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 30, 1999
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 1-5440
----------------------------------------
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 28, 1999, the registrant had outstanding 43,705,195 shares
of its common stock, $.01 par value.
AZTAR CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998 3
Consolidated Statements of Operations for the quarters
and nine months ended September 30, 1999 and October 1,
1998 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and October 1, 1998 7
Consolidated Statements of Shareholders' Equity for
the nine months ended September 30, 1999 and October 1,
1998 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
2
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
---------------------------------------
(in thousands, except share data)
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 56,083 $ 58,600
Accounts receivable, net 24,323 31,496
Inventories 7,232 6,496
Prepaid expenses 11,435 9,234
Deferred income taxes, net 16,626 15,957
---------- ----------
Total current assets 115,699 121,783
Investments in and advances to
unconsolidated partnership 7,841 8,437
Other investments 21,070 21,005
Property and equipment:
Buildings, riverboats and equipment, net 756,766 778,420
Land 102,307 99,035
Construction in progress 8,380 2,153
Leased under capital leases, net 5,239 7,782
---------- ----------
872,692 887,390
Deferred charges and other assets 42,197 39,087
---------- ----------
$1,059,499 $1,077,702
========== ==========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
3
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited) (continued)
---------------------------------------
(in thousands, except share data)
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accruals $ 53,602 $ 52,935
Accrued payroll and employee benefits 26,289 26,208
Accrued interest payable 21,029 12,608
Income taxes payable 2,428 3,185
Current portion of long-term debt 3,500 2,537
Current portion of other long-term
liabilities 2,954 2,921
---------- ----------
Total current liabilities 109,802 100,394
Long-term debt 461,195 487,543
Other long-term liabilities 21,677 22,882
Deferred income taxes 8,955 5,635
Contingencies and commitments
Series B ESOP convertible preferred stock
(redemption value $9,403 and $7,147) 7,178 7,147
Shareholders' equity:
Common stock, $.01 par value (43,955,609
and 45,337,834 shares outstanding) 494 492
Paid-in capital 413,642 412,528
Retained earnings 70,640 58,207
Less: Treasury stock (34,084) (17,126)
---------- ----------
Total shareholders' equity 450,692 454,101
---------- ----------
$1,059,499 $1,077,702
========== ==========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
4
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the periods ended September 30, 1999 and October 1, 1998
---------------------------------------------------------------
(in thousands, except per share data)
<CAPTION>
Third Quarter Nine Months
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Casino $169,389 $173,500 $489,652 $504,926
Rooms 16,719 14,995 49,731 41,692
Food and beverage 13,689 13,599 41,008 40,251
Other 8,973 7,995 25,654 23,213
-------- -------- -------- --------
208,770 210,089 606,045 610,082
Costs and expenses
Casino 73,135 75,757 215,795 226,576
Rooms 9,375 8,616 26,950 24,016
Food and beverage 13,703 13,805 41,562 40,546
Other 7,858 7,017 22,846 20,043
Marketing 22,282 21,773 65,439 64,991
General and administrative 19,096 18,838 55,501 57,250
Utilities 4,472 4,363 10,834 10,373
Repairs and maintenance 6,506 5,949 19,563 18,281
Provision for doubtful accounts 1,522 4,638 5,770 11,322
Property taxes and insurance 5,955 5,688 17,719 17,715
Rent 4,403 4,697 12,813 14,917
Depreciation and amortization 13,506 13,517 40,100 40,173
-------- -------- -------- --------
181,813 184,658 534,892 546,203
-------- -------- -------- --------
Operating income 26,957 25,431 71,153 63,879
Interest income 285 378 1,246 1,717
Interest expense (13,202) (14,661) (42,268) (45,043)
-------- -------- -------- --------
Income before other items, income
taxes and extraordinary items 14,040 11,148 30,131 20,553
Equity in unconsolidated
partnership's loss (991) (1,049) (2,956) (3,287)
-------- -------- -------- --------
Income before income taxes
and extraordinary items 13,049 10,099 27,175 17,266
Income taxes (4,488) (4,472) (9,849) (7,302)
-------- -------- -------- --------
Income before extraordinary items 8,561 5,627 17,326 9,964
Extraordinary items (382) -- (4,455) (1,346)
-------- -------- -------- --------
Net income $ 8,179 $ 5,627 $ 12,871 $ 8,618
======== ======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
5
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)(continued)
For the periods ended September 30, 1999 and October 1, 1998
---------------------------------------------------------------
(in thousands, except per share data)
<CAPTION>
Third Quarter Nine Months
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings per common share:
Income before extraordinary items $ .19 $ .12 $ .38 $ .21
Extraordinary items (.01) -- (.10) (.03)
-------- -------- -------- --------
Net income $ .18 $ .12 $ .28 $ .18
======== ======== ======== ========
Earnings per common share assuming
dilution:
Income before extraordinary items $ .18 $ .12 $ .37 $ .20
Extraordinary items (.01) -- (.10) (.03)
-------- -------- -------- --------
Net income $ .17 $ .12 $ .27 $ .17
======== ======== ======== ========
Weighted-average common shares
applicable to:
Earnings per common share 44,353 45,233 44,987 45,219
Earnings per common share assuming
dilution 46,283 46,404 46,490 46,694
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
6
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the periods ended September 30, 1999 and October 1, 1998
---------------------------------------------------------------
(in thousands)
<CAPTION>
Nine Months
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 12,871 $ 8,618
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 41,615 41,937
Provision for losses on accounts receivable 5,770 11,322
Loss on early retirement of debt 6,854 2,071
Loss on reinvestment obligation 720 372
Rent expense (690) (697)
Distribution in excess of equity in income
of partnership 596 728
Deferred income taxes 2,651 1,771
Change in assets and liabilities:
(Increase) decrease in accounts receivable 3,739 (2,072)
(Increase) decrease in inventories and
prepaid expenses (3,058) 589
Increase (decrease) in accounts payable,
accrued expenses and income taxes payable 7,768 (9,911)
Other items, net 228 1,300
--------- ---------
Net cash provided by (used in) operating activities 79,064 56,028
--------- ---------
Cash Flows from Investing Activities
Payments received on notes receivable 1,701 1,493
Reduction in other investments 600 564
Purchases of property and equipment (22,952) (19,247)
Additions to other long-term assets (6,927) (6,672)
--------- ---------
Net cash provided by (used in) investing activities (27,578) (23,862)
--------- ---------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 410,100 423,400
Proceeds from issuance of common stock 954 83
Principal payments on long-term debt (435,670) (459,333)
Premium paid on early retirement of debt (3,557) --
Principal payments on other long-term liabilities (964) (964)
Debt issuance costs (6,606) (2,246)
Repurchase of common stock (16,958) --
Preferred stock dividend (606) (649)
Redemption of preferred stock (696) (379)
--------- ---------
Net cash provided by (used in) financing activities (54,003) (40,088)
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,517) (7,922)
Cash and cash equivalents at beginning of period 58,600 46,129
--------- ---------
Cash and cash equivalents at end of period $ 56,083 $ 38,207
========= =========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
7
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)(continued)
For the periods ended September 30, 1999 and October 1, 1998
---------------------------------------------------------------
(in thousands)
<CAPTION>
Nine Months
-------------------
1999 1998
-------- --------
<S> <C> <C>
Supplemental Cash Flow Disclosures
Summary of non-cash investing and financing activities:
Capital lease obligations incurred for property
and equipment $ 16 $ 8,372
Tax benefit from stock options and preferred stock
dividend 175 70
Cash flow during the period for the following:
Interest paid, net of amount capitalized $ 32,331 $ 55,641
Income taxes paid (refunded) 5,381 1,115
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
8
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
For the periods ended September 30, 1999 and October 1, 1998
---------------------------------------------------------------
(in thousands, except number of shares)
<CAPTION>
Nine Months
--------------------
1999 1998
-------- --------
<S> <C> <C>
Common stock:
Beginning balance $ 492 $ 491
Stock options exercised for 176,334 and 23,405 shares 2 --
-------- --------
Ending balance 494 491
-------- --------
Paid-in capital:
Beginning balance 412,528 412,029
Stock options exercised 952 83
Tax benefit from stock options exercised 162 35
-------- --------
Ending balance 413,642 412,147
-------- --------
Retained earnings:
Beginning balance 58,207 48,654
Preferred stock dividend and losses on redemption,
net of income tax benefit of $13 and $35 (438) (459)
Net income 12,871 8,618
-------- --------
Ending balance 70,640 56,813
-------- --------
Treasury stock:
Beginning balance (17,126) (17,126)
Repurchase of 1,885,800 shares of common stock,
at cost, in 1999 (16,958) --
-------- --------
Ending balance (34,084) (17,126)
-------- --------
Unearned compensation:
Beginning balance -- (10)
Amortization -- 10
-------- --------
Ending balance -- --
-------- --------
$450,692 $452,325
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
9
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. There was no interest capitalized during the quarters or nine
months ended 1999 or 1998. Capitalized costs related to various development
projects, included in deferred charges and other assets, were $5,005,000 and
$2,630,000 at September 30, 1999 and December 31, 1998, respectively. For
additional information regarding significant accounting policies, Las Vegas
Tropicana redevelopment, 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 31, 1998.
