SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1996
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5440
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AZTAR CORPORATION
- ---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0636534
- ----------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2390 East Camelback Road, Suite 400, Phoenix, Arizona 85016
- --------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 381-4100
----------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
At October 24, 1996, the registrant had outstanding 44,935,806 shares
of its common stock, $.01 par value.
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Consolidated Balance Sheets at September 26, 1996 and
December 28, 1995 3
Consolidated Statements of Operations for the quarters and
nine months ended September 26, 1996 and September 28, 1995 5
Consolidated Statements of Cash Flows for the nine months
ended September 26, 1996 and September 28, 1995 7
Consolidated Statements of Shareholders' Equity for the
nine months ended September 26, 1996 and September 28, 1995 9
Notes to Consolidated Financial Statements 10
2
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
---------------------------------------
(in thousands, except share data)
September 26, December 28,
1996 1995
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 31,238 $ 26,527
Accounts receivable, net 31,023 21,325
Refundable income taxes 920 1,261
Inventories 6,947 6,591
Prepaid expenses 8,813 9,417
Deferred income taxes 8,837 8,013
---------- ----------
Total current assets 87,778 73,134
Investments in and advances to
unconsolidated partnership 10,648 11,467
Other investments 30,323 27,964
Property and equipment:
Buildings, riverboats and equipment, net 765,918 711,454
Land 96,019 95,589
Construction in progress 55,604 46,102
Leased under capital leases, net 415 535
---------- ----------
917,956 853,680
Deferred charges and other assets 41,034 46,993
---------- ----------
$1,087,739 $1,013,238
========== ==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited) (continued)
---------------------------------------
(in thousands, except share data)
September 26, December 28,
1996 1995
------------- ------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accruals $ 58,134 $ 60,226
Accrued payroll and employee benefits 20,809 18,012
Accrued interest payable 24,382 14,995
Income taxes payable 1,967 2,197
Current portion of long-term debt 426 466
Current portion of other long-term
liabilities 4,159 6,172
---------- ----------
Total current liabilities 109,877 102,068
Long-term debt 504,807 496,439
Other long-term liabilities 28,191 30,699
Deferred income taxes 19,751 18,914
Contingencies and commitments
Series B ESOP convertible preferred stock
(redemption value $7,950 and $6,114) 5,889 5,459
Shareholders' equity:
Common stock, $.01 par value (44,928,419
and 38,265,813 shares outstanding) 489 422
Paid-in capital 410,726 352,221
Retained earnings 25,277 24,922
Less: Treasury stock (17,084) (17,027)
Unearned compensation (184) (879)
---------- ----------
Total shareholders' equity 419,224 359,659
---------- ----------
$1,087,739 $1,013,238
========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the periods ended September 26, 1996 and September 28, 1995
---------------------------------------------------------------
(in thousands, except per share data)
Third Quarter Nine Months
------------------- ------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues
Casino $173,199 $127,382 $482,029 $358,229
Rooms 12,008 10,596 35,141 30,745
Food and beverage 13,785 12,516 41,325 35,623
Other 5,285 4,441 15,481 11,296
-------- -------- -------- --------
204,277 154,935 573,976 435,893
Costs and expenses
Casino 82,744 58,677 232,984 168,997
Rooms 7,418 6,727 20,733 18,915
Food and beverage 13,581 11,834 39,375 33,287
Other 5,311 2,856 14,609 7,060
Marketing 23,813 15,296 66,632 40,240
General and administrative 17,988 11,675 52,603 35,939
Utilities 4,870 4,598 11,433 10,565
Repairs and maintenance 6,492 5,148 17,984 15,108
Provision for doubtful accounts 1,233 955 3,347 2,636
Property taxes and insurance 5,971 5,186 17,411 14,701
Rent 4,335 2,757 11,054 8,396
Depreciation and amortization 12,194 10,181 36,407 28,863
Preopening costs 2,197 51 2,273 2,637
-------- -------- -------- --------
188,147 135,941 526,845 387,344
-------- -------- -------- --------
Operating income 16,130 18,994 47,131 48,549
Interest income 545 820 1,762 2,537
Interest expense (14,327) (12,687) (42,572) (37,641)
-------- -------- -------- --------
Income before other items
and income taxes 2,348 7,127 6,321 13,445
Equity in unconsolidated
partnership's loss (1,139) (1,220) (3,542) (3,869)
-------- -------- -------- --------
Income before income taxes 1,209 5,907 2,779 9,576
Income taxes (1,162) (1,333) (1,923) (2,517)
-------- -------- -------- --------
Net income $ 47 $ 4,574 $ 856 $ 7,059
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (continued)
For the periods ended September 26, 1996 and September 28, 1995
---------------------------------------------------------------
(in thousands, except per share data)
Third Quarter Nine Months
------------------- ------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Net income per common and
common equivalent share $ -- $ .11 $ .01 $ .17
Net income per common share
