment of
dividends and distribution of assets (unless otherwise provided therein). Each
share of Series A Preferred Stock will have a minimum preferential quarterly
dividend rate of $10.00 per share, but will be entitled to an aggregate
dividend of 1,000 times the dividend declared on the Common Stock, subject to
certain adjustments. In the event of liquidation, the holders of the Series A
Preferred Stock will receive a preferred liquidation payment of $100.00 per
share plus an amount equal to accrued and unpaid dividends and distributions
thereon. Following the payment of the liquidation preference, no additional
distributions will be made to the holders of shares of Series A Preferred
Stock until the holders of Common Stock shall have received an amount per
share equal to the quotient obtained by dividing the Series A Preferred Stock
liquidation preference by 1,000, subject to certain adjustments, and following
such payment the holders of shares of Series A Preferred Stock and Common
Stock shall share ratably and proportionately in the remaining assets. Each
share of Series A Preferred Stock will initially have 1,000 votes, voting
together as one class with the Common Stock. If at any time dividends on any
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends, all holders of Series A Preferred Stock, voting as a class, shall
have the right to appoint two directors. Certain restrictions are imposed on
the Company in the event quarterly dividends or other dividends or
distributions payable on the Preferred Stock are in arrears. In the event of
any consolidation, merger, combination or other transaction in which Common
Stock are exchanged for or changed into other stock or securities, cash and/or
other property, each share of Series A Preferred Stock will be entitled to
receive 1,000 times the aggregate amount of stock, securities, cash and/or
other property into which or for which each Share is changed or exchanged,
subject to certain adjustments. The foregoing rights of the Series A Preferred
Stock are protected against dilution in the event additional shares of Common
Stock are issued pursuant to a stock split, stock dividend or similar
recapitalization. Fractional shares of Series A Preferred Stock (other than
fractional shares evenly divisible by one one-thousandth) will not be issuable
and in lieu thereof a cash payment equal to the same fraction of the current
market value of one one-thousandth of a share of Series A Preferred Stock will
be made to such holders. Because of the nature of the Series A Preferred
Stock's dividend, liquidation and voting rights, the value of the interest in
one one-thousandth of a share of Series A Preferred Stock which may be
purchased with each Right issued pursuant to the Rights Agreement should
approximate the value of one share of Common Stock.
RIGHTS PLAN
In 1989, the Aztar Board distributed one Right for each outstanding share of
Common Stock (the "Rights Plan"). Each Right initially entitles the registered
holder, subject to the occurrence of certain events, to purchase from the
Company a unit with no par value (a "Unit") consisting of one one-thousandth
of a share of Series A Preferred Stock at a purchase price of $40.00 per Unit,
subject to adjustment. Initially, the Rights will be attached to all Common
Stock certificates representing shares then outstanding (including the shares
being sold in this offering), and no separate Rights certificates will be
distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the happening of certain events. The
Rights are not exercisable until the Distribution Date and will expire in
December 1999, unless earlier redeemed by the Company.
CERTAIN ADDITIONAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION
The Aztar Certificate provides (i) that the Aztar Board may consider the
interests of constituents of the Company other than the Company's shareholders
in evaluating certain takeover proposals; (ii) that shareholders of the
Company may not act without a duly called annual or special meeting, except
upon the signing of a written consent signed by all of the shareholders of the
Company entitled to vote thereon; (iii) that shareholders of the Company may
not call a special meeting of shareholders; (iv) that, in general, (a) no
holder of 5% or more of Common Stock who has neither been qualified by nor
obtained a waiver of qualification from the relevant gaming authorities with
respect to gaming
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licenses of the Company would be entitled to vote any Common Stock
beneficially owned by such holder; (b) that the Company shall have the right,
after giving written notice, to require that any Disqualified Holder (as
defined below) dispose of any and all of the Company's Publicly-traded
Securities (as defined below) held by such Disqualified Holder; and (c) that
the Company would have the right, at its option, to redeem any or all of the
shares of capital stock beneficially owned by a Disqualified Stockholder (as
defined below) (the "Gaming Provision"); (v) that a director on the Aztar
Board may be removed only for cause and only by the affirmative vote of not
less than 80% of the outstanding stock of the Company entitled to vote for the
election of such director; (vi) that a Business Combination (as defined) with
or proposed by or on behalf of an Interested Stockholder (as defined) would
require an affirmative vote of 66 2/3% of the votes entitled to be cast by
holders of the Voting Stock (as defined) of the Company (excluding Voting
Stock held by the Interested Stockholder and certain related parties) unless
the transaction is approved by a majority of the Aztar Board prior to the
Acquisition Date (as defined below); (vii) that directors of the Company shall
not be liable for damages for breach of their fiduciary duty of care, subject
to certain exceptions; (viii) that the Aztar Board would be expressly
authorized to make, adopt, alter, amend, change or repeal the Aztar By-Laws,
and that the shareholders of the Company would not have the right to make,
adopt, alter, amend, change or repeal the Aztar By-Laws except upon the
affirmative vote of not less than 80% of the outstanding stock of the Company
entitled to vote thereon; and (ix) that notwithstanding anything to the
contrary in the Aztar Certificate, the affirmative vote of at least 80% of all
of the Voting Stock voting together as a single class, other than Voting Stock
beneficially owned by an Interested Stockholder, is required to alter, amend,
or repeal the foregoing provisions.