Certain reclassifications have been made in the 1998 Consolidated Statement
of Cash Flows in order to be comparable with the 1999 presentation.
Note 2: Investments in and Advances to Unconsolidated Partnership
- -----------------------------------------------------------------
<TABLE>
Following are summarized operating results for the Company's unconsolidated
partnership, accounted for using the equity method for the periods ended
September 30, 1999 and October 1, 1998 (in thousands):
<CAPTION>
Third Quarter Nine Months
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 4,272 $ 4,020 $ 12,812 $ 12,225
Operating expenses (684) (685) (2,059) (2,060)
-------- -------- -------- --------
Operating income 3,588 3,335 10,753 10,165
Interest expense (1,024) (1,163) (3,071) (3,695)
-------- -------- -------- --------
Net income $ 2,564 $ 2,172 $ 7,682 $ 6,470
======== ======== ======== ========
</TABLE>
<TABLE>
The Company's share of the above operating results, after intercompany
eliminations, is as follows (in thousands):
<CAPTION>
Third Quarter Nine Months
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity in unconsolidated
partnership's loss $ (991) $ (1,049) $ (2,956) $ (3,287)
</TABLE>
10
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
Note 3: Long-term Debt
- -----------------------
<TABLE>
Long-term debt consists of the following (in thousands):
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
11% Senior Subordinated Notes Due 2002
("11% Notes") $ -- $200,000
13 3/4% Senior Subordinated Notes Due 2004
("13 3/4% Notes") 172,907 178,243
8 7/8% Senior Subordinated Notes Due 2007 235,000 --
Reducing revolving credit note ("Revolver");
floating rate; matures June 30, 2003 -- 53,100
Term loan ("Term Loan"); floating rate, 7.94%
at September 30, 1999; matures June 30, 2005 50,000 50,000
Other notes payable; 7% to 14.6%; maturities
to 2002 837 868
Obligations under capital leases 5,951 7,869
-------- --------
464,695 490,080
Less current portion (3,500) (2,537)
-------- --------
$461,195 $487,543
======== ========
</TABLE>
On April 7, 1999 and June 2, 1999, respectively, the Company redeemed
$75,000,000 and $125,000,000 principal amount of the 11% Notes at 101.571% of
the principal amount plus accrued interest.
Effective April 30, 1999, the Company and the lenders under the Revolver
agreed to expand the maximum amount available under the Revolver from
$250,000,000 to $300,000,000. In conjunction with this change, the quarterly
reductions in the maximum amount available under the Revolver were increased
from $10,000,000 to $12,000,000.
On May 3, 1999, the Company issued $235,000,000 principal amount of 8 7/8%
Senior Subordinated Notes due May 15, 2007 ("8 7/8% Notes"). Interest is
payable on May 15 and November 15, beginning on November 15, 1999. The net
proceeds from the issuance of the 8 7/8% Notes, after payment of the fees and
expenses of the issuance, were approximately $228,700,000. A portion of the
net proceeds of the 8 7/8% Notes was used for the redemption on June 2, 1999
of the 11% Notes. The balance of the net proceeds of the 8 7/8% Notes was
used to repay outstanding borrowings under the Revolver.
At any time prior to May 15, 2003, the 8 7/8% Notes are redeemable at the
option of the Company, in whole or in part, at a price of 100% of the
principal amount plus a redemption premium plus accrued interest. The
redemption premium will be equal to the greater of (1) 1% of the principal
amount or (2) the excess of (A) the sum of the present values of (i) 104.438%
of the principal amount and (ii) all required interest payments through May
15, 2003, excluding accrued but unpaid interest, computed in each case using
a discount rate equal to the treasury rate at the time of redemption plus 50
basis points over (B) the principal amount. On or after May 15, 2003, the
11
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
8 7/8% Notes are redeemable at the option of the Company, in whole or in
part, at prices from 104.438% of the principal amount plus interest declining
to 100% of the principal amount plus interest beginning May 15, 2006.
The 8 7/8% Notes, ranked pari passu with the 13 3/4% Notes, 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 8 7/8% Notes would
have the right to require repurchase of the notes at 101% of the principal
amount plus accrued interest. Certain covenants in the 8 7/8% Notes limit
the ability of the Company to incur indebtedness, make certain payments or
engage in mergers, consolidations or sales of assets.
On August 20, 1999, the Company redeemed $5,540,000 principal amount of the
13 3/4% Notes at 107.5% of the principal amount plus accrued interest.
Note 4: Other Long-term Liabilities
- -------------------------------------
<TABLE>
Other long-term liabilities consist of the following (in thousands):
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred compensation and retirement plans $ 12,353 $ 11,871
Accrued rent expense 9,737 10,427
Obligation to City of Evansville and
other civic and community organizations 2,113 3,050
Las Vegas Boulevard beautification assessment 428 455
-------- --------
24,631 25,803
Less current portion (2,954) (2,921)
-------- --------
$ 21,677 $ 22,882
======== ========
</TABLE>
Note 5: Income Taxes
- ----------------------
The Company is responsible, with certain exceptions, for the taxes of Ramada
Inc. ("Ramada") through December 20, 1989. The Internal Revenue Service
("IRS") has completed its examinations of the income tax returns for the
years 1988 through 1991 and has settled for all but one issue. The IRS is
examining the income tax returns for the years 1992 through 1996. The
Indiana Department of Revenue is examining the Indiana income tax returns for
the years 1995 through 1997. Management believes that adequate provision for
income taxes and interest has been made in the financial statements.