assuming full dilution $ -- $ .11 $ .01 $ .16
Weighted average common shares
applicable to:
Net income per common and
common equivalent share 43,704 39,209 40,878 38,971
Net income per common share
assuming full dilution 44,660 40,202 41,873 40,038
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the periods ended September 26, 1996 and September 28, 1995
---------------------------------------------------------------
(in thousands)
Nine Months
---------------------
1996 1995
Cash Flows from Operating Activities --------- ---------
Net income $ 856 $ 7,059
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 38,830 31,529
Provision for losses on accounts receivable 3,347 2,636
Loss on reinvestment obligation 520 --
Rent expense (645) (493)
Distribution in excess of equity in income
of partnership 819 879
Deferred income taxes 13 (280)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (13,045) (6,603)
(Increase) decrease in refundable income taxes 341 723
(Increase) decrease in inventories and
prepaid expenses (62) 685
Increase (decrease) in accounts payable,
accrued expenses and income taxes payable 10,505 23,779
Other items, net 4,472 968
--------- ---------
Net cash provided by (used in) operating activities 45,951 60,882
--------- ---------
Cash Flows from Investing Activities
Payments received on notes receivable 1,150 1,009
Reduction in other investments 383 8,602
(Increase)decrease in invested funds -- 8,250
Purchases of property and equipment (98,307) (86,863)
Additions to other long-term assets (4,840) (12,256)
--------- ---------
Net cash provided by (used in) investing activities (101,614) (81,258)
--------- ---------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 154,800 35,000
Proceeds from issuance of common stock 57,674 1,945
Principal payments on long-term debt (146,685) (10,443)
Principal payments on other long-term liabilities (4,313) --
Debt issuance costs -- (80)
Preferred stock dividend (726) (754)
Redemption of preferred stock (376) (211)
--------- ---------
Net cash provided by (used in) financing activities 60,374 25,457
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,711 5,081
Cash and cash equivalents at beginning of period 26,527 43,861
--------- ---------
Cash and cash equivalents at end of period $ 31,238 $ 48,942
========= =========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)(continued)
For the periods ended September 26, 1996 and September 28, 1995
---------------------------------------------------------------
(in thousands)
Nine Months
-------------------
1996 1995
-------- --------
Supplemental Cash Flow Disclosures
Summary of non-cash investing and financing activities:
Capital lease obligations incurred for property
and equipment $ -- $ 41
Tax benefit from stock options and preferred stock
dividend 840 858
Issuance of restricted stock 136 2,194
Forfeiture of restricted stock 57 142
Cash flow during the period for the following:
Interest paid, net of amount capitalized $ 31,537 $ 23,880
Income taxes paid 1,075 843
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
For the periods ended September 26, 1996 and September 28, 1995
---------------------------------------------------------------
(in thousands, except number of shares)
Nine Months
---------------------
1996 1995
---------- ---------
Common stock:
Beginning balance $ 422 $ 414
Issuance of 6,279,200 shares of common stock in 1996 63 --
Stock options exercised for 376,315 and 492,827
shares 4 5
Issuance of 292,000 shares of restricted stock
in 1995 -- 3
-------- --------
Ending balance 489 422
-------- --------
Paid-in capital:
Beginning balance 352,221 347,284
Issuance of common stock 55,813 --
Stock options exercised 1,794 1,940
Tax benefit from stock options exercised 762 759
Restricted stock 136 2,191
-------- --------
Ending balance 410,726 352,174
-------- --------
Retained earnings:
Beginning balance 24,922 30,555
Preferred stock dividend, net of income tax
benefit of $78 and $99 (501) (471)
Net income 856 7,059
-------- --------
Ending balance 25,277 37,143
-------- --------
Treasury stock:
Beginning balance (17,027) (16,885)
Forfeiture of 8,667 and 18,000 shares
of restricted stock (57) (142)
-------- --------
Ending balance (17,084) (17,027)
-------- --------
Unearned compensation:
Beginning balance (879) --
Restricted stock (136) (2,194)
Amortization 774 1,064
Forfeiture of restricted stock 57 142
-------- --------
Ending balance (184) (988)
-------- --------
$419,224 $371,724
======== ========
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1: General
- ----------------
The consolidated financial statements reflect all adjustments, such adjust-
ments 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 quarter and nine
months ended 1996 was $1,027,000 and $3,750,000, respectively; and $1,313,000
and $3,664,000 for the quarter and nine months ended 1995. Capitalized
preopening costs, included in deferred charges and other assets, were $39,000
at September 26, 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 $1,341,000 and
$1,458,000 at September 26, 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
September 26, 1996 and September 28, 1995 (in thousands):
Third Quarter Nine Months
------------------ -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $ 4,128 $ 4,197 $ 12,436 $ 12,971
Operating expenses (631) (683) (2,061) (2,059)
