-----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, AJ3E39VDATZk0XkymbHSvywfZHuThEIqr40iKFK3hZrWQSBCR+eoUf2442Na/YtD wYiAFvWGklnoyZF0H8S2Tg== 0000852807-97-000002.txt : 19970321 0000852807-97-000002.hdr.sgml : 19970321 ACCESSION NUMBER: 0000852807-97-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970102 FILED AS OF DATE: 19970320 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12092 FILM NUMBER: 97559792 BUSINESS ADDRESS: STREET 1: 2390 E CAMELBACK RD STE 400 CITY: PHOENIX STATE: AZ ZIP: 85016-3452 BUSINESS PHONE: 6023814100 10-K405 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 January 2, 1997 ---------------------------------------- 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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $324,016,572 at March 3, 1997 and is based on a closing price of $7.25 and 44,691,941 common shares outstanding. At March 3, 1997, the registrant had outstanding 45,005,690 shares of its common stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the registrant's 1997 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 location of such information. All other sections of the 1997 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 1997 Proxy Statement - ------------------------------ -------------------- PART III -------- ITEM 10. Directors and Executive - ------- Officers of the Registrant Under the caption "ELECTION OF DIRECTORS OF THE COMPANY" ITEM 11. Executive Compensation Under the caption - ------- "EXECUTIVE COMPENSATION" except under the sub- caption "Board Compensation Committee Report" ITEM 12. Security Ownership of - ------- Certain Beneficial Owners and Management Under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND DIRECTORS AND OFFICERS" 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 Las Vegas and Laughlin, Nevada. The Company operates riverboat casinos in Caruthersville, Missouri, and 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. TROPICANA ATLANTIC CITY Tropicana Casino and Resort encompasses approximately 10 acres and has ocean beach frontage of 220 yards along the Boardwalk in Atlantic City. Tropicana Atlantic City's approximate 110,000-square-foot casino contains 3,179 slot machines and 168 table games, a baccarat lounge, a poker room and keno. The Tropicana Atlantic City complex contains 1,624 hotel rooms and approximately 80,000 square feet of meeting, convention and banquet space. The facility also includes parking for 2,700 vehicles and a 1,700- seat theatrical showroom which regularly presents headliner entertainment. Other amenities include two gourmet restaurants, several medium-priced restaurants, indoor and outdoor swimming pools, tennis courts, a health and fitness club and a jogging track. During 1996, Tropicana Atlantic City completed an expansion and renovation designed to attract more high-end players as well as to capitalize on recent and anticipated growth of Atlantic City resulting from the new Atlantic City Convention Center, airport expansion and other market enhancements. The new 604-room hotel tower, which opened in late April 1996, includes a concierge floor of six large penthouse suites completed in July 1996. Concurrent modifications made to the existing facilities included the construction of a new hotel lobby, refurbishment of all existing hotel rooms and extensive improvements to the casino. Renovations to the casino included the development of a new entrance designed to improve traffic circulation throughout the casino and the introduction of a new baccarat room and a new Asian games room. To cater to high-end players, the new baccarat room has private dining areas as well as private 3 access from a new table player lounge and VIP entry. The new games room caters to the Asian gaming community by offering pai gow, tile games and mini-baccarat. The Atlantic City gaming market has demonstrated continued growth despite the proliferation of new gaming venues across the country. The 12 hotel casinos in Atlantic City generated approximately $3.8 billion in gaming revenues in 1996, a 2% increase over 1995. Major infrastructure improvements either recently completed or underway in Atlantic City include, among other projects, new housing and retail development, an upgrade and expansion of the Atlantic City International Airport and a convention center having the largest exhibition space between New York and Washington, D.C. There are also plans for the expansion of existing gaming capacity in Atlantic City, as well as the development of new gaming projects. Several major casino operators have announced plans to develop projects in the Marina and Boardwalk areas, in addition to casino operators having already expanded or planning to expand their existing facilities. TROPICANA LAS VEGAS Tropicana Resort and Casino is located on a 34-acre site at the intersection of Las Vegas Boulevard (the famed Strip) and Tropicana Avenue (known as the "New Four Corners") in Las Vegas, Nevada. Tropicana Las Vegas, which has a tropical island theme and is promoted as "The Island of Las Vegas," boasts one of the world's largest indoor/outdoor swimming pools, as well as a five-acre water park and tropical garden. Both interior and exterior areas feature exhibits of live tropical birds, animals and fish. The casino occupies approximately 61,000 square feet and contains 1,805 slot machines and 62 table games. The hotel has 1,875 rooms and suites as well as approximately 100,000 square feet of convention and exhibit space, plus an array of fine restaurants and extensive parking. Tropicana Las Vegas is home for the Folies Bergere, the longest-running production show in Las Vegas. The New Four Corners area of Las Vegas contains the MGM Grand, Excalibur, Luxor, Monte Carlo and the newly opened New York-New York mega-resorts. The surge in visitation to the New Four Corners as a result of these mega- resorts has presented Tropicana Las Vegas with the opportunity to expand its customer base. During 1996, modifications were made to the facility to enhance its ability to attract new visitors. More direct access to the Las Vegas Tropicana from surrounding casinos was opened up. The appearance of the front of the property tying in to the pedestrian bridges that connect the four corners of the intersection was made more inviting. The look and feel of the casino was enhanced. A new and elegant baccarat room and a new premium slot area were created. In late 1996, the casino was expanded to make room for additional slot machines. The improvements in 1996 constitute an interim strategy. Ultimately, the Company's goal is to take advantage of the Las Vegas Tropicana's premier location with its proximity to McCarran International Airport and transform the property into a completely modern, must-see casino resort. There are many issues to be resolved before that can happen. Nonetheless, the Company is making progress toward a day when a groundbreaking for a new project on the site of the Las Vegas Tropicana can be announced. 4 The Tropicana Las Vegas site and facility are leased by the Company from an unconsolidated partnership in which the Company has a 50% interest. The Company is exploring alternatives for amending or restructuring the arrangement, as well as other conditions typically associated with the development of a major casino resort. RAMADA EXPRESS Ramada Express Hotel and Casino is located on approximately 28 acres in Laughlin, Nevada, which is situated on the Colorado River at Nevada's southern tip. The facility features a Victorian-era railroad theme, which includes 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 1,715 slot machines and 37 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 EVANSVILLE Casino Aztar Evansville, the first casino gaming facility to open in Indiana, operates on the Ohio River in Evansville, Indiana. The casino riverboat is certified to carry 2,700 passengers and a crew of 300. The facility contains approximately 37,250 square feet of casino space with 1,267 slot machines and 71 table games. The casino opened in December 1995 with temporary facilities, including an approximately 13,000-square-foot pavilion and surface parking. In October 1996, the Company opened its 44,000-square-foot passenger pavilion and 1,600-space parking garage. The pavilion has passenger ticketing facilities, three restaurants, a sidewalk cafe, an entertainment lounge and a gift shop. In December 1996, the Company opened a 250-room hotel. Approximately 650,000 persons live within 50 miles of Casino Aztar Evansville, and more than 3 million persons live within 120 miles, including the metropolitan Louisville, Kentucky area. The Company believes that Casino Aztar Evansville is well placed to further solidify its position in the regional market prior to additional competition emerging on the Ohio River. Direct competition nearer to the Louisville market is not expected until late 1997 or early- to mid-1998. CASINO AZTAR CARUTHERSVILLE Casino Aztar Caruthersville operates on a 37-acre site on the Mississippi River in Caruthersville, Missouri near Interstates 55 and 155. The casino riverboat has a capacity of 800 passengers plus crew and contains approximately 10,400 square feet of casino space with 434 slot machines and 27 table games. A passenger pavilion provides ticketing and pre-boarding facilities, including a restaurant, a sports lounge, a snack bar and other amenities. Other main elements are a barge at river's edge for passenger boarding and disembarking, and parking for more than 1,000 vehicles, including recreational vehicles. Approximately 634,000 persons live within 60 miles of Casino Aztar Caruthersville in a relatively rural region whose population is widely dispersed and has proven difficult to attract. Approximately 2.2 million people live within 100 miles of Casino Aztar Caruthersville, an area which 5 encompasses Memphis, Tennessee. Despite its position in a dispersed rural market, the Aztar property has been slowly increasing revenue, primarily as a result of a revised marketing plan. COMPETITION AND SEASONALITY Competition The Company faces intense competition in each of the markets in which its land-based gaming facilities are located from other companies in the gaming industry, some of which have significantly greater financial resources than the Company. Such competition results, in part, from the geographic concentration of competitors. All of the Company's land-based casinos primarily compete with other casinos in their immediate geographic area. The Company's riverboat casinos primarily compete with other riverboat casinos in nearby states, such as the riverboat casino in Metropolis, Illinois. In addition, riverboat casinos in Mississippi attract residents of Casino Aztar Caruthersville's secondary Memphis, Tennessee market. Casino Aztar Caruthersville also competes to a lesser extent with riverboat casinos in other cities in Missouri, none of which are in its primary 60- mile radius market area. Casino Aztar Evansville also competes with two other Indiana riverboat casinos on the Ohio River in the Cincinnati, Ohio market area and will compete with one in the Louisville, Kentucky market area when it opens. In addition, Indiana law allows one more riverboat casino to be operated on the Ohio River if and when the Indiana Gaming Commission decides to issue another license. Casino Aztar Evansville also competes to a lesser extent with riverboat casinos in other Indiana locations, none of which are in its primary 50-mile radius market area. All of the Company's casinos compete to a lesser extent with casinos in other locations, including Native American lands and on cruise ships, and with other forms of legalized gaming in the United States, including state- sponsored lotteries, off-track wagering and card parlors. Several states have considered legalizing casino gaming and others may in the future. Legalization of large-scale, unlimited casino gaming in or near any major metropolitan area or increased gaming in other areas could have an adverse economic impact on the business of any or all of the Company's gaming facilities. There can be no assurance that the Company will be able to compete successfully in these markets. As of January 2, 1997, there were 11 casino hotel facilities operating in Atlantic City in competition with Tropicana Atlantic City. 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 through 1996 and a major expansion at one casino hotel is scheduled to open in 1997. 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 it could increase competition for the existing market. In 1992, the Mashantucket Pequot tribe began operating the Foxwoods High Stakes Casino and Bingo Hall, one of the largest casinos in the United States, in Ledyard, Connecticut and in 1996 another tribe began operating a casino in Connecticut. In addition, slot machines have been added to horse racing tracks in Delaware. The adoption of legislation 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. 6 Since the Mirage opened in late 1989, there have been seven other major casino hotels opened on the 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. A major casino hotel on the Strip is under construction and another has been announced. Development is also expected to occur sometime in the future on the Strip to the south of Tropicana Las Vegas. The experience through 1996 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 Las Vegas. In the Laughlin market, there have been expansions of existing casino hotels and in February 1995, the Mojave tribe opened a casino hotel 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 in Las Vegas and the surrounding area. 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 Tropicana Atlantic City experiences seasonal fluctuations in casino play that management believes are typical of casino hotel operations in Atlantic City. Operating results indicate that casino play is seasonally higher 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 the Atlantic City Tropicana's operating results are especially dependent upon operations in the summer months, any event that adversely affects the operating results of the Atlantic City Tropicana 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 7 between Thanksgiving and Christmas. The Company's casino riverboats experience higher casino revenues 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 varies from facility to facility based upon the various types of customers at each facility. Gaming debts are legally enforceable under the current laws of New Jersey and Nevada; it is not clear, however, that all other states will honor these policies. Enforceability of gaming debts in Indiana is uncertain. 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 and the New Jersey Division of Gaming Enforcement, each of which maintains a staff on the premises of Tropicana Atlantic City. 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 Las Vegas and Ramada Express are subject to routine audit and supervision by agents of the Nevada State Gaming Control 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. 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. 8 From time to time, legislative and regulatory changes are proposed that could be adverse to the Company. In addition, from time to time, investigations are conducted relating to the gaming industry. Tropicana Atlantic City, Casino Aztar Caruthersville and Casino Aztar Evansville are required to report certain cash transactions to the U.S. Department of the Treasury pursuant to the Bank Secrecy Act. Violation of the reporting requirements of the Bank Secrecy Act could result in civil as well as criminal penalties including fines and/or imprisonment, which in turn could result in the revocation, suspension, imposition of conditions upon or failure to renew the casino license of the affected facility. 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 State Gaming Control Board. Violation of this regulation could result in action by 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. Except to the extent of a violation as noted above, 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, the "Nevada Act"); and (ii) various local regulations. The gaming operations of the Tropicana Las Vegas and Ramada Express are subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and the Clark County Liquor and Gaming Licensing Board (the "Clark County Board") (collectively, the "Nevada Gaming Authorities"). The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things; (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) the provision of a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Company. Hotel Ramada of Nevada ("HRN") is the Company's wholly-owned subsidiary which operates the casino at Tropicana Las Vegas and Ramada Express, Inc. ("Express") is the Company's wholly-owned subsidiary which operates the casino at Ramada Express. HRN and Express are both required to be licensed by the Nevada Gaming Authorities. The gaming licenses require the periodic payment of fees and taxes and are not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission 9 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 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. 10 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 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 11 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 any 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. Such approval, if given, 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. Any representation to the contrary is unlawful. On May 23, 1996, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, subject to certain conditions (the "Shelf Approval"). However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. 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. 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 12 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 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. 13 The sale of alcoholic beverages by HRN and Express is subject to licensing, control and regulation by the Clark County Board. All licenses are revocable 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, HRN and Express. 