Under the Gaming Provision, except as otherwise approved by the Aztar Board,
no shareholder who is an "Unqualified Stockholder" or a "Disqualified
Stockholder" would be entitled to vote, directly or indirectly, any shares of
the Company's capital stock beneficially owned by such shareholder on any
matter. An "Unqualified Stockholder" is defined as any beneficial owner of 5%
or more of the Company's outstanding capital stock who has neither been
qualified by nor obtained a waiver of qualification from each of the gaming
authorities requiring qualification with respect to each of the Company's
gaming licenses and authorizations. A "Disqualified Stockholder" is defined as
any shareholder who has been found unsuitable or disqualified by any gaming
authority with respect to any of the Company's gaming licenses or
authorizations, if such finding has not been reversed, vacated or superseded.
Common Stock held by an Unqualified Stockholder or Disqualified Stockholder
would not be considered as outstanding stock entitled to vote for any purpose.
In addition, under the Gaming Provision, the Company would have the right,
upon written notice, to require that a "Disqualified Holder" of Publicly-
traded Securities dispose of any and all Aztar Publicly-traded Securities held
by such Disqualified Holder. A "Disqualified Holder" is defined as any holder
of Publicly-traded Securities who has been found unsuitable or disqualified by
any gaming authority with respect to any of the Company's gaming licenses or
authorizations, if such finding has not been reversed, vacated or superseded.
"Publicly-traded Securities" are defined as any securities which are listed or
admitted to trading on any national securities exchange or are quoted on the
NASDAQ.
The Company would also have the right, at its option, to call for redemption
any or all of the shares of the Company's capital stock beneficially owned by
a Disqualified Stockholder. Generally, the "Redemption Price" paid to the
Disqualified Stockholder for each share of capital stock, in the case of
exchange-listed or NASDAQ-quoted stock, would be equal to the average closing
price of such shares for the 20-day period preceding the date of the notice of
redemption, and if the stock were not listed or quoted, then the Redemption
Price would be the fair market value as determined by the Aztar Board. The
Company would have the right to pay the Redemption Price to the Disqualified
Stockholder in cash, property or rights, including securities of the Company,
as the Aztar Board might determine. If, on the date set for redemption, a
holder failed to deliver the certificates for the shares to be redeemed
properly endorsed for transfer, the payment to be delivered by the Company
would be set
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aside to be delivered to the holder, without interest, upon surrender of the
certificates. Unsurrendered certificates would no longer represent outstanding
shares, the right to receive further dividends with respect to those shares
would cease, and all rights of the person holding those shares would cease,
except for the right to receive the payment which had been set aside with
respect to those shares.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Aztar Certificate, upon the sale of the Common Stock offered
hereby there will be 55,647,202 shares of Common Stock authorized but unissued
(assuming no exercise of the Underwriters' over-allotment option or of options
or conversion of ESOP Stock) for future issuance, generally without additional
stockholder approval. See "Capitalization." These additional shares may be
utilized for a variety of corporate purposes, including to raise additional
capital or facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common Stock
may be to enable the Aztar Board to issue shares to persons friendly to
current management which could render more difficult or discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of management. Such
additional shares also could be used to dilute the stock ownership of persons
seeking to obtain control of the Company.
The Company does not currently have any plans to issue additional shares of
Common Stock other than restricted stock under benefit plans, shares of Common
Stock which may be issued upon the exercise of options which have been granted
or which may be granted in the future or upon the conversion of ESOP Stock and
treasury shares issuable when claimed by shareholders of a predecessor of the
Company.
