-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bm8pWrbM6GExomlxbCmBqiga2ODLvdDirqpJmdV8ZKn8bEW0zosqg8Rmjn6xADvI /N/7a7Vm+fDextAyIBZT9Q== 0000852807-96-000009.txt : 19960322 0000852807-96-000009.hdr.sgml : 19960322 ACCESSION NUMBER: 0000852807-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951228 FILED AS OF DATE: 19960321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AZTAR CORP CENTRAL INDEX KEY: 0000852807 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 860636534 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12092 FILM NUMBER: 96536851 BUSINESS ADDRESS: STREET 1: 2390 E CAMELBACK RD STE 400 CITY: PHOENIX STATE: AZ ZIP: 85016-3452 BUSINESS PHONE: 6023814100 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1995 ---------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ---------------- 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 --------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common stock, $.01 par value New York Preferred share purchase rights New York Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Facing Page (Continued) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was $289,490,013 at February 22, 1996 and is based on a closing price of $7.63 and 37,941,024 common shares outstanding. At February 22, 1996, the registrant had outstanding 38,341,106 shares of its common stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the registrant's 1996 definitive Proxy Statement, to be filed with the Commission, is incorporated by reference into this Form 10-K. The following cross-referenced index details the page location of such information. All other sections of the 1996 Proxy Statement are not required in Form 10-K and should not be considered a part thereof. Part and Item of the Form 10-K 1996 Proxy Statement - ------------------------------ -------------------- PART III -------- ITEM 10. Directors and Executive - ------- Officers of the Registrant Pages 2 and 3 under caption "Election of Directors of the Company" and page 5 under caption "Compliance with Section 16(a) of the Exchange Act" ITEM 11. Executive Compensation Pages 6 through 8 except - ------- under caption "Board Compensation Committee Report" ITEM 12. Security Ownership of - ------- Certain Beneficial Owners and Management Page 4 under captions "5% Beneficial Owners" and "Directors and Executive Officers" ITEM 13. Certain Relationships - ------- and Related Transactions Page 5 under caption "Transactions with Management and Others" 2 PART I ------ ITEM 1. BUSINESS - ----------------- Aztar Corporation ("Aztar" or the "Company") was incorporated in Delaware in June 1989 to operate the gaming business of Ramada Inc. ("Ramada") after the restructuring of Ramada (the "Restructuring"). The Restructuring involved the disposition of Ramada's hotel and restaurant businesses with Ramada's shareholders retaining their interest in the gaming business. As part of the Restructuring, the gaming business and certain other assets and liabilities of Ramada were transferred to Aztar, and a wholly-owned subsidiary of New World Hotels (U.S.A.), Inc. was merged with Ramada (the "Merger"). In the Merger, each share of Ramada common stock was converted into the right to receive $1.00 and one share of Aztar common stock. For accounting purposes Aztar is treated as the continuing accounting entity that is the successor to the historical Ramada and that has discontinued the hotel and restaurant businesses. The Company operates in major domestic gaming markets with casino hotel facilities in Atlantic City, New Jersey, and in Las Vegas and Laughlin, Nevada. The Company began operations of riverboat casinos on April 28, 1995 in Caruthersville, Missouri, and on December 7, 1995, in Evansville, Indiana. The strategy at the Company's land-based facilities has been to develop facilities with distinctive themes for the demographics of each particular market and provide a full entertainment experience to attract gaming patrons. The Company's riverboat casinos share a common theme and brand. The Company's product concept is "the creation of fun, fantasy, excitement and entertainment" in a casino gaming environment. While the Company markets to the full spectrum of casino players, its focus is on the middle and high end of the market. The Company uses a database marketing system to create a loyal following of repeat customers. This marketing approach, which is based on a combination of computerized card reader technology and a "frequent flier" marketing concept, allows the Company to direct its marketing costs and to optimize the profit contribution of its targeted casino patrons. TROPWORLD TropWorld Casino and Entertainment Resort has a Boardwalk nostalgia theme. The TropWorld complex encompasses 10 acres and has 220 yards of ocean beach frontage along the Boardwalk in Atlantic City. TropWorld's 92,191-square- foot casino contains 2,948 slot machines and 107 table games. The TropWorld complex contains 1,020 hotel rooms, 80,000 square feet of meeting, convention and banquet space, a 1,700-seat theatrical showroom (the largest in Atlantic City) and parking facilities for approximately 3,000 vehicles. There is a wide variety of food and beverage facilities at TropWorld, including gourmet restaurants and several medium-priced restaurants. Recreational facilities at TropWorld include indoor and outdoor swimming pools, tennis courts, a health and fitness club and a jogging track. The Company commenced construction in February 1995 on an expansion of TropWorld that is scheduled to open in May 1996. The expansion will consist primarily of a new 604-room hotel tower, resulting in a total of 1,624 hotel rooms. Other modifications and enhancements at TropWorld have been timed to complement the new tower. Extensive renovation and upgrading of the existing rooms began in October 1995 and will be completed by the 3 time the new tower opens; a new beach-front buffet and high-volume express- food restaurant opened in December 1995; a new and expanded coffee shop will open in March 1996; and an elegant new hotel lobby and front desk will open in a new location in April 1996. In addition, a brand new casino floor entrance, a new baccarat room, a new Oriental games room, a unique premium table player hotel entrance and lounge, and a concierge floor with very large penthouse suites on the top floor of the new tower will all open in May 1996. Upon completion of this project, TropWorld will have 3,100 slot machines and 105 table games. With these additions, TropWorld will become the largest and most diversified casino entertainment facility in Atlantic City, enabling the casino to broaden its market beyond its traditional "high end of the middle" market base to the upper end of the market, not only in slots but especially in table games. TROPICANA Tropicana Resort and Casino is located on a 34-acre site on the southeast corner of Las Vegas Boulevard (the "Strip") and Tropicana Avenue in Las Vegas, Nevada. The Tropicana casino occupies 45,000 square feet and contains 1,751 slot machines and 50 table games. Tropicana has a tropical island theme and is promoted as The Island of Las Vegas. It has one of the world's largest swimming pools and a five-acre water park and tropical garden area. The main entrance and building facade create a colorful Caribbean Village motif and the tropical theme is apparent in the decor of the property, which includes a large collection of tropical birds and fish. Tropicana has 1,908 hotel rooms and suites and approximately 100,000 square feet of convention and exhibit space. Tropicana offers its guests a variety of entertainment including laser light shows, a comedy club, lounge shows and the Folies Bergere revue, which is the longest-running production show in Las Vegas. Tropicana is located at an intersection which is referred to as The New Four Corners of Las Vegas. There are three other major casino hotel properties located at this intersection, two of which, Excalibur and MGM Grand, are open and operating, and the other, New York-New York is under construction and expected to open in 1996. In addition, there are two major casino hotels located near the intersection. Luxor, just south of the intersection, is open and operating, and Monte Carlo, just north of the intersection, is under construction and expected to open in 1996. There has been an increase in the visitor traffic around Tropicana since the opening of Luxor and MGM Grand in 1993. Pedestrian traffic at the intersection has been made faster, safer and more convenient as a result of pedestrian skywalks. The skywalks connect the four corners of the intersection and have elevators and escalators set back from all four corners. The Company has an additional pedestrian bridge connecting one of the skywalks directly to the Tropicana casino. A number of improvements are being made at the Tropicana to reestablish its traditional leadership position in the high-end table games market. The improvements in the facilities include reorienting the layout and modernizing the look of the casino in keeping with its tropical island theme, upgrading the premium slot player area, expanding the baccarat room 4 and refurbishing the property's large suites. The Company's intent is to make the Tropicana more attractive for our target audiences and take advantage of even more walk-in customers available to the Tropicana as a result of the 1996 property openings. The modifications have already begun and will be largely completed by midyear 1996. Management believes that the properties opening in 1996 will stimulate additional walk-in traffic that provides increased opportunities for Tropicana to attract its target customers and retain them through the Company's database marketing system. There can be no assurance, however, that the increased competition from these properties will not have an adverse effect on Tropicana. RAMADA EXPRESS Ramada Express Hotel and Casino is located on 28 acres in Laughlin, Nevada. Laughlin is situated on the Colorado River at Nevada's southern tip. The facility features a Victorian-era railroad theme, including a train that carries guests between the parking areas and the casino hotel. Ramada Express has 1,500 hotel rooms; a 50,000-square-foot casino containing 1,670 slot machines and 36 table games; a 1,100-vehicle parking garage; additional surface parking for 1,200 vehicles; three restaurants and a lounge; and special event and retail space. CASINO AZTAR CARUTHERSVILLE The Company began operations of Casino Aztar in Caruthersville, Missouri on April 28, 1995. Caruthersville is located on the Mississippi River approximately 90 miles north of Memphis, Tennessee. Approximately 2.2 million people live within 100 miles of Caruthersville. The "City of Caruthersville" casino riverboat has an approximate 14,000- square-foot casino with 445 slot machines and 27 table games and had an initial capacity of 600 passengers plus crew. In December 1995, the Company in coordination with the U.S. Coast Guard made modifications to the riverboat and increased capacity to 800 passengers plus crew in order to alleviate capacity constraints on weekends. The facilities also include a barge at river's edge for passenger boarding and disembarking. A pavilion for ticketing and pre-boarding facilities, including a restaurant, a sports lounge, a snack bar, and other amenities was opened in July 1995. CASINO AZTAR EVANSVILLE On December 7, 1995, the Company commenced operations of a riverboat casino in Evansville, Indiana. Casino Aztar, featuring the "City of Evansville" casino riverboat, is Indiana's first riverboat casino. Evansville, on the Ohio River in southwestern Indiana, is a market of 650,000 persons within 50 miles, 2.5 million persons within 100 miles, including part of the metropolitan Louisville, Kentucky area, and more than 3 million persons within 120 miles. The Evansville casino is projected to have 2.3 million visitors annually until additional competition emerges for the Louisville market. The "City of Evansville" casino riverboat is a replica of the historic "Robert E. Lee" racing sidewheel steamboat. The casino riverboat is 310 feet long and 70 feet wide, with a capacity of 2,500 passengers plus a crew 5 of 300. The casino contains 1,267 slot machines and 70 table games. The project opened utilizing temporary facilities that included surface parking and a 13,000-square-foot pavilion for passenger ticketing and related services. A 250-room hotel; "Riverfront Pavilion", an entertainment complex for pre-boarding facilities, restaurants, lounge and retail shops; parking facilities for more than 1,600 vehicles and other amenities are under construction and scheduled for completion by December 1996. FUTURE DEVELOPMENTS During 1995, the number of new jurisdictions considering the legalization of gaming significantly decreased compared to the number during 1990 to 1994. However, the Company is continuing its efforts to explore opportunities in new jurisdictions considering gaming and in existing gaming jurisdictions where the potential markets meet the Company's standards for sound, meaningful long-term opportunities. COMPETITION AND SEASONALITY Competition Although the Company has been able to compete successfully in its gaming markets in the past, there can be no assurance that the Company will be able to continue to compete successfully in these markets. The Company faces intense competition in each of the markets in which its land-based gaming facilities are located from other companies in the gaming industry, some of which have significantly greater financial resources than the Company. Such competition results, in part, from the geographic concentration of competitors. All of the Company's land-based casinos primarily compete with other casinos in their immediate geographic area. The Company's riverboat casinos primarily compete with other riverboat casinos in nearby states and in the case of the Caruthersville operation with riverboat casinos in other cities of Missouri. The Evansville operation will be competing with other riverboat casinos in Indiana when they become operational. All of the Company's casinos compete to a lesser extent with casinos in other locations, including Native American lands and on cruise ships, and with other forms of legalized gaming in the United States, including state-sponsored lotteries, off-track wagering and card parlors. Several states have considered legalizing casino gaming and others may do so in the future. Legalization of large-scale, unlimited casino gaming in or near any major metropolitan area or increased gaming in other areas could have an adverse economic impact on the business of any or all of the Company's gaming facilities. As of December 28, 1995, there were 11 casino hotel facilities operating in Atlantic City in competition with TropWorld. Although no new casinos have been opened in Atlantic City since April 1990, many of the existing casinos have increased their gaming capacities in 1994 and 1995. In addition, certain expansions have been announced for 1996. Two other companies have announced a desire to open casino hotels in the future. The addition of new casino hotels in the Atlantic City market could have the effect of expanding the market or they could increase competition for the existing market. In 1992, the Mashantucket Pequot Indian tribe began operating the Foxwoods High Stakes Casino and Bingo Hall, one of the largest casinos in the United States, in Ledyard, Connecticut. The adoption of legislation 6 approving casino gaming in any jurisdiction near New Jersey, particularly Delaware, Maryland, New York or Pennsylvania, could have a material adverse effect on the Atlantic City market, depending on the form and scope of such gaming. Since the Mirage opened in late 1989, there have been four other major casino hotels opened on the Las Vegas Strip. In addition, casino hotels have opened or have been expanded in other parts of Las Vegas or near Las Vegas. Downtown Las Vegas has added the "Fremont Street Experience" that provides a cover for the street and light show in order to attract customers. Two major casino hotels on the Las Vegas Strip are under construction and expected to open in 1996 and two others have been announced for later openings. Development is also expected to occur sometime in the future on the Las Vegas Strip to the south of Tropicana. The experience through 1995 has been that these new developments have expanded the Las Vegas market. There can be no assurance, however, that the increased competition from the new casinos will not have an adverse effect on Tropicana. In the Laughlin market, there have been expansions of existing casino hotels and in February 1995, the Mojave Indian Tribe opened a 300-room hotel with approximately 25,000 square feet of casino space in Nevada approximately 8 miles south of Laughlin. The Laughlin market has been affected by the Native American casinos in Arizona and California and additional capacity at Stateline, Nevada and on the Boulder Highway in Las Vegas. Competition involves not only the quality of casino, room, restaurant, entertainment and convention facilities, but also room, food and beverage prices. The level of gaming activity also varies significantly from time to time depending on general economic conditions, marketing efforts, hotel occupancies and the offering of special events and promotions. The extent and quality of complimentary services to attract high-stakes players and, in Atlantic City, casino customers arriving under bus programs, the personal attention offered to guests and casino customers, advertising, entertainment, slot machine pay-out rates and credit policies with respect to high-stakes players are also important competitive factors. As a result, operating results can be adversely affected by significant cash outlays for advertising and promotion and complimentary services to patrons, the amount and timing of which are partially dictated by the policies of competitors. If operating revenues are insufficient to allow management the flexibility to match the promotions of competitors, the number of the Company's casino patrons may decline, with an adverse effect on its financial performance. Seasonality TropWorld experiences seasonal fluctuations in casino play that management believes are typical of casino hotel operations in Atlantic City. Operating results indicate that casino play is seasonally higher during the months of May through October; consequently the Company's revenues during the first and fourth quarters have generally been lower than for the second and third quarters and from time to time the Company has experienced losses in the first and fourth quarters. Because TropWorld's operating results are especially dependent upon operations in the summer months, any event 7 that adversely affects the operating results of TropWorld during such period could have a material adverse effect on the Company's operations and financial condition. Given Atlantic City's location, it is also subject to occasional adverse weather conditions such as storms and hurricanes that would impede access to Atlantic City, thus adversely impacting operations. The gaming markets in Las Vegas and Laughlin experience a slight decrease in gaming activity in the hot summer months and during the holiday period between Thanksgiving and Christmas. Since the Company's casino riverboats just opened in 1995, there has not been a full year's operating experience to substantiate seasonality; however, the Company expects that casino revenues will be higher in the spring and summer months than in the fall and winter months. CREDIT POLICY AND CONTROL PROCEDURES As is customary in the gaming industry and necessitated by competitive factors, the Company's gaming activities are conducted on a credit as well as a cash basis, except in Missouri, which prohibits gaming on a credit basis. Credit policies vary widely from one operator to another and are largely dependent on the profile of the targeted customers. Table games players, for example, are typically extended more credit than slot players, and high-stakes players are typically extended more credit than patrons who tend to wager lower amounts. The Company currently markets to customers in all gaming segments; however, its credit policy will vary from facility to facility based upon the various types of customers at each facility. Gaming debts are legally enforceable under the current laws of Indiana, New Jersey and Nevada; it is not clear, however, that all other states will honor these policies. The uncollectibility of gaming receivables could have a material adverse effect on results of operations. Provisions for estimated uncollectible gaming receivables have been made in order to reduce gaming receivables to amounts deemed to be collectible. Gaming operations at the casinos are subject to risk of substantial loss as a result of employee or patron dishonesty, credit fraud or illegal slot machine manipulation. The Company has in place stringent control procedures to minimize such risks; however, there can be no assurance that losses will not occur. Current controls include supervision of employees, monitoring by electronic surveillance equipment and use of two-way mirrors. In New Jersey, the Company's activities are observed and monitored on an ongoing basis by agents of both the New Jersey Casino Control Commission (the "New Jersey Commission") and the New Jersey Division of Gaming Enforcement (the "New Jersey Division"), each of which maintains a staff on the premises of TropWorld. Similarly, in Nevada the Company's gaming subsidiaries must comply with certain regulatory requirements concerning casino and game security and surveillance, and the gaming operations of Tropicana and Ramada Express are subject to routine audit and supervision by agents of the Nevada State Gaming Control Board (the "Nevada Board"). In Missouri and Indiana, the Company's casino riverboat operations are subject to the control procedures of the Missouri Gaming Commission and the Indiana Gaming Commission, respectively. The Missouri Gaming Commission maintains a staff at Casino Aztar Caruthersville and the Indiana Gaming Commission maintains a staff at Casino Aztar Evansville. 8 REGULATION General Regulatory aspects of the gaming business are pervasive in nature and the following description should not be construed as a complete summary of all the regulatory requirements faced by the Company. Gaming authorizations, once obtained, can be suspended or revoked for a variety of reasons. If the Company were ever precluded from operating one of its gaming facilities, it would, to the extent permitted by law, seek to recover its investment by sale of the property affected, but there can be no assurance that the Company would recover its full investment. In addition, the Nevada Gaming Commission (the "Nevada Commission") and the New Jersey Commission have the authority to require a holder or beneficial owner of the Company's securities to be found to be suitable or to qualify under applicable laws or regulations. From time to time, legislative and regulatory changes are proposed that could be adverse to the Company. In addition, from time to time, investigations are conducted relating to the gaming industry. TropWorld, Casino Aztar Caruthersville and Casino Aztar Evansville are required to report certain cash transactions to the U.S. Department of the Treasury pursuant to the Bank Secrecy Act. Violation of the reporting requirements of the Bank Secrecy Act could result in civil as well as criminal penalties including fines and/or imprisonment. The State of Nevada has adopted a regulation similar to the Bank Secrecy Act which requires the Nevada facilities to document and/or report certain currency transactions to the Nevada Board. Violation of this regulation could result in action by the Nevada authorities to fine or revoke, suspend, impose conditions upon or fail to renew the Nevada facilities' licenses and/or the Company's licensing approval. These reporting requirements are not expected to have any adverse effects on the Company's casino operations. Regulation and Licensing - Nevada The ownership and operation of casino gaming facilities in Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, "Nevada Act"); and (ii) various local regulation. The gaming operations of Tropicana and Ramada Express are subject to the licensing and regulatory control of the Nevada Commission, the Nevada Board and the Clark County Liquor and Gaming Licensing Board (the "Clark County Board") (collectively, the "Nevada Gaming Authorities"). The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things; (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) the provision of a source of state and local revenues though taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company. 