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 Casino Control Commission (the "New Jersey Commission"). In general, the New Jersey Act and regulations provide for more extensive controls over a broader scope of gaming-related activities than does the Nevada regulatory system. The New Jersey Act and regulations concern primarily the financial stability and character of casino licensees, their intermediary and holding companies, their employees, their security holders and others financially interested in casino operations, the nature of hotel and casino facilities and a wide range of gaming and non-gaming related operations. The New Jersey Act and regulations include detailed provisions concerning, among other things, financial and accounting practices used in connection with casino operations, residence and equal employment opportunities for employees of casino operators, contractors for casino facilities and others; rules of games, levels of supervision of games and methods of selling and redeeming chips; manner of granting credit, duration of credit and enforceability of gaming debts; manufacture, distribution and sale of gaming equipment; security standards, management control procedures, accounting and cash control methods and reports to gaming authorities; advertising of casinos and standards for entertainment and distribution of alcoholic beverages in casinos. A number of these provisions require practices which are different from those in Nevada and some of them result in casino operating costs being higher than those in comparable facilities in Nevada. The New Jersey Act also established the New Jersey Division of Gaming Enforcement (the "New Jersey Division") to investigate all license applications, enforce the provisions of the New Jersey Act and attendant regulations and prosecute all proceedings for violations of the New Jersey Act and regulations before the New Jersey Commission. The New Jersey Division also conducts audits and continuing reviews of all casino operations. Adamar of New Jersey, Inc. ("Adamar"), a wholly-owned subsidiary of the Company, has been licensed (subject to quadrennial renewal) by the New Jersey Commission to operate Tropicana Atlantic City. In November 1982, the New Jersey Commission granted a plenary license to Adamar. In November 1995, the license was renewed for a period of four years. The Company and Ramada New Jersey Holdings Corporation ("Holdings"), another of the Company's New Jersey gaming subsidiaries, have been approved as qualified holding companies for Adamar's casino license. Officers and directors of the Company and Adamar and employees who work at casino hotel facilities operated by Adamar also have been or must be approved or licensed. In 14 addition, all contracts affecting the facilities are subject to approval, 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 Tropicana Atlantic City continues to meet such requirements. The New Jersey Act further provides that each person who directly or indirectly holds any beneficial interest or ownership of the securities issued by a casino licensee or any of its intermediary or holding companies, those persons who, in the opinion of the New Jersey Commission, have the ability to control the casino licensee or its intermediary or holding companies or elect a majority of the board of directors of said companies, other than a banking or other licensed lending institution which makes a loan or holds a mortgage or other lien acquired in the ordinary course of business, and lenders and underwriters of said companies may be required to seek qualification from the New Jersey Commission. However, because the Company is a publicly traded holding company, in accordance with the provisions of the New Jersey Act, a waiver of qualification may be granted by the New Jersey Commission, with the concurrence of the Director of the New Jersey Division, if it is determined that said persons or entities are not significantly involved in the activities of Adamar and, in the case of security holders, do not have the ability to control the Company or elect one or more of its directors. There exists a rebuttable presumption that any person holding 5% or more of the equity securities of a casino licensee's intermediary or holding company or a person having the ability to elect one or more of the directors of such a company has the ability to control the company and thus must obtain qualification from the New Jersey Commission. Notwithstanding this presumption of control, the New Jersey Act provides for a waiver of qualification for passive "institutional investors," as defined by the New Jersey Act, if the institutional investor purchased the securities for investment purposes only and where such securities constitute (i) less than 10% of the equity securities of a casino licensee's holding or intermediary company or (ii) debt securities of a casino licensee's holding or intermediary company representing a percentage of the outstanding debt of such company not exceeding 20% or a percentage of any issue of the outstanding debt of such company not exceeding 50%. The waiver of qualification is subject to certain conditions including, upon request of the New Jersey Commission, filing a certified statement that the institutional investor has no intention of influencing or affecting the affairs of the issuer. Additionally, a waiver of qualification may also be granted to institutional investors holding a higher percentage of securities of a casino licensee's holding or intermediary company upon a showing of good cause. 15 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. 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 16 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's subsidiary, Aztar Missouri Gaming Corporation ("Aztar Missouri"), filed its initial application with the Missouri Gaming Commission. The Missouri Gaming Commission conducted a formal investigation of Aztar Missouri's application and granted an owner/operator gaming license to Aztar Missouri on April 26, 1995. In a 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 17 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 eleven gaming licenses throughout the state: one in Caruthersville, four in the St. Louis area, five 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, Aztar Missouri, any subsidiaries, and certain of their 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, as well as Aztar itself, have submitted Personal Disclosure Forms to the Missouri Gaming Commission. All gaming employees must obtain an occupational license issued by the Missouri Gaming Commission. The operators' licenses are issued through application to the Missouri Gaming Commission, which requires, among other things, (a) investigations into an applicant's character, financial responsibility and experience qualifications and (b) that applicants furnish (i) an affirmative action plan for the hiring and training of minorities and women and (ii) an economic development or impact report. License fees are a minimum of $50,000 for the initial application and $25,000 annually thereafter. Licenses are to last for a term of two years, except that the initial license and first renewal granted to each gaming operator are to be for terms of one year. Aztar Missouri was relicensed in 1996 for its first renewal period. Aztar Missouri submitted, on January 20, 1997, its notice to renew its license for its second renewal period, and thus will be investigated, along with its officers, directors and certain employees, and considered for relicensing, sometime within the next year. Aztar and its directors may also be investigated pursuant to this relicensing procedure. Aztar Missouri has no reason to believe that these second renewal 18 applications will not be approved. 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, including without limitation, 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 notice to, and approval by, the Missouri Gaming Commission: any issuance of an ownership interest of five percent or more of the issued and outstanding ownership interest, any private incurrence of debt by the licensee or any holding company of $1,000,000 or more, and any public issuance of debt by a licensee or its holding company. In addition, the licensee must notify the Missouri Gaming Commission of other transactions, including the transfer of five percent or more of an ownership interest in the licensee or holding company, the pledge of five percent or more of the ownership interest in a licensee or holding company, and any transaction of at least $1,000,000. The restrictions on transfer of ownership apply to the Company as well as the direct licensee, Aztar Missouri. Missouri statutes and administrative rules contain 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, requirements regarding minimum payouts, a 20% tax on adjusted gross receipts, prohibitions against providing credit to gaming customers (except for the use of credit cards and cashing checks) and a requirement that each licensee reimburse the Missouri Gaming Commission for all costs of any Missouri Gaming Commission staff necessary to protect the public on the licensee's riverboat. Licensees also must submit audited quarterly financial reports to the Missouri Gaming Commission and pay the associated auditing fees. Other areas of operation which are subject to regulation under the Missouri rules are the size, denomination and handling of chips and tokens; the surveillance methods and computer monitoring of electronic games; accounting and audit methods and procedures; and approval of an extensive internal control system. The Missouri rules also require that all of an operator's purchases must be from suppliers licensed by the Missouri Gaming Commission. Although the Missouri Gaming Law provides no limit on the amount of riverboat space that may be used for gaming, the Missouri Gaming Commission is empowered to impose such space limitations through the adoption of rules and regulations. Additionally, United States Coast Guard safety regulations could affect the amount of riverboat space that may be devoted to gaming. In addition, the Missouri Gaming Law imposes a $500 loss limit per cruise and requires licensees to maintain scheduled cruises or excursions with boarding and de-boarding times, regardless of whether a gaming riverboat actually cruises the river, or has been granted continuous docking status pursuant to the Missouri Gaming Law, as described below. 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 19 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 all eleven licensees 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", for which an application has been filed with the Missouri Gaming Commission to conduct such continuously docked gaming operations and is pending action by the Missouri Gaming Commission. 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. Among regulations adopted is one dealing with riverboat excursions, routes and public safety. The Indiana Act requires licensed riverboat casinos to be cruising vessels and the regulations carry out the legislative intent with appropriate recognition of public safety needs. The regulations explicitly preclude "dockside gambling". Riverboat gaming excursions are limited to a duration of up to four hours unless expressly approved by the Indiana Gaming Commission. No gaming may be conducted while the boat is docked except (1) for 30-minute time periods at the beginning and end of a cruise while the passengers are embarking and disembarking, (2) if the master of the riverboat reasonably determines that specific weather or water conditions present a danger to the riverboat, its passengers and crew, (3) if either the vessel or the docking facility is undergoing 20 mechanical or structural repair, (4) if water traffic conditions present a danger to (A) the riverboat, riverboat passengers and crew or (B) other vessels on the water, or (5) if the master has been notified that a condition exists that would cause a violation of Federal law if the riverboat were to cruise. For Ohio River excursions, such as those the Company is conducting through its Evansville operation, "full excursions" must be conducted at all times during a year unless the master determines otherwise, for the above-stated reasons. A "full excursion" is a cruise on the Ohio River. The Company, through an Indiana subsidiary, has received from the Indiana Gaming Commission a riverboat owner's license for the Evansville, Indiana market. The Company has completed requirements for formal licensing and commenced operations in Evansville on December 7, 1995. The Ohio River has waters in both Indiana and Kentucky in the Evansville vicinity. Because riverboat casino gambling is illegal in Kentucky, authorities of that state have raised issues about Indiana-licensed riverboats operating in Kentucky waters. The Company's Evansville riverboat cruises from its dock without entering Kentucky waters, under its currently approved cruising route, thereby avoiding those issues. A riverboat owner's license has an initial effective period of five years but is subject to an annual renewal thereafter. The Indiana Gaming Commission has broad discretion with respect to the initial issuance of licenses and also with respect to the renewal, revocation, suspension and control of riverboat owner's licenses. The Act requires a reinvestigation after three years to ensure the owner continues to be suitable for licensure. Officers, directors and principal owners of the actual license holder and employees who are to work on the riverboat are subject to substantial disclosure requirements as a part of securing and maintaining necessary licenses. Significant contracts are subject to disclosure and approval processes. A riverboat owner licensee may not enter into or perform any contract or transaction in which it transfers or receives consideration which is not commercially reasonable or which does not reflect the fair market value of the goods or services rendered or received. All contracts are subject to disapproval by the Indiana Gaming Commission. Suppliers of gaming equipment and materials must also be licensed under the Indiana Act. The present license expires in December 2000. The Indiana Act requires licensees to disclose to the Indiana Gaming Commission the identity of all directors, officers and persons holding direct or indirect beneficial interests of 1% or greater. The Indiana Gaming Commission also requires a broad and comprehensive disclosure of financial and operating information on licensees and their principal officers. The Company has provided full information and documentation to the Indiana Gaming Commission, and it must continue to do so, during the license. The Indiana Act prohibits contributions to a candidate for a state, legislative, or local office, or to a candidate's committee or to a regular party committee by the holder of a riverboat owner's license or a supplier's license, by an officer of a licensee, by an officer of a person that holds at least a 1% interest in the licensee, or by a person holding at least a 1% interest in the licensee; and, the Indiana Gaming Commission is in the process of promulgating a rule requiring the quarterly reporting by such licensees, officers, and persons. 21 In addition to receiving a license to conduct riverboat casino operations from the Indiana Gaming Commission, the Company has secured permits and approvals from the United States Army Corps of Engineers to develop the facilities it is using to conduct operations. The Company has received two alcoholic beverage permits: one for riverboat excursions and one for land support facilities. All building permits and other approvals for the permanent facilities have been received, and the project is substantially completed. 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 (not to exceed 2%). The Indiana Act also prescribes an additional tax for admissions, based upon $3 for each person admitted to a gaming excursion. Recent legislation permits the imposition of property taxes on riverboats at rates to be determined by local taxing authorities. Indiana corporations are also subject to the Indiana gross income tax, the Indiana adjusted gross income tax and the Indiana supplemental corporate net income tax. Sales on a riverboat are subject to applicable use, excise and retail taxes. The Indiana Act requires a riverboat owner licensee to directly reimburse the Indiana Gaming Commission for the costs or inspectors and agents required to be present during the conduct of gaming operations. Legislation has been introduced in the 1997 Session of the Indiana General Assembly, and passed by the House of Representatives, which if enacted, would increase the tax for admissions from $3 to $4 for each person admitted to a gaming excursion. The Indiana Act places special emphasis upon minority and women's business enterprise participation in the riverboat industry. Any person issued a riverboat owner's license must establish goals of at least 10% of the total dollar value of the licensee's contracts for goods and services with minority business enterprises and 5% of the total dollar value of the licensee's contracts for goods and services with women's business enterprises. The Indiana Gaming Commission may suspend, limit or revoke the owner's license or impose a fine for failure to comply with the statutory requirements. Minimum and maximum wagers on games on the riverboat are left to the discretion of the licensee. Wagering may not be conducted with money or other negotiable currency. An institutional investor which acquires 5% or more of any class of voting securities of a holding company of a licensee is required to notify the Indiana Gaming Commission and to provide additional information, and may be subject to a finding of suitability. A person who acquires 5% or more of any class of voting securities of a holding company of a licensee is required to apply to the Indiana Gaming Commission for a finding of suitability. A riverboat licensee or an affiliate may not enter into a debt transaction of $1 million or more without approval of the Indiana Gaming Commission, and the Company has been informed by the Indiana Gaming Commission that a "debt transaction" will include increases in the maximum amount available under the Company's reducing revolving credit facility, which matures on December 31, 1999. A riverboat owner's license is a revocable privilege and is not a property right under the Indiana Act. A 22 riverboat owner licensee or any other person may not lease, hypothecate, borrow money against