-----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, FJztEos+qAk+JljW/P6VV7YM5GlJHEqCUHeUuN+s51kWh3yJxB3YQgrscKdYUcIU 6EZ37IJ7gOByfsRSl6lqPA== 0000852807-98-000004.txt : 19980323 0000852807-98-000004.hdr.sgml : 19980323 ACCESSION NUMBER: 0000852807-98-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980101 FILED AS OF DATE: 19980320 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: SEC FILE NUMBER: 001-12092 FILM NUMBER: 98569384 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 1, 1998 ---------------------------------------- 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 $395,811,649 at March 2, 1998 and is based on a closing price of $8.8125 and 44,914,797 common shares outstanding. At March 2, 1998, the registrant had outstanding 45,203,446 shares of its common stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the registrant's 1998 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 1998 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 1998 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. 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 124,000-square-foot casino contains 3,719 slot machines and 174 table games, a baccarat lounge, a poker room and keno. The Tropicana Atlantic City complex contains 1,624 hotel rooms and approximately 47,000 square feet of meeting, convention and banquet space. The facility also includes parking for 3,000 vehicles and a 1,700- seat theatrical showroom which regularly presents headliner entertainment. Other amenities include four 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 access from a new table player lounge and VIP entry. The new games room 3 caters to the domestic Asian gaming community by offering pai gow, tile games and mini-baccarat. During 1997, Tropicana Atlantic City added new casino facilities for middle- and upper- market slot players. The Change Your Life Casino offers a variety of the most popular reel and video game machines with denominations and payouts geared to provide high jackpots to attract the retail customer. The Crystal Room, with elegant decor and furnishings and service, is designed to appeal to the premium slot player. 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 $3.9 billion in gaming revenues in 1997, a 2% increase over 1996. 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 theme, 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 63,000 square feet and contains 1,782 slot machines and 66 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 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 and 1997, 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. In 1996, a new and elegant baccarat room and a new premium slot area were created. In 1997, a new games room was created to cater to the domestic Asian gaming community. In late 1996, the casino was expanded and in 1997, a large number of slot machines were replaced with models having the latest technology. The improvements in 1996 and 1997 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. 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. On February 2, 1998, the Company acquired an option to purchase the 50% partnership interest that it does not own. The option agreement extends for a period of up to 18 months and gives the Company an unconditional right, but not the obligation, to purchase the partnership interest for $120 million. The Company has engaged an investment bank to explore alternatives for a major redevelopment of the property. The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature of the redevelopment ultimately undertaken by the Company. 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 1,600 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 1,359 slot machines and 73 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 approximately 40,000-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 in the Louisville, Kentucky market area. Direct competition in the Louisville market is expected to open in the summer of 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 436 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. During 1997, the Company opened a climate-controlled pavilion and an outdoor arena. These facilities are used for exhibitions, entertainment, rodeo competitions and other events. The Company has some unused land at this site and is searching for development opportunities 5 with other entities to use the land for facilities that would complement the Company's operations. 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 encompasses Memphis, Tennessee. YEAR 2000 Management has initiated an enterprise-wide program to prepare the Company's computer systems and applications for the year 2000. This is necessary because computer programs have been written using two digits rather than four to define the applicable year. The Company expects to incur internal staff costs as well as consulting and other expenses related to infrastructure and facilities enhancements necessary to prepare the systems for the year 2000. Tropicana Atlantic City has undertaken a $6 million capital program, which is expected to be complete by September 1999, to purchase upgrades for its major hardware and software systems. When this capital program is completed, the Atlantic City Tropicana should have addressed most of its year 2000 issues. Tropicana Las Vegas and Ramada Express are still evaluating their year 2000 issues. The costs of testing and conversion are not yet known, although they are not expected to be material. Casino Aztar Evansville and Casino Aztar Caruthersville use primarily third-party standard vendor software and are working with such vendors to ensure year 2000 compliance. The Company expects its year 2000 date conversion projects to be completed on a timely basis. However, there can be no assurance that the systems of other companies on which the Company's systems rely will be timely converted or that any such failure to convert by another company would not have an adverse effect on the Company's systems. 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 6 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 1, 1998, 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 opened in July 1997. Two other casino hotels are scheduled to open major expansions of their gaming capacities in 1998 and 1999. 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. The Mohegan tribe began operating a casino in Connecticut in 1996 and, in December 1997, announced plans for a major expansion of this facility; however, no timetable for completion is available. In addition, slot machines have been added to race tracks in Delaware and West Virginia. 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. Since the Mirage opened in late 1989, there have been several 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. Four major casino hotels on the Strip are under construction and announcements have been made for other new developments. In addition, one major casino hotel has announced plans for a major expansion of capacity. The experience through 1997 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. 7 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 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 or that foreign countries will honor these policies. Enforceability of gaming debts in Indiana is uncertain. The uncollectibility of gaming receivables could 8 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. From time to time, legislative and regulatory changes are proposed, and court decisions rendered, 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 States of Nevada and Indiana have adopted regulations similar to the Bank Secrecy Act which requires the Nevada and Indiana facilities to document and/or report certain currency transactions to the Nevada State Gaming Control Board and the Indiana Gaming Commission, respectively. Violation of these regulations could result in action by Nevada or Indiana authorities to fine or revoke, suspend, impose conditions upon or fail to renew the Nevada or Indiana 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. 