9 Hotel Ramada of Nevada ("HRN") is the Company's wholly-owned subsidiary which operates the casino at Tropicana and Ramada Express, Inc. ("Express") is the Company's wholly-owned subsidiary which operates the casino at Ramada Express. HRN and Express are both required to be licensed by the Nevada Gaming Authorities. The gaming licenses require the periodic payment of fees and taxes and are not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a stockholder of, or receive any percentage of profits from, HRN or Express without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Company, HRN and Express have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, HRN or Express in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of HRN and Express must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of HRN and Express may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, HRN or Express, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company, HRN or Express to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company, HRN and Express are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by HRN and Express must be reported to, or approved by, the Nevada Commission. If it were determined that the Nevada Act was violated by HRN or Express, the gaming licenses held by HRN or Express could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and 10 regulatory procedures. In addition, HRN, Express, the Company and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's Nevada gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's Nevada gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after 11 request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, HRN or Express, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. Additionally, the Clark County Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation such as the Company to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Commission has not imposed such a requirement on the Company. The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. On June 21, 1995, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, subject to certain conditions ("Shelf Approval"). However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. 12 Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environmental for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by HRN and Express where entertainment is furnished in connection with the selling of food, refreshments or merchandise in a cabaret, nightclub, cocktail lounge or casino showroom. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (a "Licensee", or collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. A Licensee is also subject to 13 disciplinary action by the Nevada Commission if it knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engages in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employs a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages is also subject to licensing, control and regulation by the Clark County Board. All licenses are revokable and are not transferable. The Clark County Board has full power to limit, condition, suspend or revoke any such license and any such disciplinary action could (and revocation would) have a material adverse effect upon the operations of the Company. Regulation and Licensing - New Jersey The ownership and operation of casino hotel facilities and gaming activities in Atlantic City, New Jersey, are subject to extensive state regulation under the New Jersey Casino Control Act (the "New Jersey Act") and the regulations of the New Jersey Commission. In general, the New Jersey Act and regulations provide for more extensive controls over a broader scope of gaming-related activities than does the Nevada regulatory system. The New Jersey Act and regulations concern primarily the financial stability and character of casino licensees, their intermediary and holding companies, their employees, their security holders and others financially interested in casino operations, the nature of hotel and casino facilities and a wide range of gaming and non-gaming related operations. The New Jersey Act and regulations include detailed provisions concerning, among other things, financial and accounting practices used in connection with casino operations, residence and equal employment opportunities for employees of casino operators, contractors for casino facilities and others; rules of games, levels of supervision of games and methods of selling and redeeming chips; manner of granting credit, duration of credit and enforceability of gaming debts; manufacture, distribution and sale of gaming equipment; security standards, management control procedures, accounting and cash control methods and reports to gaming authorities; advertising of casinos and standards for entertainment and distribution of alcoholic beverages in casinos. A number of these provisions require practices which are different from those in Nevada and some of them result in casino operating costs being higher than those in comparable facilities in Nevada. The New Jersey Act also established the New Jersey Division to investigate all license applications, enforce the provisions of the New Jersey Act and attendant regulations and prosecute all proceedings for violations of the New Jersey Act and regulations before the New Jersey Commission. The New Jersey Division also conducts audits and continuing reviews of all casino operations. 14 Adamar of New Jersey, Inc. ("Adamar"), a wholly-owned subsidiary of the Company, has been licensed (subject to quadrennial renewal) by the New Jersey Commission to operate TropWorld. In November 1982, the New Jersey Commission granted a plenary license to Adamar. In November 1995, the license was renewed for a period of four years. The Company and Ramada New Jersey Holdings Corporation ("Holdings"), another of the Company's New Jersey gaming subsidiaries, have been approved as qualified holding companies for Adamar's casino license. Officers and directors of the Company and Adamar and employees who work at casino hotel facilities operated by Adamar also have been or must be approved or licensed. In addition, all contracts affecting the facilities have been or must be approved, and all enterprises that conduct business with Adamar must register with the New Jersey Commission and those enterprises that conduct gaming related businesses or that conduct business on a regular and continuing basis, as defined by the regulations under the New Jersey Act, must be licensed by the New Jersey Commission. The New Jersey Commission has broad discretion regarding the issuance, renewal, revocation and suspension of casino licenses. Casino licenses are not transferable. A casino hotel facility must also continually satisfy certain requirements concerning, among other things, the number of qualifying sleeping units and the relationship between the number of qualifying sleeping units and the square footage of casino space. The Company believes that TropWorld continues to meet such requirements. The New Jersey Act further provides that each person who directly or indirectly holds any beneficial interest or ownership of the securities issued by a casino licensee or any of its intermediary or holding companies, those persons who, in the opinion of the New Jersey Commission, have the ability to control the casino licensee or its intermediary or holding companies or elect a majority of the board of directors of said companies, other than a banking or other licensed lending institution which makes a loan or holds a mortgage or other lien acquired in the ordinary course of business, and lenders and underwriters of said companies may be required to seek qualification from the New Jersey Commission. However, because the Company is a publicly traded holding company, in accordance with the provisions of the New Jersey Act, a waiver of qualification may be granted by the New Jersey Commission, with the concurrence of the Director of the Division, if it is determined that said persons or entities are not significantly involved in the activities of Adamar and, in the case of security holders, do not have the ability to control the Company or elect one or more of its directors. There exists a rebuttable presumption that any person holding 5% or more of the equity securities of a casino licensee's intermediary or holding company or a person having the ability to elect one or more of the directors of such a company has the ability to control the company and thus must obtain qualification from the New Jersey Commission. Notwithstanding this presumption of control, the New Jersey Act provides for a waiver of qualification for passive "institutional investors," as defined by the New Jersey Act, if the institutional investor purchased the securities for investment purposes only and where such securities constitute (i) less than 10% of the equity securities of a casino licensee's holding or intermediary company or (ii) debt securities of a casino licensee's holding or intermediary company representing a percentage 15 of the outstanding debt of such company not exceeding 20% or a percentage of any issue of the outstanding debt of such company not exceeding 50%. The waiver of qualification is subject to certain conditions including, upon request of the New Jersey Commission, filing a certified statement that the institutional investor has no intention of influencing or affecting the affairs of the issuer. Additionally, a waiver of qualification may also be granted to institutional investors holding a higher percentage of securities of a casino licensee's holding or intermediary company upon a showing of good cause. If the institutional investor is granted such a waiver and subsequently determines to influence or affect the affairs of the issuer, it must provide not less than 30 days notice of such intent and file with the New Jersey Commission an application for qualification before taking any action which may influence or affect the affairs of the issuer, except that an institutional investor holding voting securities shall be permitted to vote on matters put to the vote of the holders of outstanding voting securities. If an institutional investor that has been granted a waiver subsequently changes its investment intent, or if the New Jersey Commission finds reasonable cause to believe that the institutional investor may be found unqualified, no action other than divestiture shall be taken by the investor with respect to the security holdings until there has been compliance with the provisions of the New Jersey Act concerning Interim Casino Authorization. The provisions of the New Jersey Act concerning Interim Casino Authorization provide that whenever a security holder of either equity or debt is required to qualify pursuant to the New Jersey Act, the security holder shall, within 30 days after the New Jersey Commission determines that qualification is required or declines to waive qualification, (i) file a completed application for qualification, along with an executed and approved Trust Agreement, wherein all securities of the holding or intermediary company held by that security holder are placed in trust pending qualification, or (ii) file a notice of intent to divest itself of such securities as the New Jersey Commission may require so as to remove the need for qualification, which securities must be divested within 120 days from the date such determination was made. The New Jersey Act further requires that corporate licensees and their subsidiaries, intermediaries and holding companies adopt certain provisions in their certificates of incorporation that require certain remedial action in the event that an individual owner of any security of such company is found disqualified under the New Jersey Act. The required certificate of incorporation provisions vary depending on whether the stock of the company subject to the requirements of the New Jersey Act is publicly or privately traded. Pursuant to the New Jersey Act, the certificate of incorporation of a publicly held company must provide that any securities of such corporation are held subject to the condition that if a holder is found to be disqualified by the New Jersey Commission pursuant to the New Jersey Act such holder shall dispose of his interest in such company. The certificate of incorporation of a privately held company must create the absolute right of the company to repurchase at the market price or purchase price, whichever is the lesser, any security, share or other interest in the company in the event the New Jersey Commission disapproves a transfer in accordance with the provisions of the New Jersey Act. 16 The Company is a publicly held company and, accordingly, a provision has been placed in the Company's Restated Certificate of Incorporation which provides that a holder of the Company's securities must dispose of such securities if the holder is found disqualified under the New Jersey Act. In addition, the Restated Certificate of Incorporation for the Company provides that the Company may redeem the stock of any holder found to be disqualified. If, at any time, it is determined that Adamar has violated the New Jersey Act or regulations, or if any security holder of the Company, Adamar or Holdings who is required to be qualified under the New Jersey Act is found disqualified but does not dispose of the securities, Adamar could be subject to fines or its license could be suspended or revoked. If Adamar's license is revoked, the New Jersey Commission could appoint a conservator to operate and to dispose of any casino hotel facilities of Adamar. Net proceeds of a sale by a conservator and net profits of operations by a conservator (at least up to an amount equal to a fair return on Adamar's investment which is reasonable for casinos or hotels) would be paid to Adamar. In addition to compliance with the New Jersey Act and regulations relating to gaming, any facility built in Atlantic City by Adamar or any other subsidiary of the Company must comply with the New Jersey and Atlantic City laws and regulations relating to, among other things, the Coastal Area Facilities Review Act, construction of buildings, environmental considerations, operation of hotels and the sale of alcoholic beverages. The New Jersey Commission is authorized to establish fees for the issuance or renewal of casino licenses. Yearly casino hotel alcoholic beverage license fees are payable for each facility in any of five specified categories in any licensed casino hotel. There is also an annual license fee on each slot machine. The New Jersey Commission is also authorized by regulation to establish annual fees for the issuance and renewal of licenses other than casino licenses. The New Jersey Act imposes an annual tax of eight percent on gross revenues (as defined in the New Jersey Act). In addition, casino licensees are required to invest one and one-quarter percent of gross casino revenues for the purchase of bonds to be issued by the Casino Reinvestment Development Authority or make other approved investments equal to that amount; in the event the investment requirement is not met, the casino licensee is subject to a tax in the amount of two and one-half percent on gross revenues. Regulation and Licensing - Missouri On November 3, 1992, a statewide referendum authorized gaming in the state of Missouri on the Missouri and the Mississippi Rivers. Local approval from the home dock municipality, as required by the legislation, was also obtained from the City of Caruthersville in the November 3, 1992 election. On April 29, 1993, Missouri enacted revised legislation (the "Missouri Gaming Law") which amended the existing legislation. The Missouri Gaming Law established the Missouri Gaming Commission, which is responsible for the licensing and regulation of riverboat gaming in Missouri and has the discretion to approve license applications for riverboat gaming facilities. In July 1993, the Company was chosen by the City of Caruthersville as the preferred applicant to develop a gaming facility, and on September 20, 1993, the Company, through its subsidiary Aztar Missouri Gaming Corporation 17 ("Aztar Missouri"), filed its initial application with the Missouri Gaming Commission. The Missouri Gaming Commission conducted a formal investigation of Aztar Missouri's application and granted an owner/operator gaming license to Aztar Missouri on April 26, 1995. In a decision handed down on January 25, 1994, the Missouri Supreme Court held that games of chance were prohibited under the Missouri constitution. On April 5, 1994, Missouri voters narrowly defeated the adoption of a constitutional amendment that would have excepted excursion boats and floating facilities from the constitutional prohibition on lotteries. Local voters did re-approve gaming in the City of Caruthersville in the April 5, 1994 election. Following the April 5, 1994 election, the Missouri legislature amended the existing Missouri Gaming Law to clarify certain definitions and to resolve some constitutional questions raised in the Missouri Supreme Court decision. Pursuant to the Missouri Gaming Law, as revised, the Missouri Gaming Commission has issued eight gaming licenses throughout the state: one in Caruthersville, two in the St. Louis area, four in the Kansas City area, and one in St. Joseph. In a statewide election held on November 8, 1994, Missouri voters approved the adoption of an amendment to the Missouri Constitution which permits the legislature to allow games of chance to be conducted on excursion boats and floating facilities on the Mississippi River and the Missouri River. As a result of the amendment, full-scale gaming is now available in Missouri. Opponents of gaming in Missouri have brought several legal challenges to gaming in the past and may possibly bring similar challenges in the future. There can be no assurances that any future challenges, if brought, would not further interfere with full-scale gaming operations in Missouri, including the operations of Aztar Missouri. Under the Missouri Gaming Law, the ownership and operation of riverboat gaming facilities in Missouri are subject to extensive state and local regulation. Aztar Missouri, any subsidiaries, and certain of its officers and employees are and will be subject to certain regulations. As part of the application and licensing process for a gaming license, the applicant must submit detailed financial, operating and other reports to the Missouri Gaming Commission. Each applicant has an ongoing duty to update the information provided to the Missouri Gaming Commission in the application. Aztar Missouri has frequently updated its application materials since it was initially licensed. In addition to the information required of the applicant, directors, officers and other key persons must submit Personal Disclosure Forms which include detailed personal financial information and are subject to thorough investigations. In addition, certain officers and directors of Aztar have submitted Personal Disclosure Forms to the Missouri Gaming Commission. All gaming employees must obtain an occupational license issued by the Missouri Gaming Commission. The operators' licenses are issued through application to the Missouri Gaming Commission, which requires, among other things, (a) investigations into an applicant's character, financial responsibility and experience qualifications and (b) that applicants furnish (i) an affirmative action plan for the hiring and training of minorities and women and (ii) an economic development or impact report. License fees are a minimum of $50,000 for the initial application and $25,000 annually thereafter. 18 Licenses are to last for a term of two years, except that the first license and subsequent renewal granted to each gaming operator are to be for terms of one year. Aztar Missouri and its officers and certain employees are in the process of the first renewal of the owner/operator license and occupational licenses. In connection with this renewal, certain officers and directors of Aztar have been requested to submit updated Personal Disclosure Forms. Aztar Missouri has no reason to believe that these renewal applications will not be approved. The Missouri Gaming Commission has begun its investigation of Aztar Missouri's renewal application. However, there can be no assurance that Aztar Missouri's renewal application will be approved in a timely manner or at all. The Missouri Gaming Commission may revoke or suspend gaming licenses and impose other penalties for violations of the Missouri Gaming Law and the rules and regulations promulgated thereunder. Penalties include forfeiture of all gaming equipment used for improper gaming and fines of up to three times an operator's highest daily gross adjusted receipts during the preceding twelve months. The gaming licenses may not be transferred nor pledged as collateral, and the Missouri Gaming Law regulations bar a licensee from taking any of the following actions without prior approval by the Missouri Gaming Commission: (a) any individual transfer of an interest of 5% or greater, either directly or indirectly, in a publicly traded company which holds a license; (b) distribution of assets in excess of 5% of accumulated earnings of a licensee to anyone with an ownership interest in the licensee; or (c) entering into any transaction with a dollar value in excess of a certain threshold ($500,000 to $1,000,000). The restrictions on transfer of ownership apply to the Company as well as the direct licensee, Aztar Missouri. The bulk of the Missouri administrative rules contains detailed requirements concerning the operation of a licensed excursion gaming boat facility. These include a charge of two dollars per gaming customer that licensees must pay to the Missouri Gaming Commission, minimum payout requirements, a 20% tax on adjusted gross receipts, prohibitions against providing credit to gaming customers (except for the use of credit cards and cashing checks) and a requirement that each licensee reimburse the Missouri Gaming Commission for all costs of any Missouri Gaming Commission staff necessary to protect the public on the licensee's riverboat. Licensees also must submit audited quarterly financial reports to the Missouri Gaming Commission and pay the associated auditing fees. Other areas of operation which are subject to regulation under the Missouri rules are the size, denomination and handling of chips and tokens; the surveillance methods and computer monitoring of electronic games; accounting and audit methods and procedures; and approval of an extensive internal control system. The Missouri rules also require that all of an operator's purchases must be from suppliers licensed by the Missouri Gaming Commission. Although the Missouri Gaming Law provides no limit on the amount of riverboat space that may be used for gaming, the Missouri Gaming Commission is empowered to impose such space limitations through the adoption of rules and regulations. Additionally, United States Coast Guard safety regulations could affect the amount of riverboat space that may be devoted to gaming. In addition, the Missouri Gaming Law imposes a $500 loss limit 19 per cruise and requires licensees to maintain scheduled cruises or excursions with boarding and de-boarding times, regardless of whether a gaming riverboat actually cruises the river, or has been granted continuous docking status pursuant to the Missouri Gaming Law, as described below. With respect to the availability of dockside gaming, which may be more profitable than cruise gaming, the Missouri Gaming Commission is empowered to determine on a city and county-specific basis where such gaming is appropriate and shall be permitted. Dockside gaming in Missouri may differ from dockside gaming in other states, because the Missouri Gaming Commission has the ability to require "simulated cruising". This requirement would permit customers to board dockside riverboats only at specified times and would prohibit boarding during the period of a simulated cruise, which is expected to last for two to three hours. However, customers are permitted to leave the facility at any time. The Missouri Gaming Commission has authorized seven of eight licensed facilities to operate all or a portion of their facilities on a continuously docked basis with a "simulated cruise" schedule. On February 15, 1996, the Commission granted Aztar Missouri the authority to operate gambling games on part of its floating facility, previously used for non- gaming activities, such as ticketing, under the continuous docking provision of the Missouri Gaming Law. The Commission's order does not affect Aztar Missouri's riverboat facility, the City of Caruthersville, which does not have the authority to conduct gambling games while continuously docked. Regulation and Licensing - Indiana The ownership and operation of riverboat casinos in certain designated waters are subject to extensive state regulation under the Indiana Riverboat Gambling Act (the "Indiana Act") and regulations which the Indiana Gaming Commission is authorized to adopt under the Indiana Act. The Indiana Act and the regulations the Indiana Gaming Commission has adopted to date and is expected to adopt in the future are significant to the Company's prospects for successfully operating its Evansville, Indiana based riverboat casino and associated developments. The Indiana Act extends broad and pervasive regulatory powers and authority to the Indiana Gaming Commission. The Indiana Gaming Commission took office in September 1993, and, thus far, its activities have been predominantly directed toward establishing a regulatory and administrative infrastructure for licensing of prospective applicants for the limited number of riverboat owner's licenses authorized by the Indiana Act (five for operations docking on Lake Michigan, one on a landlocked lake in Southwestern Indiana and five on the Ohio River, including the Company's facility in Evansville, Indiana), and on developing systems and "rules of the game" for the actual operation of riverboat casinos. The Indiana Gaming Commission has adopted a set of regulations under the Indiana Act which covers numerous operational matters concerning riverboat casinos licensed by the Commission and has proposed other rules for adoption. The regulatory climate in Indiana may be more costly than exists in other states. 