Note 6: Extraordinary Items
- ----------------------------
In the third quarter of 1999, the Company expensed the redemption premium,
the remaining unamortized deferred financing charges and the remaining
unamortized discount in connection with the partial redemption of the 13 3/4%
Notes. In the second quarter of 1999, the Company expensed the redemption
premiums and the remaining unamortized deferred financing charges in
connection with the redemptions of the 11% Notes. These items were reflected
12
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
in the Consolidated Statements of Operations as an extraordinary loss of
$382,000, which was net of an income tax benefit of $206,000, for the 1999
third quarter, and $4,455,000, which was net of an income tax benefit of
$2,399,000 for the nine months ended 1999.
In May 1998, the Company expensed the remaining unamortized deferred
financing charges in connection with the extinguishment of the Company's
reducing revolving credit note maturing on December 31, 1999 and supplemental
reducing revolving loan agreement maturing on March 15, 1999. These items
were reflected in the Consolidated Statement of Operations for the nine
months ended 1998, as an extraordinary loss of $1,346,000, which was net of
an income tax benefit of $725,000.
Note 7: Earnings Per Share
- ---------------------------
Earnings per common share excludes dilution and is computed by dividing
income applicable to common shareholders by the weighted-average number of
common shares outstanding. Earnings per common share, assuming 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.
<TABLE>
The computations of earnings per common share and earnings per common share,
assuming dilution, for the periods ended September 30, 1999 and October 1,
1998, are as follows:
<CAPTION>
Third Quarter Nine Months
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before extraordinary items $ 8,561 $ 5,627 $ 17,326 $ 9,964
Deduct: preferred stock dividends
and losses on redemption (net of
income tax benefits of $3, $10,
$13 and $35, credited to retained
earnings) (141) (157) (438) (459)
-------- -------- -------- --------
Income before extraordinary items
applicable to computations 8,420 5,470 16,888 9,505
Extraordinary items (382) -- (4,455) (1,346)
-------- -------- -------- --------
Net income applicable to
computations $ 8,038 $ 5,470 $ 12,433 $ 8,159
======== ======== ======== ========
</TABLE>
13
<TABLE>
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
<CAPTION>
Third Quarter Nine Months
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted-average common shares
applicable to earnings per
common share 44,353 45,233 44,987 45,219
Effect of dilutive securities:
Stock option incremental shares 1,159 319 703 610
Assumed conversion of preferred
stock 771 852 800 865
-------- -------- -------- --------
1,930 1,171 1,503 1,475
-------- -------- -------- --------
Weighted-average common shares
applicable to earnings per
common share assuming dilution 46,283 46,404 46,490 46,694
======== ======== ======== ========
Earnings per common share:
Income before extraordinary items $ .19 $ .12 $ .38 $ .21
Extraordinary items (.01) -- (.10) (.03)
-------- -------- -------- --------
Net income $ .18 $ .12 $ .28 $ .18
======== ======== ======== ========
Earnings per common share
assuming dilution:
Income before extraordinary items $ .18 $ .12 $ .37 $ .20
Extraordinary items (.01) -- (.10) (.03)
-------- -------- -------- --------
Net income $ .17 $ .12 $ .27 $ .17
======== ======== ======== ========
</TABLE>
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. In
connection with these matters, the Company has an accrued liability of
$3,840,000 and $3,894,000 at September 30, 1999 and December 31, 1998,
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
14
AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
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
$21,000,000 in cash or a letter of credit if the Tropicana Las Vegas
operation fails to meet certain financial tests. The Company has a 50%
partnership interest in the lessor.
The Company has severance agreements with certain of its senior executives.
Severance benefits range from a lump-sum cash payment equal to three times
the sum of the executive's annual base salary and the average of the
executive's annual bonuses awarded in the preceding three years plus payment
of the value in the executive's outstanding stock options and vesting and
distribution of any restricted stock to a lump-sum cash payment equal to the
executive's annual 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 was approximately
$25,000,000 at September 30, 1999.
Note 9: Subsequent Events
- --------------------------
On October 1, 1999, the Company redeemed the remaining principal amount of
$174,460,000 of the 13 3/4% Notes at 106.875% of the principal amount plus
accrued interest. The redemption was funded primarily by borrowings under
the Revolver. In connection with this redemption, the Company expects to
expense the redemption premium, the remaining unamortized deferred financing
charges and the remaining unamortized discount associated with the 13 3/4%
Notes in the 1999 fourth quarter. This expense will be reflected as an
extraordinary loss and shown net of an income tax benefit. The net expense
is currently estimated to be approximately $11,300,000.
On October 26, 1999, the Company amended the Revolver to increase to
$100,000,000, from $30,000,000, the amount of the Company's common stock that
is allowed to be repurchased in addition to certain other limited amounts.
On October 27, 1999, the Company amended the Term Loan to increase the amount
of restricted payments that are allowed to be made so that the restricted
payment provisions of the Term Loan are now generally consistent with the
Indenture for the recently issued 8 7/8% Notes.
Item 2. Management's Discussion and Analysis
Financial Condition
On April 7, 1999 and June 2, 1999, respectively, the Company redeemed $75
million and $125 million principal amount of the 11% Notes at 101.571% of the
principal amount plus accrued interest.
Effective April 30, 1999, the Company and the lenders under the Revolver
agreed to expand the maximum amount available under the Revolver from $250
million to $300 million. In conjunction with this change, the quarterly
reductions in the maximum amount available under the Revolver were increased
from $10 million to $12 million.
15
AZTAR CORPORATION AND SUBSIDIARIES
On May 3, 1999, the Company issued $235 million principal amount of 8 7/8%
Senior Subordinated Notes due May 15, 2007. Interest is payable on May 15
and November 15, beginning on November 15, 1999. The net proceeds from the
issuance of the 8 7/8% Notes, after payment of the fees and expenses of the
issuance, were approximately $228.7 million. A portion of the net proceeds
of the 8 7/8% Notes was used for the redemption on June 2, 1999 of the 11%
Notes. The balance of the net proceeds of the 8 7/8% Notes was used to repay
outstanding borrowings under the Revolver.
On August 20, 1999, the Company redeemed $5.5 million principal amount of the
13 3/4% Notes at 107.5% of the principal amount plus accrued interest.
Subsequent to the end of the third quarter, the Company, on October 1, 1999,
redeemed the remaining principal amount of $174.5 million of the 13 3/4%
Notes at 106.875% of the principal amount plus accrued interest. The
redemption was funded primarily by borrowings under the Revolver. In
connection with this redemption, the Company expects to expense the
redemption premium, the remaining unamortized deferred financing charges and
the remaining unamortized discount associated with the 13 3/4% Notes in the
1999 fourth quarter. This expense will be reflected as an extraordinary loss
and shown net of an income tax benefit. The net expense is currently
estimated to be approximately $11.3 million.
On October 26, 1999, the Company amended the Revolver to increase to $100
million, from $30 million, the amount of the Company's common stock that is
allowed to be repurchased in addition to certain other limited amounts.
On October 27, 1999, the Company amended the Term Loan to increase the amount
of restricted payments that are allowed to be made so that the restricted
payment provisions of the Term Loan are now generally consistent with the
Indenture for the recently issued 8 7/8% Notes.
In May 1999, the Company announced authorization by the board of directors to
make discretionary repurchases of up to 3.5 million shares of its common
stock. Such repurchases may be made in the open market or in privately
negotiated transactions, depending upon market prices and other business
factors. As of September 30, 1999, the Company had repurchased under this
program, 1,885,800 shares of its common stock at prices ranging from $6.69
per share to $10.25 per share and at an average price of $8.95 per share.
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended October 1,
1998
The Company's consolidated revenues in the 1999 nine-month period were $606.0
million, down slightly from $610.1 million in the 1998 nine-month period.