-------- -------- -------- --------
Operating income 3,497 3,514 10,375 10,912
Interest expense (1,372) (1,482) (4,200) (4,856)
-------- -------- -------- --------
Net income $ 2,125 $ 2,032 $ 6,175 $ 6,056
======== ======== ======== ========
10
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
Note 3: Long-term Debt
- -----------------------
At September 26, 1996 and December 28, 1995, long-term debt included (in
thousands):
1996 1995
--------- ---------
11% Senior Subordinated Notes Due 2002 $200,000 $200,000
13 3/4% Senior Subordinated Notes Due 2004 177,866 177,768
Reducing revolving credit note (floating
rate); matures December 31, 1999 125,000 116,600
Other notes payable; 7% to 14.6%; maturities
to 2002 1,795 1,814
Obligations under capital leases 572 723
--------- ---------
505,233 496,905
Less current portion (426) (466)
--------- ---------
$504,807 $496,439
========= =========
Note 4: Other Long-term Liabilities
- -------------------------------------
At September 26, 1996 and December 28, 1995, other long-term liabilities
consisted of (in thousands):
1996 1995
-------- --------
Accrued rent expense $ 12,398 $ 13,043
Obligation to City of Evansville and
other civic and community organizations 9,113 13,400
Deferred compensation and retirement plans 10,176 9,739
Las Vegas Boulevard beautification assessment 509 535
Deferred income 154 154
-------- --------
32,350 36,871
Less current portion (4,159) (6,172)
-------- --------
$ 28,191 $ 30,699
======== ========
Note 5: Capital Stock
- ----------------------
On July 31, 1996, the Company issued 6,000,000 shares of common stock, par
value $.01 per share, at a price of $9.50 per share. On August 5, 1996, the
Company issued 279,200 shares of common stock, par value $.01 per share, at a
price of $9.50 per share as part of an over-allotment option contained in an
underwriting agreement dated July 25, 1996. The combined net proceeds from
both issuances of $55,876,000, after deducting the underwriters' discount and
estimated expenses payable by the Company, will be used for general corporate
purposes, including ongoing and potential development of casino and hotel
facilities. Pending specific application, the Company used 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.
11
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
Note 6: 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.
The difference between the federal statutory rate and the effective tax rate
was primarily attributable to state income taxes and the nondeductible nature
of certain expenses. Gross deferred tax assets are reduced by a valuation
allowance. The December 29, 1994 valuation allowance was reduced during 1995
which caused a decrease in income tax expense of $3,125,000 and $3,622,000 in
the 1995 third quarter and nine-month periods, respectively.
Note 7: 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 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 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 8: 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 $3,933,000 and
$3,941,000 at September 26, 1996 and December 28, 1995, respectively.
12
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (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 Las Vegas 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 Las
Vegas operation fails to meet certain financial tests. This requirement was
waived at September 26, 1996. A determination has been made for the period
ended September 26, 1996, that the additional security deposit will be
required by December 25, 1996 unless the requirement is again waived by the
lessor. 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 $18,900,000 as of September 26, 1996.
The Company had commitments for the purchase of property and equipment of
approximately $18,000,000 at September 26, 1996.
13
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
Financial Condition
The Company's expansion of Tropicana Casino and Resort in Atlantic City, New
Jersey (which had been known as "TropWorld Casino and Entertainment Resort"),
consisting primarily of a 604-room hotel tower, opened in late April 1996.
The new hotel tower includes a concierge floor of six large penthouse suites
completed in late July 1996 to attract high-end players. The Company's
expenditures for property and equipment on the expansion project for the year
to date through September 26, 1996 were approximately $31.4 million. In
addition to the expansion, the Company made modifications to the existing
facilities that included the construction of a new hotel lobby, refurbishment
of substantially all existing hotel rooms and extensive improvements to the
casino. The Company held a grand opening celebration of its new facilities
on the Fourth of July weekend and used this event as an opportunity to rename
the property.
In October 1996, the Company's Casino Aztar Evansville in Indiana opened its
44,000-square-foot passenger pavilion and 1,600-space parking garage. The
pavilion has passenger ticketing facilities, three restaurants, a sidewalk
cafe, an entertainment lounge and a gift shop. Construction of the 250-room
hotel is on schedule for completion in December 1996. The Company's
expenditures for property and equipment in connection with the pavilion,
parking garage and hotel for the year to date through September 26, 1996 were
approximately $39.2 million.