INDEMNIFICATION
The Aztar Certificate contains a provision that limits the liability of the
Company's directors for monetary damages for breach of fiduciary duty as a
director to the fullest extent permitted by the Delaware General Corporation
Law. Such limitation does not, however, affect the liability of a director
unless such director acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The effect of this provision is to eliminate
the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against
a director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain situations. This provision does not limit or eliminate the rights of
the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. In addition, the Company has entered into indemnification agreements
with its directors and executive officers.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is Wells Fargo Bank,
N.A.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by
a holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon
the United States Federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States; a corporation,
partnership, or other entity created or organized in the United States or
under the laws of the United States or of any political subdivision thereof;
or an estate or trust whose income is includible in gross income for United
States Federal income tax purposes regardless of its source. This discussion
does not consider any specific facts or circumstances that may apply to a
particular Non-United States Holder. Prospective investors are urged to
consult their tax advisors regarding the United States Federal tax
consequences of acquiring, holding, and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any foreign state,
local, or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, in which case the
dividend will be subject to the United States Federal income tax on net income
on the same basis that applies to United States persons generally (and, with
respect to corporate holders and under certain circumstances, the branch
profits tax). Non-United States Holders should consult any applicable income
tax treaties that may provide for a lower rate of withholding or other rules
different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim
treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a nonresident alien individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met, or (iii) in the case of a Non-United States Holder who
holds more than 5% of the Common Stock, the Non-United States Holder is
subject to tax under the United States real property holding company rules
discussed below. Gain that is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder
will be subject to the United States Federal income tax on net income on the
same basis that applies to United States persons generally (and, with respect
to corporate holders and under certain circumstances, the branch profits tax)
but will not be subject to withholding. Non-United States Holders should
consult applicable treaties that may provide for different rules.
Because of the Company's present ownership and anticipated development of
substantial real property assets in the United States, the Company may
presently be, or may become, a United States real property holding company
(i.e., generally, any domestic corporation if the fair market value of its
United States real property interests equals or exceeds 50% of the fair market
value of its worldwide real property interests and business assets). If the
Company were to be treated as a United States real property holding company, a
Non-United States Holder who holds more than 5% of the Common Stock may be
subject to United States Federal income taxation on any gain realized from the
sale or exchange of such stock, unless an exemption is provided under an
applicable treaty.
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FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends paid to,
and the tax withheld with respect to, such holder, regardless of whether any
tax was actually withheld. This information may also be made available to the
tax authorities of a country in which the Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on the Common Stock to a Non-United States Holder
at an address outside the United States. Payments by a United States office of
a broker of the proceeds of a sale of the Common Stock is subject to both
backup withholding at a rate of 31% and information reporting unless the
holder certifies its Non-United States Holder status under penalties of
perjury or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to payments of the
proceeds of sales of the Common Stock by foreign offices of United States
brokers, or foreign brokers with certain types of relationships to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain other conditions are met, or
the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that
certain required information is furnished to the United States Internal
Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations. The United States Internal Revenue Service has
recently issued proposed Treasury regulations concerning these rules which, if
adopted in their present form, would be effective for payments made after
December 31, 1997. Prospective investors should consult their tax advisors
concerning the potential adoption of such proposed Treasury regulations and
the potential effect on their ownership and disposition of the Common Stock.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and the underwriters named
below (the "Underwriters"), for whom Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation, Montgomery Securities and Dean Witter
Reynolds Inc. are acting as representatives (the "Representatives"), the
Company has agreed to sell to each of the Underwriters, and each of the
Underwriters severally has agreed to purchase from the Company, the shares of
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Salomon Brothers Inc ......................................
Donaldson, Lufkin & Jenrette
Securities Corporation....................................
Montgomery Securities......................................
Dean Witter Reynolds Inc. .................................
---------
Total.................................................. 6,000,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares
of Common Stock offered hereby (other than those subject to the over-allotment
option described below) if any such shares are purchased. In the event of a
default by an Underwriter, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representatives that the several
Underwriters initially propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share. After the initial
public offering, the public offering price and such concessions may be changed
from time to time by the Underwriters.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day subsequent to the date of this Prospectus, to
purchase up to an aggregate of 900,000 additional shares of Common Stock at
the public offering price set forth on the cover page of this Prospectus, less
the underwriting discount. The Underwriters may exercise such option only to
cover over-allotments, if any, incurred in the sale of the shares of Common
Stock. To the extent that the Underwriters exercise such option, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the percentage
it is required to purchase of the total number of shares of Common Stock in
the above table.
The Company and its executive officers have agreed that they will not offer,
sell or contract to sell or otherwise dispose of, directly or indirectly, or
announce the offering of, any shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock for a period of
120 days after the date of this Prospectus, except for the shares of Common
Stock offered hereby, the issuance of shares by the Company pursuant to stock
options and the issuance of shares or options by the Company pursuant to
employee benefit, stock option or ownership plans of the Company or the ESOP
outstanding or in effect on the date of this Prospectus, without the prior
written consent of the Representatives.
45
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof.
EXPERTS
The consolidated balance sheets as of December 28, 1995 and December 29,
1994, and the consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended December
28, 1995 of the Company and its subsidiaries included in this Prospectus, and
the financial statement schedules for each of the three years in the period
ended December 28, 1995 incorporated by reference from the Company's 1995
Report on Form 10-K, as amended by the Form 10-K/A filed June 5, 1996, have
been audited by Coopers & Lybrand L.L.P., independent accountants, as
indicated in their reports with respect thereto, and are included herein or
incorporated by reference in reliance upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom, Los Angeles, California. Certain legal matters relating to the offering
will be passed upon for the Underwriters by Cleary, Gottlieb, Steen &
Hamilton, New York, New York. Certain legal matters with respect to Nevada,
New Jersey, Indiana and Missouri will be passed upon by Lionel Sawyer &
Collins; Hankin, Sandson & Sandman; Ice Miller Donadio & Ryan; and Thompson
Coburn, respectively.