Consolidated rooms revenue was $8.0 million or 19% higher in the 1999 versus
1998 nine-month period, reflecting increases at all hotel properties.
Consolidated operating income was $71.2 million in the 1999 nine-month
period, an 11% improvement over $63.9 million in the 1998 nine-month period.
Consistent with the increase in consolidated rooms revenue, consolidated
rooms costs were $2.9 million or 12% higher in the 1999 versus 1998 nine-
month period. The consolidated provision for doubtful accounts was $5.6
16
AZTAR CORPORATION AND SUBSIDIARIES
million or 49% lower in the 1999 versus 1998 nine-month period, reflecting
decreases in the allowance for potential uncollectible markers at Tropicana
Atlantic City and Tropicana Las Vegas as a result of a lower volume of table
games play at those properties. Consolidated rent expense was $2.1 million
or 14% lower in the 1999 versus 1998 nine-month period due to a decreased
number of operating leases at Tropicana Atlantic City as a result of a shift
from operating leases to capital leases or ownership.
For a discussion of extraordinary items, refer to "Note 6: Extraordinary
Items".
TROPICANA ATLANTIC CITY Total revenues at Tropicana Atlantic City were $326.0
million in the 1999 nine-month period, up 3% from $317.8 million in the 1998
nine-month period. Casino revenue was 2% higher in the 1999 versus 1998
nine-month period, primarily reflecting an 8% increase in slot revenue,
partially offset by a 10% decrease in games revenue. The decline in games
revenue was a result of a decrease in the volume of play. Rooms revenue was
18% higher in the 1999 versus 1998 nine-month period primarily as a result of
an increase in rooms occupied on a non-complimentary basis.
Tropicana Atlantic City had operating income of $57.9 million in the 1999
nine-month period, an 11% improvement over $51.9 million in the 1998 nine-
month period. Rooms costs were 16% higher in the 1999 versus 1998 nine-month
period due to the increase in rooms revenue. The provision for doubtful
accounts was $3.0 million lower in the 1999 versus 1998 nine-month period,
reflecting a decrease as a result of the lower volume of table games play.
Operating income is after rent and depreciation and amortization expenses.
Rent expense decreased to $2.0 million in the 1999 nine-month period from
$3.9 million in the 1998 nine-month period due to a decreased number of
operating leases as a result of a shift from operating leases to capital
leases or ownership. Depreciation and amortization was $19.1 million in the
1999 nine-month period compared to $18.1 million in the 1998 nine-month
period.
TROPICANA LAS VEGAS At Tropicana Las Vegas, total revenues were $109.4
million in the 1999 nine-month period, a 6% decrease from $115.9 million in
the 1998 nine-month period. Casino revenue was 17% lower in the 1999 versus
1998 nine-month period, primarily due to a 40% decrease in games revenue
combined with a 4% decrease in slot revenue. More than half of the decrease
in games revenue was attributable to lower baccarat revenue, which decreased
as a result of a 92% decline in the volume of play as the Las Vegas Tropicana
completed its program to eliminate the increasingly expensive high-end games
business. Rooms revenue was $4.8 million or 22% higher in the 1999 versus
1998 nine-month period primarily as a result of an increase in average daily
rate combined with higher occupancy.
Tropicana Las Vegas had an operating loss of $4.2 million in the 1999 nine-
month period compared to $8.1 million in the 1998 nine-month period. Casino
costs were 23% lower in the 1999 versus 1998 nine-month period, primarily due
to the decrease in casino revenues. Consistent with the increase in rooms
revenue, rooms costs were 9% higher in the 1999 versus 1998 nine-month
period. The provision for doubtful accounts was $2.6 million lower in the
1999 versus 1998 nine-month period as a result of a lower volume of baccarat
play. Operating loss is after rent and depreciation and amortization
17
AZTAR CORPORATION AND SUBSIDIARIES
expenses. Rent expense was $7.4 million in both periods. Depreciation and
amortization was $7.5 million in the 1999 nine-month period compared to $7.2
million in the 1998 nine-month period.
RAMADA EXPRESS At Ramada Express, total revenues were $71.2 million in the
1999 nine-month period, up 13% from $62.9 million in the 1998 nine-month
period. Ramada Express is benefiting from an increase in revenue in the
Laughlin market. Operating income was $11.6 million in the 1999 nine-month
period, a 61% improvement over $7.2 million in the 1998 nine-month period.
Operating income is after rent and depreciation and amortization expenses.
Rent expense was $0.5 million in the 1999 nine-month period compared to $0.4
million in the 1998 nine-month period. Depreciation and amortization was
$3.6 million in the 1999 nine-month period compared to $5.0 million in the
1998 nine-month period.
CASINO AZTAR EVANSVILLE Total revenues at Casino Aztar Evansville were $81.0
million in the 1999 nine-month period, down 15% from $94.9 million in the
1998 nine-month period. Casino revenue was down 15% in the 1999 versus 1998
nine-month period. The introduction in November 1998 of a riverboat casino
in the Louisville, Kentucky area, in combination with severe winter weather
in January and March of 1999, negatively impacted results at Casino Aztar
Evansville. Operating income was $16.0 million in the 1999 nine-month
period, a 33% decrease from $24.1 million in the 1998 nine-month period.
Operating income is after rent and depreciation and amortization expenses.
Rent expense was $2.6 million in the 1999 nine-month period compared to $2.9
million in the 1998 nine-month period. Depreciation and amortization was
$7.3 million in both periods.
CASINO AZTAR CARUTHERSVILLE Total revenues at Casino Aztar Caruthersville
were $18.4 million in the 1999 nine-month period, a slight decrease from
$18.6 million in the 1998 nine-month period. Casino Aztar Caruthersville had
an operating loss of $0.5 million in the 1999 nine-month period compared to
$1.1 million in the 1998 nine-month period. Operating loss is after
depreciation and amortization of $2.4 million in both periods.
Quarter Ended September 30, 1999 Compared to Quarter Ended October 1, 1998
The Company's consolidated revenues in the 1999 third quarter were $208.8
million, down slightly from $210.1 million in the 1998 third quarter.
Consolidated rooms revenue was $1.7 million or 11% higher in the 1999 versus
1998 third quarter, reflecting increases at all hotel properties.
Consolidated operating income was $27.0 million in the 1999 third quarter, a
6% improvement over $25.4 million in the 1998 third quarter. Consolidated
rooms costs were $0.8 million or 9% higher in the 1999 versus 1998 third
quarter due to the increase in rooms revenue. The consolidated provision for
doubtful accounts was $3.1 million or 67% lower in the 1999 versus 1998 third
quarter, primarily reflecting decreases in the allowance for potential
uncollectible markers at Tropicana Atlantic City and Tropicana Las Vegas as a
result of a lower volume of table games play at those properties.
Consolidated interest expense was 10% or $1.5 million lower in the 1999
versus 1998 third quarter primarily as a result of lower levels of debt
outstanding under the Revolver.
For a discussion of extraordinary items, refer to "Note 6: Extraordinary
Items".
18
AZTAR CORPORATION AND SUBSIDIARIES
TROPICANA ATLANTIC CITY Total revenues at Tropicana Atlantic City were
$117.2 million in the 1999 third quarter, up 3% from $113.5 million in the
1998 third quarter. Casino revenue was 2% higher in the 1999 versus 1998
third quarter, primarily reflecting an 8% increase in slot revenue, partially
offset by an 11% decrease in games revenue. The decline in games revenue was
a result of decreases in the hold percentage and the volume of play in the
1999 versus 1998 third quarter. Rooms revenue was $0.9 million or 20% higher
in the 1999 third quarter primarily as a result of an increase in occupied
rooms on a non-complimentary basis.