During the nine months of 1996, the Company borrowed $154.8 million and
repaid $146.4 million under the reducing revolving credit facility (the
"Credit Facility"), leaving an outstanding balance of $125 million at
September 26, 1996. The Company's debt to operating cash flow ratio as
calculated under the Credit Facility was 4.85 to 1 at September 26, 1996 and
the maximum allowable ratio was 4.25 to 1. 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 at September 26, 1996. A similar
waiver had been obtained at December 28, 1995 and June 27, 1996, but was not
necessary at March 28, 1996. The maximum allowable ratio decreases 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's ability to maintain or increase debt capacity is contingent on
increased levels of operating cash flow or deleveraging by the use of
additional equity.
At September 26, 1996, the Company had commitments of approximately $18
million for the purchase of property and equipment.
The Tropicana Las Vegas lease agreement 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 September 26, 1996. A determination has been made for the
period ended September 26, 1996, that the additional security deposit will be
required by December 25, 1996 unless the requirement is again waived by the
lessor.
14
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
On July 31, 1996, the Company issued 6,000,000 shares of common stock, par
value $.01 per share, at a price of $9.50 per share. On August 5, 1996, the
Company issued 279,200 shares of common stock, par value $.01 per share, at a
price of $9.50 per share as part of an over-allotment option contained in an
underwriting agreement dated July 25, 1996. The combined net proceeds from
both issuances of $55.9 million, after deducting the underwriters' discount
and estimated expenses payable by the Company, will be used for general
corporate purposes, including ongoing and potential development of casino and
hotel facilities. Pending specific application, the Company used such net
proceeds to reduce amounts outstanding (and permitted to be reborrowed,
subject to the conditions contained therein) under its Credit Facility, which
matures on December 31, 1999.
Results of Operations
Nine Months Ended September 26, 1996 Compared to Nine Months Ended
September 28, 1995
The Company's consolidated revenues for the 1996 nine-month period were
$574.0 million, a 32% increase over $435.9 million for the 1995 nine-month
period. The increase in consolidated revenues was largely as a result of
added revenues attributable to operations at the Company's riverboat casino
in Evansville, Indiana, which opened in December 1995. The increase in
consolidated revenues also reflected increased revenues from the Company's
riverboat casino in Caruthersville, Missouri, which began operations in April
1995, and higher total revenues at Tropicana Atlantic City and Tropicana Las
Vegas. Consolidated operating income for the 1996 nine-month period was
$47.1 million, a 3% decrease from $48.6 million for the 1995 nine-month
period. A strong operating performance by Casino Aztar Evansville and
decreased operating losses at Casino Aztar Caruthersville were not sufficient
to offset lower operating results at all three of the Company's land-based
facilities. The Atlantic City Tropicana's results for the 1996 nine-month
period were significantly impeded by disruption to operations due to the
expansion and renovation activities at the property and start-up costs
associated with the major expansion completed in July 1996. Costs associated
with promotional programs at the Atlantic City Tropicana were higher in the
1996 versus 1995 nine-month period, reflecting implementation of programs in
1996 in response to marketing pressures resulting from additional casino
supply throughout the Atlantic City market. In addition, results at the
Atlantic City Tropicana for the 1996 nine-month period were reduced as a
result of severe winter weather. Consolidated operating results for the 1996
nine-month period reflected a $641,000 pretax loss on disposal of assets,
included in consolidated general and administrative expense, related to the
construction of new facilities. Consolidated operating income is after the
writeoff of preopening costs of $2.3 million in the 1996 nine-month period
compared to $2.6 million in the 1995 nine-month period.
Consolidated interest expense increased by $4.9 million or 13% in the 1996
nine-month period compared to last year's nine-month period. The increase
was mainly as a result of higher levels of debt outstanding under the Credit
Facility during the nine months of 1996, partially offset by lower average
interest rates in effect on that debt during the 1996 nine-month period.
For a discussion of income taxes, refer to "Note 6: Income Taxes".
15
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
TROPICANA ATLANTIC CITY Total revenues at Tropicana Atlantic City were $284.9
million in the 1996 nine-month period, up 10% from $258.5 million in the 1995
nine-month period. Casino revenue was 10% higher in the nine months of 1996
versus 1995, primarily reflecting a 24% increase in games revenue as well as
a 6% increase in slot revenue. Slot revenue increased due to an increase in
coin redemptions mainly associated with the bus segment of the market. Rooms
revenue was 23% higher in the 1996 versus 1995 nine-month period due to an
increase in the number of occupied rooms as well as an increase in average
daily room rates. The increase in occupied rooms was primarily attributable
to the opening in late April 1996 of the new hotel tower. Food and beverage
revenue was 8% higher in the nine months of 1996 versus 1995 due to increased
volume as a result of the expanded facility.
Tropicana Atlantic City had operating income of $28.2 million in the 1996
nine-month period, down 44% from $50.7 million in the 1995 nine-month period.