9 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 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 10 information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, HRN or Express, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company, HRN or Express to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company, HRN and Express are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by HRN and Express must be reported to, or approved by, the Nevada Commission. If it were determined that the Nevada Act was violated by HRN or Express, the gaming licenses held by HRN or Express could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, HRN, Express, the Company and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's Nevada gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's Nevada gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial 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 11 not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, HRN or Express, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. Additionally, the Clark County Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation such as the Company to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any 12 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 22, 1997, the Nevada Commission granted the Company prior approval to make public offerings for a period of two years 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 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 environment 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 13 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. 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 or 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 14 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, Holdings and Adamar and employees who work at casino hotel facilities operated by Adamar also have been or must be qualified, licensed or registered. In 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 15 course of business, and lenders and underwriters of said companies may be required to seek qualification from the New Jersey Commission. However, because the Company is a publicly traded holding company, in accordance with the provisions of the New Jersey Act, a waiver of qualification may be granted by the New Jersey Commission, with the concurrence of the Director of the New Jersey Division, if it is determined that said persons or entities are not significantly involved in the activities of Adamar and, in the case of security holders, do not have the ability to control the Company or elect one or more of its directors. There exists a rebuttable presumption that any person holding 5% or more of the equity securities of a casino licensee's intermediary or holding company or a person having the ability to elect one or more of the directors of such a company has the ability to control the company and thus must obtain qualification from the New Jersey Commission. Notwithstanding this presumption of control, the New Jersey Act provides for a waiver of qualification for passive "institutional investors," as defined by the New Jersey Act, if the institutional investor purchased the securities for investment purposes only and where such securities constitute (i) less than 10% of the equity securities of a casino licensee's holding or intermediary company or (ii) debt securities of a casino licensee's holding or intermediary company representing a percentage of the outstanding debt of such company not exceeding 20% or a percentage of any issue of the outstanding debt of such company not exceeding 50%. The waiver of qualification is subject to certain conditions including, upon request of the New Jersey Commission, filing a certified statement that the institutional investor has no intention of influencing or affecting the affairs of the issuer. Additionally, a waiver of qualification may also be granted to institutional investors holding a higher percentage of securities of a casino licensee's holding or intermediary company upon a showing of good cause. If the institutional investor is granted such a waiver and subsequently determines to influence or affect the affairs of the issuer, it must provide not less than 30 days notice of such intent and file with the New Jersey Commission an application for qualification before taking any action which may influence or affect the affairs of the issuer, except that an institutional investor holding voting securities shall be permitted to vote on matters put to the vote of the holders of outstanding voting securities. If an institutional investor that has been granted a waiver subsequently changes its investment intent, or if the New Jersey Commission finds reasonable cause to believe that the institutional investor may be found unqualified, no action other than divestiture shall be taken by the investor with respect to the security holdings until the investor complies 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. 16 The New Jersey Act further requires that corporate licensees and their subsidiaries, intermediaries and holding companies adopt certain provisions in their certificates of incorporation that require certain remedial action in the event that an individual owner of any security of such company is found disqualified under the New Jersey Act. The required certificate of incorporation provisions vary depending on whether the stock of the company subject to the requirements of the New Jersey Act is publicly or privately traded. Pursuant to the New Jersey Act, the certificate of incorporation of a publicly held company must provide that any securities of such corporation are held subject to the condition that if a holder is found to be disqualified by the New Jersey Commission pursuant to the New Jersey Act such holder shall dispose of his interest in such company. The certificate of incorporation of a privately held company must create the absolute right of the company to repurchase at the market price or purchase price, whichever is the lesser, any security, share or other interest in the company in the event the New Jersey Commission disapproves a transfer in accordance with the provisions of the New Jersey Act. The Company is a publicly held company and, accordingly, a provision has been placed in the Company's Restated Certificate of Incorporation which provides that a holder of the Company's securities must dispose of such securities if the holder is found disqualified under the New Jersey Act. In addition, the Restated Certificate of Incorporation for the Company provides that the Company may redeem the stock of any holder found to be disqualified. If, at any time, it is determined that Adamar has violated the New Jersey Act or regulations, or if any security holder of the Company, Adamar or Holdings who is required to be qualified under the New Jersey Act is found disqualified but does not dispose of the securities, Adamar could be subject to fines or its license could be suspended or revoked. If Adamar's license is revoked, the New Jersey Commission could appoint a conservator to operate and to dispose of any casino hotel facilities of Adamar. Net proceeds of a sale by a conservator and net profits of operations by a conservator (at least up to an amount equal to a fair return on Adamar's investment which is reasonable for casinos or hotels) would be paid to Adamar. In addition to compliance with the New Jersey Act and regulations relating to gaming, any facility built in Atlantic City by Adamar or any other subsidiary of the Company must comply with the New Jersey and Atlantic City laws and regulations relating to, among other things, the Coastal Area Facilities Review Act, construction of buildings, environmental considerations, operation of hotels and the sale of alcoholic beverages. The New Jersey Commission is authorized to establish fees for the issuance or renewal of casino licenses. Yearly casino hotel alcoholic beverage license fees are payable for each facility in any of five specified categories in any licensed casino hotel. There is also an annual license fee on each slot machine. The New Jersey Commission is also authorized by regulation to establish annual fees for the issuance and renewal of licenses other than casino licenses. The New Jersey Act imposes an annual tax of eight percent on gross revenues (as defined in the New Jersey Act). In addition, casino licensees are required to invest one and one-quarter percent of gross casino revenues for the purchase of bonds to be issued by the Casino Reinvestment Development 17 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 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. On November 25, 1997, the Missouri Supreme Court overturned a state lower court and held that a portion of the Missouri Gaming Law that authorized excursion gaming facilities in "artificial basins" up to 1,000 feet from the Mississippi or Missouri rivers was unconstitutional. The legal status of several excursion gaming riverboat facilities is still uncertain at this point. Aztar Missouri's gaming facilities are fully on the Mississippi River, and do not, at this point, appear to be affected by this ruling. 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. 18 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 and was relicensed on July 1, 1997 for its second renewal period. Aztar Missouri will need to renew its license next in 1999, and at that time will be investigated, along with its officers, directors and certain employees, and considered for relicensing. Aztar and its directors may also be investigated pursuant to this relicensing procedure. Aztar Missouri has no reason at this point to believe that such renewal 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. 