46
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 28, 1995 and December 29, 1994... F-3
Consolidated Statements of Operations for the years ended December 28,
1995, December 29, 1994 and December 30, 1993........................... F-4
Consolidated Statements of Cash Flows for the years ended December 28,
1995, December 29, 1994 and December 30, 1993........................... F-5
Consolidated Statements of Shareholders' Equity for the years ended
December 28, 1995, December 29, 1994 and December 30, 1993.............. F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheets at March 28, 1996 and December 28, 1995
(unaudited)............................................................. F-23
Consolidated Statements of Operations for the quarters ended March 28,
1996 and March 30, 1995 (unaudited)..................................... F-24
Consolidated Statements of Cash Flows for the quarters ended March 28,
1996 and March 30, 1995 (unaudited)..................................... F-25
Consolidated Statements of Shareholders' Equity for the quarters ended
March 28, 1996 and March 30, 1995 (unaudited)........................... F-26
Notes to Consolidated Financial Statements (unaudited)................... F-27
</TABLE>
F-1
<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-2
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1995 AND DECEMBER 29, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
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 partner-
ship................................................... 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
========== ========
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
========== ========
</TABLE>
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)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
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 extraordi-
nary 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
======== ======== ========
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 dilu-
tion:
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 dilu-
tion......................................... * 39,224 39,429
</TABLE>
- --------
* Anti-dilutive
The accompanying notes are an integral part of these financial statements.
F-4
<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)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
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)
--------- --------- ---------
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<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)
<TABLE>
<CAPTION>
UNEARNED
COMMON PAID-IN RETAINED TREASURY COMPEN-
STOCK CAPITAL EARNINGS STOCK SATION TOTAL
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
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 compensation
...................... 1,168 1,168
Net income (loss)...... (4,994) (4,994)
---- -------- ------- -------- ------- --------
Balance, December 28,
1995.................... $422 $352,221 $24,922 $(17,027) $ (879) $359,659
==== ======== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
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.
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
F-7
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-8
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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
F-9
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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-10
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized balance sheet information and operating results for the
unconsolidated partnership are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current assets................................... $ 835 $ 636
Noncurrent assets................................ 73,440 77,427
Current liabilities.............................. 915 983
Noncurrent liabilities........................... 68,845 71,339
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
The Company's share of the above operating results, after intercompany
eliminations, is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Equity in unconsolidated partnership's
loss....................................... $ (5,081) $ (4,169) $ (3,822)
</TABLE>
NOTE 4. OTHER INVESTMENTS
At December 28, 1995 and December 29, 1994, other investments consisted of
(in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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.
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.
F-11
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
Maturities of long-term debt for the five years subsequent to December 28,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1996............................................................... $ 466
1997............................................................... 439
1998............................................................... 4,585
1999............................................................... 26,653
2000............................................................... 86,536
</TABLE>
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
F-12
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Furniture and equipment.................................... $ 9,393 $ 9,451
Less accumulated amortization.............................. (8,858) (8,599)
------- -------
$ 535 $ 852
======= =======
</TABLE>
F-13
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
YEAR CAPITAL OPERATING
---- ------- ---------
<S> <C> <C>
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
=====
</TABLE>
The above net present value is computed based on specific interest rates
determined at the inception of the leases.