Tropicana Atlantic City had operating income of $24.6 million in the 1999
third quarter, an 11% improvement over $22.1 million in the 1998 third
quarter. Consistent with the increases in casino revenue and rooms revenue,
casino costs and rooms costs were 4% higher and 16% higher, respectively, in
the 1999 versus 1998 third quarter. The provision for doubtful accounts was
$1.9 million lower in the 1999 versus 1998 third quarter, reflecting a
decrease as a result of the lower volume of table games play. Operating
income is after rent and depreciation and amortization expenses. Rent
expense was $0.7 million in the 1999 third quarter compared to $0.9 million
in the 1998 third quarter. Depreciation and amortization was $6.4 million in
the third quarter of 1999 compared to $6.3 million in the third quarter of
last year.
TROPICANA LAS VEGAS At Tropicana Las Vegas, total revenues were $36.1
million in the 1999 third quarter, a 4% decrease from $37.7 million in the
1998 third quarter. Casino revenue was 10% lower in the 1999 versus 1998
third quarter, primarily due to a 21% decrease in games revenue combined with
a 5% decrease in slot revenue. A substantial portion of the decrease in
games revenue was attributable to the elimination of baccarat revenue as a
result of the elimination of baccarat play. Rooms revenue was $0.5 million
or 7% higher in the 1999 versus 1998 third quarter primarily due to higher
occupancy.
Tropicana Las Vegas had an operating loss of $2.0 million in the 1999 third
quarter compared to $3.5 million in the 1998 third quarter. Casino costs
were 21% lower in the 1999 versus 1998 third quarter, primarily due to the
decrease in casino revenue. The provision for doubtful accounts was $1.3
million or 62% lower in the 1999 versus 1998 third quarter as a result of the
elimination of baccarat play. Operating loss is after rent and depreciation
and amortization expenses. Rent expense was $2.4 million in both periods.
Depreciation and amortization was $2.5 million in the 1999 third quarter
compared to $2.4 million in the 1998 third quarter.
RAMADA EXPRESS At Ramada Express, total revenues were $21.7 million in the
1999 third quarter, up 7% from $20.2 million in the 1998 third quarter.
Ramada Express is benefiting from an increase in revenue in the Laughlin
market. Operating income was $2.3 million in the 1999 third quarter, a 30%
improvement over $1.8 million in the 1998 third quarter. Operating income is
after rent and depreciation and amortization expenses. Rent expense was $0.2
million in both periods. Depreciation and amortization was $1.2 million in
the 1999 third quarter compared to $1.5 million in the 1998 third quarter.
CASINO AZTAR EVANSVILLE Total revenues at Casino Aztar Evansville were $27.2
million in the 1999 third quarter, down 16% from $32.5 million in last year's
third quarter. Casino revenue was 17% lower in the 1999 versus 1998 third
19
AZTAR CORPORATION AND SUBSIDIARIES
quarter. The introduction in November 1998 of a riverboat casino in the
Louisville, Kentucky area negatively impacted results at Casino Aztar
Evansville. Operating income was $5.3 million in the 1999 third quarter, a
34% decrease from $8.0 million in the 1998 third quarter. Operating income
is after rent and depreciation and amortization expenses. Rent expense was
$1.0 million in the 1999 third quarter compared to $1.1 million in the 1998
third quarter. Depreciation and amortization was $2.5 million in both
periods.
CASINO AZTAR CARUTHERSVILLE Total revenues at Casino Aztar Caruthersville
were $6.6 million in the 1999 third quarter, a 7% increase from $6.2 million
in the 1998 third quarter. Casino Aztar Caruthersville had an operating loss
of $0.2 million in the third quarter of 1999 compared to $0.3 million in the
third quarter of 1998. Operating loss is after depreciation and amortization
of $0.9 million in the 1999 third quarter compared to $0.8 million in the
1998 third quarter.
Year 2000
Background
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
computer software may recognize a date using "00" as the year 1900 rather
than the year 2000. This is generally referred to as the Year 2000 issue.
If this situation occurs, the potential exists for computer system failures
or miscalculations by computer programs, which could disrupt operations.
The Company utilizes computer systems in virtually all aspects of its
business. In particular, Year 2000 problems in the hotel or casino systems
at the Company's properties could disrupt operations at the affected
properties and have a material adverse impact upon the Company's operating
results. The Company is also exposed to the risk that one or more of its
suppliers could experience Year 2000 problems that impact the ability of such
suppliers to provide goods and services. Though this is not considered as
significant a risk with respect to the suppliers of goods, due to the
availability of alternative suppliers, the disruption of certain services,
such as utilities, could, depending upon the extent of the disruption, have a
material adverse impact on the Company's operations.
Approach
The Company has established a coordinated effort between its corporate level
and responsible parties at each of its properties to address Year 2000
issues. The Company requires each property to submit a monthly status report
to the corporate office, which is then reviewed with each property. The
audit committee of Aztar's board of directors discusses the status of each
property's Year 2000 readiness at least quarterly. The Company's Year 2000
readiness program consists of four phases:
Phase 1 Compile an inventory of information technology (IT) and non-
IT systems that may be sensitive to the Year 2000 problem.
20
AZTAR CORPORATION AND SUBSIDIARIES
Phase 2 Identify and prioritize the critical systems from the
inventory of systems compiled in Phase 1 and inquire of third
parties with whom the Company does significant business, such
as vendors and suppliers, as to the state of their Year 2000
readiness.
Phase 3 Analyze the critical systems to determine which systems are
not Year 2000 compliant and evaluate the costs to repair or
replace those systems.
Phase 4 Repair or replace noncompliant systems and test those systems
for which representation as to Year 2000 compliance has not
been received or for which representation was received but
has not been confirmed.
Status
IT Systems
The Company utilizes software purchased from vendors in
virtually all critical technology systems at its properties.
In certain instances, such vendor-supplied software is
modified through the use of internal programming to enhance
these systems. In many cases, the solution to the Year 2000
issue is simply to install a vendor-tested software upgrade
("Upgrade") and further test the Upgrade through internally
generated test data. In other cases, the Company is purchasing
and installing new vendor software ("Conversion") that is Year
2000 compliant. The cost and effort to install and test new
software systems is more extensive than the aforementioned
Upgrade and therefore these Conversions contain a greater risk
to the Company.
The Company has completed Phase 4 on the majority of critical IT
systems at all properties. The following chart shows the dates
when the Company expects to complete Phase 4 on the remaining
critical IT systems. The chart also shows for each critical IT
system at each of its properties whether an Upgrade or Conversion
is underway or completed. In addition, the chart identifies those
IT systems where internal programming was required and the extent
of such programming requirements. The more programming required,
the greater the risk to the Company's Year 2000 readiness. The
Company is performing integrated systems testing on critical
systems to further ensure that Year 2000 compliance has been
achieved. This integrated testing is being performed on a risk
assessment basis, focusing on systems where interfaces with other
systems is most critical and focusing on those systems where
internal programming was required. These testing procedures will
continue during the balance of 1999.