or loan money against a riverboat owner's license. Federal legislation was recently enacted that established a National Gambling Impact Study Commission ("Commission"). Additional federal regulation may occur as a result of hearings and recommendations of the Commission. Legislation has been introduced in the 1997 Session of the Indiana General Assembly, which if enacted, would prohibit the expansion of gambling until the earlier of December 31, 1999, or the date the Governor has certified that the Commission has completed its study. Legislation has also been introduced in the 1997 Session of the Indiana General Assembly, which if enacted would authorize the licensing of electronic gaming devices at establishments that hold alcoholic beverage permits. A lawsuit was filed on October 25, 1996, by three individuals in Harrison County, Indiana, which challenges the constitutionality of the Indiana Act. The lawsuit alleges that the Indiana Act (i) creates an unequal privilege because supporters of riverboat gambling, having lost a county-wide referendum, are permitted to resubmit a proposal to county voters for approval of riverboat gambling, while opponents, having lost a county-wide referendum, are not allowed to resubmit a proposal; and (ii) was enacted as part of a state budget bill allegedly in violation of a state constitutional requirement that legislation be confined to a single subject and matters connected to this subject. The State of Indiana has filed an answer to the complaint. The Supreme Court of Indiana has previously upheld the constitutionality of the Indiana Act, although the prior challenge involved different grounds than those alleged in this recent lawsuit. Environmental Matters The Company is subject to federal, state and local laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water as well as handling and disposal practices for solid and hazardous wastes, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, past spills, disposals or other releases of hazardous substances (together, "Environmental Laws"). The Company uses certain substances and generates certain wastes that are regulated or may be deemed hazardous under applicable Environmental Laws. From time to time, the Company's operations have resulted, or may result, in certain non- compliance with applicable requirements under Environmental Laws. The Company also has incurred, and in the future may incur, costs related to cleaning up contamination relating to historical uses of certain of its current or former properties (in particular, the riverboat properties, which have in the past been used for various industrial purposes). Any such noncompliance with applicable requirements or liability under Environmental Laws has not had, and is not expected to have, a material adverse effect on the Company's results of operations or its financial condition. Other Regulations The Company's businesses are subject to various federal, state and local laws and regulations in addition to those discussed above. These laws and 23 regulations include but are not limited to restrictions and conditions concerning employees, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect the Company. EMPLOYEES The Company employs approximately 10,800 people, of which approximately 3,300 employees are represented by unions. Of the approximately 5,000 employees at Tropicana Atlantic City, approximately 1,800 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 2000. At Tropicana Las Vegas, approximately 1,500 of the 2,600 employees are covered by collective bargaining contracts. Substantially all of such employees are covered by contracts that expire in May 1997 and the remainder are covered by contracts that expire in 1998, 1999 or 2000. At Ramada Express there are approximately 1,300 employees, none of which are covered by collective bargaining agreements. The Company has approximately 1,300 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. The Company, HRN and Adamar are the beneficiaries of an agreement with Tropicana Enterprises, the owner of certain properties related to Tropicana Las Vegas, and the Jaffe family regarding the use of the name "Tropicana" for 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, Casino Aztar, Trop, Trop Park, 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. 24 ITEM 2. PROPERTIES - ------------------- TROPICANA ATLANTIC CITY. Tropicana Atlantic City is located on an approximate 10-acre site in Atlantic City, New Jersey. In July 1993, Tropicana Atlantic City became wholly owned by the Company. TROPICANA LAS VEGAS. Tropicana Las Vegas is located on a 34-acre site in Las Vegas, Nevada. Tropicana Las Vegas 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 Las Vegas 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 an approximate 28-acre site in Laughlin, Nevada. Ramada Express is wholly owned by the Company. 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. 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. 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. 25 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" or collectively, the "Poulos/Ahearn Case"). 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. In an order entered April 17, 1996, United States District Court Judge Lloyd D. George granted the defendants' motions and dismissed the complaint without prejudice. The plaintiffs filed an amended complaint on May 31, 1996, and the defendants have again moved to dismiss it for failure to state a claim. The claims in the amended complaint seek damages that are the same as those in the original complaint. The Plaintiffs have opposed these motions. By order dated August 17, 1996, the Poulos/Ahearn case was transferred to Judge David Ezra and assigned the new Case No. CV-S-94-1126-DAE(RJJ)-BASE FILE. On May 31, 1996, the plaintiffs filed a motion to substitute Brenda McElmore for Mr. Ahearn as one of the class representatives. This motion has not been opposed by the Company, though several of the other defendants did oppose the motion. By order entered December 30, 1994, the Court stayed all discovery. The plaintiffs filed a motion on July 12, 1996, seeking to lift the stay of discovery and seeking leave to add additional defendants. The Company and the other defendants have opposed these motions. 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 the Poulos/Ahearn Case in all material respects, except that the named plaintiff purports to represent a smaller and more precisely defined class of persons than the plaintiffs. The defendants (including the Company) 26 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. On August 15, 1996, District Judge Lloyd D. George granted the motion to dismiss, without prejudice. An amended complaint containing the same principal allegations was filed on September 30, 1996. The defendants (including the Company) have filed motions to dismiss the amended complaint for failure to state a claim and on other grounds. The Plaintiff has opposed these motions. On December 13, 1996, a status conference was held in the Poulos/Ahearn Case before Judge Ezra, who entered the following orders: A. The Poulos/Ahearn Case and Schreier Case will be consolidated, as shall the action entitled William H. Poulos, On Behalf of Himself and All Others Similarly Situated vs. Ambassador Cruise Lines, Inc., et al., Case No. CV-S-95-936 LDG(RLH)(the "Cruise Ship Case"). (The allegations in the Cruise Ship Case are nearly identical to those made in the Poulos/Ahearn Case and Schreier Case, and are made against a group of defendants consisting of several manufactures and distributors of gaming devices, as well as numerous cruise ship operators and companies which operate cruise ship casinos.) B. The plaintiffs shall by February 14, 1997, file one consolidated complaint in the three cases, and this has been done. C. All pending motions in the three cases are deemed withdrawn without prejudice. D. The Defendants shall appoint a steering committee. E. The Defendants shall, to the extent possible, file consolidated pleadings in response to the consolidated complaint. F. By February 14, 1997, the parties shall file a case management order. A proposed case management order was filed on February 21, 1997. On March 27, 1996, a purported consumer class action entitled Payne, et al. v. Aztar Corporation, et. al., Case No. 00698592 (the "Payne Case"), was filed in the state Superior Court in San Diego, California naming as defendants the Company and several other entities whom plaintiffs allege are casino owners or operators. Plaintiffs purport to bring the action on behalf of a class consisting of all persons in California who have played video poker machines owned or operated by defendants. Plaintiffs allege that defendants have engaged in a course of fraudulent and misleading conduct intended to induce plaintiffs to play video poker machines based on a false belief conveyed by defendants concerning how such machines operate and that such conduct violates various provisions of the California Business and Professions Code and the so-called Consumer Legal Remedies Act. Plaintiffs seek unspecified compensatory and punitive damages, disgorgement and other equitable remedies and attorneys' fees and other costs. Defendants removed the action to the United States District Court for the Southern District of California in San Diego, Case No. 96-905- J(CGA), and filed various motions to dismiss and or transfer the action to the United States District Court for the District of Nevada where the 27 Poulos/Ahearn Case and the Schreier Case are pending. Plaintiffs' attorneys in the Payne Case include attorneys who represent the plaintiffs in the Poulos/Ahearn Case and the Schreier Case. Plaintiffs filed a motion to have the case remanded to state court contending that the federal court lacks subject matter jurisdiction over the case. That motion was granted and the case has been returned to state court. The Company and the other defendants have filed motions in the state court challenging the state court's jurisdiction over the case and seeking its dismissal. A motion to stay the entire case until the related cases in Nevada are resolved has been filed. Plaintiffs have served defendants with written discovery requests; however, a stipulation is in effect to stay discovery until the motion to stay the entire case is heard. There is currently no trial date. The Company believes that plaintiffs' allegations are without merit, and it intends to defend the actions vigorously. 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 28 EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The registrant has elected not to include information concerning its executive officers in its 1997 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, 53 18 years 5 years President and Chief Executive Officer Robert M. Haddock Executive Vice President 52 16 years 10 years and Chief Financial Officer Nelson W. Armstrong, Jr. Vice President, 55 24 years 7 years Administration, and Secretary Joe C. Cole Vice President, 58 9 years 9 years Corporate Communications Meridith P. Sipek Controller 50 19 years 7 years Neil A. Ciarfalia Treasurer 49 2 years 2 years 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. 29 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 10,614 shareholders of record as of March 3, 1997. The additional information required by this Item 5 is included in this report on F-18, F-30 and F-49. ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- The information required by Item 6 is included in this report on pages F-49 and F-50. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - --------------------- The information required by Item 7 is included in this report on pages F-39 through F-48. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- Reference is made to the Index to Financial Statements and Schedules on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information required by Item 10 is incorporated by reference to the registrant's definitive Proxy Statement to be filed with the Securities and Exchange 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. 30 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by Item 11 is incorporated by reference to the registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission. A cross-referenced index is located on the facing page of this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The information required by Item 12 is incorporated by reference to the registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission. A cross-referenced index is located on the facing page of this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- None PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) 1. Financial Statements: See the Index to Financial Statements and Schedules on page F-1. 2. Financial Statement Schedules: See the Index to Financial Statements and Schedules on page F-1. 3. Exhibits: See the exhibit index on page E-1 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. (b) Reports on Form 8-K: The Company did not file any report on Form 8-K during the quarter ended January 2, 1997. 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): 31 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. 32 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 20, 1997 ----------------- ------------------------- ------------------ 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 20, 1997 - ------------------------- and Chief Executive Officer, and ---------------- Paul E. Rubeli Director ROBERT M. HADDOCK Executive Vice President and March 20, 1997 - ------------------------- Chief Financial Officer, and ---------------- Robert M. Haddock Director MERIDITH P. SIPEK Controller March 20, 1997 - ------------------------- ---------------- Meridith P. Sipek JOHN B. BOHLE Director March 20, 1997 - ------------------------- ---------------- John B. Bohle E. M. CARSON Director March 20, 1997 - ------------------------- ---------------- Edward M. Carson A. S. GITTLIN Director March 20, 1997 - ------------------------- ---------------- A. Sam Gittlin JOHN R. NORTON, III Director March 20, 1997 - ------------------------- ---------------- John R. Norton, III ROBERT S. ROSOW Director March 20, 1997 - ------------------------- ---------------- Robert S. Rosow R. SNELL Director March 20, 1997 - ------------------------- ---------------- Richard Snell VESTA VALENTINE TEMEN Director March 20, 1997 - ------------------------- ---------------- Vesta Valentine Temen TERENCE W. THOMAS Director March 20, 1997 - ------------------------- ---------------- Terence W. Thomas 33 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES I. Financial Statements Page ---- 1. Aztar Corporation and Subsidiaries Report of Independent Accountants . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets at January 2, 1997 and December 28, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the years ended January 2, 1997, December 28, 1995 and December 29, 1994. . . F-5 Consolidated Statements of Cash Flows for the years ended January 2, 1997, December 28, 1995 and December 29, 1994. . . F-7 Consolidated Statements of Shareholders' Equity for the years ended January 2, 1997, December 28, 1995 and December 29, 1994 . . . . . . . . . . . . . . . . . . . . . . F-9 Notes to Consolidated Financial Statements. . . . . . . . . . . F-11 2. Tropicana Enterprises Report of Independent Accountants . . . . . . . . . . . . . . . F-31 Balance Sheets at January 2, 1997 and December 28, 1995 . . . . F-32 Statements of Operations for the years ended January 2, 1997, December 28, 1995 and December 29, 1994 . . . . . . . . . . . F-33 Statements of Cash Flows for the years ended January 2, 1997, December 28, 1995 and December 29, 1994 . . . . . . . . . . . F-34 Statements of Partners' Capital for the years ended January 2, 1997, December 28, 1995 and December 29, 1994. . . F-35 Notes to Financial Statements . . . . . . . . . . . . . . . . . F-36 II. Financial Statement Schedules - Aztar Corporation and Subsidiaries Report of Independent Accountants . . . . . . . . . . . . . . . .S-1 Schedule 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 schedule. F-1 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 January 2, 1997 and December 28, 1995, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended January 2, 1997. 