19 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 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, if licensed, 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. On February 15, 1997, the Commission granted Aztar Missouri the authority to permanently dock the riverboat facility, the "City of Caruthersville". 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 20 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 issued (i) the five authorized riverboat owner's licenses on Lake Michigan, (ii) three riverboat owner's licenses on the Ohio River, including the Company's facility, and (iii) a certificate of suitability to another applicant for a fourth facility, subject to final licensure, on the Ohio River. 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 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. However, a riverboat licensee must allow patrons to disembark at anytime the riverboat remains at the dock and gambling continues. 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. 21 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. 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 and 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. Under the Act, the Indiana Gaming Commission will reinvestigate the suitability of the Company in December 1998. 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 a key person or a person holding an ownership interest in a riverboat licensee, or an employee of a riverboat licensee, from participating in a game conducted on a riverboat which is the subject of a 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. The Indiana Gaming Commission has adopted a rule requiring quarterly reporting by the holder of a riverboat owner's license, including the Company, or a holder of a supplier's license, of the officer's of the licensee, officer's of persons that hold at least a 1% interest in the licensee, and of persons who directly or indirectly own a 1% interest in the licensee. The Indiana Gaming Commission has proposed a rule, which would if adopted, prohibit the distribution by a riverboat licensee, including the Company, to its partners, shareholders, itself, or any affiliated entity, if the distribution would impair the financial viability of the riverboat gambling operation. The Indiana Gaming Commission has proposed another rule, which would if adopted, require riverboat licensees, including the Company, to maintain on a quarterly basis a cash reserve in the amount of the actual payout for three days, and the cash reserve would include cash in the casino cage, cash in a bank account in Indiana, or cash equivalents not committed or obligated. 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 22 three alcoholic beverage permits: one for riverboat excursions and two 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. The admissions tax is paid for each excursion or part of an excursion for which the person remains on board. Recent legislation permits the imposition of property taxes on riverboats as real property 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 of inspectors and agents required to be present during the conduct of gaming operations. 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. The Company received approval from the Indiana Gaming Commission in January 1997 for a second secured revolving credit facility of up to $25 million, and in December 1997, the Company received the first of two required approvals from the Indiana Gaming Commission for a reducing revolving credit facility and term loan for up to $350 million. A riverboat owner's license is a revocable privilege and is not a property right under the Indiana Act. A riverboat owner licensee or any other person may not lease, hypothecate, borrow money against or loan money against a riverboat owner's license. Pursuant to agreements with the City of Evansville, as reflected in the owner's license issued to the Company, the Company agreed to certain fixed 23 commitments to the City of Evansville. In lieu of the Company contributing the remaining $2 million for the Dress Plaza, the Company donated two parcels of real estate on Main Street to the City of Evansville in January 1997, and the Indiana Gaming Commission had no objection to this transaction. The Governor of Indiana has appointed a Gaming Impact Study Commission, chaired by the Attorney General, to review the impact of all forms of gaming in Indiana, and to issue a final report by December 31, 1999. 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 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. 24 EMPLOYEES The Company employs approximately 10,800 people, of which approximately 3,400 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 2001. At Tropicana Las Vegas, approximately 1,600 of the 2,700 employees are covered by collective bargaining contracts. Substantially all of such employees are covered by contracts that expired on June 1, 1997, and those employees are currently working without a contract while negotiations continue. The remainder of such employees are covered by contracts that expire in 1998, 1999 or 2000. At Ramada Express there are approximately 1,400 employees, none of which are covered by collective bargaining agreements. The Company has approximately 1,200 employees and 400 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 trademarks or 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. 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, 25 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. On February 2, 1998, the Company acquired an option to purchase the 50% partnership interest that it does not own. The option agreement extends for a period of up to 18 months and gives the Company an unconditional right, but not the obligation, to purchase the partnership interest for $120 million. The Company has engaged an investment bank to explore alternatives for a major redevelopment of the property. The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature of the redevelopment ultimately undertaken by the Company. 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. The Company has some unused land at this site and is searching for development opportunities with other entities to use the land for facilities that would complement the Company's operations. GENERAL. The Company leases its corporate headquarters located in Phoenix, Arizona and owns or leases certain other facilities which are not material to the Company's operations. Substantially all land, casino hotel buildings, casino riverboats, pavilions, furnishings and equipment owned by the Company are pledged as collateral under long-term debt agreements. ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Company and more than 40 other major casino operators, as well as various manufacturers and distributors of video poker and electronic slot machines, have been named as defendants in an action originally filed in the United States District Court for the Middle District of Florida, Orlando Division, entitled William H. Poulos, On Behalf of Himself and All Others Similarly Situated v. Caesars World, Inc., et al., Case No. 94-478- CIV-ORL-22, filed on April 26, 1994. This action was consolidated with another subsequently filed action in that court entitled William Ahearn, On Behalf of Himself and All Others Similarly Situated v. Caesars World, Inc., 26 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 Actions be transferred to the United States District Court for the District of Nevada. That transfer occurred and the Nevada Court assumed control of the cases, and assigned case numbers CV-S-94-1126-LDG(RJJ) and CV-S-94-1137-LDG(RJJ). Numerous defendants (including the Company) moved to dismiss the complaints 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 complaints without prejudice. The plaintiffs filed an amended complaint on May 31, 1996, and the defendants again moved to dismiss it for failure to state a claim (and on other grounds). The claims in the amended complaint sought damages that are the same as those in the original complaints. The Plaintiffs opposed these motions. By order dated August 17, 1996, the Poulos/Ahearn Case was transferred to United States District Court 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 was not 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 pending a decision on the dispositive motions. 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 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 District 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 in the Schreier Case purports to represent a smaller and more precisely defined class of persons than the plaintiffs in the Poulos/Ahearn Case. The defendants (including the Company) moved to dismiss the Schreier 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) filed motions to dismiss the amended complaint for failure to state a claim and on other grounds. The Plaintiff opposed these motions. 