21
AZTAR CORPORATION AND SUBSIDIARIES
TROPICANA
ATLANTIC TROPICANA RAMADA CASINO AZTAR CASINO AZTAR
SYSTEM CITY LAS VEGAS EXPRESS EVANSVILLE CARUTHERSVILLE
- --------- ---------- --------- ----------- ------------ --------------
Casino Conversion Upgrade Upgrade Upgrade Upgrade
* **
Done Done Done Done Done
Slots Upgrade Upgrade Conversion Upgrade Upgrade
** *
Done Done 11/99 Done Done
Hotel Conversion Upgrade Conversion Upgrade N/A
**
Done Done Done Done
Financial Conversion Upgrade Upgrade Upgrade Upgrade
Done Done Done Done Done
Point of
Sale/ Upgrade Upgrade Conversion Upgrade Upgrade
Inventory Done 11/99 Done Done Done
* Indicates more significant internal programming also required
** Indicates minor internal programming also required
Non-IT Systems
The Company utilizes embedded technology such as microcontrollers
or date-sensitive computer chips in its facilities, including fire
safety and security systems, elevators, heating and cooling
monitoring systems and surveillance systems ("Non-IT Systems").
Procedures being utilized in the process of ensuring Year 2000
readiness in critical Non-IT Systems include: sending letters to
vendors of critical Non-IT Systems asking for the Year 2000 status
for each embedded chip or technology; meetings with vendors who
provide maintenance for these Non-IT Systems to assess Year 2000
readiness; and testing of such systems using test data wherever
possible. The Company has now substantially completed its
compliance procedures on the Non-IT systems which are considered
critical.
Costs
The total cost to the Company of making its systems Year 2000 compliant is
estimated to be approximately $8.0 million. Approximately $7.6 million of
this amount relates to the acquisition of new computer hardware and software
systems as follows: new hardware and software at Tropicana Atlantic City
($5.7 million); new software at Ramada Express ($1.2 million) and personal
computer upgrades and other systems company-wide ($0.7 million). These costs
will be capitalized and depreciated over their expected useful lives.
The estimated costs related to internal programming modifications and the
Company's administration of its Year 2000 project are approximately $0.4
22
AZTAR CORPORATION AND SUBSIDIARIES
million, and such costs are being expensed as incurred. Approximately
$150,000 of these costs were expensed in the nine months ended September 30,
1999 and approximately $0.2 million were expensed in 1998.
As of September 30, 1999, approximately $7.6 million has been spent on Year
2000 issues. The Year 2000 issue has not caused other Company IT system
projects to be deferred; in fact, it has accelerated the spending on IT
systems overall.
Risk Assessment
The greatest risk to the Company is if one or more of its properties'
critical IT systems, such as casino, hotel or financial, or Non-IT Systems,
such as cooling or heating, experience problems due to Year 2000 issues which
cause business interruptions or customer service problems. The Company is
also exposed to the risk of possible failure of systems external to the
Company's operations ("External Risk Factors"). These External Risk Factors
arise from the fact that the Company's operations, like most businesses, are
dependent upon numerous other private, pubic and governmental entities.
While these External Risk Factors are not the responsibility of the Company
and the remediation of these factors is beyond the Company's control, we are
attempting to monitor these risks and form contingency plans as warranted.
As a result of these External Risk Factors, the Company may be adversely
impacted even if its own IT systems and Non-IT Systems are Year 2000
compliant. External Risk Factors being monitored include utility service to
the Company's properties; banking networks which may affect properties' or
customers' access to cash and travel service disruptions to the Company's
properties. The Company believes that any Year 2000 problems, should they
arise, would be short-term in nature and not affect the Company's liquidity
or financial condition. However, because New Year's week is a very busy
period for the Company's properties, Year 2000 problems at a given property
could negatively impact first-quarter 2000 results.
Contingency Plans
Contingency plans are continually being evaluated, by property, considering
risk levels of non-compliance as the Year 2000 implementation and testing
process continues. On an on-going basis, each property maintains certain
emergency manual procedures and back-up plans and such plans are being
enhanced to deal with potential Year 2000 problems should they arise. In
addition, each property is addressing specific Year 2000 contingency planning
to best ensure against business disruptions on or around New Year's week of
next year.
Other Matters
In June 1998, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards No. 133 entitled "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met, a
23
AZTAR CORPORATION AND SUBSIDIARIES
derivative may be specifically designated as a hedge of certain financial
exposures. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and, if it is used in hedging
activities, it depends on its effectiveness as a hedge. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS 133 should not be applied retroactively to financial statements
of prior periods. The Company will adopt SFAS 133 when required. Because of
the Company's minimal use of derivatives, the Company does not anticipate
that the adoption of SFAS 133 will have a significant effect on its earnings
or its financial position.
Private Securities Litigation Reform Act
Certain information included in Aztar's 1998 Form 10-K, this Form 10-Q and
other materials filed or to be filed by the Company with the Securities and
Exchange Commission ("SEC")(as well as information included in oral
statements or other written statements made or to be made by the Company
including those made in Aztar's 1998 annual report) contains statements that
are forward-looking. These include forward-looking statements relating to
the following activities, among others: operation and expansion of existing
properties, including future performance; redevelopment of the Las Vegas
Tropicana and financing and/or concluding an arrangement with a partner for
such redevelopment; other business development activities; refinancing of the
Company's indebtedness; use of derivatives; and the Year 2000 issue. These
activities involve important factors that could cause actual results to
differ materially from those expressed in any forward-looking statements made
by or on behalf of the Company. These include, but are not limited to, the
following factors as well as other factors described from time to time in the
Company's reports filed with the SEC: construction and development factors,
including zoning issues, environmental restrictions, soil conditions, weather
and other hazards, site access matters and building permit issues; factors
affecting leverage and debt service, including sensitivity to fluctuation in
interest rates; access to available and feasible financing; regulatory and
licensing approvals; third-party consents, approvals and representations, and
relations with partners, owners, suppliers and other third parties; reliance
on key personnel; business and economic conditions; litigation, judicial
actions and political uncertainties, including gaming legislation and
taxation; and the effects of competition, including locations of competitors
and operating and marketing competition. Any forward-looking statements are
made pursuant to the Private Securities Litigation Reform Act of 1995 and, as
such, speak only as of the date made.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of information that affects information incorporated by
reference in Item 7A of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, see "Note 3: Long-term Debt" and "Note
9: Subsequent Events" of the Notes to Consolidated Financial Statements
included in this Form 10-Q under Item 1.
24
AZTAR CORPORATION AND SUBSIDIARIES
PART - II OTHER INFORMATION
Item 1. Legal Proceedings
(a) In connection with Case No. CV-S-94-1126-DAE(RJJ)-BASE FILE (the
"Poulos/Ahearn Case"), Case No. CV-S-95-00923-LDG(RJJ)(the
"Schreier Case") and Case No. CV-S-95-936 LDG(RLH)(the "Cruise Ship
Case"), (collectively, the "Consolidated Cases"), as reported under
Part I, Item 3 of the Company's Form 10-K for the year ended
December 31, 1998, the Judge, on June 21 and 22, 1999, as reported
under Part II, Item 1(a) of the Company's Form 10-Q for the quarter
ended July 1, 1999, heard argument on the plaintiffs' objection to
the Magistrate Judge's recommendation that the plaintiff's motion
to compel further discovery from the defendants should be denied.
The Judge affirmed the Magistrate's recommendation with one
exception: the defendants were ordered to produce documents which
show whether the phrase "uses one 52 card deck" (or similar
language) appeared on the machines.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Page No.