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 January 2, 1997 and December 28, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 4, 1997 F-2 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 2, 1997 and December 28, 1995 ---------------------------------------- (in thousands, except share data) 1996 1995 ---------- ---------- Assets Current assets: Cash and cash equivalents $ 44,131 $ 26,527 Accounts receivable, net 41,723 21,325 Refundable income taxes 1,201 1,261 Inventories 7,508 6,591 Prepaid expenses 9,772 9,417 Deferred income taxes, net 8,985 8,013 ---------- ---------- Total current assets 113,320 73,134 Investments in and advances to unconsolidated partnership 10,360 11,467 Other investments 26,697 27,964 Property and equipment: Buildings, riverboats and equipment, net 827,103 711,454 Land 95,747 95,589 Construction in progress 3,820 46,102 Leased under capital leases, net 389 535 ---------- ---------- 927,059 853,680 Deferred income taxes, net 2,565 -- Other deferred charges and assets 39,581 46,993 ---------- ---------- $1,119,582 $1,013,238 ========== ========== The accompanying notes are an integral part of these financial statements. F-3 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) January 2, 1997 and December 28, 1995 ---------------------------------------- (in thousands, except share data) 1996 1995 ---------- ---------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accruals $ 66,048 $ 60,226 Accrued payroll and employee benefits 22,571 18,012 Accrued interest payable 13,288 14,995 Income taxes payable 1,112 2,197 Current portion of long-term debt 12,960 466 Current portion of other long-term liabilities 4,259 6,172 ---------- ---------- Total current liabilities 120,238 102,068 Long-term debt 527,006 496,439 Other long-term liabilities 27,042 30,699 Deferred income taxes -- 18,914 Contingencies and commitments Series B ESOP convertible preferred stock (redemption value $7,226 and $6,114) 6,022 5,459 Shareholders' equity: Common stock, $.01 par value (45,000,287 and 38,265,813 shares outstanding) 489 422 Paid-in capital 411,158 352,221 Retained earnings 44,846 24,922 Less: Treasury stock (17,102) (17,027) Unearned compensation (117) (879) ---------- ---------- Total shareholders' equity 439,274 359,659 ---------- ---------- $1,119,582 $1,013,238 ========== ========== The accompanying notes are an integral part of these financial statements. F-4 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 ----------------------------------- (in thousands, except per share data) 1996 1995 1994 --------- --------- --------- Revenues Casino $652,707 $469,211 $443,392 Rooms 47,977 40,543 41,514 Food and beverage 55,729 47,343 42,657 Other 21,059 15,772 13,877 -------- -------- -------- 777,472 572,869 541,440 Costs and expenses Casino 314,732 226,239 205,995 Rooms 27,931 24,967 25,268 Food and beverage 53,668 44,320 39,361 Other 19,319 10,250 7,753 Marketing 91,764 57,445 44,494 General and administrative 74,396 50,292 47,895 Utilities 15,076 13,605 13,556 Repairs and maintenance 24,429 20,986 19,905 Provision for doubtful accounts 5,892 3,611 3,102 Property taxes and insurance 23,285 19,927 17,781 Rent 15,698 11,308 9,951 Depreciation and amortization 49,406 39,494 36,972 Preopening costs 2,933 7,724 -- -------- -------- -------- 718,529 530,168 472,033 -------- -------- -------- Operating income 58,943 42,701 69,407 Interest income 2,367 3,251 3,139 Interest expense (58,577) (51,052) (49,711) -------- -------- -------- Income (loss) before other items, income taxes and extraordinary items 2,733 (5,100) 22,835 Equity in unconsolidated partnership's loss (4,793) (5,081) (4,169) -------- -------- -------- Income (loss) before income taxes and extraordinary items (2,060) (10,181) 18,666 Income taxes 22,699 5,187 (1,862) -------- -------- -------- Income (loss) before extraordinary items 20,639 (4,994) 16,804 Extraordinary items -- -- (2,708) -------- -------- -------- Net income (loss) $ 20,639 $ (4,994) $ 14,096 ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-5 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (continued) For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 ----------------------------------- (in thousands, except per share data) 1996 1995 1994 -------- -------- -------- Earnings per common and common equivalent share: Income (loss) before extraordinary items $ .47 $ (.14) $ .42 Extraordinary items -- -- (.07) -------- -------- -------- Net income (loss) $ .47 $ (.14) $ .35 ======== ======== ======== Earnings per common share assuming full dilution: Income (loss) before extraordinary items $ .46 * $ .41 Extraordinary items -- * (.07) -------- -------- Net income (loss) $ .46 * $ .34 ======== ======== Weighted average common shares applicable to: Earnings per common and common equivalent share 42,172 39,026 38,196 Earnings per common share assuming full dilution 43,149 * 39,224 * Anti-dilutive The accompanying notes are an integral part of these financial statements. F-6 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 -------------- (in thousands) 1996 1995 1994 ---------- ---------- ---------- Cash Flows from Operating Activities Net income (loss) $ 20,639 $ (4,994) $ 14,096 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 52,478 42,808 39,529 Provision for losses on accounts receivable 5,892 3,611 3,102 Loss on reinvestment obligation 729 -- 950 Rent expense (732) (636) (5) Distribution in excess of equity in income of partnership 1,107 1,160 1,149 Deferred income taxes (22,451) (5,616) (3,043) Change in assets and liabilities: (Increase) decrease in accounts receivable (23,701) (7,545) (1,577) (Increase) decrease in refundable income taxes 60 (538) 1,339 (Increase) decrease in inventories and prepaid expenses (1,787) (516) (1,121) Increase (decrease) in accounts payable, accrued expenses and income taxes payable 8,476 25,066 1,434 Other items, net 7,429 6,375 5,780 --------- --------- --------- Net cash provided by (used in) operating activities 48,139 59,175 61,633 --------- --------- --------- Cash Flows from Investing Activities Payments received on notes receivable 1,150 1,009 965 Reduction in other investments 2,427 11,950 -- (Increase) decrease in invested funds -- 8,250 (8,250) Purchases of property and equipment (120,426) (135,863) (54,442) Additions to other long-term assets (7,623) (28,463) (6,682) --------- --------- --------- Net cash provided by (used in) investing activities $(124,472) $(143,117) $ (68,409) --------- --------- --------- The accompanying notes are an integral part of these financial statements. F-7 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 -------------- (in thousands) 1996 1995 1994 --------- --------- --------- Cash Flows from Financing Activities Proceeds from issuance of long-term debt $220,200 $ 83,600 $254,795 Proceeds from issuance of common stock 58,051 1,977 274 Principal payments on long-term debt (177,421) (17,837) (231,507) Principal payments on other long-term liabilities (5,126) -- -- Debt issuance costs (478) (80) (11,473) Preferred stock dividend (726) (754) (773) Redemption of preferred stock (563) (298) (230) -------- -------- -------- Net cash provided by (used in) financing activities 93,937 66,608 11,086 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 17,604 (17,334) 4,310 Cash and cash equivalents at beginning of year 26,527 43,861 39,551 -------- -------- -------- Cash and cash equivalents at end of year $ 44,131 $ 26,527 $ 43,861 ======== ======== ======== Supplemental Cash Flow Disclosures Summary of non-cash investing and financing activities: Capital lease obligations incurred for property and equipment $ -- $ 41 $ 75 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 916 907 722 Issuance of restricted stock 136 2,189 -- Forfeiture of restricted stock 75 142 -- Cash flow during the year for the following: Interest paid, net of amount capitalized $ 58,037 $ 47,758 $ 47,087 Income taxes paid 1,086 471 2,065 The accompanying notes are an integral part of these financial statements. F-8 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 -------------- (in thousands) Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total -------- -------- --------- --------- --------- -------- 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 and losses on redemption, net of income tax benefit (620) (620) Amortization of unearned compensation 65 65 Net income (loss) 14,096 14,096 -------- -------- -------- -------- -------- -------- Balance, December 29, 1994 414 347,284 30,555 (16,885) -- 361,368 Stock options exercised 5 1,972 1,977 Issuance of restricted stock 3 2,186 (2,189) -- Tax benefit from stock options exercised 779 779 Preferred stock dividend and losses on redemption, net of income tax benefit (639) (639) Forfeiture of restricted stock (142) 142 -- Amortization of unearned compensation 1,168 1,168 Net income (loss) (4,994) (4,994) -------- -------- -------- -------- -------- -------- Balance, December 28, 1995 $ 422 $352,221 $ 24,922 $(17,027) $ (879) $359,659 ======== ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-9 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued) For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 - ------------ (in thousands) Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total ------- -------- --------- --------- --------- -------- Balance, December 28, 1995 $ 422 $352,221 $ 24,922 $(17,027) $ (879) $359,659 Issuance of common stock in public offering 63 55,813 55,876 Stock options exercised 4 2,171 2,175 Issuance of restricted stock 136 (136) -- Tax benefit from stock options exercised 817 817 Preferred stock dividend and losses on redemption, net of income tax benefit (715) (715) Forfeiture of restricted stock (75) 75 -- Amortization of unearned compensation 823 823 Net income (loss) 20,639 20,639 ------- -------- -------- -------- -------- -------- Balance, January 2, 1997 $ 489 $411,158 $ 44,846 $(17,102) $ (117) $439,274 ======= ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-10 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 and Las Vegas, Nevada, under the Tropicana name and in Laughlin, Nevada, as Ramada Express. The Company began operations of casino riverboats on April 28, 1995, in Caruthersville, Missouri, and on December 7, 1995, in Evansville, Indiana under the Casino Aztar name. A substantial portion of the Company's consolidated revenues and assets are concentrated at the Atlantic City Tropicana. 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 53 weeks in 1996 and 52 weeks in 1995 and 1994. 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. There were no short-term investments at January 2, 1997 or December 28, 1995. Inventories Inventories, which consist primarily of food, beverage and operating F-11 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 January 2, 1997 and December 28, 1995. Advertising costs that were expensed during the year were $19,699,000 in 1996, $12,951,000 in 1995 and $9,001,000 in 1994. 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 $4,503,000 in 1996, $5,290,000 in 1995 and $2,664,000 in 1994. 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 $227,559,000 at January 2, 1997 and $202,897,000 at December 28, 1995. 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 $4,977,000 and $3,012,000, were $13,576,000 and $15,063,000 at January 2, 1997 and December 28, 1995, respectively. Costs incurred to obtain initial gaming licenses to operate a casino are capitalized as incurred and amortized evenly over ten years beginning with the commencement of operations; subsequent renewal costs are amortized evenly over the renewal period. Deferred licensing costs consist primarily of payments or obligations to civic and community organizations, legal and consulting fees, application and selection fees with associated F-12 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 $3,978,000 and $1,723,000, were $18,969,000 and $19,951,000 at January 2, 1997 and December 28, 1995, 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 January 2, 1997 or December 28, 1995. 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. There were no capitalized costs related to development projects at January 2, 1997. At December 28, 1995, the Company had capitalized costs of $1,458,000 related to various development projects. Equity Instruments The fair value based method of accounting is used for equity instruments issued to nonemployees for goods or services. The intrinsic value based method of accounting is used for stock-based employee compensation plans. Revenue Recognition Casino revenue consists of gaming win net of losses. Revenues exclude the retail value of complimentary food and beverage, accommodations and other goods and services provided to customers. The estimated costs of providing such complimentaries have been classified as casino expenses through interdepartmental allocations as follows (in thousands): 1996 1995 1994 -------- -------- -------- Rooms $ 23,615 $ 19,329 $ 17,767 Food and beverage 42,765 34,369 33,610 Other 2,716 3,894 4,741 -------- -------- -------- $ 69,096 $ 57,592 $ 56,118 ======== ======== ======== F-13 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 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 stock options and the assumed conversion of the preferred stock at the stated rate. In calculating the 1996, 1995 and 1994 earnings per share for both computations, dividends and losses on redemption combined of $715,000, $639,000 and $620,000, respectively, on the Series B ESOP Convertible Preferred Stock are deducted in arriving at income applicable to the common stock. The 1996, 1995 and 1994 dividends are net of income tax benefits of $99,000, $128,000 and $157,000, respectively. 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, 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 January 2, 1997 and December 28, 1995. The Atlantic City Tropicana has a concentration of credit risk in the northeast region of the U.S. Approximately 70% 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 January 2, 1997 and December 28, 1995, the net receivables at Tropicana Atlantic City were $15,338,000 and $9,503,000, respectively, and the net receivables at Tropicana Las Vegas and Ramada Express combined were $25,601,000 and $11,395,000, respectively. An allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses. At January 2, 1997 and December 28, 1995, the allowance for doubtful accounts was $11,261,000 and $9,905,000, respectively. F-14 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 the Las Vegas Tropicana. The Company uses the equity method of accounting for this investment and in connection with the lease expensed rents of $16,652,000 in 1996, $17,098,000 in 1995 and $15,267,000 in 1994, of which 50% was eliminated in consolidation. Summarized balance sheet information and operating results for the unconsolidated partnership are as follows (in thousands): 1996 1995 -------- -------- Current assets $ 959 $ 837 Noncurrent assets 69,540 73,438 Current liabilities 929 915 Noncurrent liabilities 66,171 68,845 1996 1995 1994 -------- -------- -------- Revenues $ 16,698 $ 17,166 $ 15,360 Operating expenses (2,797) (2,743) (2,748) -------- -------- -------- Operating income 13,901 14,423 12,612 Interest expense (5,693) (6,323) (4,492) -------- -------- -------- Net income $ 8,208 $ 8,100 $ 8,120 ======== ======== ======== The Company's share of the above operating results, after intercompany eliminations, is as follows (in thousands): 1996 1995 1994 -------- -------- -------- Equity in unconsolidated partnership's loss $ (4,793) $ (5,081) $ (4,169) NOTE 4. OTHER INVESTMENTS At January 2, 1997 and December 28, 1995, other investments consisted of (in thousands): 1996 1995 -------- -------- CRDA deposits, net of a valuation allowance of $6,425 and $5,927 $16,796 $16,596 CRDA bonds, net of an unamortized discount of $1,643 and $1,420 3,651 3,118 Certificates of deposit 6,250 8,250 ------- ------- $26,697 $27,964 ======= ======= F-15 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 18 to 48 years. Actual maturities may differ from contractual maturities because of prepayment rights. The Company has executed an agreement with the CRDA for approximately $25,000,000 in funding in connection with an expansion project at the Atlantic City Tropicana. 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 January 2, 1997, the Company had approximately $2,500,000 in available deposits with the CRDA that qualified and accordingly reclassified this amount to accounts receivable. 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 two letters of credit aggregating $10,250,000. The letters of credit were obtained in connection with the Company's obligation to make certain payments. The letters of credit will be reduced as certain of these payments are made and the collateral will be released as the letters of credit are reduced below $6,250,000. NOTE 5. LONG-TERM DEBT At January 2, 1997 and December 28, 1995, long-term debt included (in thousands): 1996 1995 -------- -------- 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 177,904 177,768 Reducing revolving credit note; floating rate, 8.36% at January 2, 1997; matures December 31, 1999 160,000 116,600 Other notes payable; 7% to 14.6%; maturities to 2002 1,521 1,814 Obligations under capital leases 541 723 -------- -------- 539,966 496,905 Less current portion (12,960) (466) -------- -------- $527,006 $496,439 ======== ======== F-16 Maturities of long-term debt for the five years subsequent to January 2, 1997 are as follows (in thousands): Year 1997 $ 12,960 1998 35,462 1999 26,653 2000 86,537 2001 233 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 maximum amount available under the Bank Credit Facility was reduced to approximately $182,500,000 on December 31, 1996 and it will be reduced quarterly in annual amounts of $35,000,000 in each year until maturity. The Bank Credit Facility is collateralized by all the property of Tropicana Atlantic City, 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 and operating cash flow. Effective February 16, 1997, the margin was at .25% less than 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. F-17 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 capital expenditures and new venture investments, merge or sell assets. The Company's capital expenditures and new venture investments cannot exceed, subject to certain adjustments, $40,000,000 in 1997, $30,000,000 in 1998 and $30,000,000 in 1999. The Loan Agreement also prohibits dividends on the Company's common stock, other than those payable in common stock, and repurchases of the Company's common stock with certain limited exceptions. In addition, the Loan Agreement contains certain quarterly financial tests, including a minimum net worth, a minimum debt service coverage ratio and ratios of maximum debt and senior debt to operating cash flow. At January 2, 1997, the maximum debt to operating cash flow ratio as calculated under the Loan Agreement was 4.66 to 1 and the allowable ratio was 5.50 to 1. The maximum allowable ratio decreases periodically to 4.90 to 1 at January 1, 1998, 4.60 to 1 at December 31, 1998 and 4.45 to 1 at July 1, 1999. At January 2, 1997, the maximum senior debt to operating cash flow ratio as calculated under the Loan Agreement was 1.77 to 1 and the allowable ratio was 2.25 to 1. The maximum allowable ratio decreases periodically to 1.75 to 1 at January 1, 1998, 1.40 to 1 at December 31, 1998 and 1.05 to 1 at December 30, 1999. 