20 Among regulations adopted is one dealing with riverboat excursions, routes and public safety. The Indiana Act requires licensed riverboat casinos to be cruising vessels. Another statute and the regulations carry out the legislative intent with appropriate recognition of public safety needs. The regulations explicitly preclude "dockside gambling". For purposes of the regulations, dockside gambling is defined to mean gambling on a vessel which is permanently moored and not self-propelled and allows unlimited passenger ingress and egress. Instead, the regulations define the type of excursions riverboats must conduct based upon location (Lake Michigan or the Ohio River), weather conditions and other safety factors. Excursions must have a two- to four-hour duration. An excursion begins at the time embarkation begins and concludes at the end of disembarkation if gambling continues during disembarkation. Embarkation and disembarkation may not exceed thirty minutes each. When the embarkation period ends, a gangway or its equivalent must be closed so that no further embarkation is possible. For Ohio River excursions, such as those the Company is conducting through its Evansville operation, "full excursions" must be conducted at all times during a year unless, for safety reasons, a "limited excursion" is authorized by the master of the riverboat under the regulations. A "full excursion" is a cruise on the Ohio River; a "limited excursion" is not a cruise but a simulation where the gangway of a boat is closed with no further ingress until the end of the designated excursion period. Passengers may disembark during a limited excursion. The Indiana Act extends to the master of each licensed riverboat the discretion to keep the boat docked in circumstances where specific weather conditions or water conditions present a danger to the riverboat and its passengers and crew, where the riverboat or docking facility is undergoing mechanical or structural repair, where water conditions present a danger to the riverboat, its passengers and crew or to other vessels or where the master has been notified that a condition exists which would cause a violation of federal law if the riverboat were to cruise. In those circumstances, the master may, upon written certification, keep the vessel docked, and gaming may be conducted without cruising. The Company, through an Indiana subsidiary, has received from the Indiana Gaming Commission a riverboat owner's license for the Evansville, Indiana market. The Company has completed requirements for formal licensing and commenced operations in Evansville on December 7, 1995. The Ohio River has waters in both Indiana and Kentucky in the Evansville vicinity. Because riverboat casino gambling is illegal in Kentucky, authorities of that state have raised issues about Indiana-licensed riverboats operating in Kentucky waters. The Company's Evansville riverboat cruises from its dock without entering Kentucky waters, thereby avoiding those issues. A riverboat owner's license has an initial effective period of five years but is subject to an annual renewal requirement. The Indiana Gaming Commission has broad discretion with respect to the initial issuance of licenses and also with respect to the renewal, revocation, suspension and control of riverboat owner's licenses. Officers, directors and principal 21 owners of the actual license holder and employees who are to work on the riverboat are subject to substantial disclosure requirements as a part of securing necessary licenses. Significant contracts are subject to disclosure and approval processes. Suppliers of gaming equipment and materials must also be licensed under the Indiana Act. The Indiana Act requires licensees to disclose to the Indiana Gaming Commission the identity of all 1% or greater owners of public companies. The Indiana Gaming Commission also requires a broad and comprehensive disclosure of financial and operating information on licensees and their principal officers. The Company has provided full information and documentation to the Indiana Gaming Commission. In addition to receiving a license to conduct riverboat casino operations from the Indiana Gaming Commission, the Company has secured permits and approvals from the United States Army Corps of Engineers to develop the facilities it is using to conduct operations. The Company has received a specialized alcoholic beverage permit for riverboat operations. The permit extends serving privileges far beyond those which otherwise exist under Indiana law. Permanent landside operations at the Company's hotel development must secure other alcoholic beverage permits to conduct operations. All building permits and other approvals for the permanent facilities have been received, and the project is under construction. The Indiana Act prescribes a tax on adjusted gross receipts from gambling games authorized under the Indiana Act at the rate of 20% on adjusted gross receipts. For this purpose, adjusted gross receipts means the total of all cash and property received from gaming operations less cash paid out as winnings and uncollectible gaming receivables. Indiana corporations are also subject to the Indiana gross income tax, the Indiana adjusted gross income tax and the Indiana supplemental corporate net income tax. EMPLOYEES The Company employs approximately 9,900 people, of which approximately 3,000 employees are represented by unions. Of the approximately 4,200 employees at TropWorld, approximately 1,400 are covered by collective bargaining contracts. Substantially all of such employees are covered by a contract that expires in 1999 and a small number are covered by contracts that expire in 1996. At Tropicana, approximately 1,600 of the 2,600 employees are covered by collective bargaining contracts. Substantially all of such employees are covered by contracts that expire in 1997 and the remainder are covered by contracts that expire in 1998, 1999 or 2000. At Ramada Express there are approximately 1,500 employees, none of which are covered by collective bargaining agreements. The Company has approximately 1,000 employees and 500 employees, respectively, at Casino Aztar Evansville and Casino Aztar Caruthersville, none of which are covered by collective bargaining agreements. TRADEMARKS The Company uses a variety of trade names, service marks and trademarks and believes it has all the licenses necessary to conduct its business. The Company has registered several service marks and trademarks with the United States Patent and Trademark Office or otherwise acquired the licenses to use those which are material to the conduct of the Company's business as a whole. 22 The Company and Adamar of Nevada are the beneficiaries of an agreement with Tropicana Enterprises, the owner of certain properties related to Tropicana, and the Jaffe family regarding the use of the name "Tropicana" for the operation of a casino hotel in Atlantic City and in connection with the operation of a casino hotel in New York State (if gaming were to be authorized in New York State). Pursuant to such agreement, the Company has registered the name under the Lanham Act. Upon the occurrence of certain events, the right to use the name reverts to Tropicana Enterprises. Ramada has licensed the Company to use the name "Ramada" in conjunction with the operation of Ramada Express, and will not use or permit the use of the name "Ramada" in Laughlin, Nevada by any other person or entity. The Company has registered the following important service marks: Aztar, Trop, TropWorld, Trop Park, TropWorld Casino and Entertainment Resort and The Island of Las Vegas. The Company believes there are no other trademarks or service marks the use of which is material to the conduct of the Company's business as a whole. ITEM 2. PROPERTIES - ------------------- TROPWORLD. TropWorld is located on a 10-acre site in Atlantic City, New Jersey. In July 1993, TropWorld became wholly owned by the Company. TROPICANA. Tropicana is located on a 34-acre site in Las Vegas, Nevada. Tropicana is owned by Tropicana Enterprises and is leased to HRN, which operates the casino and hotel under the lease ( the "Tropicana Lease"), which expires in 2011. The Company, through its wholly-owned subsidiary, Adamar of Nevada, owns a noncontrolling 50% general partnership interest in Tropicana Enterprises. The remaining 50% general partnership interest in Tropicana Enterprises is held by various individuals and trusts associated with the Jaffe family subject to certain preferences on liquidation. The Company does not have the right to purchase Tropicana from Tropicana Enterprises and does not have the right to purchase the remaining partnership interest in Tropicana Enterprises that is not owned by Adamar of Nevada. RAMADA EXPRESS. Ramada Express is located on a 28-acre site in Laughlin, Nevada. Ramada Express is wholly owned by the Company. CASINO AZTAR CARUTHERSVILLE Casino Aztar operates on and from a 37-acre site next to the Mississippi River in downtown Caruthersville, Missouri. The site and facilities are wholly owned by the Company. 23 CASINO AZTAR EVANSVILLE Casino Aztar operates on and from a base 8-acre site next to the Ohio River in downtown Evansville, Indiana. Approximately 4 1/2 acres are leased. The lease is for 10 years with 3 options to renew for 5 years each. The remaining approximately 3 1/2 acres are wholly owned by the Company. For the first year of operation, the Company also owns or leases another approximate 21 acres for parking purposes. NEW GAMING JURISDICTIONS In connection with the Company's development of its business in new jurisdictions, the Company has an option to purchase land in Bensalem, Pennsylvania. GENERAL. The Company leases its corporate headquarters located in Phoenix, Arizona and owns or leases certain other facilities which are not material to the Company's operations. Substantially all land, casino hotel buildings, casino riverboats, pavilions, furnishings and equipment owned by the Company are pledged as collateral under long-term debt agreements. ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Company and more than 40 other major casino operators, as well as various manufacturers and distributors of video poker and electronic slot machines, have been named as defendants in an action originally filed in the United States District Court for the Middle District of Florida, Orlando Division, entitled William H. Poulos, On Behalf of Himself and All Others Similarly Situated v. Caesars World, Inc., et al., Case No. 94-478- CIV-ORL-22, filed on April 26, 1994. This action was consolidated with another subsequently filed action in that court entitled William Ahearn, On Behalf of Himself and All Others Similarly Situated v. Caesars World, Inc., et al., Case No. 94-532-CIV-ORL-22 (the "Actions"). Both Actions were brought under RICO and state common law and seek compensatory and punitive damages in excess of $1 billion from the defendants. The complaints allege that the defendants took part in a scheme intended to induce people to play video poker and electronic slot machines based on false beliefs concerning how those machines actually operate as well as the extent to which there is actually an opportunity to win on any given play. The precise nature of the Company's alleged role in the alleged fraud and conspiracy to defraud is not discernible from the complaints. On December 9, 1994, the Florida Court ordered that the consolidated cases be transferred to the United States District Court for the District of Nevada. That transfer has occurred and the Nevada Court has assumed control of the cases. The new case numbers are CV-S-94-1126-LDG(RJJ) and CV-S-94-1137-LDG(RJJ). Numerous defendants (including the Company) have moved to dismiss the complaint for failure to state a claim. No hearing has been set on this motion. The plaintiffs have filed a motion seeking to certify the consolidated actions as a class action. The defendants (including the Company) have opposed certification of the class. No hearing date has been set on this motion. The parties submitted a joint 24 status report to the Court on January 18, 1995. All discovery has been stayed by the Court pending the entry of a scheduling order. The plaintiffs have filed a motion asking the Court to hold a case management and scheduling conference and to permit discovery to resume. The Company (and all other defendants) have opposed this motion, and have suggested to the Court that consideration of the pending motions would be the more effective means of handling the case, since the granting of the motion to dismiss would end the case and obviate the need for scheduling or management of the case. No argument date has been set. On September 26, 1995, an action entitled Larry Schreier, On behalf of Himself and All Others Similarly Situated v. Caesars World, Inc., et al., Case No. CV-S-95-00923-DWH(RJJ)(the "Schreier Case") was commenced in the United States District Court for the District of Nevada. The case was thereafter transferred to Judge Lloyd D. George and assigned the Case No. CV-S-95-00923-LDG(RJJ). The Schreier Case is identical to Case Nos. CV-S- 94-1126-LDG(RJJ) and CV-S-94-1137-LDG(RJJ)(collectively, the "Poulos/Ahearn Case") in all material respects, except that the named plaintiff purports to represent a class of persons somewhat smaller than the class in the Poulos/Ahearn Case; to wit: (i) all persons who are members of "slot clubs" and played electronic slot machines; and (ii) all persons who have played in video poker tournaments. The plaintiffs in the Schreier Case are represented by the same lawyers who represent the plaintiffs in the Poulos/Ahearn Case. The defendants (including the Company) have moved to dismiss the complaint on the same grounds as in the previously described Poulos/Ahearn case, as well as on the ground that this case was filed for an improper purpose, an attempt to circumvent prior rulings of the Court in the Poulos/Ahearn Case. No hearing date has been set on the motion. Motions have been made by defendants in another related case pending in the same court entitled Poulos vs. Ambassador Cruise Lines, et al., Case No. CV-S-95-936-LDG(RLH), to consolidate that case with the Poulos/Ahearn Case. The Company does not oppose the consolidation of these two cases. The plaintiff in the Schreier Case has filed a motion to consolidate that case with the Poulos/Ahearn Case and the Poulos vs. Ambassador Cruise Lines case. The Court has denied that motion. Aztar and numerous other major casino operators were named as defendants in an action filed in late August 1995 in the United States District Court for the District of New Jersey, Camden Division, entitled Thomas Hyland (Plaintiff) v. Griffin Investigations, et al., Case No. 95cv2236(JEI). The Plaintiff seeks certification of the case as a class action, and claims generally that the treatment of card counters by the defendants is in violation of the Sherman Act, the Fair Credit Reporting Act and other laws. Plaintiff did not specify the amount of damages he is seeking. On November 1, 1995, the Company moved to dismiss the complaint and therefore has not yet filed an answer. Counsel for Plaintiff has not yet responded to the Company's motion to dismiss. Pursuant to Local Rule upon perfection of the motion, it will be submitted to the Court for consideration. The Company believes that plaintiffs' allegations are without merit, and it intends to defend the actions vigorously. 25 The Company is a party to various 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 legal posture of the Company can be successfully defended or satisfactorily settled without material adverse effect on its consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None 26 EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The registrant has elected not to include information concerning its executive officers in its 1996 Proxy Statement, as allowed by the Proxy Statement instructions. The registrant relies on General Instruction G(3) of this report on Form 10-K in presenting the following information on its executive officers. Tenure ----------------- With Present Name Office Age Company Position - ------------------- ---------------------------- --- -------- -------- Paul E. Rubeli Chairman of the Board, 52 17 years 4 years President and Chief Executive Officer Robert M. Haddock Executive Vice President 51 15 years 9 years and Chief Financial Officer Nelson W. Armstrong, Jr. Vice President, 54 23 years 6 years Administration, and Secretary Joe C. Cole Vice President, 57 8 years 8 years Corporate Communications Meridith P. Sipek Controller 49 18 years 6 years Neil A. Ciarfalia Treasurer 48 1 year 1 year Paul E. Rubeli. Mr. Rubeli joined Ramada in 1979 as Group Vice President, Industrial Operations. He served as Executive Vice President, Gaming, of Ramada from 1982 to December 1989, when he was appointed President and Chief Operating Officer, of the Company in the Restructuring. He was appointed President and Chief Executive Officer in February 1990 and was appointed Chairman of the Board in addition to his other positions in February 1992. Robert M. Haddock. Mr. Haddock joined Ramada in 1980 and held various positions before becoming Executive Vice President and Chief Financial Officer in March 1987, serving in that capacity until the Restructuring, when he assumed the same position with the Company. Nelson W. Armstrong, Jr. Mr. Armstrong joined Ramada in 1973 as an accounting supervisor and held various positions on the corporate accounting staff, serving as Vice President and Controller, of Ramada and then of the Company after the Restructuring until he was appointed Vice President, Administration, and Secretary, of the Company in March 1990. Joe C. Cole. Mr. Cole joined Ramada in March 1988 as Vice President, Corporate Communications, after having been affiliated with Phoenix Newspapers Inc. for 26 years as a reporter, columnist and editor. He became Vice President, Corporate Communications, of the Company in the Restructuring. 27 EXECUTIVE OFFICERS OF THE REGISTRANT (continued) - ------------------------------------------------ Meridith P. Sipek. Mr. Sipek joined Ramada's corporate accounting staff in 1977 as a manager and held various positions in corporate and hotel accounting, serving as Hotel Group Controller, before being named Assistant Corporate Controller, of Ramada and then of the Company after the Restructuring. He was appointed Controller, of the Company in March 1990. Neil A. Ciarfalia. Mr. Ciarfalia joined the Company in 1995 as Treasurer. Prior to joining the Company, Mr. Ciarfalia spent 11 years with the commercial aircraft division of Saab-Scania AB. During that time, he served Saab as President of the various divisional finance companies which arranged or provided financing for the acquisition of Saab aircraft and related products. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ Aztar had 11,248 shareholders of record as of February 22, 1996. The additional information required by this Item 5 is included in this report on F-17, F-28 and F-39. ITEMS 6, 7, and 8 - ----------------- The information required by Item 6 is included in this report on F-39; by Item 7, on F-29 through F-38; and by Item 8, on F-1 through F-28. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- None. PART III -------- ITEMS 10, 11, 12 and 13 - ----------------------- The information required by Items 10, 11, 12 and 13 is incorporated by reference to the registrant's definitive Proxy Statement to be filed with the Commission. A cross-referenced index is located on the facing page of this report. Information concerning the registrant's executive officers is presented above under a separate caption in Part I of this report. 28 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- Page No. -------- (a) 1. Financial Statements: Report of Independent Accountants F-1 Consolidated Balance Sheets, December 28, 1995 and December 29, 1994 F-2 Consolidated Statements of Operations for the years ended December 28, 1995, December 29, 1994 and December 30, 1993 F-4 Consolidated Statements of Cash Flows for the years ended December 28, 1995, December 29, 1994 and December 30, 1993 F-6 Consolidated Statements of Shareholders' Equity for the years ended December 28, 1995, December 29, 1994 and December 30, 1993 F-8 Notes to Consolidated Financial Statements F-10 2. Financial Statement Schedules: Report of Independent Accountants S-1 II - Valuation and Qualifying Accounts S-2 All other schedules are omitted because the required information is either presented in the financial statements or notes thereto, or is not present in amounts sufficient to require submission of the schedules. 3. Exhibits: 3 Articles of Incorporation and By-Laws * 4 Instruments Defining the Rights of Security Holders, Including Indentures * 10 Material Contracts * 11 Statement Regarding Computation of Per Share Earnings * 21 Subsidiaries of the Registrant * 23 Consents of Experts and Counsel * 27 Financial Data Schedule * * See exhibit index at page E-1 of this report for a listing of exhibits filed with this report and those incorporated by reference. All other exhibits have been omitted because the information is not required or is not applicable. 29 (b) Reports on Form 8-K: The Company did not file any report on Form 8-K during the quarter ended December 28, 1995. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 No. 33-32399 and No. 33-44794 (filed January 5, 1990 and December 24, 1991, respectively): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AZTAR CORPORATION By ROBERT M. HADDOCK March 21, 1996 ----------------- ------------------------- ------------------ Registrant Robert M. Haddock Date Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. PAUL E. RUBELI Chairman of the Board, President March 21, 1996 - ------------------------- and Chief Executive Officer, and ---------------- Paul E. Rubeli Director ROBERT M. HADDOCK Executive Vice President and March 21, 1996 - ------------------------- Chief Financial Officer, and ---------------- Robert M. Haddock Director MERIDITH P. SIPEK Controller March 21, 1996 - ------------------------- ---------------- Meridith P. Sipek JOHN B. BOHLE Director March 21, 1996 - ------------------------- ---------------- John B. Bohle E. M. CARSON Director March 21, 1996 - ------------------------- ---------------- Edward M. Carson A. S. GITTLIN Director March 21, 1996 - ------------------------- ---------------- A. Sam Gittlin JOHN R. NORTON, III Director March 21, 1996 - ------------------------- ---------------- John R. Norton, III ROBERT S. ROSOW Director March 21, 1996 - ------------------------- ---------------- Robert S. Rosow R. SNELL Director March 21, 1996 - ------------------------- ---------------- Richard Snell VESTA VALENTINE TEMEN Director March 21, 1996 - ------------------------- ---------------- Vesta Valentine Temen TERENCE W. THOMAS Director March 21, 1996 - ------------------------- ---------------- Terence W. Thomas CARROLL V. WILLOUGHBY Director March 21, 1996 - ------------------------- ---------------- Carroll V. Willoughby 31 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Aztar Corporation We have audited the consolidated balance sheets of Aztar Corporation and Subsidiaries as of December 28, 1995 and December 29, 1994, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 28, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aztar Corporation and Subsidiaries as of December 28, 1995 and December 29, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 1995 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 14, 1996 F-1 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 28, 1995 and December 29, 1994 ---------------------------------------- (in thousands, except share data) 1995 1994 --------- --------- Assets Current assets: Cash and cash equivalents $ 26,527 $ 43,861 Short-term investments -- 8,250 Accounts receivable, net 21,325 17,391 Refundable income taxes 1,261 723 Inventories 6,591 5,693 Prepaid expenses 9,417 9,992 Deferred income taxes 8,013 7,894 ---------- --------- Total current assets 73,134 93,804 Investments in and advances to unconsolidated partnership 11,467 12,627 Other investments 27,964 24,928 Property and equipment: Buildings, riverboats and equipment, net 711,454 635,678 Land 95,589 81,795 Construction in progress 46,102 37,965 Leased under capital leases, net 535 852 ---------- --------- 853,680 756,290 Deferred charges and other assets 46,993 27,710 ---------- --------- $1,013,238 $ 915,359 ========== ========= The accompanying notes are an integral part of these financial statements. F-2 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) December 28, 1995 and December 29, 1994 ---------------------------------------- (in thousands, except share data) 1995 1994 --------- --------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accruals $ 60,226 $ 39,447 Accrued payroll and employee benefits 18,012 15,467 Accrued interest payable 14,995 13,847 Income taxes payable 2,197 2,608 Current portion of long-term debt 466 666 Current portion of other long-term liabilities 6,172 636 ---------- --------- Total current liabilities 102,068 72,671 Long-term debt 496,439 430,212 Other long-term liabilities 30,699 21,986 Deferred income taxes 18,914 24,411 Contingencies and commitments Series B ESOP convertible preferred stock (redemption value $6,114 and $4,900) 5,459 4,711 Shareholders' equity: Common stock, $.01 par value (38,265,813 and 37,459,228 shares outstanding) 422 414 Paid-in capital 352,221 347,284 Retained earnings 24,922 30,555 Less: Treasury stock (17,027) (16,885) Unearned compensation (879) -- ---------- --------- Total shareholders' equity 359,659 361,368 ---------- --------- $1,013,238 $ 915,359 ========== ========= The accompanying notes are an integral part of these financial statements. F-3 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ----------------------------------- (in thousands, except per share data) 1995 1994 1993 Revenues --------- --------- --------- Casino $469,211 $443,392 $439,294 Rooms 40,543 41,514 32,248 Food and beverage 47,343 42,657 36,357 Other 15,772 13,877 10,863 -------- -------- -------- 572,869 541,440 518,762 Costs and expenses Casino 226,239 205,995 219,721 Rooms 24,967 25,268 19,495 Food and beverage 44,320 39,361 34,773 Other 10,250 7,753 6,737 Marketing 57,445 44,494 42,793 General and administrative 50,292 47,895 45,981 Utilities 13,605 13,556 12,328 Repairs and maintenance 20,986 19,905 19,953 Provision for doubtful accounts 3,611 3,102 1,566 Property taxes and insurance 19,927 17,781 16,729 Net rent 11,308 9,951 27,747 Depreciation and amortization 39,494 36,972 32,652 Preopening costs 7,724 -- 868 -------- -------- -------- 530,168 472,033 481,343 -------- -------- -------- Operating income 42,701 69,407 37,419 Interest income 3,251 3,139 24,172 Interest expense (51,052) (49,711) (45,363) -------- -------- -------- Income (loss) before other items, income taxes and extraordinary items (5,100) 22,835 16,228 Equity in unconsolidated partnership's loss (5,081) (4,169) (3,822) -------- -------- -------- Income (loss) before income taxes and extraordinary items (10,181) 18,666 12,406 Income taxes 5,187 (1,862) (1,024) -------- -------- -------- Income (loss) before extraordinary items (4,994) 16,804 11,382 Extraordinary items -- (2,708) -- -------- -------- -------- Net income (loss) $ (4,994) $ 14,096 $ 11,382 ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-4 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (continued) For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ----------------------------------- (in thousands, except per share data) 1995 1994 1993 -------- -------- -------- Earnings per common and common equivalent share: Income (loss) before extraordinary items $ (.14) $ .42 $ .28 Extraordinary items -- (.07) -- -------- -------- -------- Net income (loss) $ (.14) $ .35 $ .28 ======== ======== ======== Earnings per common share assuming full dilution: Income (loss) before extraordinary items * $ .41 $ .27 Extraordinary items * (.07) -- -------- -------- Net income (loss) * $ .34 $ .27 ======== ======== Weighted average common shares applicable to: Earnings per common and common equivalent share 39,026 38,196 38,367 Earnings per common share assuming full dilution * 39,224 39,429 * Anti-dilutive The accompanying notes are an integral part of these financial statements. F-5 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 -------------- (in thousands) 1995 1994 1993 ---------- ---------- ---------- Cash Flows from Operating Activities Net income (loss) $ (4,994) $ 14,096 $ 11,382 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 42,808 39,529 34,577 Provision for losses on accounts receivable 3,611 3,102 1,566 Loss on reinvestment obligation -- 950 991 Interest income -- -- 1,889 Rent expense (636) (5) (880) Distribution in excess of equity in income of partnership 1,160 1,149 1,449 Deferred income taxes (5,616) (3,043) (1,280) Change in assets and liabilities: (Increase) decrease in accounts receivable (7,545) (1,577) (1,442) (Increase) decrease in refundable income taxes (538) 1,339 -- (Increase) decrease in inventories and prepaid expenses (516) (1,121) (1,969) Increase (decrease) in accounts payable, accrued expenses and income taxes payable 25,066 1,434 1,955 Other items, net 6,375 5,780 2,087 --------- --------- --------- Net cash provided by (used in) operating activities 59,175 61,633 50,325 --------- --------- --------- Cash Flows from Investing Activities (Increase) decrease in invested funds 8,250 (8,250) -- Payments received on TropWorld second mortgage -- -- 24,400 Payments received on other notes receivable 1,009 965 2,191 Reduction in other investments 11,950 -- -- Increase in TropWorld second mortgage -- -- (24,400) Increase in other notes receivable -- -- (419) Purchases of property and equipment (135,863) (54,442) (77,804) Acquisition of AREI/AGP partnership interests, net of cash acquired -- -- (61,859) Additions to other long-term assets (28,463) (6,682) (6,391) --------- --------- --------- Net cash provided by (used in) investing activities $(143,117) $ (68,409) $(144,282) --------- --------- --------- The accompanying notes are an integral part of these financial statements. F-6 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 -------------- (in thousands) 1995 1994 1993 --------- --------- --------- Cash Flows from Financing Activities Proceeds from issuance of long-term debt $ 83,600 $254,795 $ 35,000 Proceeds from issuance of common stock 1,977 274 2,149 Principal payments on long-term debt (17,837) (231,507) (2,157) Debt issuance costs (80) (11,473) (969) Preferred stock dividend (754) (773) (787) Redemption of preferred stock (298) (230) (131) -------- -------- -------- Net cash provided by (used in) financing activities 66,608 11,086 33,105 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (17,334) 4,310 (60,852) Cash and cash equivalents at beginning of year 43,861 39,551 100,403 -------- -------- -------- Cash and cash equivalents at end of year $ 26,527 $ 43,861 $ 39,551 ======== ======== ======== Supplemental Cash Flow Disclosures Acquisition of AREI/AGP partnership interests: Working capital, other than cash $ -- $ -- $ 3,370 Notes receivable -- -- 242,605 Building and equipment -- -- (307,582) Capital lease assets, net -- -- 6,703 Long-term debt -- -- (5,682) Other long-term liabilities -- -- (1,273) -------- -------- -------- Net cash used in acquisition -- -- (61,859) Summary of non-cash investing and financing activities: Capital lease obligations incurred for property and equipment $ 41 $ 75 $ 385 Other long-term liabilities incurred for deferred charges and other assets 13,400 -- -- Other long-term liabilities incurred for property and equipment 535 -- -- Tax benefit from stock options and preferred stock dividend 907 722 431 Issuance of restricted stock 2,189 -- -- Forfeiture of restricted stock 142 -- -- Cash flow during the year for the following: Interest paid, net of amount capitalized $ 47,758 $ 47,087 $ 43,160 Income taxes paid 471 2,065 1,997 The accompanying notes are an integral part of these financial statements. F-7 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ------------- (in thousands) Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total -------- -------- --------- --------- --------- -------- Balance, December 31, 1992 $ 410 $344,574 $ 5,787 $(16,885) $ (137) $333,749 Stock options exercised 4 2,145 2,149 Tax benefit from stock options exercised 246 246 Preferred stock dividend, net of income tax benefit (610) (610) Amortization of unearned compensation 72 72 Net income 11,382 11,382 -------- -------- -------- -------- -------- -------- Balance, December 30, 1993 414 346,965 16,559 (16,885) (65) 346,988 Stock options exercised 274 274 Tax benefit from stock options exercised 45 45 Reduction in income tax valuation allowance 520 520 Preferred stock dividend, net of income tax benefit (620) (620) Amortization of unearned compensation 65 65 Net income 14,096 14,096 -------- -------- -------- -------- -------- -------- Balance, December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368 ======== ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-8 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued) For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ------------- (in thousands) Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total ------- -------- --------- --------- --------- -------- Balance, December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368 Stock options exercised 5 1,972 1,977 Issuance of restricted stock 3 2,186 (2,189) -- Tax benefit from stock options exercised 779 779 Preferred stock dividend, net of income tax benefit (639) (639) Forfeiture of restricted stock (142) 142 -- Amortization of unearned 1,168 1,168 compensation Net income (loss) (4,994) (4,994) ------- -------- -------- -------- -------- -------- Balance, December 28, 1995 $ 422 $352,221 $ 24,922 $(17,027) $ (879) $359,659 ======= ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidated Statements Aztar Corporation ("Aztar" or the "Company") was incorporated in Delaware in June 1989 to operate the gaming business of Ramada Inc. ("Ramada") after the restructuring of Ramada (the "Restructuring"). The Restructuring involved the disposition of Ramada's hotel and restaurant businesses with Ramada's shareholders retaining their interest in the gaming business. As part of the Restructuring, the gaming business and certain other assets and liabilities of Ramada were transferred to Aztar, and a wholly-owned subsidiary of New World Hotels (U.S.A.), Inc. was merged with Ramada (the "Merger"). In the Merger, each share of Ramada common stock was converted into the right to receive $1.00 and one share of Aztar common stock. For accounting purposes Aztar is treated as the continuing accounting entity that is the successor to the historical Ramada and that has discontinued the hotel and restaurant businesses. The Company operates casino hotels in Atlantic City, New Jersey, at TropWorld and in Las Vegas and Laughlin, Nevada, at Tropicana and Ramada Express, respectively. The Company began operations of casino riverboats on April 28, 1995, in Caruthersville, Missouri, and on December 7, 1995, in Evansville, Indiana. A substantial portion of the Company's consolidated revenues and assets are concentrated at TropWorld. The consolidated financial statements include the accounts of Aztar and all of its controlled subsidiaries and partnerships. All subsidiary companies are wholly owned. In consolidating, all material intercompany transactions are eliminated. The Company uses a 52/53 week fiscal year ending on the Thursday nearest December 31, which includes 52 weeks in 1995, 1994 and 1993. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents Highly liquid investments purchased with an original maturity of three months or less are classified as cash equivalents. These instruments are stated at cost, which approximates fair value because of their short maturity. Short-term Investments Short-term investments purchased with an original maturity of over three months but less than one year are stated at cost, which approximates fair value because of their short maturity. Short-term investments at December 29, 1994, consisted of a bank certificate of deposit. F-10 Inventories Inventories, which consist primarily of food, beverage and operating supplies, are stated at the lower of cost or market value. Costs are determined using the first-in, first-out method. Advertising Costs Costs for advertising are expensed as incurred, except costs for direct- response advertising, which are capitalized and amortized over the period of the related program. Direct-response advertising costs consist primarily of mailing costs associated with direct-mail programs. Capitalized advertising costs, included in prepaid expenses, were immaterial at December 28, 1995 and December 29, 1994. Advertising costs that were expensed during the year were $12,951,000 in 1995, $9,001,000 in 1994 and $8,892,000 in 1993. Other Investments The Casino Reinvestment Development Authority ("CRDA") bonds are classified as held-to-maturity securities and are carried at amortized cost. Property and Equipment Property and equipment are stated at cost. During construction, the Company capitalizes interest and other direct and indirect development costs. Interest is capitalized monthly by applying the effective interest rate on certain borrowings to the average balance of expenditures. The interest that was capitalized during the year was $5,290,000 in 1995, $2,664,000 in 1994 and $3,491,000 in 1993. Depreciation and amortization are computed by the straight-line method based upon the following useful lives: buildings and improvements, 3-40 years; riverboats, barge, docking facilities and improvements, 3-25 years; furniture and equipment, 3-15 years; and leasehold improvements, shorter of lease term or asset useful life. Accumulated depreciation and amortization on buildings, riverboats and equipment was $202,897,000 at December 28, 1995 and $172,812,000 at December 29, 1994. Improvements, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance are expensed. The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss, if any, on disposition is recognized in income as realized. Deferred Charges Debt issuance costs are capitalized as incurred and amortized using the interest method. Capitalized debt issuance costs, net of accumulated amortization of $3,012,000 and $1,147,000, were $15,063,000 and $16,847,000 at December 28, 1995 and December 29, 1994, respectively. F-11 Costs incurred to obtain initial gaming licenses to operate a casino are capitalized as incurred and amortized evenly over ten years beginning with the commencement of operations; subsequent renewal costs are amortized evenly over the renewal period. Deferred licensing costs consist primarily of payments or obligations to civic and community organizations, legal and consulting fees, application and selection fees with associated investigative costs and direct internal salaries and related costs of development personnel. Deferred licensing costs in connection with initial gaming licenses of open and operating locations, net of accumulated amortization of $1,723,000 and $1,265,000, were $19,951,000 and $1,092,000 at December 28, 1995 and December 29, 1994, respectively. Preopening costs directly related to the opening of a gaming operation or major addition to a gaming operation are capitalized as incurred and expensed in the period the related facility commences operations. Preopening costs consist primarily of salaries and wages, marketing, temporary office expenses, professional fees and training costs. There were no capitalized preopening costs at December 28, 1995. Capitalized preopening costs were $817,000 at December 29, 1994. The Company is actively pursuing new development opportunities in certain gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved. Development costs associated with these pursuits are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company has been selected as the operator of a new gaming facility, has applied for a gaming license or has obtained rights to a specific site. Development costs incurred subsequent to these criteria being met are capitalized. Development costs consist of deferred licensing costs and site acquisition costs. In jurisdictions in which gaming has not been approved, only site acquisition costs are capitalized. In the event a project is later determined not to be viable or the Company is not licensed to operate a facility at a site, the capitalized costs related to this project or site would be expensed. At December 28, 1995 and December 29, 1994, the Company had capitalized costs of $1,458,000 and $2,856,000, respectively, related to various development projects. It is reasonably possible that management's estimate of viability with regard to development projects may change in the near term. Equity Instruments The fair value based method of accounting is used for equity instruments issued to nonemployees for goods or services. The intrinsic value based method of accounting is used for stock-based employee compensation plans. F-12 Revenue Recognition Casino revenue consists of gaming win net of losses. Revenues exclude the retail value of complimentary food and beverage, accommodations and other goods and services provided to customers. The estimated costs of providing such complimentaries have been classified as casino expenses through interdepartmental allocations as follows (in thousands): 1995 1994 1993 -------- -------- -------- Rooms $ 19,329 $ 17,767 $ 18,992 Food and beverage 34,369 33,610 33,287 Other 3,894 4,741 6,666 -------- -------- -------- $ 57,592 $ 56,118 $ 58,945 ======== ======== ======== Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share Earnings per common and common equivalent share are computed based on the weighted average number of common shares outstanding after consideration of the dilutive effect of restricted stock and stock options. Earnings per common share, assuming full dilution, are computed based on the weighted average number of common shares outstanding after consideration of the dilutive effect of restricted stock, stock options and the assumed conversion of the preferred stock at the stated rate. In calculating the 1995, 1994 and 1993 earnings per share for both computations, dividends of $639,000, $620,000 and $610,000, respectively, on the Series B ESOP Convertible Preferred Stock are deducted in arriving at income applicable to the common stock. The 1995, 1994 and 1993 dividends are net of income tax benefits of $128,000, $157,000 and $185,000, respectively. Reclassifications Certain reclassifications have been made in the 1994 Consolidated Balance Sheet and the 1994 and 1993 Consolidated Statements of Operations in order to be comparable with the 1995 presentations. F-13 NOTE 2. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, long-term investments and trade accounts receivable. The Company places its cash and temporary cash investments with high-credit-quality financial institutions. At times, such investments may be in excess of the FDIC and SIPC insurance limits. The Company had certificates of deposit at one financial institution that were classified as other investments at December 28, 1995 and as short-term investments at December 29, 1994. TropWorld has a concentration of credit risk in the northeast region of the U.S. Approximately 40% of the receivables at the Nevada operations are concentrated in Asian and Latin American customers and the remainder of their receivables are concentrated in California and the southwest region of the U.S. As a general policy, the Company does not require collateral for these receivables. At December 28, 1995 and December 29, 1994, the net receivables at TropWorld were $9,503,000 and $7,951,000, respectively, and the net receivables at Tropicana and Ramada Express combined were $11,395,000 and $9,394,000, respectively. An allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses; however, it is reasonably possible that this estimate could change in the near term. At December 28, 1995 and December 29, 1994, the allowance for doubtful accounts was $9,905,000 and $10,720,000, respectively. NOTE 3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIP The Company's investment in unconsolidated partnership is a noncontrolling partnership interest of 50% in Tropicana Enterprises, a Nevada general partnership that owns the real property and certain personal property that the Company leases in the operation of Tropicana. The Company uses the equity method of accounting for this investment and in connection with the lease expensed rents of $17,098,000 in 1995, $15,267,000 in 1994 and $12,684,000 in 1993, of which 50% was eliminated in consolidation. F-14 Summarized balance sheet information and operating results for the unconsolidated partnership are as follows (in thousands): 1995 1994 -------- -------- Current assets $ 835 $ 636 Noncurrent assets 73,440 77,427 Current liabilities 915 983 Noncurrent liabilities 68,845 71,339 1995 1994 1993 -------- -------- -------- Revenues $ 17,166 $ 15,360 $ 12,815 Operating expenses (2,743) (2,748) (2,755) -------- -------- -------- Operating income 14,423 12,612 10,060 Interest expense (6,323) (4,492) (3,793) -------- -------- -------- Net income $ 8,100 $ 8,120 $ 6,267 ======== ======== ======== The Company's share of the above operating results, after intercompany eliminations, is as follows (in thousands): 1995 1994 1993 -------- -------- -------- Equity in unconsolidated partnership's loss $ (5,081) $ (4,169) $ (3,822) NOTE 4. OTHER INVESTMENTS At December 28, 1995 and December 29, 1994, other investments consisted of (in thousands): 1995 1994 -------- -------- CRDA deposits, net of a valuation allowance of $5,927 and $9,233 $16,596 $22,089 CRDA bonds, net of an unamortized discount of $1,420 and $1,311 3,118 2,839 Certificate of deposit 8,250 -- ------- ------- $27,964 $24,928 ======= ======= The Company deposits funds with the CRDA to satisfy a New Jersey assessment based upon its casino revenues. Deposits with the CRDA bear interest at two-thirds of market rates resulting in a fair value lower than cost. If not used for other purposes, the CRDA deposits are used to invest in bonds issued by the CRDA as they become available that also bear interest at two- thirds of market rates. The CRDA bonds have various contractual maturities that range from 29 to 50 years. Actual maturities may differ from contractual maturities because of prepayment rights. F-15 The Company has executed an agreement with the CRDA for approximately $25,000,000 in funding in connection with an expansion project at TropWorld. Construction of the expansion commenced in February 1995 and is scheduled for completion in May 1996. The expansion will consist primarily of a new 604-room hotel tower, with additional restaurant and support facilities in the existing operation. The Company receives funds from the CRDA based on expenditures made for the project to the extent that the Company has available funds on deposit with the CRDA that qualify for this funding. During 1995, the Company received approximately $11,900,000 in funding from the CRDA under this agreement. At December 28, 1995, the Company had approximately $900,000 in available deposits with the CRDA that qualified. The balance of funding will result from portions of future CRDA deposits. The Company has a certificate of deposit which is pledged as collateral for a $13,450,000 letter of credit. The letter of credit was obtained in connection with the Company's obligation to make certain payments over the next five years to the City of Evansville, Indiana as well as other civic and community organizations. The letter of credit will be reduced as certain of these payments are made and the collateral will be released as the letter of credit is reduced below $8,250,000. NOTE 5. LONG-TERM DEBT At December 28, 1995 and December 29, 1994, long-term debt included (in thousands): 1995 1994 -------- -------- 11% Senior Subordinated Notes Due 2002; redeemable beginning October 1, 1997 at 103.143% $200,000 $200,000 13 3/4% Senior Subordinated Notes Due 2004 ($180,000 principal amount, 14% effective interest rate); redeemable beginning October 1, 1999 at 106.875%; net of unamortized discount 177,768 177,650 Reducing revolving credit note; floating rate, 8.39% at December 28, 1995; matures December 31, 1999 116,600 50,000 Other notes payable; 7% to 14.6%; maturities to 2002 1,814 2,115 Obligations under capital leases 723 1,113 -------- -------- 496,905 430,878 Less current portion (466) (666) -------- -------- $496,439 $430,212 ======== ======== Maturities of long-term debt for the five years subsequent to December 28, 1995 are as follows (in thousands): Year 1996 $ 466 1997 439 1998 462 1999 403 2000 116,909 F-16 The 11% Senior Subordinated Notes (the "11% Notes") are due on October 1, 2002. Interest on the 11% Notes is payable semiannually on April 1 and October 1. The 11% Notes are redeemable at the option of the Company, in whole or in part, on or after October 1, 1997, at prices from 103.143% of the principal amount plus interest declining to 100% plus interest beginning October 1, 1999. The 13 3/4% Senior Subordinated Notes (the "13 3/4% Notes") are due on October 1, 2004. Interest on the 13 3/4% Notes is payable semiannually on April 1 and October 1. The 13 3/4% Notes are redeemable at the option of the Company, in whole or in part, on or after October 1, 1999, at prices from 106.875% of the principal amount plus interest declining to 100% plus interest beginning October 1, 2003. The 11% Notes and 13 3/4% Notes, ranked pari passu, are general unsecured obligations of the Company and are subordinated in right of payment to all present and future Senior indebtedness (as defined) of the Company. Upon change of control of the Company, the holders of the 11% Notes and 13 3/4% Notes would have the right to require repurchase of the respective notes at par plus accrued interest. Certain covenants in the 11% Notes and 13 3/4% Notes limit the ability of the Company to incur indebtedness or engage in mergers, consolidations or sales of assets. The reducing revolving credit note (the "Bank Credit Facility") matures on December 31, 1999. The beginning maximum amount of the Bank Credit Facility was approximately $207,000,000. The maximum amount of the Bank Credit Facility reduces quarterly beginning on March 31, 1996 in the annual amounts of $25,000,000 in 1996 and $35,000,000 in each year thereafter until maturity. The Bank Credit Facility is collateralized by all the property of TropWorld, Ramada Express and the riverboat casino operations and, with certain exceptions, the stock of the Company's subsidiaries. Interest is computed on the outstanding principal balance based upon, at the Company's option, a one-, two-, three- or six-month Eurodollar rate plus a margin ranging from 1.25% to 2.75%, or the prime rate plus a margin ranging from zero to 1.50%. The applicable margin is dependent upon the Company's outstanding indebtedness (as defined) and operating cash flow. Effective February 16, 1996, the margin was at the highest level. Interest computed based upon the Eurodollar rate is payable quarterly or on the last day of the applicable Eurodollar interest period, if earlier. Interest computed based upon the prime rate is payable quarterly. The Company incurs a commitment fee ranging from 0.375% to 0.5% per annum on the unused portion of the Bank Credit Facility. The reducing revolving loan agreement governing the Bank Credit Facility (the "Loan Agreement") imposes various restrictions on the Company, including limitations on its ability to incur additional debt, commit funds to maintenance capital expenditures (as defined), merge or sell assets. The Loan Agreement limits the Company on its ability to commit funds to new venture capital expenditures (as defined) for a single project in excess of $50,000,000 with the following exceptions: (i) a riverboat casino project in Evansville, Indiana; (ii) a riverboat casino project in Caruthersville, Missouri; (iii) a hotel tower expansion project at TropWorld and (iv) up to $50,000,000 in a certain type of new venture entity. The permitted new venture capital expenditures have certain individual project maximum amounts and there is a certain limitation in the aggregate. The Loan Agreement also prohibits dividends on the Company's common stock, other than those payable in common stock, and repurchases of the Company's common F-17 stock with certain limited exceptions. In addition, the Loan Agreement contains certain quarterly financial tests, including a minimum net worth, a minimum debt service coverage ratio and a maximum debt to operating cash flow ratio. The maximum debt to operating cash flow financial test was waived at December 28, 1995. This maximum debt to operating cash flow ratio as calculated under the Loan Agreement was 5.26 to 1 at December 28, 1995 and the allowable ratio decreases to 3.75 to 1 at January 2, 1997. NOTE 6. LEASE OBLIGATIONS The Company is a lessee under a number of noncancelable lease agreements involving land, buildings, leasehold improvements and equipment, some of which provide for contingent rentals based on revenues, the consumer price index and/or interest rate fluctuations. The leases extend for various periods up to 16 years and generally provide for the payment of executory costs (taxes, insurance and maintenance) by the Company. Certain of these leases have provisions for renewal options ranging from 1 to 15 years, primarily under similar terms, and/or options to purchase at various dates. Properties leased under capital leases are as follows (in thousands): 1995 1994 -------- -------- Furniture and equipment $ 9,393 $ 9,451 Less accumulated amortization (8,858) (8,599) -------- -------- $ 535 $ 852 ======== ======== Amortization of furniture and equipment leased under capital leases, computed on a straight-line basis, was $299,000 in 1995, $289,000 in 1994 and $1,899,000 in 1993. Minimum future lease obligations on long-term, noncancelable leases in effect at December 28, 1995 are as follows (in thousands): Year Capital Operating ---- -------- --------- 1996 $ 227 $ 9,807 1997 160 9,484 1998 146 9,070 1999 146 8,788 2000 146 8,508 Thereafter 37 77,471 -------- -------- 862 $123,128 ======== Amount representing interest (139) -------- Net present value 723 Less current portion (180) -------- Long-term portion $ 543 ======== The above net present value is computed based on specific interest rates determined at the inception of the leases. F-18 Net rent expense is detailed as follows (in thousands): 1995 1994 1993 -------- -------- -------- Minimum rentals $ 7,618 $ 8,121 $ 30,565 Contingent rentals 3,690 1,830 7,512 Less: Minimum lease income -- -- (2,773) Maintenance reimbursement -- -- (7,557) -------- -------- -------- $ 11,308 $ 9,951 $ 27,747 ======== ======== ======== NOTE 7. OTHER LONG-TERM LIABILITIES At December 28, 1995 and December 29, 1994, other long-term liabilities consisted of (in thousands): 1995 1994 -------- -------- Accrued rent expense $ 13,043 $ 13,679 Obligation to City of Evansville and other civic and community organizations 13,400 -- Deferred compensation and retirement plans 9,739 8,789 Las Vegas Boulevard beautification assessment 535 -- Deferred income 154 154 -------- -------- 36,871 22,622 Less current portion (6,172) (636) -------- -------- $ 30,699 $ 21,986 ======== ======== NOTE 8. REDEEMABLE PREFERRED STOCK A series of preferred stock consisting of 100,000 shares has been designated Series B ESOP Convertible Preferred Stock (the "ESOP Stock") and those shares were issued on December 20, 1989, to the Company's Employee Stock Ownership Plan (the "ESOP"). The ESOP purchased the shares for $10,000,000 with funds borrowed from a subsidiary of the Company. These funds are repayable in even semiannual payments of principal and interest at 13 1/2% per year over a 10-year term. During 1995, 1994 and 1993, respectively, 2,797 shares, 2,206 shares and 1,203 shares were redeemed primarily in connection with employee terminations and at December 28, 1995, cumulative redemptions totaled 7,322 shares. The ESOP Stock has an annual dividend rate of $8.00 per share per annum payable semiannually in arrears. These shares have no voting rights except under certain limited, specified conditions. Shares not allocated to participant accounts and those shares not vested may be redeemed at $100 per share. Shares may be converted into common stock at $9.46 and have a liquidation preference of $100 per share. F-19 The shares that have been allocated to the ESOP participant accounts and have vested are redeemable at the higher of appraised value, conversion value or $100 per share, by the participant upon termination. The excess of the redemption value of the ESOP Stock over the carrying value is charged to retained earnings upon redemption. In the event of default in the payment of dividends on the ESOP Stock for six consecutive semiannual periods, each outstanding share would have one vote per share of common stock into which the preferred stock is convertible. NOTE 9. CAPITAL STOCK The Company is authorized to issue 10,000,000 shares of preferred stock, par value $.01 per share, issuable in series as the Board of Directors may designate. Approximately 40,000 shares of preferred stock have been designated Series A Junior Participating Preferred Stock but none have been issued. The Company is authorized to issue 100,000,000 shares of common stock with a par value of $.01 per share. Shares issued were 42,222,646 at December 28, 1995, and 41,427,819 at December 29, 1994. Common stock outstanding was net of 3,956,833 and 3,968,591 treasury shares at December 28, 1995 and December 29, 1994, respectively. One preferred stock purchase right (a "Right") is attached to each share of the Company's common stock. Each Right will entitle the holder, subject to the occurrence of certain events, to purchase a unit with no par value (a "Unit") consisting of one one- thousandth of a share of Series A Junior Participating Preferred Stock at a purchase price of $40.00 per Unit subject to adjustment. The Rights will expire in December 1999 if not earlier redeemed by the Company at $.01 per Right. The Company issued 292,000 shares of restricted common stock in 1995 to certain executive officers and key employees; however, 18,000 of these shares were forfeited in 1995. The restrictions on 138,000 of the unforfeited shares will lapse over a three-year period commencing on the date of issuance. The restrictions on 102,000 of the unforfeited shares lapsed during 1995 after the common stock price hit certain performance targets. The restrictions on the remaining 34,000 of unforfeited shares will lapse if the common stock price closes at or above $10.00 per share for ten consecutive trading days. Compensation expense in connection with this issuance was $1,168,000 in 1995. Compensation expense in connection with prior issuances of restricted common stock were $65,000 and $72,000 in 1994 and 1993, respectively. In accordance with the Merger agreement, 666,572 shares of common stock that had not been claimed by the shareholders of Ramada were returned to the Company in December 1990 to be held as treasury shares until claimed. During 1995, 1994 and 1993, respectively, 29,758, 23,551 and 42,519 shares were claimed; the balance of unclaimed shares was 393,448 as of December 28, 1995. During 1990, the Board of Directors authorized the Company to make discretionary repurchases of up to 4,000,000 shares of its common stock from time to time in the open market or otherwise and at December 28, 1995, there remains 591,900 shares that could be repurchased under this authority. No shares were repurchased under this program in 1995, 1994 or 1993. Repurchased and forfeited shares are stated at cost and held as treasury shares to be used for general corporate purposes. F-20 Changes in the number of common shares reserved under the Company's stock option plan for directors who are not employees of the Company ("Nonemployee Director Stock Option Plan") are as follows (in thousands of shares): Number of Price Range Shares of Options --------- ----------- Balance, December 31, 1992 62 $5.50-$6.75 Granted 9 $6.75 -------- Balance, December 30, 1993 71 $5.50-$6.75 Granted 13 $6.00-$6.75 Cancelled, expired or surrendered (8) $5.50-$6.75 -------- Balance, December 29, 1994 76 $5.50-$6.75 Granted 9 $9.63 -------- Balance, December 28, 1995 85 $5.50-$9.63 ======== All options granted under the Nonemployee Director Stock Option Plan are immediately exercisable on the date of grant and expire ten years from the date of grant. At December 28, 1995, December 29, 1994 and December 30, 1993, common shares reserved for future grants of options under this plan were 165,000, 174,000 and 179,000, respectively. Changes in the number of common shares reserved under the Company's employee stock option plans are as follows (in thousands of shares): Number of Price Range Shares of Options --------- ----------- Balance, December 31, 1992 3,833 $3.19-$8.15 Granted 50 $7.63 Exercised (339) $3.19-$8.15 Cancelled, expired or surrendered (42) $6.49-$8.15 -------- Balance, December 30, 1993 3,502 $3.19-$8.15 Granted 110 $5.88-$7.00 Exercised (77) $3.19-$5.00 Cancelled, expired or surrendered (57) $5.00-$7.38 -------- Balance, December 29, 1994 3,478 $3.19-$8.15 Granted 670 $7.00-$9.25 Exercised (503) $3.19-$8.15 Cancelled, expired or surrendered (43) $6.05-$8.15 -------- Balance, December 28, 1995 3,602 $3.19-$9.25 ======== At December 28, 1995, December 29, 1994 and December 30, 1993, options exercisable under the Company's employee stock option plans were 2,842,000, 3,289,000 and 3,077,000, respectively; shares reserved for future grants were 844,000, 1,745,000 and 1,797,000, respectively. In addition to the common shares reserved under stock option plans at December 28, 1995, the Company has 980,000 common shares reserved for the conversion of the ESOP Stock. The Company also has 40,563 shares of preferred stock reserved for exercise of the Rights. F-21 NOTE 10. BENEFIT PLANS The Company has a defined benefit pension plan, which is not currently funded, for certain former executive employees. The Company has a nonqualified defined benefit retirement plan, which is not required to be funded by the Company, for certain senior executives. The Company has a defined contribution savings plan that covers substantially all employees who are not covered by a collective bargaining unit. Contributions to the savings plan are discretionary. Total pension and savings plan expense was $822,000 for 1995, $782,000 for 1994 and $689,000 for 1993. The Company also contributed $2,305,000, $2,182,000 and $1,990,000 in 1995, 1994 and 1993, respectively, to trusteed pension plans under various collective bargaining agreements. The Company has a deferred compensation plan for designated executives and a similar plan for outside directors. The plans provide for the payment of benefits commencing at retirement. The Company is substantially funding the plans through the purchase of life insurance. Net expense recognized in 1995, 1994 and 1993 was $183,000, $183,000 and $180,000, respectively. The Company's ESOP covers substantially all non-union employees. The Company will make contributions to the ESOP so that, after the dividends are paid on the Company's ESOP Stock, the ESOP can make its debt service payments to the Company. Cash dividends and contributions, respectively, paid to the ESOP were $754,000 and $1,121,000 in 1995, $773,000 and $1,102,000 in 1994 and $787,000 and $1,088,000 in 1993. Compensation expense recognized in 1995, 1994 and 1993, respectively, was $1,107,000, $1,214,000 and $1,311,000. NOTE 11. INCOME TAXES The (provision) benefit for income taxes before extraordinary items is comprised of (in thousands): 1995 1994 1993 Current: -------- -------- -------- Federal $ (429) $ (4,588) $ (2,231) State -- (317) (73) -------- -------- -------- (429) (4,905) (2,304) Deferred: -------- -------- -------- Federal 1,170 2,174 378 State 4,446 869 902 -------- -------- -------- 5,616 3,043 1,280 -------- -------- -------- $ 5,187 $ (1,862) $ (1,024) ======== ======== ======== The Company is responsible, with certain exceptions, for the taxes of Ramada through December 20, 1989. The Internal Revenue Service has completed its examination of the income tax returns for the years 1986 and 1987. Ramada has signed a partial agreement for those two years and has filed a petition with the U.S. Tax Court for two remaining issues. Management expects those two issues to be resolved on satisfactory terms prior to trial. The Internal Revenue Service is examining the income tax returns for the years 1988 through 1993. The New Jersey Division of F-22 Taxation is examining the income tax returns for the years 1986 through 1989. Management believes that adequate provision for income taxes and interest has been made in the financial statements. In connection with the Internal Revenue Service examinations of the years 1986 through 1989, management has been conservative in providing for amounts that could be due upon settlement. It is reasonably possible that these examinations could be favorably settled in the near term. General business credits are taken as a reduction of the provision for federal income taxes during the year such credits become available. The following table provides a reconciliation between the federal statutory rates and the (provision) benefit for income taxes when both are expressed as a percentage of pretax income. 1995 1994 1993 -------- -------- -------- Tax (provision) benefit at statutory rate 35.0 % (35.0)% (35.0)% (Increase) decrease in tax resulting from: State income taxes (7.2) 2.5 4.3 Contributions and gifts (2.4) (.7) (.6) Disallowance of business meals (13.5) (6.7) (4.1) Lobbying and nondeductible dues (2.1) -- -- Restricted stock and nonqualified stock options .7 .7 .7 IRS examination .2 (4.1) (7.9) General business credits 4.1 2.2 4.2 Change in valuation allowance 35.6 31.4 30.3 Other, net .5 (.3) (.2) ------- ------- ------- 50.9 % (10.0)% (8.3)% ======= ======= ======= The income tax effects of loss carryforwards, tax credit carryforwards and temporary differences between financial and income tax reporting that give rise to the deferred income tax assets and liabilities at December 28, 1995 and December 29, 1994, are as follows (in thousands): 1995 1994 --------- --------- Net operating loss carryforward $ 18,015 $ 15,266 Accrued rent expense 5,415 4,840 Accrued bad debt expense 4,476 5,255 Accrued compensation 5,134 4,705 Accrued liabilities 3,976 2,704 General business credit carryforward 7,021 6,851 -------- -------- Gross deferred tax assets 44,037 39,621 -------- -------- Deferred tax asset valuation allowance (8,196) (11,572) -------- -------- Other (2,049) (743) Partnership investment (5,291) (5,250) Depreciation and amortization (17,958) (17,129) Ramada tax sharing agreement (21,444) (21,444) -------- -------- Gross deferred tax liabilities (46,742) (44,566) -------- -------- Net deferred tax liabilities $(10,901) $(16,517) ======== ======== F-23 Gross deferred tax assets are reduced by a valuation allowance. Realization of the net deferred tax asset at December 28, 1995, is dependent on generating sufficient taxable income prior to expiration of the net operating loss carryforward. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax asset will be realized. The beginning-of-year valuation allowances were reduced during 1995, 1994 and 1993 which caused a decrease in income tax expense of $3,622,000, $6,286,000, and $3,878,000, respectively. In addition, $520,000 that was included in the December 30, 1993 valuation allowance was allocated to shareholders' equity during 1994. At December 28, 1995, tax benefits are available for federal income tax purposes as follows (in thousands): Net operating losses $35,732 General business credits 3,390 These tax benefits will expire in the years 2003 through 2010 if not used. The Company also has alternative minimum tax credit carryforwards of $3,631,000 that can be carried forward indefinitely and offset against the regular federal income tax liability. In addition, the Company has net operating loss carryforwards for state income tax purposes that will expire in the following years if not used (in thousands): 1996 $23,943 1997 15,310 1998 18,209 1999 12,549 2000 6,245 2001 9,606 2002 498 2010 10,272 NOTE 12. EXTRAORDINARY ITEMS In 1994, the Company expensed the remaining unamortized deferred financing costs and unamortized discount in connection with early redemptions of debt. These items were reflected in the 1994 Consolidated Statement of Operations as an extraordinary loss of $2,708,000, which was net of an income tax benefit of $1,776,000. NOTE 13. CONTINGENCIES AND COMMITMENTS The Company agreed to indemnify Ramada against all monetary judgments in lawsuits pending against Ramada and its subsidiaries as of the conclusion of the Restructuring on December 20, 1989, as well as all related attorneys' fees and expenses not paid at that time, except for any judgments, fees or expenses accrued on the hotel business balance sheet and except for any unaccrued and unreserved aggregate amount up to $5,000,000 of judgments, fees or expenses related exclusively to the hotel business. Aztar is entitled to the benefit of any crossclaims or counterclaims related to such lawsuits and of any insurance proceeds received. In addition, the Company agreed to indemnify Ramada for various lease guarantees made by Ramada relating to the restaurant business conducted through its Marie Callender Pie Shops, Inc. subsidiary. In connection with these matters, the Company has an accrued liability of $3,941,000 and $3,963,000 at December 28, 1995 and December 29, 1994, respectively. F-24 The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the Company. Management believes that its defenses are substantial in each of these matters and that the Company's legal posture can be successfully defended without material adverse effect on its consolidated financial statements. The Tropicana lease agreement contains a provision that requires the Company to maintain an additional security deposit with the lessor of approximately $21,251,000 in cash or a letter of credit if the Tropicana operation fails to meet certain financial tests. This requirement was waived at December 28, 1995. The Company has a 50% partnership interest in the lessor. The Company has severance agreements with certain of its senior executives. Severance benefits for three of the executives consist of, among other things, a lump-sum cash payment equal to twice the sum of the executive's annual base salary plus twice the average of the executive's annual bonuses awarded in the three years preceding termination of employment, payment of the value in their outstanding stock options and vesting and distribution of any restricted stock. Certain other executives would receive a lump-sum cash payment equal to their annual base salary plus a three-year average of their annual bonus, plus the other described benefits. Some of the executives would receive a lump-sum cash payment equal to their base salary. In certain agreements, the termination must be as a result of a change in control of the Company. Based upon current salary levels and stock options, the aggregate commitment under the severance agreements should all these executives be terminated, is approximately $15,300,000 as of December 28, 1995. At December 28, 1995, the Company had commitments of approximately $75,000,000 for the purchase of property and equipment. NOTE 14. ACQUISITION In July 1993, the Company acquired the partnership interests in Ambassador Real Estate Investors, L.P. ("AREI") and Ambassador General Partnership ("AGP"). AREI owned a 99.9% general partnership interest in AGP, which acquired a substantial interest in TropWorld in a sale-leaseback transaction in 1984. The acquisition has been accounted for as a purchase by the Company. The aggregate consideration, including costs incurred to complete the transaction, was approximately $62,000,000 in cash. The Company had a $10,000,000 revolving credit note to fund a portion of the purchase price. This acquisition did not significantly change Aztar's total assets. The cash paid by Aztar and notes receivable from AGP were replaced on Aztar's balance sheet by the assets acquired, which consisted primarily of building and equipment. The additional $10,000,000 of indebtedness incurred by Aztar was more than offset by a reduction of indebtedness to AGP. The Company's consolidated statements of operations include the results of AGP from its acquisition until its dissolution in November 1994. After intercompany eliminations, the acquisition has the following effects on consolidated results: Most of the reduction in Aztar interest income from the replacement of the AGP notes receivable is offset by a reduction in rent expense. Aztar's net income is affected negatively primarily by an increase in depreciation expense. F-25 If the acquisition had occurred at the beginning of the year ended December 30, 1993,the Company's results of operations would have been as follows (in thousands, except per share data): 1993 -------- (unaudited) Revenues $518,762 Income before extraordinary items 7,846 Net income 7,846 Earnings per common and common equivalent share: Income before extraordinary items $ .19 Net income .19 Earnings per common share assuming full dilution: Income before extraordinary items $ .18 Net income .18 NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents (in thousands) the carrying amounts and estimated fair values of the Company's financial instruments at December 28, 1995 and December 29, 1994, respectively. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Assets Short-term investments $ -- $ -- $ 8,250 $ 8,250 Other investments 27,964 27,964 24,928 24,928 Liabilities Current portion of long-term debt 466 466 666 666 Current portion of other long-term liabilities 4,900 4,854 -- -- Long-term debt 496,439 518,021 430,212 416,362 Other long-term liabilities 8,500 6,968 -- -- Off-Balance-Sheet Letter of credit -- 13,450 -- 13,450 The carrying amounts shown in the table are included, if applicable, in the Consolidated Balance Sheets under the indicated captions. All of the Company's financial instruments are held or issued for purposes other than trading. The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments. F-26 Short-term investments are valued at their carrying amounts included in the balance sheets, which are reasonable estimates of fair value due to the relatively short period to maturity. Other investments consisted of deposits with the CRDA and CRDA bonds that bear interest at two-thirds of market rates resulting in a fair value lower than cost. The carrying amounts of these deposits and bonds are presented net of a valuation allowance and an unamortized discount that result in an approximation of fair values. Other investments at December 28, 1995, also included a 90-day certificate of deposit which was valued at its carrying amount which is a reasonable estimate of fair value due to the relatively short period to maturity. The fair values of the Company's publicly traded debt were estimated based on the bid prices in the public bond markets. The carrying amounts of the revolving credit note are reasonable estimates of fair value because this note is carried with a floating interest rate. The amounts reported for other long-term liabilities relate to the Company's obligation to the City of Evansville and other civic and community organizations. The fair values were estimated by discounting expected cash flows using a discount rate commensurate with the risks involved. The fair value of the letter of credit was estimated to be the same as the contract value based on the nature of the fee arrangement with the issuing financial institution. F-27 NOTE 16. UNAUDITED QUARTERLY RESULTS/COMMON STOCK PRICES The following unaudited information shows selected items in thousands, except per share data, for each quarter in the years ended December 28, 1995 and December 29, 1994. The Company's common stock is listed on the New York Stock Exchange. First Second Third Fourth -------- -------- -------- -------- 1995 - ---- Revenues $135,568 $145,390 $154,935 $136,976 Operating income (loss) 15,763 13,792 18,994 (5,848) Income (loss) before income taxes 3,046 623 5,907 (19,757) Income taxes (1,086) (98) (1,333) 7,704 Net income (loss) 1,960 525 4,574 (12,053) Earnings per common and common equivalent share: Net income (loss) .05 .01 .11 (.31) Earnings per common share assuming full dilution: Net income (loss) .05 .01 .11 * 1994 - ---- Revenues $130,566 $135,747 $146,847 $128,280 Operating income 16,844 18,800 22,343 11,420 Income (loss) before income taxes and extraordinary items 4,638 6,622 10,121 (2,715) Income taxes (85) (41) (2,554) 818 Extraordinary items -- -- -- (2,708) Net income (loss) 4,553 6,581 7,567 (4,605) Earnings per common and common equivalent share: Income (loss) before extraordinary items .11 .17 .19 (.05) Net income (loss) .11 .17 .19 (.12) Earnings per common share assuming full dilution: Income (loss) before extraordinary items .11 .16 .19 * Net income (loss) .11 .16 .19 * Common Stock Prices - ------------------- 1995 - High $ 9.13 $10.00 $10.50 $ 9.13 - Low 5.63 8.00 7.63 6.88 1994 - High 7.88 7.13 7.38 7.00 - Low 6.25 5.38 5.75 5.38 * Anti-dilutive F-28 Management's Discussion and Analysis Financial Condition - Liquidity and Capital Resources Sources of Liquidity and Capital The company's financial resources, in addition to cash from operations, primarily consist of a base level of debt and a reducing revolving credit facility. The base level of debt consists of two public debt issues and a bank term loan. The public debt issues are ranked pari passu and consist of $200 million of 11% Senior Subordinated Notes Due 2002 (the "11% Notes") that were issued in 1992 and $180 million of 13 3/4% Senior Subordinated Notes Due 2004 (the "13 3/4% Notes") that were issued in 1994. Interest on the 11% Notes and the 13 3/4% Notes is payable semi-annually on April 1 and October 1. Except for a change of control situation, the 11% Notes are not redeemable until October 1, 1997 and the 13 3/4% Notes are not redeemable until October 1, 1999. The bank term loan (the "Term Loan") is an off-balance-sheet loan payable by Tropicana Enterprises, a Nevada general partnership in which the company is a noncontrolling 50% partner. Tropicana Enterprises owns the real property and certain personal property that the company leases in the Tropicana operation. The Term Loan is serviced through the company's rent payments. The Term Loan matures on December 31, 1999, and calls for principal payments of between $2.5 million and $3.3 million each year, with a final payment of approximately $57 million due at maturity. The Term Loan balance at December 28, 1995 is approximately $69 million. The reducing revolving credit facility (the "Credit Facility") was provided in October 1994 by a group of banks led by Bank of America as managing agent and it matures on December 31, 1999. The maximum amount of this facility will reduce from $207 million quarterly beginning on March 31, 1996 in the annual amounts of $25 million in 1996 and $35 million in each year thereafter until maturity. The Credit Facility bears a floating rate of interest that is payable at least quarterly and sometimes more often depending on the interest option selected by the company. At December 29, 1994, the outstanding balance under the Credit Facility was $50 million. During 1995, the company repaid $17 million and borrowed $83.6 million, leaving an outstanding balance of $116.6 million at December 28, 1995. The funds from the Credit Facility were used in the expansion of the Company's existing businesses and the development of businesses in new gaming jurisdictions as discussed later. The Credit Facility imposes various restrictions on the company, including limitations on its ability to incur additional debt, commit funds to maintenance capital expenditures (as defined), merge or sell assets. The Credit Facility prohibits dividends on the company's common stock, other than those payable in common stock, and repurchases of the company's common stock with certain limited exceptions. In addition, the Credit Facility contains certain quarterly financial tests, including a minimum net worth, a minimum debt service coverage ratio and a maximum debt to operating cash flow ratio. For purposes of the maximum debt to operating cash flow ratio, uncollateralized letters of credit are considered to be debt. At December 28, 1995, the maximum debt to operating cash flow ratio requirement was waived and scheduled reductions in the ratio through the third quarter 1996 were modified. The company's ability to maintain or increase debt capacity on or after March 28, 1996, is contingent on increased levels of operating cash flow that the company does anticipate, especially with the opening in December 1995 of the new riverboat operation in Evansville, Indiana. F-29 Additional sources of funds in 1995 were $11.9 million from the Casino Reinvestment Development Authority ("CRDA") in connection with the 604-room hotel tower expansion project at TropWorld and $2.0 million from the exercise of stock options. The CRDA funds result from an agreement providing for approximately $25 million in funding. The company will continue to receive funds from the CRDA based on expenditures made for the project to the extent that the company has available funds on deposit with the CRDA that qualify for this funding. At December 28, 1995, the company had approximately $0.9 million in available deposits with the CRDA that qualified. At December 28, 1995, the company had $8.25 million in a certificate of deposit that was pledged as collateral for a $13.45 million letter of credit in connection with the company's commitment to make certain payments to the City of Evansville, Indiana as well as other civic and community organizations. Caruthersville Riverboat Casino Project On April 28, 1995, the company commenced operations of a riverboat casino in Caruthersville, Missouri. Caruthersville is located on the Mississippi River approximately 90 miles north of Memphis, Tennessee. The riverboat has an approximate 14,000-square-foot casino with 445 slot machines and 27 table games and had an initial capacity of 600 passengers plus crew. In December 1995, the company in coordination with the U.S. Coast Guard made modifications to the riverboat and increased capacity to 800 passengers plus crew in order to alleviate capacity constraints on weekends. The project also includes a barge at river's edge for passenger boarding and disembarking. A pavilion for ticketing and pre-boarding facilities, including a restaurant, a sports lounge, a snack bar, and other amenities was opened in July 1995. The company's expenditures for property and equipment on this project in 1995 were approximately $28.2 million. Total expenditures for property and equipment on this project including amounts from prior years were approximately $51.6 million at December 28, 1995. Evansville Riverboat Casino Project On December 7, 1995, the company commenced operations of a riverboat casino in Evansville, Indiana. Casino Aztar, featuring the "City of Evansville" casino riverboat, is Indiana's first riverboat casino. Evansville, on the Ohio River in southwestern Indiana, is a market of 650,000 persons within 50 miles, 2.5 million persons within 100 miles, including part of the metropolitan Louisville, Kentucky area, and more than 3 million persons within 120 miles. The Evansville casino is projected to have 2.3 million visitors annually until additional competition emerges for the Louisville market. The "City of Evansville" casino riverboat is 310 feet long and 70 feet wide, with a capacity of 2,500 passengers plus a crew of 300. The casino contains 1,267 slot machines and 70 table games. The project opened utilizing temporary facilities that included surface parking and a 13,000-square-foot pavilion for passenger ticketing and related services. A 250-room hotel; "Riverfront Pavilion", an entertainment complex for pre-boarding facilities, restaurants, lounge and retail shops; parking facilities for more than 1,600 vehicles and other amenities are under construction and scheduled for completion by December 1996. The company's expenditures for property and equipment on this project in 1995 were approximately $48.7 million. Total expenditures for property and equipment on this project including amounts from the prior year were approximately $56.4 million at December 28, 1995. F-30 TropWorld Project In February 1995, the company commenced construction on an expansion of TropWorld in Atlantic City, New Jersey consisting primarily of a new 604-room hotel tower, with additional restaurant and support facilities in the existing operation. It is scheduled to be completed in May 1996. The additional 604 rooms will bring TropWorld's capacity to 1,624 rooms, making it the largest of the 12 casino hotels in Atlantic City in terms of hotel rooms. TropWorld's casino at December 28, 1995, at 92,000 square feet, was the third largest in the city. The company's expenditures for property and equipment on this project in 1995 were approximately $32.9 million. On-going Capital Expenditures During 1995, the company spent approximately $26.1 million on routine purchases of property and equipment including $4.8 million on improvements for two restaurants at Tropicana and $4.3 million on a renovation of existing rooms at TropWorld that was underway at December 28, 1995, to complement the new hotel tower. Other expenditures during 1995 included $3.8 million in deposits with the CRDA, a $2 million deposit with the Indiana Gaming Commission for the Evansville operation, deferred licensing and preopening costs for Caruthersville of $2.3 million and deferred licensing and preopening costs for Evansville of $7.6 million. Future Developments During 1995, the number of new jurisdictions considering the legalization of gaming significantly decreased compared to the number during 1990 to 1994. However, the company is continuing its efforts to explore opportunities in new jurisdictions considering gaming and in existing gaming jurisdictions where the potential markets meet the company's standards for sound, meaningful long- term opportunities. Commitments At December 28, 1995, the company had commitments of approximately $75 million for the purchase of property and equipment. In 1996, the company plans to spend approximately $33 million on routine capital expenditures, approximately $49 million on the Evansville facility and approximately $40 million to complete the TropWorld project. In connection with the company's commitment to make certain payments to the City of Evansville as well as other civic and community organizations, the company was required to obtain a letter of credit for $13.45 million. In connection with this letter of credit, the company had an $8.25 million certificate of deposit as collateral at December 28, 1995. In January 1996, the company paid approximately $3.6 million to the City of Evansville and other organizations in connection with this commitment. The letter of credit will be reduced as the company makes its payments. The reductions in the letter of credit are first applied to the uncollateralized portion. During 1995, the company reached a settlement with the New Jersey Division of Taxation with regard to its examination of the income tax returns for 1983 to 1985. In connection with this settlement, the company paid $2.5 million on December 29, 1995. This liability was reflected in the balance sheet at December 28, 1995. F-31 The Tropicana 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 operation fails to meet certain financial tests. This requirement was waived at December 28, 1995. Results of Operations - 1995 versus 1994 Aztar's consolidated revenues were $572.9 million for 1995, an increase of 6% from $541.4 million in 1994. An increase in total revenues at TropWorld combined with added revenues from the company's riverboat operations that opened in 1995 more than offset a decrease in total revenues at Tropicana and Ramada Express. Casino Aztar Caruthersville began operations on April 28, 1995, and Casino Aztar Evansville began operations on December 7, 1995. Games revenue in 1995 at the company's land-based properties was down only slightly from 1994 and slot revenue in 1995 was up only slightly from 1994, resulting in a nominal increase in casino revenue at the company's land-based properties in 1995 compared with 1994. Consolidated operating income in 1995 was $50.4 million before the effects of $7.7 million in preopening cost writeoffs in connection with the riverboat operations, compared with $69.4 million consolidated operating income in 1994. In addition to the effect of the 1995 writeoffs of preopening costs, consolidated operating income was lower in 1995 compared with 1994 because of lower operating results at Tropicana and Ramada Express. Consolidated marketing costs were up $13 million or 29% in 1995 compared with 1994 primarily due to an increased number of promotions and special events as well as increased advertising and contract entertainment costs at TropWorld, combined with the added marketing costs associated with opening operations in new locations as well as attempting to maintain revenues in the declining Laughlin, Nevada market. The consolidated provision for doubtful accounts increased 16% in 1995 compared with 1994 as a result of increasing the allowance for potential uncollectible markers associated with the premium table game business in Las Vegas, Nevada. Additional analysis of the performance of each of Aztar's properties follows. TropWorld TropWorld Casino and Entertainment Resort in Atlantic City, New Jersey had total revenues of $332.7 million in 1995 compared with $320.1 million in 1994 and operating income of $54.5 million in 1995 compared with $54.2 million in 1994. The principal reason for the increase in total revenues was an increase of $11.5 million or 4% in casino revenue in 1995 compared to 1994. One factor in this 1995 increase was that casino revenue was reduced in 1994 as a result of severe weather conditions in the East during January and February. Another reason for the increase in casino revenue was an increase in coin redemptions. TropWorld also benefited from a strong market growth rate of 10% in the Atlantic City market during 1995. The trend of declining games revenue at TropWorld was reversed in 1995. Games revenue increased by $2.9 million in 1995 compared with 1994. This follows year-over-year decreases of $0.5 million in 1994, $10.4 million in 1993 and $6.6 million in 1992. The slot revenue percentage of total casino revenue held at 76% in 1995, the same percentage as in 1994 and 1993, compared to 73% in 1992 and 69% in 1991. F-32 Consistent with the increase in casino revenue was an increase in casino costs of $6.6 million or 5% in 1995 compared with 1994 as a result of increased direct costs and coin redemptions. In addition, marketing costs were 27% higher in 1995 compared with 1994 as a result of an increase in the number of special events and promotions at the property combined with increases in expenses relating to contract entertainers and advertising. Operating income is after depreciation and amortization of $21.7 million in 1995 compared with $22.5 million in 1994 and rent of $1.4 million in both 1995 and 1994. Tropicana Tropicana Resort and Casino in Las Vegas, Nevada in 1995 ended its string of year-over-year improvements that began in 1992. Total revenues were $138.0 million in 1995 compared with $140.3 million in 1994. Tropicana had a $3.9 million operating loss in 1995 compared with $8.9 million operating income in 1994. Operating loss or income is after rent expense of $9.2 million in 1995 compared with $8.1 million in 1994. Rent expense increased as a result of a higher interest component of rent payments made to the company's unconsolidated partnership. The interest component was higher due to higher interest rates. Operating loss or income is also after depreciation and amortization of $7.8 million in 1995 compared with $6.5 million in 1994. Depreciation and amortization increased in 1995 as a result of improvements and renovations at the property that were completed in mid-1994 and 1995. The games revenue at Tropicana decreased by 13% in 1995 compared with 1994. Games revenue has declined over the previous several years as the company shifted its focus from premium table games to slot machines. In 1995, the company began an effort to recapture some premium table game business while maintaining slot revenue. Tropicana did maintain slot revenue in 1995 compared with 1994 and increased table games volume by 9%; however, the baccarat hold percentage was 3% in 1995 compared with 26% in 1994 and 22% to 40% in 1993 to 1991. Baccarat revenue as a percent of casino revenue was 1%, 4%, 3%, 7% and 10% for the years 1995, 1994, 1993, 1992 and 1991, respectively. The mix of slot revenue to total casino revenue was 64%, 61% and 63% in 1995, 1994 and 1993, respectively; compared with 56% and 49% in 1992 and 1991, respectively. The Tropicana's casino costs were up approximately 6% in 1995 compared with 1994, reflecting the higher costs associated with increasing the table games volume. The combination of a decrease in casino revenue combined with an increase in casino direct costs caused a decrease in the casino operating profit margin from 44% in 1994 to 37% in 1995. Food and beverage revenue increased by 8% in 1995 over 1994 as a result of an increase in volume associated with the introduction of a buffet in 1995 and capital improvements associated with two restaurants. However, food and beverage costs increased by 15% in 1995 compared with 1994 as a result of higher food costs and increased payroll costs. The provision for doubtful accounts increased by $0.6 million in 1995 compared with 1994 as a result of increasing the allowance for potential uncollectible markers associated with the premium table game business. F-33 Ramada Express Ramada Express Hotel and Casino in Laughlin, Nevada had revenues that were down slightly in 1995 from 1994. The decrease in the property's revenues reflected an overall market in Laughlin that was also down in most of 1995 from 1994. Total revenues for Ramada Express were $80.4 million in 1995 compared with $81.0 million in 1994. Operating income was $12.0 million in 1995 compared with $15.9 million in 1994. Operating income is after depreciation and amortization of $7.2 million in 1995 compared with $7.6 million in 1994. Rent expense was not significant in either year. The Laughlin market declined in 1995 from 1994 primarily because of competition from Indian casinos in Arizona and California, the addition of a casino at Stateline, Nevada and the additional capacity on the Boulder Highway in Las Vegas. The operating margin, as measured by operating income before depreciation and amortization, declined in 1995 to 24% from 29% in 1994. The decline is attributable to higher costs associated with attracting and retaining business in a declining market, combined with higher employee benefit costs. Casino Aztar Caruthersville Casino Aztar Caruthersville in Caruthersville, Missouri began operations on April 28, 1995; however, the full project was not completed until July 1995 with the opening of a pavilion that included a restaurant, sports lounge, snack bar and other amenities. Total revenues at Caruthersville were $16.3 million. Before the effect of a $2.6 million writeoff of preopening costs, Caruthersville had an operating loss of $2.2 million. The operating loss is after depreciation and amortization of $2.0 million. Because this was a start-up operation in a new market in 1995, the company incurred more marketing costs as a percentage of casino revenue than at its more established locations. Marketing costs, consisting primarily of radio, newspaper and outdoor advertising, were 19% of casino revenue compared to 12% of casino revenue for the company on a consolidated basis. Another reason for this percentage to be high is that revenues were lower than expected due to a shortfall in expected admissions. Caruthersville is located in a rural market that has proven to be difficult to capture and the riverboat was constrained by its capacity on weekends. The company has revised its marketing plan to include television advertising and, at the end of December 1995, through modifications to the riverboat, has increased its passenger capacity. Casino Aztar Evansville Casino Aztar Evansville in Evansville, Indiana began operations on December 7, 1995, utilizing temporary facilities that included surface parking and a 13,000-square-foot pavilion for passenger ticketing and related services. The permanent land-based facilities including a 250-room hotel, parking garage and entertainment complex are under construction and scheduled for completion by December 1996. Total revenues at Evansville were $5.5 million. Before the effect of a $5.1 million writeoff of preopening costs, Evansville had operating income of $0.8 million. Operating results are after depreciation and amortization of $0.6 million. The facility opened during the traditional pre-Christmas slowdown in the casino business without the benefit of the strong New Year's Eve business because the company's fiscal year ended on December 28, 1995. F-34 Development