----------
10.1 Amendment No. 3, dated October 26, 1999, to
Amended and Restated Reducing Revolving Loan
Agreement, dated as of May 28, 1998, among Aztar
Corporation and the lenders therein named;
Bankers Trust Company and Societe Generale, as
documentation agents; Bank of Scotland, Credit
Lyonnais Los Angeles Branch and PNC Bank,
National Association, as co-agents; and Bank of
America National Trust and Savings Association,
as administrative agent. *
10.2 Restated Amendment No. 1, dated October 27, 1999,
to Term Loan Agreement, dated as of May 28, 1998,
among Aztar Corporation and the lenders therein
named; and Bank of America National Trust and
Savings Association, as administrative agent. *
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) Reports on Form 8-K
The Company did not file any report on Form 8-K during the quarter
ended September 30, 1999.
25
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 10, 1999 By ROBERT M. HADDOCK
-------------------------- ---------------------------
Robert M. Haddock
Executive Vice President and
Chief Financial Officer
26
AZTAR CORPORATION AND SUBSIDIARIES
Exhibit Index
- -------------
10.1 Amendment No. 3, dated October 26, 1999, to Amended and
Restated Reducing Revolving Loan Agreement, dated as of
May 28, 1998, among Aztar Corporation and the lenders
therein named; Bankers Trust Company and Societe
Generale, as documentation agents; Bank of Scotland,
Credit Lyonnais Los Angeles Branch and PNC Bank, National
Association, as co-agents; and Bank of America National
Trust and Savings Association, as administrative agent.
10.2 Restated Amendment No. 1, dated October 27, 1999, to Term
Loan Agreement, dated as of May 28, 1998, among Aztar
Corporation and the lenders therein named; and Bank of
America National Trust and Savings Association, as
administrative agent.
27. Financial Data Schedule.
E-1
AMENDMENT NO. 3 TO AMENDED AND RESTATED
REDUCING REVOLVING LOAN AGREEMENT
This Amendment No. 3 to Amended and Restated Reducing
Revolving Loan Agreement (this "Amendment") dated as of
October 26, 1999 is entered into with reference to the Amended
and Restated Reducing Revolving Loan Agreement dated as of
May 28, 1998 among Aztar Corporation ("Borrower"), the Banks
party thereto, Bankers Trust Company and Societe Generale, as
Documentation Agents, Bank of Scotland, Credit Lyonnais
Los Angeles Branch and PNC Bank, National Association, as Co-
Agents, and Bank of America National Trust and Savings
Association, as Administrative Agent (as heretofore amended, the
"Loan Agreement"). Capitalized terms used but not defined herein
are used with the meanings set forth for those terms in the Loan
Agreement.
Borrower and the Administrative Agent, acting with the
consent of the Requisite Banks pursuant to Section 11.2 of the
Loan Agreement, agree as follows:
1. Section 6.5. Section 6.5 of the Loan Agreement is
amended by revising Subsection (d) to read as follows:
and (d) Distributions in the form of
repurchases of Common Stock for which the
aggregate purchase price does not exceed
either (i) $100,000,000 or (ii) when
aggregated with all other Basket
Expenditures made since the Closing Date,
the Aggregate Basket; provided no Default
or Event of Default then exists or would
result therefrom;
2. Conditions Precedent. The effectiveness of this
Amendment shall be conditioned upon the receipt by the
Administrative Agent of all of the following, each properly
executed by a Responsible Official of each party thereto and
dated as of the date hereof:
(a) Counterparts of this Amendment executed by
all parties hereto;
(b) Written consent of each of the Significant
Subsidiaries to the execution, delivery and performance
hereof, substantially in the form of Exhibit A to this
Amendment; and
(c) Written consent of the Requisite Banks as
required under Section 11.2 of the Loan Agreement in the
form of Exhibit B to this Amendment.
3. Representation and Warranty. Borrower represents and
warrants to the Administrative Agent and the Banks that no
Default or Event of Default has occurred and remains continuing.
4. Confirmation. In all other respects, the terms of
the Loan Agreement and the other Loan Documents are hereby
confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent
have executed this Amendment as of the date first written above
by their duly authorized representatives.
AZTAR CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Treasurer
[Printed Name and Title]
BANK OF AMERICA, N.A.,
(formerly known as "Bank of America National Trust and Savings
Association"),
as Administrative Agent
By: JANICE HAMMOND
Janice Hammond
Vice President
Exhibit A to Amendment
CONSENT OF SUBSIDIARY GUARANTORS
Reference is hereby made to that certain Amended and
Restated Reducing Revolving Loan Agreement dated as of May 28,
1998 among Aztar Corporation ("Borrower"), the Banks party
thereto, Bankers Trust Company and Societe Generale, as
Documentation Agents, Bank of Scotland, Credit Lyonnais
Los Angeles Branch and PNC Bank, National Association, as Co-
Agents, and Bank of America National Trust and Savings
Association, as Administrative Agent (as heretofore amended,
the "Loan Agreement").
Each of the undersigned hereby consents to the
execution, delivery and performance by Borrower and the
Administrative Agent of Amendment No. 3 to the Loan Agreement.
Each of the undersigned represents and warrants to
the Administrative Agent and the Banks that there is no
defense, counterclaim or offset of any type or nature to the
Subsidiary Guaranty, and that the same remains in full force
and effect.
Dated: October 26, 1999
HOTEL RAMADA OF NEVADA
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
AZTAR DEVELOPMENT CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
AZTAR INDIANA GAMING CORPORATION
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
AZTAR MISSOURI GAMING CORPORATION
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
RAMADA NEW JERSEY, INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
ATLANTIC-DEAUVILLE INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
ADAMAR GARAGE CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
RAMADA NEW JERSEY HOLDINGS CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
MANCHESTER MALL, INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
RAMADA EXPRESS, INC.
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
ADAMAR OF NEW JERSEY, INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
<PAGE>
Exhibit B to Amendment
CONSENT OF BANK
Reference is hereby made to that certain Amended and
Restated Reducing Revolving Loan Agreement dated as of May 28,
1998 among Aztar Corporation ("Borrower"), the Banks party
thereto, Bankers Trust Company and Societe Generale, as
Documentation Agents, Bank of Scotland, Credit Lyonnais
Los Angeles Branch and PNC Bank, National Association, as Co-
Agents, and Bank of America National Trust and Savings
Association, as Administrative Agent (as heretofore amended,
the "Loan Agreement").
The undersigned Bank hereby consents to the execution
and delivery of Amendment No. 3 to the Loan Agreement by the
Administrative Agent on its behalf, substantially in the form
of the most recent draft thereof presented to the undersigned
Bank.
Date: October 19, 1999
Bank of America, N.A.
[Name of Institution]
By SCOTT FABER
Scott Faber - Principal
[Printed Name and Title]
Date: October 22, 1999
Bank of America, N.A.
[Name of Institution]
By EDWARD A. HAMILTON
Edward A. Hamilton
Managing Director
[Printed Name and Title]
Date: October 8, 1999
ABN AMRO BANK
[Name of Institution]
By CORINNA FONG JEFFERY A. FRENCH
Corinna Fong Jeffery A. French
Credit Officer Senior Vice President
[Printed Name and Title]
Date: October 22, 1999
Bankers Trust Company
[Name of Institution]
By STEVEN P LAPHAM
Steven P. Lapham
Director
[Printed Name and Title]
Date: October 20, 1999
Credit Lyonnais Los Angeles Branch
[Name of Institution]
By DIANNE M. SCOTT
Dianne M. Scott
First Vice President and Manager
[Printed Name and Title]
Date: October 21, 1999
Imperial Bank
[Name of Institution]
By STEVEN K. JOHNSON
Steven K. Johnson
[Printed Name and Title]
Date: October 22, 1999
PNC Bank, National Association
[Name of Institution]
By GARY W. WESSELS
Gary W. Wessels
Vice President
[Printed Name and Title]
Date: October 26, 1999
Societe Generale
[Name of Institution]
By JANE VAN BRUSSEL
Jane Van Brussel
Vice President
[Printed Name and Title]
RESTATED AMENDMENT NO. 1 TO
TERM LOAN AGREEMENT
This Restated Amendment No. 1 to Term Loan Agreement (this
"Amendment") dated as of October 27, 1999 is entered into with
reference to the Term Loan Agreement dated as of May 28, 1998
among Aztar Corporation ("Borrower"), the Lenders party thereto,
and Bank of America National Trust and Savings Association, as
Administrative Agent (the "Loan Agreement") and restates and
replaces Amendment No. 1 to Term Loan Agreement dated as of
October 27, 1999 in order to properly reflect the intent of the
parties thereto. Capitalized terms used but not defined herein
are used with the meanings set forth for those terms in the Loan
Agreement.