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 15 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): 1996 1995 -------- -------- Furniture and equipment $ 9,393 $ 9,393 Less accumulated amortization (9,004) (8,858) -------- -------- $ 389 $ 535 ======== ======== Amortization of furniture and equipment leased under capital leases, computed on a straight-line basis, was $146,000 in 1996, $299,000 in 1995 and $289,000 in 1994. F-18 Minimum future lease obligations on long-term, noncancelable leases in effect at January 2, 1997 are as follows (in thousands): Year Capital Operating ---- -------- --------- 1997 $ 157 $ 13,696 1998 146 12,422 1999 146 10,706 2000 146 8,964 2001 38 8,454 Thereafter -- 69,177 -------- -------- 633 $123,419 ======== Amount representing interest (92) -------- Net present value 541 Less current portion (121) -------- Long-term portion $ 420 ======== The above net present value is computed based on specific interest rates determined at the inception of the leases. Rent expense is detailed as follows (in thousands): 1996 1995 1994 -------- -------- -------- Minimum rentals $ 12,379 $ 9,444 $ 9,031 Contingent rentals 3,319 1,864 920 -------- -------- -------- $ 15,698 $ 11,308 $ 9,951 ======== ======== ======== NOTE 7. OTHER LONG-TERM LIABILITIES At January 2, 1997 and December 28, 1995, other long-term liabilities consisted of (in thousands): 1996 1995 -------- -------- Accrued rent expense $ 12,311 $ 13,043 Obligation to City of Evansville and other civic and community organizations 8,300 13,400 Deferred compensation and retirement plans 10,181 9,739 Las Vegas Boulevard beautification assessment 509 535 Deferred income -- 154 -------- -------- 31,301 36,871 Less current portion (4,259) (6,172) -------- -------- $ 27,042 $ 30,699 ======== ======== F-19 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 1996, 1995 and 1994, respectively, 4,644 shares, 2,797 shares and 2,206 shares were redeemed primarily in connection with employee terminations and at January 2, 1997, cumulative redemptions totaled 11,967 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 per share of common stock and have a liquidation preference of $100 per share. The shares that have been allocated to the ESOP participant accounts and have vested are redeemable at the higher of appraised value, conversion value or $100 per share, by the participant upon termination. The excess of the redemption value of the ESOP Stock over the carrying value is charged to retained earnings upon redemption. In the event of default in the payment of dividends on the ESOP Stock for six consecutive semiannual periods, each outstanding share would have one vote per share of common stock into which the preferred stock is convertible. NOTE 9. CAPITAL STOCK The Company is authorized to issue 10,000,000 shares of preferred stock, par value $.01 per share, issuable in series as the Board of Directors may designate. Approximately 50,000 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 48,942,848 at January 2, 1997, and 42,222,646 at December 28, 1995. Common stock outstanding was net of 3,942,561 and 3,956,833 treasury shares at January 2, 1997 and December 28, 1995, 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. On July 31, 1996 and August 5, 1996, the Company issued 6,000,000 and 279,200 shares of common stock, respectively, at a price of $9.50 per share. The combined proceeds from both issuances were $55,876,000 after deducting issuance costs. The Company issued 292,000 shares of restricted common stock in 1995 to certain executive officers and key employees; however, 11,334 and 18,000 of these shares were forfeited in 1996 and 1995, respectively. The restrictions on 126,666 of the unforfeited shares will F-20 lapse over a three-year period commencing on the date of issuance. The restrictions on 34,000 and 102,000 of the unforfeited shares lapsed during 1996 and 1995, respectively, after the common stock price hit certain performance targets. Compensation expense in connection with this issuance of restricted common stock was $823,000 and $1,168,000 in 1996 and 1995, respectively. Compensation expense in connection with prior issuances of restricted common stock was $65,000 in 1994. 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 1996, 1995 and 1994, respectively, 25,606, 29,758 and 23,551 shares were claimed; the balance of unclaimed shares was 367,842 as of January 2, 1997. 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 January 2, 1997, there remained 591,900 shares that could be repurchased under this authority. No shares were repurchased under this program in 1996, 1995 or 1994. Repurchased and forfeited shares are stated at cost and held as treasury shares to be used for general corporate purposes. At January 2, 1997, December 28, 1995 and December 29, 1994, common shares reserved for future grants of stock options under the Company's stock option plans were 1,036,000, 1,009,000 and 1,919,000, respectively. At January 2, 1997, common shares reserved for the conversion of the ESOP Stock were 931,000 and shares of preferred stock reserved for exercise of the Rights were 50,000. NOTE 10. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its stock-based employee compensation arrangements because the alternative fair value based method of accounting provided for under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company's 1989 Stock Option and Incentive Plan ("1989 Plan") has authorized the grant of up to 6,000,000 shares of the Company's common stock pursuant to options, restricted shares and performance shares to officers and key employees of the Company. Options granted under the 1989 Plan have 10-year terms and vest and become exercisable at the rate of 1/3 per year on each of the first three anniversary dates of the grant subject to continued employment on those dates. The Company's 1990 Nonemployee Director Stock Option Plan ("1990 Plan") has authorized the grant of up to 250,000 shares of the Company's common stock pursuant to options granted to nonemployee Directors of the Company. Options granted under the 1990 Plan have 10-year terms and vest and become exercisable on the date of grant. F-21 Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its stock option plans under the fair value based method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996: risk-free interest rate of 6.4%, no dividend, volatility factor of the expected market price of the Company's common stock of .42, and an expected life of the option of 5.3 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting or trading restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information for 1995 is not materially different than as reported for 1995. The pro forma information for 1996 follows (in thousands except for earnings per share information): Pro forma net income (loss) $ 20,122 Pro forma earnings per share: Net income (loss) per common and common equivalent share $ .46 Net income (loss) per common share assuming full dilution $ .45 A summary of the Company's stock option activity, and related information for the years ended December 28, 1995 and December 29, 1994 follows (in thousands of shares): 1995 1994 ------------------------ ------------------------ Shares Under Price Range Shares Under Price Range Option of Options Option of Options ------------ ----------- ------------ ----------- Beginning balance outstanding 3,554 $3.19-$8.15 3,573 $3.19-$8.15 Granted 679 $7.00-$9.63 123 $5.88-$7.00 Exercised (503) $3.19-$8.15 (77) $3.19-$5.00 Cancelled, expired or surrendered (43) $6.05-$8.15 (65) $5.00-$7.38 ------ ------ Ending balance outstanding 3,687 $3.19-$9.63 3,554 $3.19-$8.15 ====== ====== Exercisable at end of year 2,927 3,365 ====== ====== F-22 A summary of the Company's stock option activity, and related information for the year ended January 2, 1997 follows (in thousands of shares): 1996 ----------------------------------- Shares Under Weighted-Average Option Exercise Price ------------ ---------------- Beginning balance outstanding 3,687 $4.96 Granted 88 $9.44 Exercised (441) $4.93 Forfeited (58) $7.37 Expired (46) $8.15 ------ Ending balance outstanding 3,230 $5.00 ====== Exercisable at end of year 2,703 $4.47 ====== Weighted-average fair value of options granted during the year $ 4.17 The following table summarizes additional information about the Company's stock options outstanding at January 2, 1997 (in thousands of shares): Options Outstanding Options Exercisable ------------------------------ ------------------- Weighted- Average Weighted- Weighted- Shares Remaining Average Shares Average Range of Under Contractual Exercise Under Exercise Exercise Prices Option Life Price Option Price - --------------- ------ ----------- --------- ------ --------- $3.19 to $5.00 2,082 3.6 years $3.75 2,082 $3.75 $5.50 to $7.63 917 6.7 years $6.73 554 $6.57 $8.50 to $11.00 231 8.8 years $9.39 67 $9.36 ------ ------ 3,230 4.8 years $5.00 2,703 $4.47 ====== ====== NOTE 11. BENEFIT PLANS The Company has a defined benefit pension plan for certain former executive employees. The Company has a nonqualified defined benefit retirement plan for certain senior executives. The defined benefit plans provide for payment of retirement benefits that are generally based on years of service and final average compensation. The defined benefit plans are unfunded. The components of the defined benefit plan expense are as follows (in thousands): 1996 1995 1994 -------- -------- -------- Service cost $ -- $ 133 $ 135 Interest cost 495 462 418 Net amortization and deferral 90 227 229 -------- -------- -------- $ 585 $ 822 $ 782 ======== ======== ======== F-23 The following table shows (in thousands) the defined benefit plans' status and amounts recognized in the Consolidated Balance Sheets at January 2, 1997 and December 28, 1995, respectively. 1996 1995 -------- -------- Vested benefit obligation $ 4,721 $ 2,569 ======== ======== Accumulated benefit obligation $ 4,721 $ 4,662 ======== ======== Projected benefit obligation $ 6,050 $ 6,070 Plan assets at fair value -- -- Projected benefit obligation in excess of plan assets 6,050 6,070 Unrecognized prior service cost (1,107) (1,287) Unrecognized net gain (loss) 67 (168) Unrecognized net obligation -- (18) Adjustment to recognize minimum liability 126 273 -------- -------- Defined benefit plan liability $ 5,136 $ 4,870 ======== ======== Actuarial assumptions: Discount rate 8.5% 8.5% Rate of compensation increase 5.0% 5.0% The Company has a defined contribution savings plan that covers substantially all employees who are not covered by a collective bargaining unit. Contributions to the savings plan are discretionary. There was no Company contribution to the savings plan in 1996, 1995 or 1994. The Company contributed $2,563,000, $2,305,000 and $2,182,000 in 1996, 1995 and 1994, 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. The components of the deferred compensation plan expense are as follows (in thousands): 1996 1995 1994 -------- -------- -------- Service cost $ 19 $ 20 $ 21 Interest cost 357 340 317 Net amortization and deferral (19) (16) (14) Cash surrender value increase net of premium expense (180) (161) (141) -------- -------- -------- $ 177 $ 183 $ 183 ======== ======== ======== The following table shows (in thousands) the deferred compensation plans' status and amounts recognized in the Consolidated Balance Sheets at January 2, 1997 and December 28, 1995, respectively. F-24 1996 1995 -------- -------- Vested benefit obligation $ 4,457 $ 4,262 ======== ======== Accumulated benefit obligation $ 4,457 $ 4,262 ======== ======== Projected benefit obligation $ 4,457 $ 4,262 Plan assets at fair value -- -- Projected benefit obligation in excess of plan assets 4,457 4,262 Unrecognized net gain 588 607 -------- -------- Deferred compensation plan liability $ 5,045 $ 4,869 ======== ======== Actuarial assumption: Discount rate 8.5% 8.5% The Company's ESOP covers substantially all non-union employees. The Company makes 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 $726,000 and $1,149,000 in 1996, $754,000 and $1,121,000 in 1995 and $773,000 and $1,102,000 in 1994. Compensation expense recognized in 1996, 1995 and 1994, respectively, was $993,000, $1,107,000 and $1,214,000. NOTE 12. INCOME TAXES The (provision) benefit for income taxes before extraordinary items is comprised of (in thousands): 1996 1995 1994 Current: -------- -------- -------- Federal $ (860) $ (429) $ (4,588) State 1,108 -- (317) -------- -------- -------- 248 (429) (4,905) Deferred: -------- -------- -------- Federal 28,700 1,170 2,174 State (6,249) 4,446 869 -------- -------- -------- 22,451 5,616 3,043 -------- -------- -------- $ 22,699 $ 5,187 $ (1,862) ======== ======== ======== The Company is responsible, with certain exceptions, for the taxes of Ramada through December 20, 1989. The Internal Revenue Service ("IRS") has completed its examinations of the income tax returns for the years 1986 through 1989 and has agreed to settle with Ramada for all but one issue. The effect of this agreement on the Company was an income tax benefit of $21,028,000 including a reduction in the beginning-of-year valuation allowance. The IRS has completed its examination of the income tax returns for the years 1990 and 1991 and has agreed to settle with the Company for all but one issue. The IRS is examining the income tax returns for the F-25 years 1992 and 1993. The New Jersey Division of Taxation has completed its examination of the income tax returns for the years 1986 through 1989 and has agreed to settle with the Company. Management believes that adequate provision for income taxes and interest has been made in the financial statements. General business credits are taken as a reduction of the provision for income taxes during the year such credits become available. The (provision) benefit for income taxes differs from the amount computed by applying the U.S. federal income tax rate (35%) because of the effect of the following items (in thousands): 1996 1995 1994 -------- -------- -------- Tax (provision) benefit at U.S. federal income tax rate $ 721 $ 3,563 $(6,533) State income taxes 29 (733) 42 Disallowance of business meals (413) (1,371) (1,256) IRS examination 1,158 19 (773) General business credits 237 421 404 Change in valuation allowance 3,641 3,622 6,286 Ramada tax sharing agreement 17,387 -- -- Other, net (61) (334) (32) ------- ------- ------- $22,699 $ 5,187 $(1,862) ======= ======= ======= 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 January 2, 1997 and December 28, 1995, are as follows (in thousands): 1996 1995 --------- --------- Net operating loss carryforward $ 19,627 $ 18,015 Accrued rent expense 5,355 5,415 Accrued bad debt expense 5,771 4,476 Accrued compensation 5,390 5,134 Accrued liabilities 8,186 3,976 General business credit carryforward 7,567 7,021 -------- -------- Gross deferred tax assets 51,896 44,037 -------- -------- Deferred tax asset valuation allowance (4,328) (8,196) -------- -------- Other (7,353) (2,049) Partnership investment (5,308) (5,291) Depreciation and amortization (23,357) (17,958) Ramada tax sharing agreement -- (21,444) -------- -------- Gross deferred tax (liabilities) (36,018) (46,742) -------- -------- Net deferred tax assets (liabilities) $ 11,550 $(10,901) ======== ======== F-26 Gross deferred tax assets are reduced by a valuation allowance. Realization of the net deferred tax asset at January 2, 1997, 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 1996, 1995 and 1994 which caused a decrease in income tax expense of $3,641,000, $3,622,000 and $6,286,000, respectively. In addition, $520,000 that was included in the December 30, 1993 valuation allowance was allocated to shareholders' equity during 1994. At January 2, 1997, tax benefits are available for federal income tax purposes as follows (in thousands): Net operating losses $43,216 General business credits 3,755 These tax benefits will expire in the years 2003 through 2011 if not used. The Company also has alternative minimum tax credit carryforwards of $3,689,000 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): 1997 $16,483 1998 19,447 1999 5,233 2000 6,126 2001 9,515 2002 to 2011 26,237 NOTE 13. 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 14. 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 $3,931,000 and $3,941,000 at January 2, 1997 and December 28, 1995, respectively. F-27 The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the Company. Management believes that its defenses are substantial in each of these matters and that the Company's legal posture can be successfully defended without material adverse effect on its consolidated financial statements. The Tropicana Las Vegas lease agreement contains a provision that requires the Company to maintain an additional security deposit with the lessor of approximately $21,064,000 in cash or a letter of credit if the Tropicana Las Vegas operation fails to meet certain financial tests. The Company has a 50% partnership interest in the lessor. The Company has severance agreements with certain of its senior executives. Severance benefits range from a lump-sum cash payment equal to twice the sum of the executive's annual base salary plus twice the average of the executive's annual bonuses awarded in the preceding three years plus payment of the value in his outstanding stock options and vesting and distribution of any restricted stock to a lump-sum cash payment equal to his annual base salary. In certain agreements, the termination must be as a result of a change in control of the Company. Based upon current salary levels and stock options, the aggregate commitment under the severance agreements should all these executives be terminated was approximately $12,500,000 at January 2, 1997. 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 January 2, 1997 and December 28, 1995, 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. 1996 1995 ------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Assets Other investments $ 26,697 $ 26,697 $ 27,964 $ 27,964 Liabilities Current portion of long-term debt 12,960 12,960 466 466 Current portion of other long-term liabilities 2,800 2,707 4,900 4,854 Long-term debt 527,006 532,852 496,439 518,021 Other long-term liabilities 5,500 4,544 8,500 6,968 Off-Balance-Sheet Letters of credit -- 10,250 -- 13,450 F-28 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. 