Costs In mid-1993, the company began pursuing the development of its business in certain gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved. In connection with these efforts, the company expensed approximately $1.9 million in 1995 and $1.6 million in 1994. Interest Expense Interest expense in 1995 was $51.1 million compared with $49.7 million in 1994. There was no substantial increase in interest expense in spite of the higher level of debt outstanding in 1995 because $5.3 million of interest associated with construction activities was capitalized in 1995 compared with $2.7 million in 1994. Equity in Unconsolidated Partnership The Company's loss on its equity share in Tropicana Enterprises increased as a result of higher interest expense due to the increase in interest rates in 1995 on the floating rate bank financing of Tropicana Enterprises. Aztar is a noncontrolling 50% partner in Tropicana Enterprises. Extraordinary Items The company had an extraordinary loss in 1994 of $2.7 million, which was net of an income tax benefit of $1.8 million, related to the early redemption of the company's 13 1/2% First Mortgage Notes Due 1996 and the early redemption of a revolving credit facility also due in 1996 that was collateralized by Ramada Express. The loss consisted of the writeoff of the unamortized deferred financing costs and unamortized discount associated with the debt that was redeemed early. Results of Operations - 1994 versus 1993 Aztar's consolidated revenues were $541.4 million for 1994, an increase of 4% from $518.8 million in 1993. Increases in total revenues at Ramada Express and Tropicana more than offset a decrease in total revenues at TropWorld. The primary reason for the increase in consolidated revenues was the major expansion of the Ramada Express facility completed in September 1993. Consolidated casino revenue was up $4.1 million or 1% in 1994 compared to 1993 as the increase at Ramada Express offset a decrease at TropWorld. The trend in the mix of consolidated casino revenue in 1993 and 1992, wherein games revenue was decreasing and slot revenue was increasing, was broken in 1994. Games revenue in 1994 remained basically even with 1993. Slot revenue also remained even in 1994, with an increase in slot revenue at Ramada Express due to the expansion offsetting a decrease at TropWorld. Consolidated operating income was $69.4 million in 1994 compared with $37.4 million in 1993. The primary reasons for the increase in consolidated operating income were the reduction in net rent at TropWorld and the expansion at Ramada Express. The reduction in net rent was caused by the purchase in July 1993 of the partnership interests in Ambassador Real Estate Investors, L.P. ("AREI") and Ambassador General Partnership ("AGP"), which eliminated the rent the company incurred for the portion of TropWorld that was owned by AREI/AGP. The net rent reduction was partially offset by an increase in F-35 depreciation and amortization that was caused by this purchase. Additional analysis of the performance of each of Aztar's three operating properties follows. Ramada Express Ramada Express had a very good year in 1994, despite a flat overall market, as a result of a major expansion that was completed in September 1993. The expansion added 1,100 hotel rooms for a total of 1,500 hotel rooms and added 20,000 square feet of casino space for a total of 50,000 square feet of casino space. As a result of this significant expansion, operating results for 1994 are not comparable with 1993's. Ramada Express revenues were $81.0 million in 1994 compared with $56.2 million in 1993. Operating income was $15.9 million in 1994 compared with $5.5 million in 1993, an increase of 189%. Operating income is after depreciation and amortization of $7.6 million in 1994 compared with $5.4 million in 1993. Net rent was not significant in either year. All revenue and cost components were higher in 1994 than in 1993. In spite of the substantial increase in available rooms at Ramada Express in 1994 compared with 1993, the hotel occupancy rate was 87% in 1994 versus 80% in 1993. The operating margin, as measured by operating income before depreciation and amortization, was 29% in 1994 compared with 19% in 1993. The 1993 results were affected by the disruption to its operations associated with the construction activities and by additional costs incurred to minimize that disruption. The company also expensed $0.9 million of preopening costs in 1993 in connection with the expanded facilities. Tropicana Tropicana continued to improve in 1994 on top of an improvement in 1993 over 1992. Total revenues for Tropicana were $140.3 million in 1994 compared with $134.9 million in 1993 and operating income was $8.9 million in 1994 compared with $7.2 million in 1993. Operating income increased $1.7 million in spite of a $1.3 million increase in net rent to $8.1 million in 1994 from $6.8 million in 1993. Net rent increased as a result of a consumer price index adjustment, which took place in late 1993, and an increase in the component of rent that is attributable to the increase in interest rates in 1994 over 1993. The next consumer price index adjustment occurs in late 1998. Operating income is also after depreciation and amortization of $6.5 million in both 1994 and 1993. The games revenue at Tropicana in 1994 was basically flat with 1993 after decreases of 8% in 1993 and 7% in 1992. Games revenue had been declining as a result of lower baccarat revenue as the company shifted from a historical dependence on premium table games to the slot segment of the business. Rooms revenue increased 20% in 1994 over 1993 as a combined result of higher room rates and a 14% reduction in the number of occupied rooms provided on a complimentary basis. Rooms cost increased 13% in 1994 over 1993 primarily as a result of a decrease in the interdepartmental allocation to the casino department caused by the reduction in the use of complimentary rooms as a means of promoting casino activity. The provision for doubtful accounts increased $1.4 million in 1994 compared to 1993 as a result of increasing the allowance for potential uncollectible markers associated with the premium table game business. F-36 TropWorld TropWorld had a year in 1994, as was also the case in 1993, in which total revenues decreased and operating income increased. Total revenues decreased 2% to $320.1 million in 1994 from $327.7 million in 1993 while operating income increased 62% to $54.2 million from $33.5 million. The principal reason for the decrease in total revenues was a decrease of $10.0 million or 3% in casino revenue in 1994 compared to 1993. This decrease in casino revenue is attributable to a $10.5 million decrease in coin redemptions and also a decrease in the use of complimentary rooms and food and beverage service as a means of promoting casino activity. In addition, severe weather conditions in the East were, in large part, the cause of declines in the market's growth rate for casino revenue during January and February 1994. A benefit associated with the reductions in coin redemptions and complimentaries was a decrease in costs, which is one of the reasons for the increase in operating income. Casino costs decreased $14.2 million or 10% in 1994 compared to 1993. The primary reason for the increase in TropWorld's operating income was the effects of the AREI/AGP acquisition, which resulted in a reduction in net rent and an increase in depreciation and amortization. Net rent in 1994 was $1.4 million compared with $20.4 million in 1993 and depreciation and amortization in 1994 was $22.5 million compared with $20.4 million in 1993. Development Costs In mid-1993, the company began pursuing the development of its business in certain gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved. In connection with these efforts, the company expensed approximately $1.6 million and $1.3 million of development costs in 1994 and 1993, respectively. Interest Income and Expense Interest income declined by $21.0 million in 1994 from 1993 as a result of the AREI/AGP acquisition. In this acquisition, the cash paid by Aztar and notes receivable from AGP were replaced on Aztar's balance sheet by the assets acquired. The reduction in Aztar's interest income from the replacement of the AGP notes receivable was for the most part offset by a reduction in rent expense at TropWorld. This acquisition transaction also resulted in an increase in depreciation and amortization at TropWorld. Interest expense increased by $4.3 million or 10% in 1994 from 1993. The increase is primarily attributable to a reduction in interest being capitalized in association with construction projects and the refinancing that took place in October 1994. The refinancing resulted in approximately $2 million of higher interest expense in as much as the 13 3/4% Notes were issued on October 4, 1994, and the First Mortgage Notes were not redeemed until November 2, 1994, resulting in approximately 30 days of duplicate interest expense. Other Matters In March 1995, the Financial Accounting Standards Board ("FASB") adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121"), which requires impairment losses to be recorded on long-lived F-37 assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Adoption of the provisions of SFAS 121 is required for fiscal years beginning after December 15, 1995, with earlier adoption permitted. Restatement of previously issued financial statements is not permitted. The company will adopt SFAS 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. In October 1995, the FASB adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which has recognition provisions that establish a fair value based method of accounting for stock-based employee compensation plans and established fair value as the measurement basis for transactions in which an entity acquires goods or services from nonemployees in exchange for equity instruments. SFAS 123 also has certain disclosure provisions. Adoption of the recognition provisions of SFAS 123 with regard to these transactions with nonemployees was required for all such transactions entered into after December 15, 1995 and the company adopted these provisions as required. The recognition provision with regard to the fair value based method of accounting for stock-based employee compensation plans is an optional choice. The company has decided to continue to apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") for its stock-based employee compensation arrangements. APB 25 uses what is referred to as an intrinsic value based method of accounting. The disclosure provisions of SFAS 123 are effective for fiscal years beginning after December 15, 1995. The company will provide the disclosures when required in fiscal 1996. F-38 SUMMARY OF SELECTED FINANCIAL DATA Aztar Corporation and Subsidiaries For the Five Years Ended December 28, 1995 1995 1994 1993 1992 1991 Statement of Operations -------- -------- -------- -------- -------- Data (in thousands) Revenues $ 572,869 $541,440 $518,762 $512,045 $481,285 Operating income (a) 42,701 69,407 37,419 32,609 13,654 Net interest income and expense (a) (47,801) (46,572) (21,191) (2,477) (5,856) Equity in unconsolidated partnership's loss (5,081) (4,169) (3,822) (4,125) (5,030) Income (loss) from continuing operations before extraordinary items and cumulative effect of accounting change (4,994) 16,804 11,382 16,378 2,708 Discontinued operations -- -- -- 1,262 2,553 Extraordinary items -- (2,708) -- (5,335) 1,237 Cumulative effect of accounting change (b) -- -- -- 7,500 -- Net income (loss) (4,994) 14,096 11,382 19,805 6,498 Common Stock Data (per share) Income (loss) from continuing operations before extraordinary items and cumulative effect of accounting change: Earnings per common and common equivalent share $ (.14) $ .42 $ .28 $ .41 $ .05 Earnings per common share assuming full dilution * .41 .27 .40 .05 Cash dividends declared -- -- -- -- -- Equity 9.40 9.65 9.29 9.03 8.42 * Anti-dilutive Balance Sheet Data (in thousands at year end) Total assets $1,013,238 $915,359 $877,171 $849,565 $638,474 Long-term debt 496,439 430,212 404,086 378,058 176,693 Series B ESOP convertible preferred stock 5,459 4,711 3,905 2,998 2,059 Shareholders' equity 359,659 361,368 346,988 333,749 318,900 (a) See "Note 14. Acquisition" of the Notes to Consolidated Financial Statements. (b) The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109") in 1992 and elected not to restate prior year financial statements. The effect from prior years of adopting SFAS 109 as of the beginning of fiscal 1992 was a net deferred income tax benefit of $7,500,000 and it was reflected in the 1992 Consolidated Statement of Operations as the Cumulative effect of accounting change. F-39 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Shareholders and Board of Directors Aztar Corporation Our report on the consolidated financial statements of Aztar Corporation and Subsidiaries is included in this report on Form 10-K on page F-1. In connection with our audits of such consolidated financial statements, we have also audited the related financial statement schedule listed in the index on page 29 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 14, 1996 S-1 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AZTAR CORPORATION AND SUBSIDIARIES For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 (in thousands) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------ ------------ ------------ ------------ ------------ Balance at Balance at Beginning End of Description of Year Additions Deductions Year - ------------------- ------------ ------------ ---------- ------------ Allowance for doubtful accounts receivable: 1995 $ 10,720 $ 3,611(a) $ 4,426(d) $ 9,905 1994 9,908 3,102(a) 2,290(d) 10,720 1993 13,124 1,566(a) 4,782(d) 9,908 Deferred income tax asset valuation allowance: 1995 $ 11,572 $ 287(a) $ 3,663(e) $ 8,196 1994 18,590 398(a) 7,905(e) 11,572 489(b) 1993 22,309 469(c) 4,188(e) 18,590 (a) Charged to costs or expenses. (b) Reflects adjustments to the deferred income tax asset account. (c) Reflects an adjustment to the deferred income tax asset account for the effect of legislation that increased the federal income tax rate from 34% to 35%. (d) Related assets charged against allowance account. (e) Reflects reductions of $3,622,000, $6,286,000 and $3,878,000 in 1995, 1994 and 1993, respectively, with a corresponding increase in income tax benefits or decreases in income tax provisions for 1995, 1994 and 1993. These reductions reflect the generation of taxable income and the likelihood of future taxable income prior to expiration of the loss and credit carryforwards. In addition, $520,000 that was included in the December 30, 1993 valuation allowance was allocated to shareholders' equity during 1994. The remainder of the reductions in 1995, 1994 and 1993 represented charges of deferred tax assets against the valuation allowance account. S-2 EXHIBIT INDEX - ------------- 3.1 Restated Certificate of Incorporation, filed as Exhibit 3.1 to Aztar Corporation's Registration Statement No. 33-32009 and incorporated herein by reference. 3.2 By-Laws, as amended and restated May 9, 1991, filed as Exhibit 1 to Aztar Corporation's Form 8-K dated May 9, 1991 and incorporated herein by reference. 4.1 Rights Agreement between Aztar Corporation and First Interstate Bank of Arizona, N.A. as Rights Agent, filed as Exhibit 4.1 to Aztar Corporation's Registration Statement No. 33-51008 and incorporated herein by reference. 4.2 Indenture, dated as of October 8, 1992, between Aztar Corporation and Bank of America National Trust & Savings Association, as Trustee, relating to the Senior Subordinated Notes due 2002 of Aztar Corporation, filed as Exhibit 4.1 to Aztar Corporation's Form 10-Q for the quarter ended October 1, 1992 and incorporated herein by reference. 4.3 Supplemental Indenture Evidencing Appointment of Successor Trustee, dated January 12, 1995, between Aztar Corporation and First Bank National Association, as successor Trustee, supplementing the Indenture dated as of October 8, 1992, filed as Exhibit 4.3 to Aztar Corporation's 1994 Form 10-K and incorporated herein by reference. 4.4 Indenture, dated as of October 1, 1994, between Aztar Corporation and American Bank National Association, as Trustee, relating to the 13 3/4% Senior Subordinated Notes Due 2004 of Aztar Corporation, filed as Exhibit 4 to Aztar Corporation's Form 10-Q for the quarter ended September 29, 1994 and incorporated herein by reference. 10.1 Amended and Restated Lease (Tropicana Hotel/Casino) between Tropicana Enterprises and Hotel Ramada of Nevada, dated November 1, 1984, filed as Exhibit 10.20 to Ramada Inc.'s 1984 Form 10-K (Commission File Reference Number 1-5440) and incorporated herein by reference. 10.2 Amended and Restated Partnership Agreement by and between the Jaffe Group and Adamar of Nevada, entered into as of November 1, 1984, filed as Exhibit 10.22 to Ramada Inc.'s 1984 Form 10-K (Commission File Reference Number 1-5440) and incorporated herein by reference. *10.3(a) Severance Agreement, dated July 17, 1995, by and between Aztar Corporation and Paul E. Rubeli, filed as Exhibit 10.1 to Aztar Corporation's Form 10-Q for the quarter ended September 28, 1995 and incorporated herein by reference. *10.3(b) Severance Agreement, dated July 17, 1995, by and between Aztar Corporation and Robert M. Haddock, filed as Exhibit 10.2 to Aztar Corporation's Form 10-Q for the quarter ended September 28, 1995 and incorporated herein by reference. *Indicates a management contract or compensatory plan or arrangement. E-1 EXHIBIT INDEX - ------------- *10.3(c) Severance Agreement, dated July 18, 1995, by and between Aztar Corporation and Nelson W. Armstrong, Jr., filed as Exhibit 10.3 to Aztar Corporation's Form 10-Q for the quarter ended September 28, 1995 and incorporated herein by reference. *10.3(d) Severance Agreement, dated July 24, 1995, by and between Aztar Corporation and Meridith P. Sipek, filed as Exhibit 10.4 to Aztar Corporation's Form 10-Q for the quarter ended September 28, 1995 and incorporated herein by reference. *10.3(e) Severance Agreement, dated July 25, 1995, by and between Aztar Corporation and Joe Cole, filed as Exhibit 10.5 to Aztar Corporation's Form 10-Q for the quarter ended September 28, 1995 and incorporated herein by reference. *10.3(f) Severance Agreement, dated July 17, 1995, by and between Aztar Corporation and Neil A. Ciarfalia, filed as Exhibit 10.6 to Aztar Corporation's Form 10-Q for the quarter ended September 28, 1995 and incorporated herein by reference. 10.4(a) Reducing Revolving Loan Agreement, dated as of October 4, 1994, among Aztar Corporation, Adamar of New Jersey, Inc., Ramada Express, Inc. and the banks therein named; Societe Generale and Midlantic Bank, N.A., as lead managers; Bank One, Arizona, N A and Credit Lyonnais, as co-agents; Bankers Trust Company, as co- managing agent; and, Bank of America National Trust and Savings Association, as managing agent, filed as Exhibit 10 to Aztar Corporation's form 10-Q for the quarter ended September 29, 1994 and incorporated herein by reference. **10.4(b) Amendment No. 1 to Reducing Revolving Loan Agreement, dated as of November 3, 1995, among Aztar Corporation, Adamar of New Jersey, Inc., Ramada Express, Inc. and the banks therein named. **10.4(c) Amendment No. 2 to Reducing Revolving Loan Agreement, dated as of December 28, 1995, among Aztar Corporation, Adamar of New Jersey, Inc., Ramada Express, Inc. and the banks therein named. *10.5 Aztar Corporation 1989 Stock Option and Incentive Plan filed as Exhibit 4 to Aztar Corporation's Registration Statement No. 33- 32399 and incorporated herein by reference. *10.6(a) Employee Stock Ownership Plan of Aztar Corporation, as amended and restated effective December 19, 1989, dated December 12, 1990, filed as Exhibit 10.60(a) to Aztar Corporation's 1990 Form 10-K and incorporated herein by reference. *Indicates a management contract or compensatory plan or arrangement. **Filed herewith E-2 EXHIBIT INDEX - ------------- 10.6(b) Term Loan Agreement, dated as of December 19, 1989, by and among State Street Bank and Trust Company, as Trustee, Adamar Garage Corporation, as lender, and Aztar Corporation, filed as Exhibit 10.50(b) to Aztar Corporation's Registration Statement No. 33-51008 and incorporated herein by reference. 10.6(c) Preferred Stock Purchase Agreement, dated as of December 19, 1989, between Ramada Inc. and State Street Bank and Trust Company, as Trustee, filed as Exhibit 10.50(c) to Aztar Corporation's Registration Statement No. 33-51008 and incorporated herein by reference. 10.6(d) Letter Agreement, dated as of December 19, 1989, between Aztar Corporation and State Street Bank and Trust Company, as Trustee, relating to the Employee Stock Ownership Plan of Aztar Corporation, filed as Exhibit 10.50(d) to Aztar Corporation's Registration Statement No. 33-51008 and incorporated herein by reference. 10.7(a) Agreement and Plan of Merger, dated as of April 17, 1989, among New World Hotels (U.S.A.), Inc., RI Acquiring Corp. and Ramada Inc., as amended and Restated as of October 23, 1989, filed as Exhibit 2.1 to Aztar Corporation's Registration Statement No. 33-32009 and incorporated herein by reference. 10.7(b) Letter, dated as of October 23, 1989, from Ramada Inc. to New World Hotels (U.S.A.), Inc. regarding "Net Cash Flows from Investing Activities", filed as Exhibit 2.1(a) to Aztar Corporation's Registration Statement No. 33-32009 and incorporated herein by reference. 10.7(c) Letter, dated as of October 23, 1989, from Ramada Inc. to New World Hotels (U.S.A.), Inc. regarding certain franchising matters and hotel projects, filed as Exhibit 2.1(b) to Aztar Corporation's Registration Statement No. 33-32009 and incorporated herein by reference. 10.8 Reorganization Agreement, dated as of April 17, 1989, between Ramada Inc. and Aztar Corporation, as amended and restated as of October 23, 1989, filed as Exhibit 2.2 to Aztar Corporation's Registration Statement No. 33-32009 and incorporated herein by reference. 10.9 Tax Sharing Agreement, dated as of April 17, 1989, among New World Hotels (U.S.A), Inc., Ramada Inc. and Aztar Corporation, as amended and restated as of October 23, 1989, filed as Exhibit 2.3 to Aztar Corporation's Registration Statement No. 33-32009 and incorporated herein by reference. 10.10 Guaranty and Acknowledgement Agreement, dated as of April 17, 1989, among New World Development Company Limited, New World Hotels (Holdings) Limited, New World Hotels (U.S.A.), Inc. and RI Acquiring Corp., filed as Exhibit 2.4 to Aztar Corporation's Registration Statement No. 33-29562 and incorporated herein by reference. E-3 EXHIBIT INDEX - ------------- 10.11 Master Consent Agreement, dated July 18, 1989, by and among Ramada Inc., Adamar of Nevada, Hotel Ramada of Nevada, Adamar of New Jersey, Inc., Aztar Corporation, Tropicana Enterprises, Trop C.C. and the Jaffe Group, with attached exhibits, filed as Exhibit 10.50 to Aztar Corporation's Registration Statement No. 33-29562 and incorporated herein by reference. *10.12 Aztar Corporation 1990 Nonemployee Directors Stock Option Plan, as amended and restated effective March 15, 1991, filed as Exhibit A to Aztar Corporation's 1991 definitive Proxy Statement and incorporated herein by reference. *10.13 Aztar Corporation Nonqualified Retirement Plan for Senior Executives, dated September 5, 1990, filed as Exhibit 10.2 to Aztar Corporation's Form 10-Q for the quarter ended September 27, 1990 and incorporated herein by reference. 