27 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 were consolidated, as was 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")(collectively, the "Consolidated Cases"). (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 manufacturers and distributors of gaming devices, as well as numerous cruise ship operators and companies which operate cruise ship casinos.) B. All pending motions in the Consolidated Cases were deemed withdrawn without prejudice. On February 14, 1997, the Plaintiffs filed a consolidated amended complaint in the Consolidated Cases. On March 21, 1997, the Defendants moved to dismiss the consolidated amended complaint for failure to state a claim and on other grounds. The Plaintiffs opposed these motions. The defendants filed reply memoranda in support of the motions. The motions were argued on November 3, 1997. On December 19, 1997, the court entered orders deciding the motions in the Consolidated Cases. The substance of those orders is as follows: 1. The motion to dismiss was granted as to the "wire fraud" allegation in the RICO claim; the balance of the motion to dismiss the RICO claims was denied. 2. The motion to strike certain parts of the consolidated amended complaint was granted in part. 3. The remaining motions (to dismiss and to stay or abstain) were denied. 4. The plaintiffs were permitted to delete Mr. Ahearn, and add Ms. McElmore as a class representative. The plaintiffs in the Consolidated Cases filed a second consolidated amended complaint on January 9, 1998. The second consolidated amended complaint contains claims which are nearly identical to those in the previously dismissed complaints. The defendants answered on February 11, 1998. The parties have submitted an updated case management order, and the defendants have filed a motion seeking to bifurcate discovery into "class" and "merits" phases, and to stay "merits" discovery pending a decision on plaintiffs' motion for class certification (not yet filed). 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. 28 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None 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, 54 19 years 6 years President and Chief Executive Officer Robert M. Haddock Executive Vice President 53 17 years 11 years and Chief Financial Officer Nelson W. Armstrong, Jr. Vice President, 56 25 years 8 years Administration, and Secretary Joe C. Cole Vice President, 59 10 years 10 years Corporate Communications Meridith P. Sipek Controller 51 20 years 8 years Neil A. Ciarfalia Treasurer 50 3 years 3 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. 29 EXECUTIVE OFFICERS OF THE REGISTRANT (continued) - ------------------------------------------------ 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. 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 10,032 shareholders of record as of March 2, 1998. The additional information required by this Item 5 is included in this report on F-18, F-31, F-40 and F-50. ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- The information required by Item 6 is included in this report on page 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-40 through F-49. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- Not required of the Company at this time. 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. 30 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. 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. 31 (b) Reports on Form 8-K: On February 3, 1998, the Company filed a report on Form 8-K (as amended and replaced in its entirety by Form 8-K/A filed the same day) under Item 5. Other Events to file, as Exhibit 99.1, a news release issued by the Registrant which referenced, as Exhibit 99.2, an option agreement dated February 2, 1998, entered into between the Company and the parties constituting the Jaffe Group. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 No. 33-32399 and No. 33-44794 (filed January 5, 1990 and December 24, 1991, respectively): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 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 19, 1998 ----------------- ------------------------- ------------------ 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 19, 1998 - ------------------------- and Chief Executive Officer, and ---------------- Paul E. Rubeli Director ROBERT M. HADDOCK Executive Vice President and March 19, 1998 - ------------------------- Chief Financial Officer, and ---------------- Robert M. Haddock Director MERIDITH P. SIPEK Controller March 19, 1998 - ------------------------- ---------------- Meridith P. Sipek JOHN B. BOHLE Director March 19, 1998 - ------------------------- ---------------- John B. Bohle E. M. CARSON Director March 19, 1998 - ------------------------- ---------------- Edward M. Carson LINDA C. FAISS Director March 19, 1998 - ------------------------- ---------------- Linda C. Faiss JOHN R. NORTON, III Director March 19, 1998 - ------------------------- ---------------- John R. Norton, III ROBERT S. ROSOW Director March 19, 1998 - ------------------------- ---------------- Robert S. Rosow R. SNELL Director March 19, 1998 - ------------------------- ---------------- Richard Snell VESTA VALENTINE TEMEN Director March 19, 1998 - ------------------------- ---------------- Vesta Valentine Temen TERENCE W. THOMAS Director March 19, 1998 - ------------------------- ---------------- 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 1, 1998 and January 2, 1997 . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the years ended January 1, 1998, January 2, 1997 and December 28, 1995. . . . F-5 Consolidated Statements of Cash Flows for the years ended January 1, 1998, January 2, 1997 and December 28, 1995. . . . F-7 Consolidated Statements of Shareholders' Equity for the years ended January 1, 1998, January 2, 1997 and December 28, 1995 . . . . . . . . . . . . . . . . . . . . . . F-9 Notes to Consolidated Financial Statements. . . . . . . . . . . F-11 2. Tropicana Enterprises Report of Independent Accountants . . . . . . . . . . . . . . . F-32 Balance Sheets at January 1, 1998 and January 2, 1997 . . . . . F-33 Statements of Operations for the years ended January 1, 1998, January 2, 1997 and December 28, 1995 . . . . . . . . . . . . F-34 Statements of Cash Flows for the years ended January 1, 1998, January 2, 1997 and December 28, 1995 . . . . . . . . . . . . F-35 Statements of Partners' Capital for the years ended January 1, 1998, January 2, 1997 and December 28, 1995. . . . F-36 Notes to Financial Statements . . . . . . . . . . . . . . . . . F-37 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 1, 1998 and January 2, 1997, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended January 1, 1998. 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 1, 1998 and January 2, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 1998 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 4, 1998 F-2 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 1, 1998 and January 2, 1997 ---------------------------------------- (in thousands, except share data)
1997 1996 ---------- ---------- Assets Current assets: Cash and cash equivalents $ 46,129 $ 44,131 Accounts receivable, net 44,133 41,723 Refundable income taxes -- 1,201 Inventories 6,779 7,508 Prepaid expenses 10,374 9,772 Deferred income taxes, net 11,403 8,985 ---------- ---------- Total current assets 118,818 113,320 Investments in and advances to unconsolidated partnership 9,375 10,360 Other investments 22,319 26,697 Property and equipment: Buildings, riverboats and equipment, net 802,230 827,103 Land 98,762 95,747 Construction in progress 1,215 3,820 Leased under capital leases, net 672 389 ---------- ---------- 902,879 927,059 Deferred income taxes, net 331 2,565 Other deferred charges and assets 37,774 39,581 ---------- ---------- $1,091,496 $1,119,582 ========== ==========
[FN] The accompanying notes are an integral part of these financial statements. F-3 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) January 1, 1998 and January 2, 1997 ---------------------------------------- (in thousands, except share data)
1997 1996 ---------- ---------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accruals $ 56,939 $ 66,048 Accrued payroll and employee benefits 23,630 22,571 Accrued interest payable 13,167 13,288 Income taxes payable 896 1,112 Current portion of long-term debt 27,166 12,960 Current portion of other long-term liabilities 2,931 4,259 ---------- ---------- Total current liabilities 124,729 120,238 Long-term debt 491,932 527,006 Other long-term liabilities 24,204 27,042 Contingencies and commitments Series B ESOP convertible preferred stock (redemption value $6,857 and $7,226) 6,593 6,022 Shareholders' equity: Common stock, $.01 par value (45,198,889 and 45,000,287 shares outstanding) 491 489 Paid-in capital 412,029 411,158 Retained earnings 48,654 44,846 Less: Treasury stock (17,126) (17,102) Unearned compensation (10) (117) ---------- ---------- Total shareholders' equity 444,038 439,274 ---------- ---------- $1,091,496 $1,119,582 ========== ==========