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 also included 90-day certificates of deposit which were valued at their carrying amounts which are reasonable estimates of fair values 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 values 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 values of the letters of credit were estimated to be the same as the contract values based on the nature of the fee arrangement with the issuing financial institution. F-29 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 January 2, 1997 and December 28, 1995. The Company's common stock is listed on the New York Stock Exchange. First Second Third Fourth -------- -------- -------- -------- 1996 - ---- Revenues $180,206 $189,493 $204,277 $203,496 Operating income 15,613 15,388 16,130 11,812 Income (loss) before income taxes 1,371 199 1,209 (4,839) Income taxes (602) (159) (1,162) 24,622 Net income (loss) 769 40 47 19,783 Earnings per common and common equivalent share: Net income (loss) .02 -- -- .43 Earnings per common share assuming full dilution: Net income (loss) .02 -- -- .42 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 * Common Stock Prices - ------------------- 1996 - High $ 9.00 $14.13 $13.75 $ 9.50 - Low 7.38 8.38 9.38 6.50 1995 - High 9.13 10.00 10.50 9.13 - Low 5.63 8.00 7.63 6.88 * Anti-dilutive F-30 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners Tropicana Enterprises We have audited the balance sheets of Tropicana Enterprises (a Nevada General Partnership) (the "Partnership") as of January 2, 1997 and December 28, 1995, and the related statements of operations, cash flows and partners' capital for each of the three years in the period ended January 2, 1997. These financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly, in all material respects, the financial position of Tropicana Enterprises as of January 2, 1997 and December 28, 1995, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 4, 1997 F-31 TROPICANA ENTERPRISES (A Nevada General Partnership) BALANCE SHEETS January 2, 1997 and December 28, 1995 ------------------------------------- (in thousands) 1996 1995 ---------- ---------- Assets Income producing properties $ 57,464 $ 60,239 Cash 1 1 Other receivable 958 836 Other assets 12,076 13,199 --------- --------- $ 70,499 $ 74,275 ========= ========= Liabilities and Partners' Capital Term loan payable $ 66,171 $ 68,845 Unearned rental income 929 915 --------- --------- 67,100 69,760 Partners' capital 3,399 4,515 --------- --------- $ 70,499 $ 74,275 ========= ========= The accompanying notes are an integral part of these financial statements. F-32 TROPICANA ENTERPRISES (A Nevada General Partnership) STATEMENTS OF OPERATIONS For the years ended January 2, 1997, December 28, 1995 and December 29, 1994 ----------------------------------- (in thousands) 1996 1995 1994 ---------- ---------- ---------- Revenues: Rent $ 16,652 $ 17,098 $ 15,267 Interest 46 68 93 --------- --------- --------- 16,698 17,166 15,360 --------- --------- --------- Costs and expenses: General and administrative 9 8 13 Interest 5,693 6,323 4,492 Depreciation and amortization 2,788 2,735 2,735 --------- --------- --------- 8,490 9,066 7,240 --------- --------- --------- Net income $ 8,208 $ 8,100 $ 8,120 ========= ========= ========= The accompanying notes are an integral part of these financial statements. F-33 TROPICANA ENTERPRISES (A Nevada General Partnership) STATEMENTS OF CASH FLOWS For the years ended January 2, 1997, December 28, 1995 and December 29, 1994 ------------------------------------ (in thousands) 1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net income $ 8,208 $ 8,100 $ 8,120 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,788 2,735 2,735 Changes in assets and liabilities: Other receivables (122) 417 417 Other assets 1,110 636 275 Unearned rental income 14 (68) (533) --------- --------- --------- Net cash provided by operating activities 11,998 11,820 11,014 --------- --------- --------- Cash flows from financing activities: Repayment of term loan (2,674) (2,494) (74,217) Proceeds from term loan -- -- 72,523 Distribution to partners (9,324) (9,326) (9,320) --------- --------- --------- Net cash (used in) provided by financing activities (11,998) (11,820) (11,014) --------- --------- --------- Net change in cash -- -- -- Cash at beginning of year 1 1 1 --------- --------- --------- Cash at end of year $ 1 $ 1 $ 1 ========= ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 5,633 $ 6,323 $ 4,762 ========= ========= ========= The accompanying notes are an integral part of these financial statements. F-34 TROPICANA ENTERPRISES (A Nevada General Partnership) STATEMENTS OF PARTNERS' CAPITAL For the years ended January 2, 1997, December 28, 1995 and December 29, 1994 ----------------------------------- (in thousands) Total Partners' Adamar Jaffe Capital ---------- ---------- ---------- Balance, December 30, 1993 $ 662 $ 6,279 $ 6,941 Net income 4,060 4,060 8,120 Cash withdrawals (4,660) (4,660) (9,320) --------- --------- --------- Balance, December 29, 1994 62 5,679 5,741 Net income 4,050 4,050 8,100 Cash withdrawals (4,663) (4,663) (9,326) --------- --------- --------- Balance, December 28, 1995 (551) 5,066 4,515 Net income 4,104 4,104 8,208 Cash withdrawals (4,662) (4,662) (9,324) --------- --------- --------- Balance, January 2, 1997 $ (1,109) $ 4,508 $ 3,399 ========= ========= ========= The accompanying notes are an integral part of these financial statements. F-35 TROPICANA ENTERPRISES (A Nevada General Partnership) NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Basis of Financial Statements The financial statements include the accounts of Tropicana Enterprises, a Nevada General Partnership (the "Partnership"). Adamar of Nevada ("Adamar"), a wholly-owned subsidiary of Aztar Corporation ("Aztar"), and the Jaffe Group ("Jaffe") each hold a 50% partnership interest. The Partnership uses a 52/53 week fiscal year ending on the Thursday nearest to December 31, which includes 53 weeks in 1996 and 52 weeks in 1995 and 1994. The Partnership owns and leases real property (the "Tropicana Property") to Hotel Ramada of Nevada ("HRN") a wholly-owned subsidiary of Aztar. This property is used in the operation of the Tropicana Resort and Casino in Las Vegas, Nevada. Estimates 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. Properties Properties are stated at cost. Improvements, renewals, and extraordinary repairs that extend the life of the asset are capitalized; other routine 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. Properties are depreciated using the straight line method over 21 to 40 years. Deferred Lease Costs Costs directly related to signed lease agreements are capitalized and amortized over the term of the lease. Revenue Recognition Rental revenue is recorded on a straight line basis over the term of the lease. Accrued rent, recorded in the accompanying balance sheets as other assets, represents cumulative amounts receivable in excess of cash basis rental revenue. Income Taxes No federal or state income taxes are payable by the Partnership; thus, none have been provided for in the accompanying financial statements. The partners are to include their respective share of the Partnership income or loss in their separate tax returns. F-36 TROPICANA ENTERPRISES (A Nevada General Partnership) NOTES TO FINANCIAL STATEMENTS-(Continued) 2. Customer Concentration: The Partnership receives all of its income from HRN. Although the Partnership does not anticipate a default by HRN, failure to receive payments on the lease would adversely affect the operating results and ability of the Partnership to service its debt. 3. Income Producing Properties: At January 2, 1997 and December 28, 1995, the income producing properties consist of the following (in thousands): 1996 1995 ---------- ---------- Buildings $ 84,226 $ 84,226 Less accumulated depreciation (38,179) (35,404) --------- --------- 46,047 48,822 Land 11,417 11,417 --------- --------- $ 57,464 $ 60,239 ========= ========= 4. Other Assets: At January 2, 1997 and December 28, 1995, other assets consist of the following (in thousands): 1996 1995 ---------- ---------- Accrued rent $ 11,933 $ 13,043 Deferred lease costs 143 156 --------- --------- $ 12,076 $ 13,199 ========= ========= 5. Term Loan Payable: On October 5, 1994, the Partnership entered into a term loan of $72,523,000, maturing December 31, 1999, with a group of banks. The term loan was used to refinance the existing loan in the same amount. The term loan is collateralized by the Tropicana Property and is serviced through rent payments made by the Tropicana operation. Interest is computed based upon, at the Partnership's option, a one-, two-, three- or six-month Eurodollar rate plus a margin ranging from 1.25% to 2.50%, or the prime rate plus a margin ranging from zero to 1.25%. The applicable margin to be used in connection with either rate is determined based upon outstanding indebtedness and operating cash flow of Aztar. Interest based on the Eurodollar rate is payable quarterly or on the last day of the applicable Eurodollar interest period, if earlier. Interest based on the prime rate is payable quarterly. The effective interest rate was 8.4% for the year ended January 2, 1997. F-37 TROPICANA ENTERPRISES (A Nevada General Partnership) NOTES TO FINANCIAL STATEMENTS-(Continued) 5. Term Loan Payable: (Continued) The carrying amounts of the term loan are reasonable estimates of the fair values based on the variable interest rate inherent in the loan. Maturities of the term loan for the five years subsequent to January 2, 1997 are as follows (in thousands): 1997 $ 2,868 1998 3,075 1999 3,297 2000 56,931 -------- $ 66,171 ======== 6. Lease Agreement: In 1984, the partnership signed an agreement to lease its operating facilities at the Tropicana, which expires in January 2011. The lease agreement provides for contingent rental income based on the consumer price index and/or interest rate fluctuations in the prime or Eurodollar rates. The lease of the facilities is treated as an operating lease except for the portion related to the furniture and equipment which was capitalized. The accompanying statements of operations reflect rent revenue on a straight line basis over the term of the lease. Included in the accompanying balance sheets under other assets is accrued rent of $11,933,000 and $13,043,000, as of January 2, 1997 and December 28, 1995, respectively, which represents future rent payments. Minimum future rentals on the non-cancelable operating lease as of January 2, 1997, excluding contingent rental income as described above, are as follows (in thousands): 1997 $ 14,178 1998 14,178 1999 14,178 2000 14,178 2001 14,288 Thereafter 130,119 --------- $ 201,119 ========= 7. Related Parties: The Partnership leases substantially all of the operating facilities at the Tropicana Property to HRN. The Partnership recognized rental income of $16,652,000 in 1996, $17,098,000 in 1995 and $15,267,000 in 1994 related to this lease. Aztar performs various accounting and administrative services on behalf of the Partnership. No expense is allocated to the Partnership for these services. F-38 Management's Discussion and Analysis Financial Condition - Liquidity and Capital Resources The company's sources of liquidity and capital in 1996 were cash from operations, a bank credit line, and the issuance of common stock. The company received $55.9 million, after deducting issuance costs, from the issuance of 6,279,200 shares of common stock in July and August 1996; this was in addition to the $2.2 million received from the exercise of stock options. The company's bank credit line is a reducing revolving credit facility ("Credit Facility") provided by a group of banks led by Bank of America as managing agent; it matures on December 31, 1999. The maximum amount available under the Credit Facility was reduced to $182.5 million on December 31,1996 and it will be reduced quarterly in annual amounts of $35 million in each year 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 28, 1995, the outstanding balance under the Credit Facility was $116.6 million. During 1996, the company borrowed $220.2 million and repaid $176.8 million, leaving an outstanding balance of $160 million at January 2, 1997. The Credit Facility imposes various restrictions on the company, including limitations on its ability to incur additional debt, commit funds to 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 ("Leverage Ratio"). For purposes of the Leverage Ratio, uncollateralized letters of credit are considered to be debt. On December 30, 1996, the company and the banks amended the Credit Facility. The amendment permits the company to obtain up to an additional $25 million in debt from the banks participating in the Credit Facility using the same collateral, and in March 1997 the company obtained such an additional credit line of $20 million. The amendment also modified the restriction on the company's ability to commit funds to capital expenditures, created a new quarterly financial test that imposes a maximum senior debt to operating cash flow ratio ("Senior Leverage Ratio") and changed the allowable Leverage Ratio at January 2, 1997 from 3.75 to 1 to 5.50 to 1. At January 2, 1997, the actual Leverage Ratio was 4.66 to 1. Future periodic reductions take the allowable Leverage Ratio to 4.90 to 1 at the end of fiscal 1997, 4.60 to 1 at the end of fiscal 1998 and 4.45 to 1 at the end of the second fiscal quarter of 1999 and thereafter. At January 2, 1997, the actual Senior Leverage Ratio was 1.77 to 1 and the allowable Senior Leverage Ratio was 2.25 to 1. The allowable Senior Leverage Ratio decreases periodically to 1.75 to 1 at the end of fiscal 1997, 1.40 to 1 at the end of fiscal 1998 and 1.05 to 1 at the end of fiscal 1999. Evansville Riverboat Casino In December 1995, the company commenced operations of a riverboat casino in Evansville, Indiana utilizing temporary land-based facilities. In October 1996, the company opened its 44,000-square-foot passenger pavilion and 1,600- space parking garage. The pavilion has passenger ticketing facilities, three restaurants, a sidewalk cafe, an entertainment lounge and a gift shop. In F-39 December 1996, the company opened a 250-room hotel. The company's expenditures for property and equipment on this project in 1996 were approximately $53.8 million. Total expenditures for property and equipment on this project including amounts from prior years were approximately $109.8 million at January 2, 1997. Tropicana Atlantic City The company's expansion of Tropicana Casino and Resort in Atlantic City, New Jersey consisting primarily of a 604-room hotel tower, opened in April 1996. The new hotel tower includes a concierge floor of six large penthouse suites completed in July 1996. The expansion also included modifications to the existing facilities that included the construction of a new hotel lobby. The company's expenditures for property and equipment on the expansion project in 1996 were approximately $33.4 million. Total expenditures for property and equipment on this project including amounts from prior years were approximately $67.7 million. Other Capital Expenditures During 1996, the company spent approximately $33.2 million on other purchases of property and equipment including refurbishment of hotel rooms and extensive improvements to the casino in Atlantic City and expansion of the casino floor space in Las Vegas. Future Expenditures In 1997, the Company plans to spend approximately $30 million on purchases of property and equipment including final payments on the Evansville Riverboat Casino project. The company also plans to use cash from operations to reduce its long-term debt. Commitments Tropicana Enterprises, a Nevada general partnership in which the company is a noncontrolling 50% partner, owns the real property and certain personal property that the company leases in the Tropicana Las Vegas operation. The company is committed to making rent payments that service a bank term loan ("Term Loan") payable by Tropicana Enterprises. The Term Loan is with the same group of banks as the company's Credit Facility. The Term Loan matures on December 31, 1999, and calls for future principal payments of between $2.9 million and $3.3 million each year, with a final payment of approximately $57 million due at maturity. The Term Loan balance at January 2, 1997 is approximately $66 million. The Tropicana Las Vegas lease agreement contains a provision that requires the company to maintain an additional security deposit with the lessor of approximately $21.1 million in cash or a letter of credit if the Tropicana Las Vegas operation fails to meet certain financial tests. The lessor waived the requirement to maintain an additional security deposit based on the financial test for the twelve months ended September 26, 1996. A determination has been made for the year ended January 2, 1997, that the additional security deposit was not required. The financial tests are calculated quarterly based on the preceding twelve months of operations. F-40 Results of Operations - 1996 versus 1995 Aztar's consolidated revenues were $777.5 million for 1996, an increase of 36% from $572.9 million in 1995. All company locations experienced higher revenues in 1996 than in 1995 but results are not directly comparable for the following reasons. The company's riverboat operations began in April 1995 for Casino Aztar Caruthersville and in December 1995 for Casino Aztar Evansville resulting in partial year 1995 operations and full year 1996 operations. The new hotel tower at the Atlantic City Tropicana that opened in late April 1996 added approximately 60% to the room capacity at that property. Lastly, the 1996 fiscal year included 53 weeks whereas the 1995 fiscal year included 52 weeks. Consolidated operating income in 1996 was $58.9 million after the effects of $3.0 million in preopening cost writeoffs in connection with the new hotel tower at the Atlantic City Tropicana and the fourth quarter 1996 opening of a pavilion, parking garage and 250-room hotel at Casino Aztar Evansville. Consolidated operating income in 1995 was $42.7 million after the effects of $7.7 million in preopening cost writeoffs in connection with the riverboat operations. The analysis of the performance of each of Aztar's properties follows. Tropicana Atlantic City Tropicana Casino and Resort in Atlantic City, New Jersey had total revenues of $385.9 million in 1996 compared with $332.7 million in 1995 and operating income of $36.0 million in 1996 compared with $54.5 million in 1995. The 1996 operating income is after the writeoff of $2.3 million of preopening costs associated with the opening of a new hotel tower, an expanded casino and a name change from TropWorld to Tropicana. All revenues at Tropicana Atlantic City were higher in 1996 than in 1995. Casino revenue was up $48.3 million in 1996 compared to 1995 as a result of several factors. Tropicana Atlantic City expanded the casino in 1996 by adding a new poker room and a new Asian games room along with an enhancement and renovation to the baccarat room. Tropicana Atlantic City continued its emphasis that began in 1995 on the games revenue segment of the business. Games revenue increased $27.2 million or 37% in 1996 compared to 1995 in spite of a slight decline in the table games win percentage. Slot