10.14 Second Amended and Restated Loan Agreement, dated October 4, 1994, among Tropicana Enterprises, Hotel Ramada of Nevada and the banks therein named; Societe Generale and Midlantic Bank, N.A., as lead managers; Bank One, Arizona, N A and Credit Lyonnais, as co-agents; Bankers Trust Company, as co-managing agent; and, Bank of America National Trust and Savings Association, as managing agent. *10.15 Summary of deferred compensation program for designated executives of Ramada, dated November 10, 1983, filed as Exhibit 10(r) to Ramada Inc.'s 1983 Form 10-K (Commission File Reference Number 1- 5440) and incorporated herein by reference. *10.16 Deferred Compensation Agreements entered into by and between Ramada and designated executives (including each Executive Officer), dated December 1, 1983, 1984 or 1985, filed as Exhibits 10.60(a) through (w) to Aztar Corporation's Registration Statement No. 33-51008 and incorporated herein by reference. *10.17 Deferred Compensation Plan for Directors, dated December 1, 1983, filed as Exhibit 10(t) to Ramada Inc.'s 1983 Form 10-K (Commission File Reference Number 1-5440) and incorporated herein by reference. *10.18 Deferred Compensation Agreements entered into by and between Ramada and certain outside Directors as of December 1, 1983, filed as Exhibits 10.62(a),(b),(c) and (d) to Aztar Corporation's Registration Statement No. 33-51008 and incorporated herein by reference. **11. Statement Regarding Computation of Per Share Earnings. **21. Subsidiaries of Aztar Corporation. **23. Consent of Coopers & Lybrand L.L.P. **27. Financial Data Schedule. *Indicates a management contract or compensatory plan or arrangement. **Filed herewith E-4 EX-10.4(B) 2 Exhibit 10.4(b) AMENDMENT NO. 1 TO REDUCING REVOLVING LOAN AGREEMENT This Amendment No. 1 to Reducing Revolving Loan Agreement (this "Amendment") dated as of November 3, 1995 is entered into with reference to the Reducing Revolving Loan Agreement dated as of October 4, 1994 among Aztar Corporation ("Parent"), Adamar of New Jersey, Inc. ("ANJI"), Ramada Express, Inc. ("REI" and, collectively with Parent and ANJI, the "Borrowers"), the Banks party thereto, Societe Generale and Midlantic Bank, N.A., as Lead Managers, Bank One Arizona, N A and Credit Lyonnais, as Co- Agents, Bankers Trust Company, as Co-Managing Agent, and Bank of America National Trust and Savings Association, as Managing Agent, (the "Loan Agreement"). Capitalized terms used but not defined herein are used with the meanings set forth for those terms in the Loan Agreement. Borrowers and the Managing Agent, acting with the consent of the Requisite Banks pursuant to Section 11.2 of the Loan Agreement, agree as follows: 1. Amendment to Section 1.1 - Adjusted Funded Debt. Section 1.1 of the Loan Agreement is amended to revise the definition of "Adjusted Funded Debt" by striking clause (a) thereof and substituting in its place the following: "(a) all outstanding letters of credit on that date (other than any letter of credit to the extent collateralized by the deposit with the issuing bank of Cash, Cash Equivalents or a certificate of deposit or other deposit account of the issuing bank as collateral security therefor)," 2. Amendment to Section 1.1 - Annualized Adjusted EBITDA. Section 1.1 of the Loan Agreement is amended to revise the definition of "Annualized Adjusted EBITDA" as follows: (a) by striking "(a)" in the second line thereof; (b) by striking "(b)" in the fourth line thereof; (c) by substituting the word "adjusted," for the word "plus" in the fourth line thereof; and (d) by inserting the word "by" before the word "such" in the ninth line thereof. 3. Amendment to Section 1.1 -- Banking Day. Section 1.1 of the Loan Agreement is amended to revise the definition of "Banking Day" by adding the word "Nevada," after the word "California" in the third line thereof. 4. Conditions Precedent. The effectiveness of this Amendment shall be conditioned upon the receipt by the Managing 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 consents 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. 5. Representation and Warranty. Borrowers represent and warrant to the Managing Agent and the Banks that no Default or Event of Default has occurred and remains continuing. 6. Confirmation. In all other respects, the terms of the Loan Agreement and the other Loan Documents are hereby confirmed. IN WITNESS WHEREOF, Borrowers and the Managing Agent have executed this Amendment as of the date first written above by their duly authorized representatives. AZTAR CORPORATION AZTAR OF NEW JERSEY, INC. RAMADA EXPRESS, INC. By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent By: PEGGY A. FUJIMOTO Peggy A. Fujimoto, Vice President Exhibit A to Amendment CONSENT OF SUBSIDIARY GUARANTORS Reference is hereby made to that certain Reducing Revolving Loan Agreement dated as of October 4, 1994 among Aztar Corporation ("Parent"), Adamar of New Jersey, Inc. ("ANJI"), Ramada Express, Inc. ("REI" and, collectively with Parent and ANJI, the "Borrowers"), the Banks party thereto, Societe Generale and Midlantic Bank, N.A., as Lead Managers, Bank One Arizona, N A and Credit Lyonnais, as Co-Agents, Bankers Trust Company, as Co-Managing Agent, and Bank of America National Trust and Savings Association, as Managing Agent, (the "Loan Agreement"). Each of the undersigned hereby consents to the execution, delivery and performance by Borrowers and the Managing Agent of Amendment No. 1 to the Loan Agreement. Each of the undersigned represents and warrants to the Managing 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: November 3, 1995 HOTEL RAMADA OF NEVADA By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President AZTAR DEVELOPMENT CORPORATION By: NEIL A. CIARFALIA Neil A. Ciarfalia Title: Treasurer AZTAR INDIANA GAMING CORPORATION By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President AZTAR MISSOURI GAMING CORPORATION By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President RAMADA NEW JERSEY, INC. By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President ATLANTIC-DEAUVILLE INC. By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President ADAMAR GARAGE CORPORATION By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President RAMADA NEW JERSEY HOLDINGS CORPORATION By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President MANCHESTER MALL, INC. By: N. W. ARMSTRONG, JR. Nelson W. Armstrong, Jr. Title: Vice President Exhibit B to Amendment CONSENT OF BANK Reference is hereby made to that certain Reducing Revolving Loan Agreement dated as of October 4, 1994 among Aztar Corporation ("Parent"), Adamar of New Jersey, Inc. ("ANJI"), Ramada Express, Inc. ("REI" and, collectively with Parent and ANJI, the "Borrowers"), the Banks party thereto, Societe Generale and Midlantic Bank, N.A., as Lead Managers, Bank One Arizona, N A and Credit Lyonnais, as Co-Agents, Bankers Trust Company, as Co-Managing Agent, and Bank of America National Trust and Savings Association, as Managing Agent, (the "Loan Agreement"). The undersigned Bank hereby consents to the execution and delivery of Amendment No. 1 to Reducing Revolving Loan Agreement by the Managing Agent on its behalf, substantially in the form of a draft dated on or about October 24, 1995 presented to the undersigned Bank. Date: , 1995 _____________________________________ [Name of Institution] By ___________________________________ ______________________________________ [Printed Name and Title] The Consent of Bank, Exhibit B to Amendment No. 1, was dated and signed by the following parties: Date Name of Institution Name Title Nov. 3, 1995 Bank of America Jon Varnell Managing Director Nov. 2, 1995 Credit Lyonnais Los Angeles Branch Thierry F. Vincent Vice President Cayman Island Branch Thierry F. Vincent Vice President Oct. 30, 1995 First Security Brian W. Cook Vice President Bank of Idaho, N.A. Oct. 1995 Bank of Scotland Catherine M. Vice President Oniffrey Oct. 30, 1995 The Daiwa Bank, David M. Lawrence Vice President Limited and Manager Bradford E. Assistant Vice Chambers President Oct. 1995 Bankers Trust Mary Jo Jolly Assistant Vice Company President Oct. 26, 1995 Societe Generale Donald L. Schubert Vice President Oct. 31, 1995 Bank One Clifford A. Payson Vice President Arizona, NA Nov. 3, 1995 Midlantic Bank, Dolores Kelly Banking Officer N.A. Oct. 30, 1995 Bank of America, Alan F. Gordon Vice President Nevada Oct. 1995 ABN Amro Bank N.V. Jeffrey A. French Vice President Bradford H. Leahy Corporate Banking Officer Nov. 3, 1995 Natwest Bank NA John T. Harrison Vice President EX-10.4(C) 3 Exhibit 10.4(c) AMENDMENT NO. 2 TO REDUCING REVOLVING LOAN AGREEMENT This Amendment No. 2 to Reducing Revolving Loan Agreement (this "Amendment") dated as of December 28, 1995 is entered into with reference to the Reducing Revolving Loan Agreement dated as of October 4, 1994 among Aztar Corporation ("Parent"), Adamar of New Jersey, Inc. ("ANJI"), Ramada Express, Inc. ("REI" and, collectively with Parent and ANJI, the "Borrowers"), the Banks party thereto, Societe Generale and Midlantic Bank, N.A., as Lead Managers, Bank One Arizona, N A and Credit Lyonnais, as Co- Agents, Bankers Trust Company, as Co-Managing Agent, and Bank of America National Trust and Savings Association, as Managing 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. Borrowers and the Managing Agent, acting with the consent of the Requisite Banks pursuant to Section 11.2 of the Loan Agreement, agree as follows: 1. Amendment to Section 1.1 - Applicable Alternate Base Rate Margin. Section 1.1 of the Loan Agreement is amended to revise the definition of "Applicable Alternate Base Rate Margin" by deleting the table therein set forth and substituting in its place the following: "Applicable Pricing Level Margin I 0 II 37.50 III 75.00 IV 125.00 V 150.00" 2. Amendment to Section 1.1 -- Applicable Commitment Fee Rate. Section 1.1 of the Loan Agreement is amended to revise the definition of "Applicable Commitment Fee Rate" by deleting the table therein set forth and substituting in its place the following: "Applicable Pricing Level Commitment Fee I 37.50 II 37.50 III 50.00 IV 50.00 V 50.00" 3. Amendment to Section 1.1 - Applicable Eurodollar Rate Margin. Section 1.1 of the Loan Agreement is amended to revise the definition of "Applicable Eurodollar Rate Margin" by deleting the table therein set forth and substituting in its place the following: "Applicable Pricing Level Margin I 125.00 II 162.50 III 200.00 IV 250.00 V 275.00" 4. Amendment to Section 1.1 - Applicable Pricing Level. Section 1.1 of the Loan Agreement is amended to revise the definition of "Applicable Pricing Level" by deleting the table and proviso therein set forth and substituting in their place the following: Annualized Funded "Pricing Level Debt Ratio I Less than 2.00 to 1.00 II Equal to or greater than 2.00 to 1.00 but less than 3.00 to 1.00 III Equal to or greater than 3.00 to 1.00 but less than 4.00 to 1.00 IV Equal to or greater than 4.00 to 1.00 but less than 4.75 to 1.00 V Equal to or greater than 4.75 to 1.00; provided that in the event that Borrowers do not deliver a Pricing Certificate with respect to any Pricing Period prior to the commencement of such Pricing Period, then until (but only until) such Pricing Certificate is delivered the Applicable Pricing Level for that Pricing Period shall be Pricing Level V." 5. Amendment to Section 1.1 - Evansville Ancillary Real Property. Section 1.1 of the Loan Agreement is amended to add the following new definition at the appropriate alphabetical place: "'Evansville Ancillary Real Property' means the two mutually contiguous parcels of Real Property known as the "Harp Parcel" and the "Evansville Federal Parcel" located in Evansville, Indiana comprising approximately two (2) acres in the aggregate; provided that, upon the opening for business of the Evansville Project, such Real Property is not necessary for the operation of the permanent facilities of the Evansville Project." 6. Amendment to Section 1.1 - New Evansville Letter of Credit. Section 1.1 of the Loan Agreement is amended to add the following new definition at the appropriate alphabetical place: "'New Evansville Letter of Credit' means a $2,000,000 letter of credit issued for the account of Parent or one of its Subsidiaries in favor of the Indiana Gaming Commission in connection with the requirements of the Indiana Gaming Commission relating to the Evansville Project and any renewals or extensions thereof." 7. Waiver of Section 5.12 - Evansville Ancillary Real Property. Section 5.12 of the Loan Agreement is waived with respect to its application to the Evansville Ancillary Real Property; provided that the foregoing waiver is based on Parent's representation that it intends to offer the Evansville Ancillary Real Property for sale upon the opening for business of the Evansville Project on then current market terms and conditions. 8. Waiver of Section 6.2 - Evansville Ancillary Real Property. Section 6.2 of the Loan Agreement is waived with respect to its application to a Disposition of the Evansville Ancillary Real Property. 9. Waiver of Section 6.8 - New Evansville Letter of Credit. Section 6.8 of the Loan Agreement is waived with respect to its application to Liens on Cash or Cash Equivalents securing the New Evansville Letter of Credit; provided that the aggregate amount of such Cash and Cash Equivalents does not exceed the face amount of the New Evansville Letter of Credit and all other letters of credit then permitted to be secured by a Lien under Section 6.8 of the Loan Agreement. 10. Waiver of Section 6.9 - New Evansville Letter of Credit. Section 6.9 of the Loan Agreement is waived with respect to its application to the New Evansville Letter of Credit and any Guaranty Obligation with respect thereto. 11. Waiver and Amendment of Section 6.13 - Leverage Ratio. Section 6.13 of the Loan Agreement is waived with respect to its application to the Fourth Fiscal Quarter 1995, and is amended to revise the table therein set forth after the first proviso thereof as follows: " Fiscal Quarter or Period Ratio First Fiscal Quarter 1996 4.50 to 1.00 through Second Fiscal Quarter 1996 Third Fiscal Quarter 1996 4.25 to 1.00 Fourth Fiscal Quarter 1996 3.75 to 1.00 through Third Fiscal Quarter 1997 Fourth Fiscal Quarter 1997 3.25 to 1.00" and thereafter 12. Conditions Precedent. The effectiveness of this Amendment shall be conditioned upon the receipt by the Managing 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) An amendment fee of $345,665 (1/8 of 1% times the sum of the Commitment plus the principal amount outstanding under the TEGP Loan Agreement as of December 15, 1995), for the account of the Banks pro-rata in accordance with their Pro Rata Share; (c) Written consents of each of the Significant Subsidiaries to the execution, delivery and performance hereof, substantially in the form of Exhibit A to this Amendment; (d) 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; and (e) A letter agreement executed by TEGP providing for a supplemental fee payable with respect to the TEGP Loan Agreement substantially in the form of Exhibit C to this Amendment. 13. Representation and Warranty. Borrowers represent and warrant to the Managing Agent and the Banks that no Default or Event of Default has occurred and remains continuing. 14. Confirmation. In all other respects, the terms of the Loan Agreement and the other Loan Documents are hereby confirmed. IN WITNESS WHEREOF, Borrowers and the Managing Agent have executed this Amendment as of the date first written above by their duly authorized representatives. AZTAR CORPORATION ADAMAR OF NEW JERSEY, INC. RAMADA EXPRESS, INC. By: N. ARMSTRONG Nelson W. Armstrong Secretary BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent By: PEGGY A. FUJIMOTO Peggy A. Fujimoto, Vice President Exhibit A to Amendment CONSENT OF SUBSIDIARY GUARANTORS Reference is hereby made to that certain Reducing Revolving Loan Agreement dated as of October 4, 1994 among Aztar Corporation ("Parent"), Adamar of New Jersey, Inc. ("ANJI"), Ramada Express, Inc. ("REI" and, collectively with Parent and ANJI, the "Borrowers"), the Banks party thereto, Societe Generale and Midlantic Bank, N.A., as Lead Managers, Bank One Arizona, N A and Credit Lyonnais, as Co-Agents, Bankers Trust Company, as Co-Managing Agent, and Bank of America National Trust and Savings Association, as Managing Agent, as heretofore amended (the "Loan Agreement"). Each of the undersigned hereby consents to the execution, delivery and performance by Borrowers and the Managing Agent of Amendment No. 2 to the Loan Agreement. Each of the undersigned represents and warrants to the Managing 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: December 28, 1995 HOTEL RAMADA OF NEVADA By: N. ARMSTRONG Title: V.P. & Secretary AZTAR DEVELOPMENT CORPORATION By: N. ARMSTRONG Title: V.P. & Secretary AZTAR INDIANA GAMING CORPORATION By: N. ARMSTRONG Title: V.P. & Secretary AZTAR MISSOURI GAMING CORPORATION By: N. ARMSTRONG Title: V.P. & Secretary RAMADA NEW JERSEY, INC. By: N. ARMSTRONG Title: V.P. & Secretary ATLANTIC-DEAUVILLE INC. By: N. ARMSTRONG Title: V.P. & Secretary ADAMAR GARAGE CORPORATION By: N. ARMSTRONG Title: V.P. & Secretary RAMADA NEW JERSEY HOLDINGS CORPORATION By: N. ARMSTRONG Title: V.P. & Secretary MANCHESTER MALL, INC. By: N. ARMSTRONG Title: V.P. & Secretary Exhibit B to Amendment CONSENT OF BANK Reference is hereby made to that certain Reducing Revolving Loan Agreement dated as of October 4, 1994 among Aztar Corporation ("Parent"), Adamar of New Jersey, Inc. ("ANJI"), Ramada Express, Inc. ("REI" and, collectively with Parent and ANJI, the "Borrowers"), the Banks party thereto, Societe Generale and Midlantic Bank, N.A., as Lead Managers, Bank One Arizona, N A and Credit Lyonnais, as Co-Agents, Bankers Trust Company, as Co-Managing Agent, and Bank of America National Trust and Savings Association, as Managing Agent, as heretofore amended (the "Loan Agreement"). The undersigned Bank hereby consents to the execution and delivery of Amendment No. 2 to Reducing Revolving Loan Agreement by the Managing Agent on its behalf, substantially in the form of a draft dated on or about December 15, 1995 presented to the undersigned Bank. Date: December __, 1995 _____________________________________ [Name of Institution] By ___________________________________ ______________________________________ [Printed Name and Title] The Consent of Bank, Exhibit B to Amendment No. 2, was dated and signed by the following parties: Date Name of Institution Name Title Dec. 27, 1995 ABN Amro Bank, N.V. Bradford H. Leahy Corp Banking Officer Jeffrey A. French Vice President Dec. 28, 1995 Bank of America Fred L. Thorne Vice President National Trust and Savings Association Dec. 21, 1995 Bank of America, Herb Steege Vice President Nevada Dec. 21, 1995 Bank of Scotland Elizabeth Wilson Vice President and Branch Mgr. Dec. 21, 1995 Bank One Arizona, Clifford A. Payson Vice President N.A. Dec. 26, 1995 Bankers Trust Mary Jo Jolly Assistant Vice Company President Dec. 27, 1995 Credit Lyonnais Thierry Vincent Vice President/ Los Angeles Branch Manager Dec. 22, 1995 The Daiwa Bank, Bradford E. Assistant Vice Limited Chambers President David M. Lawrence Vice President and Manager Dec. 28, 1995 First Security Bank Mark W. Lliteras Senior Vice of Idaho, N.A. President Dec. 1995 Midlantic Bank, Denise D. Killen Vice President N.A. Dec. 26, 1995 NatWest Bank, John T. Harrison Vice President NA Dec. 22, 1995 Societe Generale J. Blaine Shaum Regional Manager Exhibit C to Amendment TROPICANA ENTERPRISES a Nevada General Partnership c/o Aztar Corporation 2390 E. Camelback Road - Suite 400 Phoenix, Arizona 85016 December 27, 1995 Bank of America NT&SA Agency Management Services, No. 5596 1455 Market Street, 12th Floor San Francisco, California 94103 Re: Second Amended and Restated Loan Agreement dated as of October 4, 1994. Gentlemen: We refer to the above mentioned Loan Agreement. Terms defined therein are used in this letter agreement with the same meanings. Borrower hereby agrees to pay on February 16, 1996 to the Managing Agent, for the account of the Banks in accordance with each Bank's Pro Rata Share, a supplemental fee equal to .25% (25 basis points) per annum times the aggregate principal amount outstanding under the Notes on February 15, 1996 for the number of days in the Pricing Period then commencing. Such supplemental fee shall be non-refundable. When accepted by you, this letter agreement shall supplement and amend the Loan Agreement. TROPICANA ENTERPRISES, a Nevada General Partnership By: ADAMAR OF NEVADA Its General Partner By: N. ARMSTRONG Nelson W. Armstrong, Secretary Accepted: BANK OF AMERICA, NT&SA as Managing Agent By: PEGGY A. FUJIMOTO Peggy A. Fujimoto, V.P. AZTAR CORPORATION 2390 East Camelback Road Suite 400 Phoenix, Arizona 85016-3452 December 28, 1995 Bank of America National Trust and Savings Association Agency Management Services #5596 1455 Market Street, 13th Floor San Francisco, California 94103 Attn: Mr. Leo Chenevert Vice President Re: Reducing Revolving Loan Agreement dated as of October 4, 1994 Dear Leo: We refer to the above-mentioned Loan Agreement; terms therein defined are used herein with the same meanings. Aztar Corporation hereby agrees that during the Restricted Period defined below it will not, and will not permit any of its Subsidiaries to, make, or enter into any legally binding commitment to make, any New Venture Capital Expenditure or New Venture Investment if the aggregate New Venture Capital Expenditures and New Venture Investments reasonably anticipated with respect to the related New Venture will exceed $50,000,000 without first obtaining the written consent of the Requisite Banks, except the projects permitted by clauses (i),(ii) and (iii) of Sections 6.15 and 6.16 of the above Loan Agreement. The "Restricted Period" shall be the period commencing on the date hereof and ending on the last day of our Third Fiscal Quarter 1996. This letter is provided as an additional inducement to the Banks with respect to their execution of Amendment No. 2 to the above Loan Agreement. This letter shall be Loan Document and any failure to comply with the foregoing agreement shall be covered by Section 9.1(e) of the above Loan Agreement. Aztar Corporation By: NEIL A. CIARFALIA Its: Treasurer EX-11 4 AZTAR CORPORATION AND SUBSIDIARIES EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ------------------------------------- (in thousands, except per share data) 1995 1994 1993 Income (loss) before extraordinary -------- -------- -------- items $ (4,994) $ 16,804 $ 11,382 Deduct: preferred stock dividend (net of income taxes credited to retained earnings) (639) (620) (610) -------- -------- -------- Income (loss) before extraordinary items applicable to computation (5,633) 16,184 10,772 Extraordinary items -- (2,708) -- -------- -------- -------- Net income (loss) applicable to computation $ (5,633) $ 13,476 $ 10,772 ======== ======== ======== Weighted average common shares assuming no dilution 38,013 37,375 37,304 Common equivalent shares Additional shares applicable to restricted stock based on the market close price at the end of period -- -- -- Additional shares applicable to stock options based on the weighted average market price 1,013 821 1,063 -------- -------- -------- Weighted average common shares applicable to earnings per common and common equivalent share 39,026 38,196 38,367 Additional shares applicable to stock options based on the market close price at the end of the period 57 5 22 Conversion of preferred stock at the stated rate 997 1,023 1,040 -------- -------- -------- Weighted average common shares assuming full dilution 40,080 39,224 39,429 ======== ======== ======== Earnings per common and common equivalent share: Income (loss) before extraordinary items $ (.14) $ .42 $ .28 Extraordinary items -- (.07) -- -------- -------- -------- Net income (loss) $ (.14) $ .35 $ .28 ======== ======== ======== Earnings per common share assuming full dilution: Income (loss) before extraordinary items $ (.14) $ .41 $ .27 Extraordinary items -- (.07) -- -------- -------- -------- Net income (loss) $ (.14) $ .34 $ .27 ======== ======== ======== EX-21 5 EXHIBIT 21 SUBSIDIARIES OF AZTAR CORPORATION The Company has no parent corporation. In addition to the subsidiaries listed below, the Company has ten other wholly-owned subsidiaries. The unnamed subsidiaries, considered in the aggregate, would not constitute a significant subsidiary. Jurisdiction of Incorporation Name or Organization ---- --------------- Adamar Garage Corporation Delaware Adamar of Nevada Nevada Adamar of New Jersey, Inc. New Jersey dba TropWorld Casino and Entertainment Resort Atlantic-Deauville, Inc. New Jersey Aztar Development Corporation Delaware Aztar Indiana Gaming Corporation Indiana Aztar Missouri Gaming Corporation Missouri Hotel Ramada of Nevada Nevada dba Tropicana Resort and Casino Ramada Express, Inc. Nevada dba Ramada Express Hotel and Casino Ramada New Jersey, Inc. New Jersey Ramada New Jersey Holdings Corporation Delaware EX-23 6 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS --------------------- We consent to the incorporation by reference in the registration statements of Aztar Corporation on Form S-8 (Registration No. 33- 32399 and No. 33-44794) of our reports, dated February 14, 1996 on our audit of the consolidated financial statements and financial statement schedule of Aztar Corporation as of December 28, 1995 and December 29, 1994 and for each of the three years in the period ended December 28, 1995, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Phoenix, Arizona March 21, 1996 EX-27 7
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 28, 1995 and the Consolidated Statement of Operations for the year ended December 28, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-28-1995 DEC-28-1995 26,527 0 31,230 9,905 6,591 73,134 1,065,435 211,755 1,013,238 102,068 496,439 5,459 0 422 359,237 1,013,238 47,343 572,869 44,320 305,776 34,591 3,611 51,052 (5,100) (5,187) (4,994) 0 0 0 (4,994) (.14) (.14)
-----END PRIVACY-ENHANCED MESSAGE-----