[FN] 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 1, 1998, January 2, 1997 and December 28, 1995 ----------------------------------- (in thousands, except per share data)
1997 1996 1995 --------- --------- --------- Revenues Casino $645,604 $652,707 $469,211 Rooms 53,126 47,977 40,543 Food and beverage 51,776 51,299 41,906 Other 31,851 25,489 21,209 -------- -------- -------- 782,357 777,472 572,869 Costs and expenses Casino 298,104 314,732 226,239 Rooms 30,258 27,931 24,967 Food and beverage 54,736 53,249 43,782 Other 25,378 25,300 16,606 Marketing 88,360 86,202 51,627 General and administrative 70,215 74,396 50,292 Utilities 14,249 15,076 13,605 Repairs and maintenance 23,741 24,429 20,986 Provision for doubtful accounts 12,944 5,892 3,611 Property taxes and insurance 24,093 23,285 19,927 Rent 21,379 15,698 11,308 Depreciation and amortization 51,508 49,406 39,494 Preopening costs -- 2,933 7,724 -------- -------- -------- 714,965 718,529 530,168 -------- -------- -------- Operating income 67,392 58,943 42,701 Interest income 2,026 2,367 3,251 Interest expense (62,543) (58,577) (51,052) -------- -------- -------- Income (loss) before other items and income taxes 6,875 2,733 (5,100) Equity in unconsolidated partnership's loss (4,618) (4,793) (5,081) -------- -------- -------- Income (loss) before income taxes 2,257 (2,060) (10,181) Income taxes 2,185 22,699 5,187 -------- -------- -------- Net income (loss) $ 4,442 $ 20,639 $ (4,994) ======== ======== ========
[FN] 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 1, 1998, January 2, 1997 and December 28, 1995 ----------------------------------- (in thousands, except per share data)
1997 1996 1995 -------- -------- -------- Earnings per share: Net income (loss) per common share $ .08 $ .48 $ (.15) Net income (loss) per common share assuming dilution $ .08 $ .46 $ (.15) Weighted-average common shares applicable to: Net income (loss) per common share 45,121 41,121 38,013 Net income (loss) per common share assuming dilution 46,687 43,132 38,013
[FN] 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 1, 1998, January 2, 1997 and December 28, 1995 -------------- (in thousands)
1997 1996 1995 ---------- ---------- ---------- Cash Flows from Operating Activities Net income (loss) $ 4,442 $ 20,639 $ (4,994) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 54,216 52,478 42,808 Provision for losses on accounts receivable 12,944 5,892 3,611 Loss on reinvestment obligation 569 729 -- Rent expense (984) (732) (636) Distribution in excess of equity in income of partnership 985 1,107 1,160 Deferred income taxes (184) (22,451) (5,616) Change in assets and liabilities: (Increase) decrease in accounts receivable (15,128) (23,701) (7,545) (Increase) decrease in refundable income taxes 1,201 60 (538) (Increase) decrease in inventories and prepaid expenses (1,141) (1,787) (516) Increase (decrease) in accounts payable, accrued expenses and income taxes payable (8,324) 8,476 25,066 Other items, net 893 7,429 6,375 --------- --------- --------- Net cash provided by (used in) operating activities 49,489 48,139 59,175 --------- --------- --------- Cash Flows from Investing Activities Payments received on notes receivable 1,310 1,150 1,009 Reduction in other investments 8,194 2,427 11,950 Reduction in invested funds -- -- 8,250 Purchases of property and equipment (25,117) (120,426) (135,863) Additions to other long-term assets (7,714) (7,623) (28,463) --------- --------- --------- Net cash provided by (used in) investing activities $ (23,327) $(124,472) $(143,117) --------- --------- ---------
[FN] 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 1, 1998, January 2, 1997 and December 28, 1995 -------------- (in thousands)
1997 1996 1995 --------- --------- --------- Cash Flows from Financing Activities Proceeds from issuance of long-term debt $237,700 $220,200 $ 83,600 Proceeds from issuance of common stock 697 58,051 1,977 Principal payments on long-term debt (259,419) (177,421) (17,837) Principal payments on other long-term liabilities (1,777) (5,126) -- Debt issuance costs (195) (478) (80) Preferred stock dividend (689) (726) (754) Redemption of preferred stock (481) (563) (298) -------- -------- -------- Net cash provided by (used in) financing activities (24,164) 93,937 66,608 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,998 17,604 (17,334) Cash and cash equivalents at beginning of year 44,131 26,527 43,861 -------- -------- -------- Cash and cash equivalents at end of year $ 46,129 $ 44,131 $ 26,527 ======== ======== ======== Supplemental Cash Flow Disclosures Summary of non-cash investing and financing activities: Reduction in land and other long-term liabilities $ 2,000 $ -- $ -- Capital lease obligations incurred for property and equipment 552 -- 41 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 247 916 907 Issuance of restricted stock -- 136 2,189 Forfeiture of restricted stock 24 75 142 Cash flow during the year for the following: Interest paid, net of amount capitalized $ 60,041 $ 58,037 $ 47,758 Income taxes paid (refunded) (3,233) 1,086 471
[FN] 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 1, 1998, January 2, 1997 and December 28, 1995 -------------- (in thousands)
Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total -------- -------- --------- --------- --------- -------- Balance, December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368 Stock options exercised 5 1,972 1,977 Issuance of restricted stock 3 2,186 (2,189) -- Tax benefit from stock options exercised 779 779 Preferred stock dividend 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 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 ======= ======== ======== ======== ======== ========
[FN] 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 1, 1998, January 2, 1997 and December 28, 1995 ------------- (in thousands)
Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total ------- -------- --------- --------- --------- -------- Balance, January 2, 1997 $ 489 $411,158 $ 44,846 $(17,102) $ (117) $439,274 Stock options exercised 2 695 697 Tax benefit from stock options exercised 176 176 Preferred stock dividend and losses on redemption, net of income tax benefit (634) (634) Forfeiture of restricted stock (24) 24 -- Amortization of unearned compensation 83 83 Net income (loss) 4,442 4,442 ------- -------- -------- -------- -------- -------- Balance, January 1, 1998 $ 491 $412,029 $ 48,654 $(17,126) $ (10) $444,038 ======= ======== ======== ======== ======== ========
[FN] 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. 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 52 weeks in 1997, 53 weeks in 1996 and 52 weeks in 1995. 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 1, 1998 or January 2, 1997. Inventories Inventories, which consist primarily of food, beverage and operating supplies, are stated at the lower of cost or market value. Costs are determined using the first-in, first-out method. F-11 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 1, 1998 and January 2, 1997. Advertising costs that were expensed during the year were $18,423,000 in 1997, $19,699,000 in 1996 and $12,951,000 in 1995. 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. There was no interest capitalized during 1997. The interest that was capitalized during the years 1996 and 1995 was $4,503,000 and $5,290,000, respectively. 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 $262,654,000 at January 1, 1998 and $227,559,000 at January 2, 1997. 