Net rent expense is detailed as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
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
======= ====== =======
</TABLE>
NOTE 7. OTHER LONG-TERM LIABILITIES
At December 28, 1995 and December 29, 1994, other long-term liabilities
consisted of (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
F-14
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-15
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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):
<TABLE>
<CAPTION>
NUMBER OF PRICE RANGE
SHARES OF OPTIONS
--------- -----------
<S> <C> <C>
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
===
</TABLE>
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):
<TABLE>
<CAPTION>
NUMBER OF PRICE RANGE
SHARES OF OPTIONS
--------- -----------
<S> <C> <C>
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
=====
</TABLE>
F-16
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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. There was no Company contribution to the savings plan in 1995,
1994 or 1993. Total defined benefit 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):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
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)
====== ======= =======
</TABLE>
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
F-17
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
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)%
===== ===== =====
</TABLE>
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):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
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)
======== ========
</TABLE>
F-18
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<S> <C>
Net operating losses.............................................. $35,732
General business credits.......................................... 3,390
</TABLE>
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):
<TABLE>
<S> <C>
1996............................................................... $23,943
1997............................................................... 15,310
1998............................................................... 18,209
1999............................................................... 12,549
2000............................................................... 6,245
2001............................................................... 9,606
2002............................................................... 498
2010............................................................... 10,272
</TABLE>
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-19
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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-20
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
1993
-----------
(UNAUDITED)
<S> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
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
F-21
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
* Anti-dilutive
F-22
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 28,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 32,343 $ 26,527
Restricted cash equivalent.......................... 1,313 --
Accounts receivable, net............................ 25,121 21,325
Refundable income taxes............................. 1,137 1,261
Inventories......................................... 6,897 6,591
Prepaid expenses.................................... 8,887 9,417
Deferred income taxes............................... 8,013 8,013
---------- ----------
Total current assets.............................. 83,711 73,134
Investments in and advances to unconsolidated
partnership.......................................... 11,189 11,467
Other investments..................................... 27,526 27,964
Property and equipment:
Buildings, riverboats and equipment, net............ 707,633 711,454
Land................................................ 95,589 95,589
Construction in progress............................ 66,274 46,102
Leased under capital leases, net.................... 463 535
---------- ----------
869,959 853,680
Deferred charges and other assets................... 45,085 46,993
---------- ----------
$1,037,470 $1,013,238
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals....................... $ 52,106 $ 60,226
Accrued payroll and employee benefits............... 20,495 18,012
Accrued interest payable............................ 24,662 14,995
Income taxes payable................................ 1,196 2,197
Current portion of long-term debt................... 408 466
Current portion of other long-term liabilities...... 4,104 6,172
---------- ----------
Total current liabilities......................... 102,971 102,068
Long-term debt........................................ 519,833 496,439
Other long-term liabilities........................... 29,019 30,699
Deferred income taxes................................. 19,195 18,914
Contingencies and commitments
Series B ESOP convertible preferred stock (redemption
value $6,268 and $6,114)............................. 5,646 5,459
Shareholders' equity:
Common stock, $.01 par value (38,352,798 and
38,265,813 shares outstanding)..................... 423 422
Paid-in capital..................................... 352,680 352,221
Retained earnings................................... 25,531 24,922
Less: Treasury stock................................ (17,040) (17,027)
Unearned compensation............................. (788) (879)
---------- ----------
Total shareholders' equity........................ 360,806 359,659
---------- ----------
$1,037,470 $1,013,238
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED MARCH 28, 1996 AND MARCH 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST QUARTER
------------------
1996 1995
-------- --------
<S> <C> <C>
REVENUES
Casino.................................................... $150,300 $111,912
Rooms..................................................... 11,125 9,701
Food and beverage......................................... 13,632 11,127
Other..................................................... 5,149 2,828
-------- --------
180,206 135,568
COSTS AND EXPENSES
Casino.................................................... 72,996 54,714
Rooms..................................................... 6,428 5,783
Food and beverage......................................... 12,733 10,385
Other..................................................... 4,676 1,807
Marketing................................................. 19,723 10,926
General and administrative................................ 17,206 10,976
Utilities................................................. 3,039 2,935
Repairs and maintenance................................... 5,716 4,919
Provision for doubtful accounts........................... 1,371 795
Property taxes and insurance.............................. 5,525 4,717
Rent...................................................... 3,270 2,796
Depreciation and amortization............................. 11,910 9,052
-------- --------
164,593 119,805
-------- --------
Operating income............................................ 15,613 15,763
Interest income........................................... 589 828
Interest expense.......................................... (13,642) (12,219)
-------- --------
Income before other items and income taxes.................. 2,560 4,372
Equity in unconsolidated partnership's loss............... (1,189) (1,326)
-------- --------
Income before income taxes.................................. 1,371 3,046
Income taxes.............................................. (602) (1,086)
-------- --------
Net income.................................................. $ 769 $ 1,960
======== ========
Net income per common and common equivalent share........... $ .02 $ .05
Net income per common share assuming full dilution.......... $ .02 $ .05
Weighted average common shares applicable to:
Net income per common and common equivalent share......... 39,235 38,605
Net income per common share assuming full dilution........ 40,255 39,782