The Atlantic City Tropicana's results for the 1996 nine-month period were
reduced as a result of the factors noted above. Casino costs were 23% higher
in the 1996 versus 1995 nine-month period as a result of the increase in coin
redemptions and increased direct costs associated with the increase in games
business. Rooms costs increased by 25% in the 1996 versus 1995 nine-month
period primarily due to increased direct costs associated with the opening of
the new hotel tower. Food and beverage costs were 16% higher in the 1996
versus 1995 nine-month period due to increased direct costs in connection
with the increased volume as a result of the expanded facilities. Marketing
costs were $10.7 million, or 40%, higher in the nine months of 1996 versus
1995 primarily due to an increased number of promotions and special events as
well as an increase in costs associated with attracting increased games
business. General and administrative expense increased by $4.9 million, or
37%, in the 1996 versus 1995 nine-month period. General and administrative
expense for the 1995 nine-month period included a gain associated with funds
received from the Casino Reinvestment Development Authority ("CRDA") in
conjunction with the construction of the hotel tower. The increase in
general and administrative expense also reflected increases in executive and
security payroll related to the increased promotional activities and a pretax
loss on disposal of assets in 1996 related to the construction of the new
casino facilities at the property. Repairs and maintenance expense was 23%
higher in the 1996 versus 1995 nine-month period due to an increased number
of maintenance projects attributable to the opening of the new hotel tower.
Operating results for the 1996 nine-month period included a $2.3 million
writeoff of preopening costs related to the new hotel tower and extensive
improvements to the casino. Operating income is after rent and depreciation
and amortization expenses. Rent expense was $1.8 million in the 1996 nine-
month period compared to $1.1 million in the 1995 nine-month period, a 71%
increase attributable to an increased number of operating leases associated
with the improved facilities. Depreciation and amortization was $15.7
million in the nine months of 1996 compared to $16.6 million in the nine
months of 1995.
TROPICANA LAS VEGAS At Tropicana Las Vegas, total revenues were $121.5
million in the 1996 nine-month period compared to $105.3 million in the 1995
nine-month period, a 15% increase reflecting increases in all revenue
components. Casino revenue was 15% higher in the 1996 versus 1995 nine-month
period, primarily reflecting a substantial increase in baccarat revenue. In
mid-1995, the Company adopted new marketing initiatives at Tropicana Las
16
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
Vegas to increase premium table game business while maintaining slot revenue.
Rooms revenue increased by 14% in the nine months of 1996 versus 1995 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 12% higher in the nine
months of 1996 versus 1995 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 an operating loss of $1.0 million for the nine months
of 1996 compared to an operating loss of $0.6 million for last year's nine-
month period. Casino costs were 25% higher in the 1996 versus 1995 nine-
month period, primarily reflecting the higher costs associated with
increasing the premium table games 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. Marketing costs were
15% higher in the 1996 versus 1995 nine-month period due to increased
contract entertainment and advertising costs as well as an increased number
of promotional programs. Operating income is after rent and depreciation and
amortization expenses. Rent expense was $6.8 million in the 1996 nine-month
period compared to $6.9 million in the 1995 nine-month period. Depreciation
and amortization was $6.5 million in the 1996 nine-month period compared to
$5.5 million in last year's nine-month period.
RAMADA EXPRESS At Ramada Express, total revenues were $61.2 million in the
nine months of 1996, down slightly from $61.8 million in last year's nine-
month period. Operating income was $8.7 million in the 1996 nine-month
period, a decline from $10.0 million in last year's nine-month period.
Operating income is after rent and depreciation and amortization expenses.
Rent expense was $0.2 million in the 1996 nine-month period compared to $0.1
million in the 1995 nine-month period. Depreciation and amortization was
$5.4 million in both periods.
CASINO AZTAR EVANSVILLE Casino Aztar Evansville, which opened in December
1995, added $86.2 million to total consolidated revenues in the 1996 nine-
month period and contributed $22.4 million to consolidated operating income.
Operating income is after rent expense of $2.0 million and depreciation and
amortization of $6.0 million.
CASINO AZTAR CARUTHERSVILLE Casino Aztar Caruthersville, which opened in
April 1995, had total revenues of $20.2 million and an operating loss of $2.4
million in the 1996 nine-month period compared to total revenues of $10.3
million and an operating loss of $3.7 million for the period of operations in
1995. Operating results in the 1995 period of operations included a $2.6
million writeoff of preopening costs. Operating income is after depreciation
and amortization of $2.6 million in the 1996 nine-month period and $1.2
million in the 1995 period of operations.