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 $7,301,000 and $4,977,000, were $11,447,000 and $13,576,000 at January 1, 1998 and January 2, 1997, respectively. Costs incurred to obtain initial gaming licenses to operate a casino are capitalized as incurred and amortized evenly over ten years beginning with the commencement of operations; subsequent renewal costs are amortized evenly over the renewal period. Deferred licensing costs consist primarily of payments or obligations to civic and community organizations, legal and consulting fees, application and selection fees with associated investigative costs and direct internal salaries and related costs of development personnel. Deferred licensing costs in connection with initial gaming licenses of open and operating locations, net of accumulated amortization of $6,351,000 and $3,978,000, were $17,874,000 and $18,969,000 at January 1, 1998 and January 2, 1997, respectively. F-12 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 1, 1998 or January 2, 1997. Development costs associated with pursuing opportunities in gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved, are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company has been selected as the operator of a new gaming facility, has applied for a gaming license or has obtained rights to a specific site. Development costs incurred subsequent to these criteria being met are capitalized. Development costs consist of deferred licensing costs and site acquisition costs. In jurisdictions in which gaming has not been approved, only site acquisition costs are capitalized. In the event a project is later determined not to be viable or the Company is not licensed to operate a facility at a site, the capitalized costs related to this project or site would be expensed. At January 1, 1998, the Company had capitalized development costs of $954,000. There were no capitalized development costs at January 2, 1997. It is reasonably possible that management's estimate of viability with regard to a development project may change in the near term. Valuation of Long-Lived Assets Long-lived assets and certain identifiable intangibles held and used by the Company are reviewed for impairment whenever events or changes in circumstances warrant such a review. The carrying value of a long-lived or intangible asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose. The Company performed such a review at January 1, 1998, in connection with its riverboat operation in Caruthersville, Missouri. The Company had approximately $45,702,000 in carrying value of long-lived assets and certain identifiable intangibles associated with Casino Aztar Caruthersville at January 1, 1998. A number of factors were considered in the evaluation of recoverability, including, but not limited to, anticipated revenues and the duration thereof, expected operating costs, the competitive environment and future legislative and regulatory changes. Although the results of the Company's analysis did not have an effect on the carrying value for Casino Aztar Caruthersville at January 1, 1998, it is reasonably possible that management's evaluation of recoverability could change in the near term. Equity Instruments The fair value based method of accounting is used for equity instruments issued to nonemployees for goods or services. The intrinsic value based method of accounting is used for stock-based employee compensation plans. F-13 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): 1997 1996 1995 -------- -------- -------- Rooms $ 22,710 $ 23,615 $ 19,329 Food and beverage 47,755 42,765 34,369 Other 2,957 2,716 3,894 -------- -------- -------- $ 73,422 $ 69,096 $ 57,592 ======== ======== ======== 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 Net income (loss) per common share and net income (loss) per common share, assuming dilution, are computed based on the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"), which superseded and simplified the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15, Earnings per Share ("APB 15"). SFAS 128 replaced the presentation of net income (loss) per common and common equivalent share under APB 15 with a presentation of net income (loss) per common share. Net income (loss) per common share excludes dilution and is computed by dividing income (loss) applicable to common shareholders by the weighted-average number of common shares outstanding. Net income (loss) per common share, assuming dilution, is computed similarly under SFAS 128 as it was under APB 15 and is 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 accordance with the provisions of SFAS 128, the Company has restated all prior period earnings per share data presented. Reclassifications Certain reclassifications have been made in the 1996 and 1995 Consolidated Statements of Operations in order to be comparable with the 1997 presentation. NOTE 2. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to F-14 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 Atlantic City Tropicana has a concentration of credit risk in the northeast region of the U.S. Approximately 65% 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 1, 1998 and January 2, 1997, the net receivables at Tropicana Atlantic City were $20,910,000 and $15,338,000, respectively, and the net receivables at Tropicana Las Vegas and Ramada Express combined were $21,778,000 and $25,601,000, respectively. An allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses. At January 1, 1998 and January 2, 1997, the allowance for doubtful accounts was $17,919,000 and $11,261,000, respectively. NOTE 3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIP The Company's investment in unconsolidated partnership is a noncontrolling partnership interest of 50% in Tropicana Enterprises, a Nevada general partnership that owns the real property and certain personal property that the Company leases in the operation of the Las Vegas Tropicana. The Company uses the equity method of accounting for this investment and in connection with the lease expensed rents of $16,554,000 in 1997, $16,652,000 in 1996 and $17,098,000 in 1995, of which 50% was eliminated in consolidation. On February 2, 1998, the Company acquired an option to purchase the 50% partnership interest that it does not own. The option agreement extends for a period of up to 18 months and gives the Company an unconditional right, but not the obligation, to purchase the partnership interest for $120,000,000. Summarized balance sheet information and operating results for the unconsolidated partnership are as follows (in thousands):
1997 1996 -------- -------- Current assets $ 944 $ 959 Noncurrent assets 65,768 69,540 Current liabilities 884 929 Noncurrent liabilities 63,304 66,171 1997 1996 1995 -------- -------- -------- Revenues $16,591 $ 16,698 $ 17,166 Operating expenses (2,743) (2,797) (2,743) -------- -------- -------- Operating income 13,848 13,901 14,423 Interest expense (5,397) (5,693) (6,323) -------- -------- -------- Net income $ 8,451 $ 8,208 $ 8,100 ======== ======== ========
F-15 The Company's share of the above operating results, after intercompany eliminations, is as follows (in thousands): 1997 1996 1995 -------- -------- -------- Equity in unconsolidated partnership's loss $ (4,618) $ (4,793) $ (5,081) NOTE 4. OTHER INVESTMENTS At January 1, 1998 and January 2, 1997, other investments consisted of (in thousands): 1997 1996 -------- -------- CRDA deposits, net of a valuation allowance of $6,706 and $6,425 $17,986 $16,796 CRDA bonds, net of an unamortized discount of $1,920 and $1,643 4,333 3,651 Certificate of deposit -- 6,250 ------- ------- $22,319 $26,697 ======= ======= 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 17 to 47 years. Actual maturities may differ from contractual maturities because of prepayment rights. The Company has executed an agreement with the CRDA for approximately $24,000,000 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. As of January 1, 1998, the Company has received approximately $13,400,000 in funding from the CRDA under this agreement. At January 1, 1998 and January 2, 1997, the Company had approximately $900,000 and $2,500,000, respectively, in available deposits with the CRDA that qualified and accordingly reclassified these amounts to accounts receivable. At January 2, 1997, the Company had a certificate of deposit which was pledged as collateral for two letters of credit aggregating $10,250,000. NOTE 5. LAS VEGAS TROPICANA REDEVELOPMENT The Company has engaged an investment bank to explore alternatives for a major redevelopment of the Las Vegas Tropicana. The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature of the redevelopment ultimately undertaken by the Company. The net book value of the property and equipment used in the operation of the Las Vegas Tropicana was $37,743,000 at January 1, 1998. It is reasonably possible that the carrying value of some or all of these assets may change in the near term. F-16 NOTE 6. LONG-TERM DEBT At January 1, 1998 and January 2, 1997, long-term debt included (in thousands):
1997 1996 -------- -------- 11% Senior Subordinated Notes Due 2002; redeemable 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 178,061 177,904 Reducing revolving credit note; floating rate, 7.94% at January 1, 1998; matures December 31, 1999 139,000 160,000 Other notes payable; 7% to 14.6%; maturities to 2002 1,213 1,521 Obligations under capital leases 824 541 -------- -------- 519,098 539,966 Less current portion (27,166) (12,960) -------- -------- $491,932 $527,006 ======== ========