revenue also increased in 1996 compared to 1995 as a result of an increase in coin redemptions. As a result of the change in revenue mix, the slot revenue percentage of total casino revenue decreased to 71% in 1996 from a peak of 76% in the 1995 to 1993 time frame. Rooms revenue increased 45% in 1996 compared to 1995 as a result of a 39% increase in occupied rooms and a 4% increase in the average daily room rate in 1996 compared to 1995. The increase in occupied rooms was achievable as a result of a 60% increase in the room capacity in late April 1996. The increase in occupied rooms led to a 14% increase in food and beverage revenue as a result of increased volume. Consistent with the revenue increases were increases in costs. Casino and marketing costs were up $49.4 million in 1996 compared to 1995. These costs were higher as a result of increased coin redemptions, table games match play coupons, rooms and food and beverage complimentaries and promotional expenses such as special events, complimentary travel, commissions and off-premise F-41 complimentaries. Some of these increases were caused by competitive pressures resulting from additional casino supply throughout the Atlantic City market. Tropicana Atlantic City also experienced an operating margin decline as a result of severe winter weather in the 1996 first quarter and disruption from the construction of the new hotel tower and improvements made to the casino. Rooms and food and beverage costs were higher in 1996 than 1995 as a result of the increased volume associated with the expanded facilities. General and administrative expense increased by $7.7 million, or 43%, in 1996 compared to 1995. General and administrative expense for 1995 was net of a $2.9 million gain associated with funds received from the Casino Reinvestment Development Authority in conjunction with the construction of the new hotel tower. The increase in 1996 in general and administrative expense also reflected increases in executive and security payroll related to the increased promotional activities and a pretax loss on disposal of assets related to the construction of the new casino facilities at the property. The expanded facilities also caused an increase in repairs and maintenance expense. Operating income is after depreciation and amortization of $21.7 million in both 1996 and 1995 and rent of $2.9 million in 1996 compared with $1.4 million in 1995. Rent expense increased as a result of an increased number of equipment operating leases associated with the improved facilities. Tropicana Las Vegas Tropicana Resort and Casino in Las Vegas, Nevada had total revenues of $167.4 million in 1996 compared with $138.0 million in 1995 and an operating income of $0.8 million in 1996 compared with a $3.9 million operating loss in 1995. Operating income or loss is after rent expense of $9.1 million in 1996 compared with $9.2 million in 1995 and depreciation and amortization of $8.6 million in 1996 compared with $7.8 million in 1995. Depreciation and amortization increased in 1996 as a result of improvements that were completed in mid-1995. Casino revenue was 26% higher in 1996 than in 1995. Tropicana Las Vegas had increases in both games revenue and slot revenue in 1996. In mid-1995, the company began an effort to recapture some premium table game business while maintaining slot revenue. In 1996, the company made physical improvements to the casino that included relocating and expanding the premium slot player area, upgrading and expanding the baccarat room and reconfiguring other areas of the casino. In late 1996, the company expanded the casino into an area that previously served as a food court. The table games revenue excluding baccarat increased 8% in 1996 compared with 1995 in spite of a small decrease in the win percentage. Baccarat revenue was the primary contributor to the increase in casino revenue as the volume of play increased 171% along with an increase in the win percentage to 20% in 1996 compared with 3% in 1995. Baccarat revenue as a percent of casino revenue was 14% in 1996 compared to 1% in 1995. Slot revenue increased 9% in 1996 compared with 1995. The slot revenue percentage of casino revenue was 56% in 1996 compared to the 64% to 61% range for 1995 through 1993. Rooms revenue increased 14% in 1996 compared to 1995 due to an increase in average daily room rates. Food and beverage revenue increased 10% in 1996 compared to 1995 due to higher volume associated with the mid-1995 introduction of a buffet and the mid-1995 capital improvements associated with two restaurants. F-42 The new marketing initiatives to increase the premium table game business contributed to a 27% increase in casino and marketing costs in 1996 at the Tropicana Las Vegas. Food and beverage costs increased 15% as a result of the increase in volume and an increase in the product costs as a result of the change in revenue mix. Ramada Express Ramada Express Hotel and Casino in Laughlin, Nevada had total revenues of $82.5 million in 1996 compared with $80.4 million in 1995. Casino revenue was up 2% in 1996 from 1995 in an overall market that declined in 1996 from 1995 and casino costs were up 4% in 1996 from 1995. The overall market remains weak as competition continues from Indian casinos and expansions in Las Vegas. Marketing costs were up 20% in 1996 compared to 1995 as the company incurred increased costs in order to increase market share in this declining market. As a result of the above, the operating margin, as measured by operating income before depreciation and amortization, declined to 22% in 1996 from 24% in 1995. Operating income at Ramada Express was $11.2 million in 1996 compared with $12.0 million in 1995. Operating income is after depreciation and amortization of $7.1 million in 1996 compared with $7.2 million in 1995 and rent expense of $0.3 million in 1996 compared with $0.2 million in 1995. Casino Aztar Evansville Casino Aztar Evansville in Evansville, Indiana began riverboat casino operations in December 1995 utilizing temporary land-based facilities. In the fourth quarter 1996, the company opened its passenger pavilion, parking garage and 250-room hotel. Casino Aztar Evansville was the first riverboat casino to open in Indiana. In 1996, five riverboat casinos opened in Indiana. Three of these riverboat casinos are in Northern Indiana on Lake Michigan and two are on the Ohio River in the Cincinnati, Ohio market area. A riverboat casino has been granted a certificate of suitability to operate in Indiana on the Ohio River in the Louisville, Kentucky market area. This riverboat casino needs certain regulatory approvals including those that involve the environment before it is granted a license to operate. The owners of this operation have stated they plan to open in 1997 if approvals are obtained in time to do so. Casino Aztar Evansville had total revenues of $115.2 million in 1996 compared with $5.5 million in the 1995 period of operations. In the 1996 fiscal year, Casino Aztar Evansville had approximately 2.4 million admissions with a casino win per admission of $45.85. Before the effects of writing off preopening costs of $0.7 million in 1996 and $5.1 million in 1995, operating income was $28.2 million in 1996 compared with $0.8 million in the 1995 period of operations. Operating income is after depreciation and amortization of $8.3 million in 1996 compared with $0.6 million in the 1995 period of operations and rent expense of $3.0 million in 1996 compared with $0.1 million in the 1995 period of operations. Casino Aztar Caruthersville Casino Aztar Caruthersville in Caruthersville, Missouri began riverboat operations in April 1995; however, the full project was not completed until July 1995 with the opening of a pavilion that included a restaurant, sports F-43 lounge, snack bar and other amenities. Caruthersville is located in a rural market that has proven to be difficult to penetrate. The company continues to adjust its marketing plan in order to attract a broader customer base. As part of this effort, the company plans to open in 1997 the climate-controlled structure that was used in Evansville, Indiana as a temporary pavilion. The company is also planning an outdoor arena. These facilities will be used for exhibitions, entertainment, rodeo competitions and other events. Casino Aztar Caruthersville continued to grow its business in 1996 which resulted in marketing costs as a percentage of casino revenue being higher than the company's consolidated marketing costs as a percentage of casino revenue. Casino Aztar Caruthersville's marketing costs as a percentage of casino revenue were 21% in 1996 and 19% in 1995 compared to the 14% in 1996 and 12% in 1995 for the company on a consolidated basis. Total revenues at Casino Aztar Caruthersville were $26.5 million in 1996 compared with $16.3 million in the 1995 period of operations. Casino Aztar Caruthersville had a $3.7 million operating loss in 1996 compared with a $2.2 million operating loss in the 1995 period of operations before the effect in 1995 of a $2.6 million writeoff of preopening costs. The operating losses are after depreciation and amortization of $3.5 million in 1996 compared with $2.0 million in the 1995 period of operations. Development Costs In connection with the company pursuing the development of its business in certain gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved, the company expensed approximately $2.1 million in 1996 compared with $1.9 million in 1995. Interest Expense Interest expense was $58.6 million in 1996 compared with $51.1 million in 1995. The increase in interest expense resulted from a higher level of debt outstanding in 1996 and a $0.8 million decrease in capitalized interest as the company's major construction projects were completed in 1995 and 1996. Income Taxes The company is responsible, with certain exceptions, for the taxes of Ramada Inc. ("Ramada") through December 20, 1989. See Note 1. Significant Accounting Policies - Basis of Consolidated Statements of the Notes to Consolidated Financial Statements. The Internal Revenue Service has completed its examinations of the income tax returns for the years 1986 through 1989 and has agreed to settle with Ramada for all but one issue. The effect of this agreement on the company was an income tax benefit of approximately $21 million in 1996. F-44 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 Tropicana Atlantic City combined with added revenues from the company's riverboat operations that opened in 1995 more than offset a decrease in total revenues at Tropicana Las Vegas and Ramada Express. Casino Aztar Caruthersville began operations on April 28, 1995, and Casino Aztar Evansville began operations on December 7, 1995. Games revenue in 1995 at the company's land-based properties was down only slightly from 1994 and slot revenue in 1995 was up only slightly from 1994, resulting in a nominal increase in casino revenue at the company's land-based properties in 1995 compared with 1994. Consolidated operating income in 1995 was $50.4 million before the effects of $7.7 million in preopening cost writeoffs in connection with the riverboat operations, compared with $69.4 million consolidated operating income in 1994. In addition to the effect of the 1995 writeoffs of preopening costs, consolidated operating income was lower in 1995 compared with 1994 because of lower operating results at Tropicana Las Vegas and Ramada Express. Consolidated marketing costs were up $13 million or 29% in 1995 compared with 1994 primarily due to an increased number of promotions and special events as well as increased advertising and contract entertainment costs at Tropicana Atlantic City, combined with the added marketing costs associated with opening operations in new locations as well as attempting to maintain revenues in the declining Laughlin, Nevada market. The consolidated provision for doubtful accounts increased 16% in 1995 compared with 1994 as a result of increasing the allowance for potential uncollectible markers associated with the premium table game business in Las Vegas, Nevada. Tropicana Atlantic City Tropicana Atlantic City had total revenues of $332.7 million in 1995 compared with $320.1 million in 1994 and operating income of $54.5 million in 1995 compared with $54.2 million in 1994. The principal reason for the increase in total revenues was an increase of $11.5 million or 4% in casino revenue in 1995 compared to 1994. One factor in this 1995 increase was that casino revenue was reduced in 1994 as a result of severe weather conditions in the East during January and February. Another reason for the increase in casino revenue was an increase in coin redemptions. Tropicana Atlantic City also benefited from a strong market growth rate of 10% in the Atlantic City market during 1995. The trend of declining games revenue at Tropicana Atlantic City was reversed in 1995. Games revenue increased by $2.9 million in 1995 compared with 1994. This follows year-over-year decreases of $0.5 million in 1994, $10.4 million in 1993 and $6.6 million in 1992. The slot revenue percentage of total casino revenue held at 76% in 1995, the same percentage as in 1994 and 1993, compared to 73% in 1992 and 69% in 1991. Consistent with the increase in casino revenue was an increase in casino costs of $6.6 million or 5% in 1995 compared with 1994 as a result of increased direct costs and coin redemptions. In addition, marketing costs were 27% higher in 1995 compared with 1994 as a result of an increase in the number of special events and promotions at the property combined with increases in expenses relating to contract entertainers and advertising. F-45 Operating income is after depreciation and amortization of $21.7 million in 1995 compared with $22.5 million in 1994 and rent of $1.4 million in both 1995 and 1994. Tropicana Las Vegas Tropicana Las Vegas in 1995 ended its string of year-over-year improvements that began in 1992. Total revenues were $138.0 million in 1995 compared with $140.3 million in 1994. Tropicana Las Vegas had a $3.9 million operating loss in 1995 compared with $8.9 million operating income in 1994. Operating loss or income is after rent expense of $9.2 million in 1995 compared with $8.1 million in 1994. Rent expense increased as a result of a higher interest component of rent payments made to the company's unconsolidated partnership. The interest component was higher due to higher interest rates. Operating loss or income is also after depreciation and amortization of $7.8 million in 1995 compared with $6.5 million in 1994. Depreciation and amortization increased in 1995 as a result of improvements and renovations at the property that were completed in mid-1994 and 1995. The games revenue at Tropicana Las Vegas decreased by 13% in 1995 compared with 1994. Games revenue has declined over the previous several years as the company shifted its focus from premium table games to slot machines. In 1995, the company began an effort to recapture some premium table game business while maintaining slot revenue. Tropicana Las Vegas did maintain slot revenue in 1995 compared with 1994 and increased table games volume by 9%; however, the baccarat win percentage was 3% in 1995 compared with 26% in 1994 and 22% to 40% in 1993 to 1991. Baccarat revenue as a percent of casino revenue was 1%, 4%, 3%, 7% and 10% for the years 1995, 1994, 1993, 1992 and 1991, respectively. The mix of slot revenue to total casino revenue was 64%, 61% and 63% in 1995, 1994 and 1993, respectively; compared with 56% and 49% in 1992 and 1991, respectively. The Las Vegas Tropicana's casino costs were up approximately 6% in 1995 compared with 1994, reflecting the higher costs associated with increasing the table games volume. The combination of a decrease in casino revenue combined with an increase in casino direct costs caused a decrease in the casino operating profit margin from 44% in 1994 to 37% in 1995. Food and beverage revenue increased by 8% in 1995 over 1994 as a result of an increase in volume associated with the introduction of a buffet in 1995 and capital improvements associated with two restaurants. However, food and beverage costs increased by 15% in 1995 compared with 1994 as a result of higher food costs and increased payroll costs. The provision for doubtful accounts increased by $0.6 million in 1995 compared with 1994 as a result of increasing the allowance for potential uncollectible markers associated with the premium table game business. Ramada Express Ramada Express 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 F-46 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 began operations on April 28, 1995. Total revenues at Casino Aztar Caruthersville were $16.3 million. Before the effect of a $2.6 million writeoff of preopening costs, Casino Aztar 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. 