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED MARCH 28, 1996 AND MARCH 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net income.................................................. $ 769 $ 1,960
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 12,556 9,676
Provision for losses on accounts receivable............... 1,371 795
Loss on reinvestment obligation........................... 94 --
Rent expense.............................................. (227) (175)
Distribution in excess of equity in income of
partnership.............................................. 278 298
Deferred income taxes..................................... 281 331
Change in assets and liabilities:
(Increase) decrease in accounts receivable.............. (5,167) (2,071)
(Increase) decrease in refundable income taxes.......... 124 (699)
(Increase) decrease in inventories and prepaid
expenses............................................... 182 1,872
Increase (decrease) in accounts payable, accrued
expenses and income taxes payable...................... 3,079 9,632
Other items, net........................................ 509 (630)
-------- --------
Net cash provided by (used in) operating activities... 13,849 20,989
-------- --------
Cash Flows from Investing Activities
Payments received on notes receivable....................... 556 488
Reduction in other investments.............................. -- 3,093
Purchases of property and equipment......................... (26,215) (16,654)
Additions to other long-term assets......................... (1,819) (2,998)
-------- --------
Net cash provided by (used in) investing activities... (27,478) (16,071)
-------- --------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt.................... 58,600 --
Proceeds from issuance of common stock...................... 295 1,028
Principal payments on long-term debt........................ (35,335) (10,162)
Principal payments on other long-term liabilities........... (3,675) --
Debt issuance costs......................................... -- (80)
Preferred stock dividend.................................... (368) (380)
Redemption of preferred stock............................... (72) (47)
-------- --------
Net cash provided by (used in) financing activities... 19,445 (9,641)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 5,816 (4,723)
Cash and cash equivalents at beginning of period............ 26,527 43,861
-------- --------
Cash and cash equivalents at end of period............ $ 32,343 $ 39,138
======== ========
Supplemental Cash Flow Disclosures
Summary of non-cash investing and financing activities:
Capital lease obligations incurred for property and
equipment................................................ $ -- $ 38
Tax benefit from stock options and preferred stock
dividend................................................. 167 393
Issuance of restricted stock.............................. 26 2,149
Forfeiture of restricted stock............................ 13 --
Cash flow during the period for the following:
Interest paid, net of amount capitalized.................. $ 3,433 $ (52)
Income taxes paid......................................... 1,031 1,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIODS ENDED MARCH 28, 1996 AND MARCH 30, 1995
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
FIRST QUARTER
------------------
1996 1995
-------- --------
<S> <C> <C>
Common stock:
Beginning balance........................................ $ 422 $ 414
Stock options exercised for 82,607 and 273,798 shares.... 1 3
Issuance of 286,000 shares of restricted stock in 1995... -- 3
-------- --------
Ending balance......................................... 423 420
-------- --------
Paid-in capital:
Beginning balance........................................ 352,221 347,284
Stock options exercised.................................. 294 1,025
Tax benefit from stock options exercised................. 139 358
Restricted stock......................................... 26 2,146
-------- --------
Ending balance......................................... 352,680 350,813
-------- --------
Retained earnings:
Beginning balance........................................ 24,922 30,555
Preferred stock dividend, net of income tax benefit of
$28 and $35............................................. (160) (158)
Net income............................................... 769 1,960
-------- --------
Ending balance......................................... 25,531 32,357
-------- --------
Treasury stock:
Beginning balance........................................ (17,027) (16,885)
Forfeiture of 2,000 shares of restricted stock in 1996... (13) --
-------- --------
Ending balance......................................... (17,040) (16,885)
-------- --------
Unearned compensation:
Beginning balance........................................ (879) --
Restricted stock......................................... (26) (2,149)
Amortization............................................. 104 94
Forfeiture of restricted stock........................... 13 --
-------- --------
Ending balance......................................... (788) (2,055)
-------- --------
$360,806 $364,650
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: GENERAL
The consolidated financial statements reflect all adjustments, such
adjustments being normal recurring accruals, which are necessary, in the
opinion of management, for the fair presentation of the results of the interim
periods; interim results, however, may not be indicative of the results for
the full year.
The notes to the interim consolidated financial statements are presented to
enhance the understanding of the financial statements and do not necessarily
represent complete disclosures required by generally accepted accounting
principles. The interest that was capitalized during the quarters ended 1996
and 1995 was $1,543,000 and $1,189,000, respectively. Capitalized preopening
costs, included in deferred charges and other assets, were $452,000 at March
28, 1996. There were no capitalized preopening costs at December 28, 1995.
Capitalized costs related to various development projects, included in
deferred charges and other assets, were $1,501,000 and $1,458,000 at March 28,
1996 and December 28, 1995, respectively. For additional information regarding
significant accounting policies, long-term debt, lease obligations, and other
matters applicable to the Company, reference should be made to the Company's
Annual Report to Shareholders for the year ended December 28, 1995.
NOTE 2: INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIP
Following are summarized operating results for the Company's unconsolidated
partnership, accounted for using the equity method for the periods ended March
28, 1996 and March 30, 1995 (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER
----------------
1996 1995
------- -------
<S> <C> <C>
Revenues.................................................... $ 4,155 $ 4,389
Operating expenses.......................................... (684) (684)
------- -------
Operating income............................................ 3,471 3,705
Interest expense............................................ (1,420) (1,694)
------- -------
Net income................................................ $ 2,051 $ 2,011
======= =======
</TABLE>
NOTE 3: OTHER LONG-TERM LIABILITIES
At March 28, 1996 and December 28, 1995, other long-term liabilities
consisted of (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accrued rent expense....................................... $12,816 $13,043
Obligation to City of Evansville and other civic and
community organizations................................... 9,738 13,400
Deferred compensation and retirement plans................. 9,893 9,739
Las Vegas Boulevard beautification assessment.............. 522 535
Deferred income............................................ 154 154
------- -------
33,123 36,871
Less current portion....................................... (4,104) (6,172)
------- -------
$29,019 $30,699
======= =======
</TABLE>
F-27
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 4: INCOME TAXES
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 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.