Maturities of long-term debt for the five years subsequent to January 1, 1998 are as follows (in thousands): Year 1998 $ 27,166 1999 26,856 2000 86,557 2001 233 2002 200,225 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. F-17 The reducing revolving credit note (the "Credit Facility") matures on December 31, 1999. The maximum amount available under the Credit Facility was reduced to approximately $147,500,000 on December 31, 1997 and it will be reduced quarterly in annual amounts of $35,000,000 in each year until maturity. The 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, 1998, 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 Credit Facility. The reducing revolving loan agreement governing the 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 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 1, 1998, the maximum debt to operating cash flow ratio as calculated under the Loan Agreement was 4.12 to 1 and the allowable ratio was 4.90 to 1. The maximum allowable ratio decreases periodically to 4.60 to 1 at December 31, 1998 and 4.45 to 1 at July 1, 1999. At January 1, 1998, the maximum senior debt to operating cash flow ratio as calculated under the Loan Agreement was 1.47 to 1 and the allowable ratio was 1.75 to 1. The maximum allowable ratio decreases periodically to 1.40 to 1 at December 31, 1998 and 1.05 to 1 at December 30, 1999. On March 13, 1997, the Company entered into a supplemental reducing revolving loan agreement maturing on March 15, 1999 (the "Supplemental Credit Facility"). The Company has obtained bank commitments under the Supplemental Credit Facility for $25,000,000. The Supplemental Credit Facility has terms and imposes restrictions on the Company similar to the Credit Facility. The availability of funds under the Supplemental Credit Facility will reduce quarterly beginning on June 30, 1998 by $4,000,000. As of January 1, 1998, there were no borrowings under the Supplemental Credit Facility. NOTE 7. 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 13 years and generally provide for the payment of executory F-18 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):
1997 1996 -------- -------- Furniture and equipment $ 9,945 $ 9,393 Less accumulated amortization (9,273) (9,004) -------- -------- $ 672 $ 389 ======== ========
Amortization of furniture and equipment leased under capital leases, computed on a straight-line basis, was $269,000 in 1997, $146,000 in 1996 and $299,000 in 1995. Minimum future lease obligations on long-term, noncancelable leases in effect at January 1, 1998 are as follows (in thousands):
Year Capital Operating ---- -------- --------- 1998 $ 365 $ 16,589 1999 365 14,749 2000 167 10,996 2001 36 9,056 2002 -- 8,364 Thereafter -- 60,864 -------- -------- 933 $120,618 ======== Amount representing interest (109) -------- Net present value 824 Less current portion (299) -------- Long-term portion $ 525 ========
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):
1997 1996 1995 -------- -------- -------- Minimum rentals $ 18,099 $ 12,379 $ 9,444 Contingent rentals 3,280 3,319 1,864 -------- -------- -------- $ 21,379 $ 15,698 $ 11,308 ======== ======== ========
F-19 NOTE 8. OTHER LONG-TERM LIABILITIES At January 1, 1998 and January 2, 1997, other long-term liabilities consisted of (in thousands):
1997 1996 -------- -------- Accrued rent expense $ 11,327 $ 12,311 Obligation to City of Evansville and other civic and community organizations 4,550 8,300 Deferred compensation and retirement plans 10,776 10,181 Las Vegas Boulevard beautification assessment 482 509 -------- -------- 27,135 31,301 Less current portion (2,931) (4,259) -------- -------- $ 24,204 $ 27,042 ======== ========
NOTE 9. 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 1997, 1996 and 1995, respectively, 4,555 shares, 4,644 shares and 2,797 shares were redeemed primarily in connection with employee terminations and at January 1, 1998, cumulative redemptions totaled 16,522 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 10. 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. F-20 The Company is authorized to issue 100,000,000 shares of common stock with a par value of $.01 per share. Shares issued were 49,120,863 at January 1, 1998, and 48,942,848 at January 2, 1997. Common stock outstanding was net of 3,921,974 and 3,942,561 treasury shares at January 1, 1998 and January 2, 1997, 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. In 1996, the Company issued 6,279,200 shares of common stock in a public offering. The Company issued 292,000 shares of restricted common stock in 1995 to certain executive officers and key employees; however, 3,668, 11,334 and 18,000 of these shares were forfeited in 1997, 1996 and 1995, respectively. The restrictions on 122,998 of the unforfeited shares will 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 $83,000, $823,000 and $1,168,000 in 1997, 1996 and 1995, respectively. In accordance with the Merger agreement, 666,572 shares of common stock that had not been claimed by the shareholders of Ramada were returned to the Company in December 1990 to be held as treasury shares until claimed. During 1997, 1996 and 1995, respectively, 24,255, 25,606 and 29,758 shares were claimed; the balance of unclaimed shares was 343,587 as of January 1, 1998. 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 1, 1998, there remained 591,900 shares that could be repurchased under this authority. No shares were repurchased under this program in 1997, 1996 or 1995. Repurchased and forfeited shares are stated at cost and held as treasury shares to be used for general corporate purposes. At January 1, 1998, January 2, 1997 and December 28, 1995, common shares reserved for future grants of stock options under the Company's stock option plans were 589,000, 1,036,000 and 1,009,000, respectively. At January 1, 1998, common shares reserved for the conversion of the ESOP Stock were 883,000 and shares of preferred stock reserved for exercise of the Rights were 50,000. NOTE 11. 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 F-21 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. 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: risk-free interest rate of 6.5% in 1997 and 6.4% in 1996, no dividend in 1997 or 1996, volatility factor of the expected market price of the Company's common stock of .29 in 1997 and .42 in 1996, and an expected life of the option of 5.2 years in 1997 and 5.3 years in 1996. 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 1997 and 1996 follows (in thousands except for earnings per share information): 1997 1996 -------- -------- Pro forma net income (loss) $ 3,693 $ 20,122 Pro forma earnings per share: Net income (loss) per common share $ .07 $ .47 Net income (loss) per common share assuming dilution $ .07 $ .45 F-22 A summary of the Company's stock option activity and related information for the year ended December 28, 1995 follows (in thousands of shares):
1995 ------------------------ Shares Under Price Range Option of Options ------------ ----------- Beginning balance outstanding 3,554 $3.19-$8.15 Granted 679 $7.00-$9.63 Exercised (503) $3.19-$8.15 Cancelled, expired or surrendered (43) $6.05-$8.15 ------ Ending balance outstanding 3,687 $3.19-$9.63 ====== Exercisable at end of year 2,927 ======
A summary of the Company's stock option activity and related information for the years ended January 1, 1998 and January 2, 1997 follows (in thousands of shares):
1997 1996 ----------------------------- ----------------------------- Shares Under Weighted-Average Shares Under Weighted-Average Option Exercise Price Option Exercise Price ------------ ---------------- ------------ ---------------- Beginning balance outstanding 3,230 $5.00 3,687 $4.96 Granted 514 $7.00 88 $9.44 Exercised (178) $3.92 (441) $4.93 Forfeited (63) $8.19 (58) $7.37 Expired -- $ -- (46) $8.15 ------ ------ Ending balance outstanding 3,503 $5.29 3,230 $5.00 ====== ====== Exercisable at end of year 2,774 $4.77 2,703 $4.47 ====== ====== Weighted-average fair value of options granted during the year $ 2.39 $ 4.17
F-23 The following table summarizes additional information about the Company's stock options outstanding at January 1, 1998 and 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 - --------------- ------ ----------- --------- ------ --------- 1997 - ---- $3.19 to $5.00 1,922 2.6 years $3.76 1,922 $3.76 $5.50 to $7.75 1,390 7.1 years $6.83 739 $6.68 $8.50 to $11.00 191 7.9 years $9.51 113 $9.46 ------ ------ 3,503 4.7 years $5.29 2,774 $4.77 ====== ====== 1996 - ---- $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 12. 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):
1997 1996 1995 -------- -------- -------- Service cost $ -- $ -- $ 133 Interest cost 504 495 462 Net amortization and deferral 185 90 227 -------- -------- -------- $ 689 $ 585 $ 822 ======== ======== ========
F-24 The following table shows (in thousands) the defined benefit plans' status and amounts recognized in the Consolidated Balance Sheets at January 1, 1998 and January 2, 1997, respectively.