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 began operations on December 7, 1995, utilizing temporary land-based facilities. Total revenues at Casino Aztar Evansville were $5.5 million. Before the effect of a $5.1 million writeoff of preopening costs, Casino Aztar Evansville had operating income of $0.8 million. Operating results are after depreciation and amortization of $0.6 million. The facility opened during the traditional pre-Christmas slowdown in the casino business without the benefit of the strong New Year's Eve business because the company's fiscal year ended on December 28, 1995. Development Costs In mid-1993, the company began pursuing the development of its business in certain gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved. In connection with these efforts, the company expensed approximately $1.9 million in 1995 and $1.6 million in 1994. Interest Expense Interest expense in 1995 was $51.1 million compared with $49.7 million in 1994. There was no substantial increase in interest expense in spite of the higher level of debt outstanding in 1995 because $5.3 million of interest associated with construction activities was capitalized in 1995 compared with $2.7 million in 1994. F-47 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. F-48 SUMMARY OF SELECTED FINANCIAL DATA Aztar Corporation and Subsidiaries For the Five Years Ended January 2, 1997 1996 1995 1994 1993 1992 Statement of Operations -------- -------- -------- -------- -------- Data (in thousands) Revenues $777,472 $572,869 $541,440 $518,762 $512,045 Operating income (a) 58,943 42,701 69,407 37,419 32,609 Net interest income and expense (a) (56,210) (47,801) (46,572) (21,191) (2,477) Equity in unconsolidated partnership's loss (4,793) (5,081) (4,169) (3,822) (4,125) Income (loss) from continuing operations before extraordinary items and cumulative effect of accounting change 20,639 (4,994) 16,804 11,382 16,378 Discontinued operations -- -- -- -- 1,262 Extraordinary items -- -- (2,708) -- (5,335) Cumulative effect of accounting change (b) -- -- -- -- 7,500 Net income (loss) 20,639 (4,994) 14,096 11,382 19,805 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 $ .47 $ (.14) $ .42 $ .28 $ .41 Earnings per common share assuming full dilution .46 * .41 .27 .40 Cash dividends declared -- -- -- -- -- Equity 9.76 9.40 9.65 9.29 9.03 * Anti-dilutive Balance Sheet Data (in thousands at year end) Total assets $1,119,582 $1,013,238 $915,359 $877,171 $849,565 Long-term debt 527,006 496,439 430,212 404,086 378,058 Series B ESOP convertible preferred stock 6,022 5,459 4,711 3,905 2,998 Shareholders' equity 439,274 359,659 361,368 346,988 333,749 (a) 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 Tropicana Atlantic City in a sale-leaseback transaction in 1984. The acquisition was accounted for as a purchase by the Company. This acquisition did not significantly F-49 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 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 had the following effects on consolidated results: Most of the reduction in Aztar interest income from the replacement of the AGP notes receivable was offset by a reduction in rent expense. Aztar's net income was affected negatively primarily by an increase in depreciation expense. (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-50 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-2. 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 F-1 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 4, 1997 S-1 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AZTAR CORPORATION AND SUBSIDIARIES For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 (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: 1996 $ 9,905 $ 5,892(a) $ 4,536(b) $ 11,261 1995 10,720 3,611(a) 4,426(b) 9,905 1994 9,908 3,102(a) 2,290(b) 10,720 Deferred income tax asset valuation allowance: 1996 $ 8,196 $ 718(a) $ 4,586(c) $ 4,328 1995 11,572 287(a) 3,663(c) 8,196 1994 18,590 398(a) 7,905(c) 11,572 489(d) Valuation allowance for interest differential on CRDA deposits 1996 $ 5,927 $ 729(a) $ 231(e) $ 6,425 1995 9,233 -- 365(e) 5,927 2,941(f) 1994 8,431 950(a) 148(e) 9,233 (a) Charged to costs and expenses. (b) Related assets charged against the account. (c) Reflects reductions of $3,641,000, $3,622,000 and $6,286,000 in 1996, 1995 and 1994, respectively, with a corresponding increase in income tax benefits or decreases in income tax provisions for 1996, 1995 and 1994. 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 1996, 1995 and 1994 represented charges of deferred tax assets against the valuation allowance account. (d) Reflects adjustments to the account. (e) Reflects transfer to unamortized discount for the issuance of CRDA bonds. (f) Reflects reduction with a corresponding decrease in general and administrative expense associated with funds received from the CRDA in conjunction with the construction of the new hotel tower at Tropicana Atlantic City. 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, filed as Exhibit 10.4(b) to Aztar Corporation's 1995 Form 10-K and incorporated herein by reference. 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, filed as Exhibit 10.4(c) to Aztar Corporation's 1995 Form 10-K and incorporated herein by reference. **10.4(d) Amendment No. 3 to Reducing Revolving Loan Agreement, dated as of December 30, 1996, among Aztar Corporation, Adamar of New Nersey, 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 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. 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. E-3 EXHIBIT INDEX - ------------- *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, filed as Exhibit 10.14 to Aztar Corporation's 1994 Form 10-K and incorporated herein by reference. *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(D) 2 EXHIBIT 10.4(d) AMENDMENT NO. 3 TO REDUCING REVOLVING LOAN AGREEMENT This Amendment No. 3 to Reducing Revolving Loan Agreement (this "Amendment") dated as of December 30, 1996 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 PNC Bank, National Association (successor by merger to 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 by Amendment No. 1 dated November 3, 1995 and Amendment No. 2 dated December 28, 1995, 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 - New Definitions. Section 1.1 of the Loan Agreement is amended to add the following new definitions at the appropriate alphabetical places: "'Adjusted Senior Funded Debt' means, as of any date of determination, Adjusted Funded Debt as of that date minus the principal amount of all Subordinated Obligations outstanding as of that date." "'Average Quarterly Adjusted Senior Funded Debt' means, as of the last day of each Fiscal Quarter, the greater of (a) the principal amount of all Adjusted Senior Funded Debt outstanding on such day and (b) the Average Quarterly Senior Funded Debt as of such day." "'Average Quarterly Senior Funded Debt' means, as of the last day of each Fiscal Quarter, the average principal amount of all Senior Funded Debt outstanding on the last day of each of the three 4 and 5 week fiscal periods comprising such Fiscal Quarter." "Projections-December 1996" means the financial projections dated December 12, 1996 distributed by or on behalf of Borrowers to the Banks on or about December 13, 1996. "'Senior Funded Debt' means Funded Debt that is not a Subordinated Obligation." "'Senior Leverage Ratio' means, as of the last day of each Fiscal Quarter, the ratio of (a) Average Quarterly Adjusted Senior Funded Debt as of that date to (b) Annualized Adjusted EBITDA for the fiscal period consisting of that Fiscal Quarter and the three immediately preceding Fiscal Quarters." 2. Amendment of Section 6.8 - New Clause. Section 6.8 of the Loan Agreement is amended by adding new clause (j) at the appropriate alphabetical place with appropriate changes in punctuation, to read in full as follows: "(j) Liens on all or any part of the Collateral securing Indebtedness permitted by Section 6.9(j), which Liens may be pari-passu with the Liens created by the Collateral Documents, provided that the lenders of such Indebtedness have entered a written intercreditor agreement with the Managing Agent, for the benefit of the Banks, which provides that such Liens may not be enforced except in conjunction with enforcement of the Liens created by the Collateral Documents and which contains other provisions reasonably acceptable to the Managing Agent." 3. Amendment of Section 6.9 - New Clause. Section 6.9 of the Loan Agreement is amended by adding a new clause (j) to read in full as follows: "(j) Indebtedness extended by one or more Banks that (i) does not exceed $25,000,000 principal outstanding at any time , (ii) has a maturity date of not less than 12 months or more than 24 months and (iii) is governed by loan documents which do not contain representations, covenants or events of default more restrictive than those contained in this Agreement; provided that such Indebtedness may be cross-defaulted to this Agreement." 4. Amendment to Section 6.13. Section 6.13 of the Loan Agreement is amended to revise the table set forth after the first proviso thereof to read in full as follows: Fiscal Quarter or Period Ratio First Fiscal Quarter 1996 4.50 to 1.00 Second Fiscal Quarter 1996 4.50 to 1.00 Third Fiscal Quarter 1996 5.50 to 1.00 Fourth Fiscal Quarter 1996 5.50 to 1.00 First Fiscal Quarter 1997 5.50 to 1.00 Second Fiscal Quarter 1997 5.20 to 1.00 Third Fiscal Quarter 1997 5.00 to 1.00 Fourth Fiscal Quarter 1997 4.90 to 1.00 First Fiscal Quarter 1998 4.90 to 1.00 Second Fiscal Quarter 1998 4.75 to 1.00 Third Fiscal Quarter 1998 4.75 to 1.00 Fourth Fiscal Quarter 1998 4.60 to 1.00 First Fiscal Quarter 1999 4.60 to 1.00 Second Fiscal Quarter 1999 and thereafter 4.45 to 1.00" 5. Amendment to Add Section 6.21. The Loan Agreement is amended to add a new Section 6.21, immediately after Section 6.20, to read in full as follows: "6.21 Senior Leverage Ratio. Permit the Senior Leverage Ratio, as of the last day of any Fiscal Quarter ending after the Closing Date, to be greater than the ratio set forth below opposite such Fiscal Quarter or the period during which such Fiscal Quarter occurs: Fiscal Quarter or Period Ratio Fourth Fiscal Quarter 1996 2.25 to 1.00 First Fiscal Quarter 1997 2.25 to 1.00 Second Fiscal Quarter 1997 1.95 to 1.00 Third Fiscal Quarter 1997 1.95 to 1.00 Fourth Fiscal Quarter 1997 1.75 to 1.00 First Fiscal Quarter 1998 1.75 to 1.00 Second Fiscal Quarter 1998 1.55 to 1.00 Third Fiscal Quarter 1998 1.55 to 1.00 Fourth Fiscal Quarter 1998 1.40 to 1.00 First Fiscal Quarter 1999 1.40 to 1.00 Second Fiscal Quarter 1999 1.20 to 1.00 Third Fiscal Quarter 1999 1.15 to 1.00 Fourth Fiscal Quarter 1999 and thereafter 1.05 to 1.00" 6. Amendment to Add New Section 6.22. The Loan Agreement is amended to add a new Section 6.22, immediately following Section 6.21, to read in full as follows: "6.22 Superseding Capital Expenditure Covenant. (a) Make any Capital Expenditure otherwise permitted by Sections 6.14 or 6.15 or any New Venture Investment otherwise permitted by Section 6.16 unless and until Borrowers deliver to the Managing Agent a Certificate of a Responsible Official demonstrating that (i) Borrowers would have been in compliance with Section 6.13, as it existed immediately prior to Amendment No. 3 to this Agreement, for the Fiscal Quarter most recently ended and the immediately preceding Fiscal Quarter and (ii) no Default or Event of Default then exists, it being understood that unless and until such a Certificate of Responsible Official is so delivered the restrictions applicable to Capital Expenditures and New Venture Investments shall be as set forth in clause (b) below; and (b) Make, or become legally obligated to make, any Capital Expenditure or New Venture Investment (taken together) (i) during Fiscal Year 1997 if, giving effect thereto, the aggregate Capital Expenditures and New Venture Investments made in that Fiscal Year would be in excess of $40,000,000, (ii) during Fiscal Year 1998 if, giving effect thereto, the aggregate Capital Expenditures and New Venture Investments made in that Fiscal Year would be in excess of $30,000,000 or (iii) during Fiscal Year 1999 if, giving effect thereto, the aggregate Capital Expenditures and New Venture Investments made in that Fiscal Year would be in excess of $30,000,000; provided that (A) if, as of the end of Fiscal Year 1997, Borrowers have achieved financial results at least equal to these set forth in the Projections-December 1996, the amount by which Capital Expenditures and New Venture Investments in Fiscal Year 1997 were less than the amount set forth for such Fiscal Year may be added to the permitted Capital Expenditure and New Venture Investments amount for Fiscal Year 1998, (B) if, as of the end of Fiscal Year 1998, Borrowers have achieved financial results at least equal to those set forth in the Projections- December 1996, the amount by which Capital Expenditures and New Venture Investments in Fiscal Year 1998 were less than the amount set forth for such Fiscal Year may be added to the permitted Capital Expenditures and New Venture Investments amount for Fiscal Year 1999 and (C) the restrictions contained in this clause (b) shall cease to apply concurrently with the delivery by Borrowers of the Certificate of Responsible Official referred to in clause (a) above. 7. 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 for the account of those Banks that have consented to this Amendment equal to 1/4 of 1% times the sum of such Banks' Pro Rata Share of the Commitment plus such Banks' Pro Rata Share of the principal amount outstanding under the TEGP Loan Agreement as of December 15, 1996; (c) Written consent of each of the Significant Subsidiaries to the execution, delivery and performance hereof, substantially in the form of Exhibit A to this Amendment; and (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. 8. Representations and Warranties. Borrowers represent and warrant to the Managing Agent and the Banks that: (a) as of the date of this Amendment, to the best knowledge of Borrowers, the assumptions set forth in the Projections-December 1996 are reasonable and consistent with each other and with all facts known to Borrowers, and the Projections-December 1996 are reasonably based on such assumptions (provided that nothing in this Paragraph 8(a) shall be construed as a representation or covenant that the Projections-December 1996 in fact will be achieved); and (b) no Default or Event of Default has occurred and remains continuing. 9. 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.W. ARMSTRONG JR. N.W. Armstrong Jr. V.P. [Printed Name and Title] BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Managing Agent By: JANICE HAMMOND Janice Hammond Vice President Agency Specialist 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 PNC Bank, National Association (successor by merger to 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. 3 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 30, 1996 HOTEL RAMADA OF NEVADA By: N.W. ARMSTRONG JR. Title: V.P. AZTAR DEVELOPMENT CORPORATION By: N.W. ARMSTRONG JR. Title: Secretary AZTAR INDIANA GAMING CORPORATION By: N.W. ARMSTRONG JR. Title: V.P. AZTAR MISSOURI GAMING CORPORATION By: N.W. ARMSTRONG JR. Title: V.P. RAMADA NEW JERSEY, INC. By: N.W. ARMSTRONG JR. Title: V.P. ATLANTIC-DEAUVILLE INC. By: N.W. ARMSTRONG JR. Title: V.P. ADAMAR GARAGE CORPORATION By: N.W. ARMSTRONG JR. Title: V.P. RAMADA NEW JERSEY HOLDINGS CORPORATION By: N.W. ARMSTRONG JR. Title: V.P. MANCHESTER MALL, INC. By: N.W. ARMSTRONG JR. Title: V.P. 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 PNC Bank, National Association (successor by merger to 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. 3 to Reducing Revolving Loan Agreement by the Managing Agent on its behalf, substantially in the form of a draft dated on or about December 18, 1996 presented to the undersigned Bank. Date: December __, 1996 ____________________________ [Name of Institution] By _________________________ ____________________________ [Printed Name and Title] Exhibit B to Amendment, "Consent of Bank", was signed on or before December 30, 1996, by the following parties: Name of Institution Name and Title ABN AMRO Bank N.V. Jeffrey A French San Francisco International Group Vice President Branch & Director By: ABN AMRO North America, Inc. as agent. Gina M. Brusagori V.P. and Director Bank of America Jon Varnell Managing Director Bank of Scotland Elizabeth Wilson Vice President and Branch Manager Bankers Trust Company C. Steven Park Vice President Credit Lyonnais David Miller V.P. PNC Bank, National Lori A. Oamulski Association, successor by Banking Officer merger to Midlantic Bank, N.A. Societe Generale Donald L. Schubert Vice President Sumitomo Bank, Limited Bradford E. Chambers Vice President David Hughes S.V.P. and R. Manager Bank One, Arizona NA Clifford A. Payson Vice President EX-11 3 EXHIBIT 11 AZTAR CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS For the Years Ended January 2, 1997, December 28, 1995 and December 29, 1994 ------------------------------------- (in thousands, except per share data) 1996 1995 1994 -------- -------- -------- Income (loss) before extraordinary items $ 20,639 $ (4,994) $ 16,804 Deduct: preferred stock dividend and losses on redemption (net of income taxes credited to retained earnings) (715) (639) (620) -------- -------- -------- Income (loss) before extraordinary items applicable to computation 19,924 (5,633) 16,184 Extraordinary items -- -- (2,708) -------- -------- -------- Net income (loss) applicable to computation $ 19,924 $ (5,633) $ 13,476 ======== ======== ======== Weighted average common shares assuming no dilution 41,121 38,013 37,375 Common equivalent shares Additional shares applicable to stock options based on the weighted average market price 1,051 1,013 821 -------- -------- -------- Weighted average common shares applicable to earnings per common and common equivalent share 42,172 39,026 38,196 Additional shares applicable to stock options based on the market close price at the end of the period 17 57 5 Conversion of preferred stock at the stated rate 960 997 1,023 -------- -------- -------- Weighted average common shares assuming full dilution 43,149 40,080 39,224 ======== ======== ======== Earnings per common and common equivalent share: Income (loss) before extraordinary items $ .47 $ (.14) $ .42 Extraordinary items -- -- (.07) -------- -------- -------- Net income (loss) $ .47 $ (.14) $ .35 ======== ======== ======== Earnings per common share assuming full dilution: Income (loss) before extraordinary items $ .46 $ (.14) $ .41 Extraordinary items -- -- (.07) -------- -------- -------- Net income (loss) $ .46 $ (.14) $ .34 ======== ======== ======== EX-21 4 EXHIBIT 21 SUBSIDIARIES OF AZTAR CORPORATION The Company has no parent corporation. In addition to the subsidiaries listed below, the Company has nine 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 Tropicana Casino and 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 5 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 4, 1997 on our audits of the consolidated financial statements and financial statement schedule of Aztar Corporation and of the financial statements of Tropicana Enterprises as of January 2, 1997 and December 28, 1995 and for each of the three years in the period ended January 2, 1997, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Phoenix, Arizona March 20, 1997 EX-27 6
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at January 2, 1997 and the Consolidated Statement of Operations for the year ended January 2, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JAN-2-1997 JAN-2-1997 44,131 0 52,984 11,261 7,508 113,320 1,163,622 236,563 1,119,582 120,238 527,006 6,022 0 489 438,785 1,119,582 55,729 777,472 53,668 415,650 39,505 5,892 58,577 2,733 (22,699) 20,639 0 0 0 20,639 .47 .46
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