Quarter Ended September 26, 1996 Compared to Quarter Ended September 28, 1995
The Company's consolidated revenues for the 1996 third quarter were $204.3
million, a 32% increase over $154.9 million for the 1995 third quarter. The
increase in consolidated revenues was largely as a result of added revenues
attributable to Casino Aztar Evansville, which opened in December 1995. The
increase in consolidated revenues also reflected higher total revenues at
17
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
Tropicana Atlantic City and Tropicana Las Vegas partially offset by lower
total revenues at Ramada Express. Consolidated operating income for the
third quarter of 1996 was $16.1 million, a 15% decline from $19.0 million for
last year's third quarter. A strong operating performance by Casino Aztar
Evansville was not sufficient to offset lower operating results at all three
of the Company's land-based facilities. The Atlantic City Tropicana's
results for the 1996 third quarter were lower than anticipated as a result of
pressure on operating margins due to start-up costs associated with the major
expansion completed in July 1996 as well as increased costs associated with
promotional programs implemented in response to marketing pressures resulting
from additional casino supply throughout the Atlantic City market.
Consolidated operating income for the 1996 third quarter is after the
writeoff of preopening costs of $2.2 million.
Consolidated interest expense increased by $1.6 million or 13% in the 1996
versus 1995 third quarter. The increase was mainly as a result of higher
levels of debt outstanding under the Credit Facility during the 1996 third
quarter, partially offset by lower average interest rates in effect on that
debt during the 1996 third quarter.
For a discussion of income taxes, refer to "Note 6: Income Taxes".
TROPICANA ATLANTIC CITY Total revenues at Tropicana Atlantic City were $108.7
million in the 1996 third quarter, up 17% from $92.5 million in the 1995
third quarter. Casino revenue was 18% higher in the 1996 versus 1995 third
quarter, primarily reflecting a 40% increase in games revenue as well as an
11% increase in slot revenue. Slot revenue increased due to an increase in
coin redemptions mainly associated with the bus segment of the market. Rooms
revenue was 14% higher in the 1996 third quarter due to an increase in the
number of occupied rooms as well as an increase in average daily room rates.
The increase in occupied rooms was primarily attributable to the opening of
the new hotel tower. Food and beverage revenue was 13% higher in the 1996
versus 1995 third quarter due to increased volume as a result of the expanded
facility.
Tropicana Atlantic City had operating income of $14.2 million in the third
quarter of 1996, a 32% decline from $20.7 in last year's third quarter. The
Atlantic City Tropicana's results for the 1996 third quarter were reduced as
a result of the factors noted above. Casino costs were 32% higher in the
1996 versus 1995 third quarter as a result of the increase in coin
redemptions and increased direct costs associated with the increase in games
business. Rooms costs increased by 15% in the 1996 versus 1995 third quarter
primarily due to increased direct costs associated with the opening of the
new hotel tower. Food and beverage costs were 26% higher in the 1996 versus
1995 third quarter due to increased direct costs in connection with the
increased volume as a result of the expanded facility. Marketing costs were
$3.6 million, or 37%, higher in the 1996 third quarter primarily due to an
increased number of promotions and special events as well as an increase in
costs associated with attracting increased games business. General and
administrative expense increased by $1.9 million, or 43%, in the 1996 versus
1995 third quarter. General and administrative expense for the 1995 third
quarter included a gain associated with funds received from the CRDA in
conjunction with the construction of the hotel tower. The increase in
general and administrative expense also reflected increases in executive and
18
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
security payroll related to the increased promotional activities. Repairs
and maintenance expense was 33% higher in the 1996 versus 1995 third quarter
due to an increased number of maintenance projects attributable to the
opening of the new hotel tower. Operating results for the 1996 third quarter
included a $2.2 million writeoff of preopening costs related to the new hotel
tower and extensive improvements to the casino. Operating income is after
rent and depreciation and amortization expenses. Rent expense increased to
$1.0 million in the 1996 third quarter from $0.4 million in the 1995 third
quarter as a result of an increased number of operating leases associated
with the improved facilities. Depreciation and amortization was $5.4
million in the third quarter of 1996 compared to $5.5 million in the third
quarter of 1995.
TROPICANA LAS VEGAS At Tropicana Las Vegas, total revenues were $38.8 million
in the 1996 third quarter compared to $35.8 million in the 1995 third
quarter, an 8% increase reflecting increases in all revenue components.
Casino revenue was 7% higher in the 1996 versus 1995 third quarter largely as
a result of a substantial increase in baccarat revenue. Rooms revenue
increased by 13% in the 1996 versus 1995 third quarter primarily due to an
increase in average daily room rates.
Tropicana Las Vegas had an operating loss of $3.3 million in the third
quarter of 1996 compared to an operating loss of $0.9 million in the third
quarter of 1995. Casino costs were 23% higher in the 1996 versus 1995 third
quarter, primarily reflecting the higher costs associated with increasing the
premium table games business. Marketing costs were 18% higher in the 1996
versus 1995 third quarter due to increased contract entertainment and
advertising costs as well as an increased number of promotional programs.
Operating income is after rent and depreciation and amortization expenses.