Gross deferred tax assets are reduced by a valuation allowance. The December
29, 1994 valuation allowance was reduced during the 1995 first quarter which
caused a decrease in income tax expense of $263,000.
NOTE 5: NET INCOME PER SHARE
Net income per common and common equivalent share is computed based on the
weighted average number of common shares outstanding after consideration of
the dilutive effect of restricted stock and stock options. Net income per
common share, assuming full dilution, is 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. Net income for both computations is
adjusted for dividends on the preferred stock.
NOTE 6: 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 of Ramada (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 $3,938,000 and $3,941,000 at March 28,
1996 and December 28, 1995, respectively.
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 March 28, 1996.
The Company has a 50% partnership interest in the lessor.
F-28
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 $16,700,000 as of March 28, 1996.
The Company had commitments for the purchase of property and equipment of
approximately $60,000,000 at March 28, 1996.
F-29
<PAGE>
Aztar prospectus inside back cover
Casino Aztar (Caruthersville, Missouri): caption
The Casino Aztar Caruthersville riverboat casino on the Mississippi River in
southeastern Missouri serves the market of Missouri, Tennessee and Arkansas.
Ramada Express Hotel and Casino (Laughlin, Nevada): caption
Ramada Express Hotel and Casino, recently expanded to over 1,500 rooms and
50,000 square feet of casino space, is one of the largest properties in the
Laughlin, Nevada market.
<PAGE>
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 15
Price Range of Common Stock............................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 17
Regulation................................................................ 27
Description of Capital Stock.............................................. 38
Certain United States Federal Tax Consequences to Non-United States
Holders.................................................................. 43
Underwriting.............................................................. 45
Experts................................................................... 46
Legal Matters............................................................. 46
Index to Consolidated Financial Statements................................ F-1
</TABLE>
6,000,000 SHARES
AZTAR CORPORATION
COMMON STOCK
($.01 PAR VALUE)
[LOGO OF AZTAR CORPORATION]
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MONTGOMERY SECURITIES
DEAN WITTER REYNOLDS INC.
PROSPECTUS
DATED , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
AMOUNT(1)
---------
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 28,255
New York Stock Exchange (NYSE) Registration Fee................... 24,150
National Association of Securities Dealers, Inc. (NASD) filing
fee.............................................................. 8,694
Printing and Engraving Expenses................................... 120,000
Blue Sky Fees and Expenses (including counsel fees)............... 15,000
Legal Fees and Expenses........................................... 300,000
Accounting Fees and Expenses...................................... 100,000
Transfer Agent Fees and Expenses.................................. 10,000
Miscellaneous..................................................... 141,401
--------
Total $747,500
========
</TABLE>
- --------
(1) All expenses are estimated, except the registration, NASD and NYSE fees.
ITEM 15. Indemnification of Directors and Officers.
The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law (the "DGCL") provides that any person may be indemnified by a
Delaware corporation against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him
or her in connection with any threatened, pending, or completed action, suit,
or proceeding in which such person is made a party by reason of his or her
being or having been a director, officer, employee, or agent of the
corporation. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
The Company's Restated Certificate of Incorporation provides that directors
of the Company shall not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation theories expressly not
permitted under the DGCL, as amended from time to time.
The Company's Restated Certificate of Incorporation also provides for
indemnification of each director and officer who was or is a party or is
threatened to be made a party to any action, suit or proceeding by virtue of
his or her position as a director or officer to the fullest extent authorized
or permitted by the DGCL, as amended from time to time. In addition, the
Registrant has indemnification agreements with its directors and executive
officers and has insurance policies that provide liability coverage to
directors and officers while acting in that capacity.
II-1
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement between the Company, Salomon Brothers
Inc, Donaldson, Lufkin & Jenrette Securities Corporation, Montgomery
Securities and Dean Witter Reynolds Inc., as representatives of the
Underwriters (the "Underwriting Agreement").
4.1 Rights Agreement between the Company and First Interstate Bank of
Arizona, N.A. as Rights Agent, filed as Exhibit 4.1 to the Company's
Registration Statement No. 33-51008 and incorporated herein by
reference.
5** Legal Opinion of Skadden, Arps, Slate, Meagher & Flom.
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom regarding tax matters.
23.1* Consent of Coopers & Lybrand L.L.P.
23.2** Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5).
23.3* Consent of Lionel Sawyer & Collins.
23.4* Consent of Hankin, Sandson & Sandman.
23.5* Consent of Ice Miller Donadio & Ryan.
23.6* Consent of Thompson Coburn.
24** Power of Attorney.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix, State of Arizona, on July
15, 1996.