Borrower and the Administrative Agent, acting with the
consent of the Requisite Lenders pursuant to Section 11.2 of the
Loan Agreement, agree as follows:
1. Section 6.3. Section 6.3 of the Loan Agreement is
amended by:
(a) striking the words "Closing Date" wherever they
appear (five places) in clause (z) of
Subsection 6.3(a) and substituting for such words the
date "September 27, 1994;"
(b) striking the words "Closing Date" where they
appear (one place) in clause (iii) of
Subsection 6.3(b) and substituting for such words the
date "September 27, 1994;"
(c) striking the words "Closing Date" where they
appear (one place) in clause (iv) of
Subsection 6.3(c) and substituting for such words the
date "September 27, 1994;" and
(d) striking the words "Closing Date" where they
appear (one place) in clause (vii) of
Subsection 6.3(c) and substituting for such words the
date "September 27, 1994."
2. Conditions Precedent. The effectiveness of this
Amendment shall be conditioned upon the receipt by the
Administrative Agent of all of the following, each properly
executed by a Responsible Official of each party thereto and
dated as of the date hereof:
(a) Counterparts of this Amendment executed by
all parties hereto;
(b) Written consent of each of the Significant
Subsidiaries to the execution, delivery and performance
hereof, substantially in the form of Exhibit A to this
Amendment; and
(c) Written consent of the Requisite Lenders as
required under Section 11.2 of the Loan Agreement in the
form of Exhibit B to this Amendment.
3. Representation and Warranty. Borrower represents and
warrants to the Administrative Agent and the Lenders that no
Default or Event of Default has occurred and remains continuing.
Confirmation. In all other respects, the terms of
the Loan Agreement and the other Loan Documents are hereby
confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent
have executed this Amendment as of the date first written above
by their duly authorized representatives.
AZTAR CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Treasurer
[Printed Name and Title]
BANK OF AMERICA, N.A. (formerly known as "Bank of America
National Trust and Savings Association"), as Administrative Agent
By: JANICE HAMMOND
Janice Hammond
Vice President
Exhibit A to Amendment
CONSENT OF SUBSIDIARY GUARANTORS
Reference is hereby made to that certain Term Loan
Agreement dated as of May 28, 1998 among Aztar Corporation
("Borrower"), the Lenders party thereto, and Bank of America
National Trust and Savings Association, as Administrative Agent
(the "Loan Agreement").
Each of the undersigned hereby consents to the
execution, delivery and performance by Borrower and the
Administrative Agent of Amendment No. 1 to the Loan Agreement.
Each of the undersigned represents and warrants to
the Administrative Agent and the Lenders that there is no
defense, counterclaim or offset of any type or nature to the
Subsidiary Guaranty, and that the same remains in full force
and effect.
Dated: October 27, 1999
HOTEL RAMADA OF NEVADA
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
AZTAR DEVELOPMENT CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
AZTAR INDIANA GAMING CORPORATION
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
AZTAR MISSOURI GAMING CORPORATION
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
RAMADA NEW JERSEY, INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
ATLANTIC-DEAUVILLE INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
ADAMAR GARAGE CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
RAMADA NEW JERSEY HOLDINGS CORPORATION
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
MANCHESTER MALL, INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
RAMADA EXPRESS, INC.
By: ROBERT HADDOCK
Robert M. Haddock
Title: Vice President & Treasurer
ADAMAR OF NEW JERSEY, INC.
By: NEIL A. CIARFALIA
Neil A. Ciarfalia
Title: Treasurer
<PAGE>
Exhibit B to Amendment
CONSENT OF LENDER
Reference is hereby made to that certain Term Loan
Agreement dated as of May 28, 1998 among Aztar Corporation
("Borrower"), the Lenders party thereto, and Bank of America
National Trust and Savings Association, as Administrative Agent
(the "Loan Agreement").
The undersigned Lender hereby consents to the
execution and delivery of Amendment No. 1 to the Loan Agreement
by the Administrative Agent on its behalf, substantially in the
form of the most recent draft thereof presented to the
undersigned Lender.
Date: October 15, 1999
ARCHIMEDES FUNDING, L.L.C.
[Name of Institution]
By: ING Capital Advisors LLC
as Collateral Manager
By MICHAEL D. HATLEY
Michael D. Hatley
Managing Director
[Printed Name and Title]
Date: October 15, 1999
ARCHIMEDES FUNDING II, Ltd.
[Name of Institution]
By: ING Capital Advisors LLC
as Collateral Manager
By MICHAEL D. HATLEY
Michael D. Hatley
Managing Director
[Printed Name and Title]
Date: October 27, 1999
Bank of America, N.A.
[Name of Institution]
By SEAN P. BONNER
Sean P. Bonner
Vice President
[Printed Name and Title]
Date: October 27, 1999
BLACK DIAMOND CAPITAL MGMT.
[Name of Institution]
By JAMES ZENNI
James Zenni - Principal
[Printed Name and Title]
Date: October 25, 1999
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
BY: EATON VANCE MANAGEMENT
AS INVESTMENT ADVISOR
[Name of Institution]
By PAYSON F. SWAFFIELD
Payson F. Swaffield
Vice President
[Printed Name and Title]
Date: October 25, 1999
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
[Name of Institution]
By PAYSON F. SWAFFIELD
Payson F. Swaffield
Vice President
[Printed Name and Title]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1999 and the Consolidated Statement
of Operations for the year-to-date period ended September 30, 1999 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> DEC-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 56,083
<SECURITIES> 0
<RECEIVABLES> 50,086
<ALLOWANCES> 25,763
<INVENTORY> 7,232
<CURRENT-ASSETS> 115,699
<PP&E> 1,227,052
<DEPRECIATION> 354,360
<TOTAL-ASSETS> 1,059,499
<CURRENT-LIABILITIES> 109,802
<BONDS> 461,195
7,178
0
<COMMON> 494
<OTHER-SE> 450,198
<TOTAL-LIABILITY-AND-EQUITY> 1,059,499
<SALES> 41,008
<TOTAL-REVENUES> 606,045
<CGS> 41,562
<TOTAL-COSTS> 307,153
<OTHER-EXPENSES> 30,397
<LOSS-PROVISION> 5,770
<INTEREST-EXPENSE> 42,268
<INCOME-PRETAX> 30,131
<INCOME-TAX> 9,849
<INCOME-CONTINUING> 17,326
<DISCONTINUED> 0
<EXTRAORDINARY> (4,455)
<CHANGES> 0
<NET-INCOME> 12,871
<EPS-BASIC> .28
<EPS-DILUTED> .27
</TABLE>