Rent expense was $2.3 million in both periods and depreciation and
amortization was $2.0 million in both periods.
RAMADA EXPRESS At Ramada Express, total revenues were $18.6 million in the
third quarter of 1996, down 6% from $19.9 million in the third quarter of
last year. Operating income was $0.8 million in the 1996 third quarter
compared to $2.2 million in last year's third quarter. Operating income is
after rent and depreciation and amortization expenses. Rent expense was $0.1
million in both periods. Depreciation and amortization was $1.7 million in
the third quarter of 1996 compared to $1.8 million in the third quarter of
1995.
CASINO AZTAR EVANSVILLE Casino Aztar Evansville, which opened in December
1995, added $31.6 million to total consolidated revenues in the 1996 third
quarter and contributed $8.2 million to consolidated operating income.
Operating income is after rent expense of $0.9 million and depreciation and
amortization of $2.1 million.
CASINO AZTAR CARUTHERSVILLE Total revenues at Casino Aztar Caruthersville
were $6.6 million in the third quarter of 1996 compared to $6.7 million in
the third quarter of 1995. Casino Aztar Caruthersville had an operating
loss of $1.0 million in both periods. Operating income is after depreciation
and amortization of $0.9 million in the 1996 third quarter compared to $0.8
million in the 1995 third quarter.
19
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
PART - II OTHER INFORMATION
Item 1. Legal Proceedings
(a) In connection with Case Nos. CV-S-94-1126-LDG(RJJ) and CV-S-94-1137-
LDG(RJJ) (collectively, the Poulos/Ahearn Case") , as reported under
Part I, Item 3 of the Company's Form 10-K for the year ended December
28, 1995, by order entered April 17, 1996, as reported under Part II,
Item 1(a) of the Company's Form 10-Q for the quarter ended March 28,
1996, the court granted the defendants' motions and dismissed the
complaint without prejudice. On May 31, 1996, as reported under Part
II, Item 1(a) of the Company's Form 10-Q for the quarter ended June 27,
1996, the plaintiffs filed an amended complaint and the defendants have
again moved to dismiss it for failure to state a claim. The claims in
the amended complaint seek damages that are the same as those in the
original complaint. No hearing date has been set. On May 31, 1996, the
plaintiffs filed a motion to substitute Brenda McElmore for Mr. Ahearn
as one of the class representatives. This motion has not been opposed
by the Company, though several of the other defendants did oppose the
motion. No hearing date has been set. On July 12, 1996, the plaintiffs
filed a motion seeking to lift the stay of discovery and seeking leave
to add additional defendants. The defendants (including the Company)
have opposed these motions. No hearing date has been set on these
motions. By order dated August 17, 1996, the Poulos/Ahearn Case was
transferred to Judge David Ezra and assigned the new Case No. CV-S-94-
1126-DAE(RJJ)-BASE FILE.
(b) In connection with Case No. 95cv2236(JEI), as reported under Part I,
Item 3 of the Company's Form 10-K for the year ended December 28, 1995,
Counsel for Plaintiff, as reported under Part II, Item 1(a) of the
Company's Form 10-Q for the quarter ended March 28, 1996, has responded
to the Company's motion to dismiss and pursuant to Local Rule, the
Company's motion was submitted to the Court on April 25, 1996. On
May 30, 1996, the court ordered that defendants' motions to dismiss the
complaint be granted and plaintiff's complaint be dismissed in its
entirety.
(c) In connection with Case No. CV-S-95-936-LDG(RLH) (the "Poulos vs.
Ambassador Cruise Lines Case"), as reported under Part I, Item 3 of the
Company's Form 10-K for the year ended December 28, 1995, the plaintiff
as reported under Part II, Item 1(c) of the Company's Form 10-Q for the
quarter ended June 27, 1996, in Case No. CV-S-95-00923-LDG(RJJ) (the
"Schreier Case"), has sought review of the Court's denial of the motion
to consolidate the Schreier Case with the Poulos/Ahearn Case and the
Poulos vs. Ambassador Cruise Lines Case. The defendants (including the
Company) have opposed this motion. No hearing date has been set on this
motion.