AZTAR CORPORATION
By: *
___________________________________
Paul E. Rubeli
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Chairman, President and July 15, 1996
____________________________________ Chief Executive Officer
Paul E. Rubeli (Director and Principal
Executive Officer)
* Director July 15, 1996
____________________________________
John B. Bohle
* Director July 15, 1996
____________________________________
Edward M. Carson
* Director July 15, 1996
____________________________________
A. Sam Gittlin
/s/ Robert M. Haddock Executive Vice President and July 15, 1996
____________________________________ Chief Financial Officer
Robert M. Haddock (Director and Principal
Financial Officer)
* Director July 15, 1996
____________________________________
John R. Norton, III
* Director July 15, 1996
____________________________________
Robert S. Rosow
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Director July 15, 1996
____________________________________
Richard Snell
* Director July 15, 1996
____________________________________
Vesta Valentine Temen
* Director July 15, 1996
____________________________________
Terence W. Thomas
* Controller (Principal July 15, 1996
____________________________________ Accounting Officer)
Meridith P. Sipek
</TABLE>
*By: /s/ Robert M. Haddock
-----------------------------------
Robert M. Haddock, attorney-in-fact
II-4
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SKADDEN,ARPS, SLATE, MEAGHER & FLOM]
July 15, 1996
Aztar Corporation
2390 East Camelback Road
Phoenix, Arizona 85016
Re: Aztar Corporation
Registration Statement
on Form S-3
File No. 333-05213
----------------------
Ladies and Gentlemen:
We have acted as special counsel to Aztar Corporation, a Delaware
corporation (the "Company"), in connection with the contemplated offering (the
"Offering") of up to 6,900,000 shares of Common Stock of the Company (the
"Shares"). This opinion is being furnished in accordance with the requirements
of Item 601(b)(8) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act"). Capitalized terms used herein and not otherwise defined herein
have the respective meanings set forth in the Registration Statement on Form S-3
relating to the Shares filed with the Securities and Exchange Commission on June
5, 1996 (as thereafter amended from time to time and together with all exhibits
thereto, the "Registration Statement").
Our opinion is based upon an examination of the Registration Statement, the
form of the Shares and such other documents as we have deemed necessary or
appropriate as a basis for the opinion set forth below. In our examination, we
have assumed the legal capacity of all natural persons, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed, or photostatic copies, and the authenticity of the originals of such
copies. As to any facts material to this opinion that we did not independently
establish or verify, we have relied upon statements and representations of
officers and other representatives of the Company and our opinion is premised,
in part, on the veracity of such statements and representations. We have also
<PAGE>
assumed that the Offering will be consummated in accordance with the description
set forth in the Registration Statement.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
decisions, administrative rulings, and other applicable authorities, in each
case as in effect on the date hereof. The statutory provisions, regulations,
and interpretations on which this opinion is based are subject to change, and
such changes could apply retroactively. Any material change that is made after
the date hereof in any of the foregoing bases for our opinion could affect our
conclusion.
Based on the foregoing, we are of the opinion that, although the discussion
set forth in the section of the Registration Statement entitled "Certain United
States Federal Tax Consequences" does not purport to discuss all possible United
States Federal tax consequences of the acquisition, ownership, and disposition
of the Shares by a purchaser that for United States Federal income tax purposes,
is not a "United States person", such discussion constitutes, in all material
respects, a fair and accurate summary of the United States Federal tax
consequences that are likely to be material to such a purchaser.
Other than as expressly stated above, we express no opinion on any issue
relating to the Company or to any investment therein or under any other law. We
are furnishing this opinion to you solely for the Company's benefit in
connection with the Offering and this opinion is not to be used, circulated,
quoted, or otherwise referred to for any other purpose without our written
permission.
We consent to the filing of this opinion as Exhibit 8.1 to the Registration
Statement and to the reference to Skadden, Arps, Slate, Meagher & Flom therein
under the caption "Legal Matters." In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and the incorporation by reference in this
registration statement on Form S-3 (File No. 333-05213) of our reports dated
February 14, 1996, on our audits of the consolidated financial statements and
financial statement schedule of Aztar Corporation. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
July 15, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF LIONEL SAWYER & COLLINS
We hereby consent to the references to our firm under the caption "Legal
Matters" in the Registration Statement on Form S-3 and the related Prospectus
of Aztar Corporation (Registration No. 333-05213).
LIONEL SAWYER & COLLINS
Las Vegas, Nevada
July 11, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF HANKIN, SANDSON & SANDMAN
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement of Aztar Corporation (File No. 333-
05213). In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
/s/ Mark H. Sandson
- -------------------------------
Mark H. Sandson
Dated: July 11, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF ICE MILLER DONADIO & RYAN
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement of Aztar Corporation (File No. 333-
05213). In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission.
ICE MILLER DONADIO & RYAN
By: /s/ William P. Diener
-------------------------------
William P. Diener
Dated: July 12, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF THOMPSON COBURN
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement of Aztar Corporation (File No. 333-
05213). In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission.
THOMPSON COBURN
Dated: July 12, 1996