(d) On March 27, 1996, as reported under Part II, Item 1(d) of the Company's
Form 10-Q for the quarter ended June 27, 1996, a purported consumer
class action entitled Payne, et al. v. Aztar Corporation, et. al., Case
No. 00698592, was filed in the state Superior Court in San Diego,
California naming as defendants the Company and several other entities
whom plaintiffs allege are casino owners or operators. Plaintiffs
20
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
purport to bring the action on behalf of a class consisting of all
persons in California who have played video poker machines owned or
operated by defendants. Plaintiffs allege that defendants have engaged
in a course of fraudulent and misleading conduct intended to induce
plaintiffs to play video poker machines based on a false belief conveyed
by defendants concerning how such machines operate and that such conduct
violates various provisions of the California Business and Professions
Code and the so-called Consumer Legal Remedies Act. Plaintiffs seek
unspecified compensatory and punitive damages, disgorgement and other
equitable remedies and attorneys' fees and other costs. Defendants have
removed the action to the United States District Court for the Southern
District of California in San Diego, Case No. 96-905-J(CGA), and filed
various motions to dismiss and or transfer the action to the United
States District Court for the District of Nevada where the Poulos/Ahearn
Case and the Schreier Case are pending. Plaintiffs' attorneys in the
Payne case include attorneys who represent the plaintiffs in the
Poulos/Ahearn Case and the Schreier Case. Plaintiffs have filed a motion
to have the case remanded to state court contending that the federal
court lacks subject matter jurisdiction over the case. These motions
are now scheduled to be heard on various dates in the period October-
December 1996. The Company believes that plaintiffs' allegations are
without merit and intends to defend the action vigorously.
(e) In connection with Case No. CV-S-95-00923-LDG(RJJ), as reported under
Part I, Item 3 of the Company's Form 10-K for the year ended December
28, 1995, on August 15, 1996, the Court granted the motion to dismiss,
without prejudice. An amended complaint was filed on September 30,
1996. The defendants (including the Company) have filed motions to
dismiss the amended complaint for failure to state a claim and on other
grounds.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Page No.
----------
11. Statement Regarding Computation of Per Share Earnings. *
27. Financial Data Schedule. *
* See exhibit index at page E-1 of this report for
a listing of exhibits filed with this report.
All other exhibits have been omitted because the
information is either not required or not applicable.
(b) On July 12, 1996, the Company filed a report on Form
8-K under Item 5. Other Events to file, as Exhibit 99,
the news release issued by the Registrant on July 11,
1996 reporting the Company's financial results for the
second quarter and six months ended June 27, 1996.
21
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AZTAR CORPORATION
------------------------------
(Registrant)
Date November 6, 1996 By ROBERT M. HADDOCK
-------------------------- ---------------------------
Robert M. Haddock
Executive Vice President and
Chief Financial Officer
22
<PAGE>
AZTAR CORPORATION AND SUBSIDIARIES
Exhibit Index
- -------------
11. Statement Regarding Computation of Per Share Earnings.
27. Financial Data Schedule.
E-1
<PAGE>
Exhibit 11
AZTAR CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For the periods ended September 26, 1996 and September 28, 1995
---------------------------------------------------------------
(in thousands, except per share data)
Third Quarter Nine Months
------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Net income $ 47 $ 4,574 $ 856 $ 7,059
Deduct: preferred stock dividend
(net of income taxes credited to
retained earnings) (177) (159) (501) (471)
--------- --------- -------- --------
Net income applicable to computation $ (130) $ 4,415 $ 355 $ 6,588
======== ======== ======== ========
Weighted average common shares
assuming no dilution 42,518 38,159 39,738 37,944
Common equivalent shares
Additional shares applicable to
stock options based on the
weighted average market price 1,186 1,050 1,140 1,027
-------- -------- -------- --------
Weighted average common shares
applicable to net income per
common and common equivalent share 43,704 39,209 40,878 38,971
Additional shares applicable to
stock options based on the market
close price at the end of the period 3 1 29 66
Conversion of preferred stock at
the stated rate 953 992 966 1,001
-------- -------- -------- --------
Weighted average common shares
assuming full dilution 44,660 40,202 41,873 40,038
======== ======== ======== ========
Net income per common and common
equivalent share $ -- $ .11 $ .01 $ .17
Net income per common share assuming
full dilution $ -- $ .11 $ .01 $ .16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 26, 1996 and the Consolidated Statement
of Operations for the year-to-date period ended September 26, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-2-1997
<PERIOD-END> SEP-26-1996
<CASH> 31,238
<SECURITIES> 0
<RECEIVABLES> 41,464
<ALLOWANCES> 10,441
<INVENTORY> 6,947
<CURRENT-ASSETS> 87,778
<PP&E> 1,145,033
<DEPRECIATION> 227,077
<TOTAL-ASSETS> 1,087,739
<CURRENT-LIABILITIES> 109,877
<BONDS> 504,807
5,889
0
<COMMON> 489
<OTHER-SE> 418,735
<TOTAL-LIABILITY-AND-EQUITY> 1,087,739
<SALES> 41,325
<TOTAL-REVENUES> 573,976
<CGS> 39,375
<TOTAL-COSTS> 307,701
<OTHER-EXPENSES> 29,417
<LOSS-PROVISION> 3,347
<INTEREST-EXPENSE> 42,572
<INCOME-PRETAX> 6,321
<INCOME-TAX> 1,923
<INCOME-CONTINUING> 856
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 856
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