1997 1996 -------- -------- Vested benefit obligation $ 4,845 $ 4,721 ======== ======== Accumulated benefit obligation $ 4,845 $ 4,721 ======== ======== Projected benefit obligation $ 6,096 $ 6,050 Plan assets at fair value -- -- Projected benefit obligation in excess of plan assets 6,096 6,050 Unrecognized prior service cost (941) (1,107) Unrecognized net gain 254 67 Adjustment to recognize minimum liability 130 126 -------- -------- Defined benefit plan liability $ 5,539 $ 5,136 ======== ======== 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. The savings account feature of the plan allows employees, at their discretion, to make contributions of their before-tax earnings to the plan up to an annual maximum amount. Effective July 1, 1997, the Company matches 50% of the employee contributions that are based on up to 4% of an employee's before-tax earnings. Compensation expense in 1997 with regard to Company matching contributions was $771,000. Additional Company contributions to the savings plan are discretionary and there were none in 1997, 1996 or 1995. The Company contributed $2,711,000, $2,563,000 and $2,305,000 in 1997, 1996 and 1995, 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):
1997 1996 1995 -------- -------- -------- Service cost $ 17 $ 19 $ 20 Interest cost 370 357 340 Net amortization and deferral (16) (19) (16) Cash surrender value increase net of premium expense (201) (180) (161) -------- -------- -------- $ 170 $ 177 $ 183 ======== ======== ========
F-25 The following table shows (in thousands) the deferred compensation plans' status and amounts recognized in the Consolidated Balance Sheets at January 1, 1998 and January 2, 1997, respectively.
1997 1996 -------- -------- Vested benefit obligation $ 4,649 $ 4,457 ======== ======== Accumulated benefit obligation $ 4,649 $ 4,457 ======== ======== Projected benefit obligation $ 4,649 $ 4,457 Plan assets at fair value -- -- Projected benefit obligation in excess of plan assets 4,649 4,457 Unrecognized net gain 588 588 -------- -------- Deferred compensation plan liability $ 5,237 $ 5,045 ======== ======== Actuarial assumption: Discount rate 8.5% 8.5%
The Company's ESOP covers substantially all nonunion 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 $689,000 and $1,186,000 in 1997, $726,000 and $1,149,000 in 1996 and $754,000 and $1,121,000 in 1995. Compensation expense recognized in 1997, 1996 and 1995, respectively, was $862,000, $993,000 and $1,107,000. NOTE 13. INCOME TAXES The (provision) benefit for income taxes is comprised of (in thousands):
1997 1996 1995 -------- -------- -------- Current: Federal $ 1,331 $ (860) $ (429) State 670 1,108 -- -------- -------- -------- 2,001 248 (429) Deferred: -------- -------- -------- Federal 2,151 28,700 1,170 State (1,967) (6,249) 4,446 -------- -------- -------- 184 22,451 5,616 -------- -------- -------- $ 2,185 $ 22,699 $ 5,187 ======== ======== ========
The Company is responsible, with certain exceptions, for the taxes of Ramada through December 20, 1989. The Internal Revenue Service ("IRS") has completed its examination of the income tax returns for the years 1988 and 1989 and has settled with Ramada for all but one issue. The effect of this agreement on the Company was an income tax benefit of $2,323,000 in 1997 primarily related to cash received as a result of the settlement and $21,028,000 in 1996 that included a reduction in the beginning-of-year F-26 valuation allowance. The IRS has completed its examination of the income tax returns for the years 1990 and 1991 and has settled with the Company for all but one issue. The IRS is examining the income tax returns for the years 1992 and 1993. 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):
1997 1996 1995 -------- -------- -------- Tax (provision) benefit at U.S. federal income tax rate $ (790) $ 721 $ 3,563 State income taxes, net (788) 29 2,889 Nondeductible business expenses (727) (640) (1,817) IRS examination 1,498 1,158 19 General business credits 286 237 421 Change in valuation allowance -- 3,641 -- Ramada tax sharing agreement 2,323 17,387 -- Other, net 383 166 112 ------- ------- ------- $ 2,185 $22,699 $ 5,187 ======= ======= =======
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 1, 1998 and January 2, 1997, are as follows (in thousands):
1997 1996 --------- --------- Net operating loss carryforward $ 21,739 $ 19,627 Accrued rent expense 5,795 5,355 Accrued bad debt expense 9,228 5,771 Accrued compensation 5,695 5,390 Accrued liabilities 7,966 8,186 General business credit carryforward 8,161 7,567 -------- -------- Gross deferred tax assets 58,584 51,896 -------- -------- Deferred tax asset valuation allowance (4,881) (4,328) -------- -------- Other (5,675) (7,353) Partnership investment (5,153) (5,308) Depreciation and amortization (31,141) (23,357) -------- -------- Gross deferred tax (liabilities) (41,969) (36,018) -------- -------- Net deferred tax assets (liabilities) $ 11,734 $ 11,550 ======== ========
Gross deferred tax assets are reduced by a valuation allowance. Realization of the net deferred tax asset at January 1, 1998, 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 allowance was F-27 increased during 1997 which caused an increase in income tax expense of $876,000. The beginning-of-year valuation allowances were reduced during 1996 and 1995 which caused a decrease in income tax expense of $3,641,000 and $3,622,000, respectively. At January 1, 1998, tax benefits are available for federal income tax purposes as follows (in thousands): Net operating losses $48,511 General business credits 4,195 These tax benefits will expire in the years 2003 through 2012 if not used. The Company also has alternative minimum tax credit carryforwards of $3,966,000 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): 1998 $19,447 1999 5,233 2000 6,126 2001 9,515 2002 to 2012 51,045 NOTE 14. EARNINGS PER SHARE The computations under SFAS 128 of net income (loss) per common share and net income (loss) per common share, assuming dilution, are as follows:
1997 1996 1995 -------- -------- -------- Net income (loss) $ 4,442 $ 20,639 $ (4,994) Deduct: preferred stock dividends and losses on redemption (net of income tax benefits of $71, $99 and $128, credited to retained earnings) (634) (715) (639) -------- -------- -------- Net income (loss) applicable to computations $ 3,808 $ 19,924 $ (5,633) ======== ======== ======== Weighted-average common shares applicable to net income (loss) per common share 45,121 41,121 38,013 Effect of dilutive securities: Stock option incremental shares 657 1,051 -- Assumed conversion of preferred stock 909 960 -- -------- -------- -------- 1,566 2,011 -- Weighted-average common shares -------- -------- -------- applicable to net income (loss) per common share assuming dilution 46,687 43,132 38,013 ======== ======== ======== Net income (loss) per common share $ .08 $ .48 $ (.15) ======== ======== ======== Net income (loss) per common share assuming dilution $ .08 $ .46 $ (.15) ======== ======== ========
F-28 NOTE 15. 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 $3,905,000 and $3,931,000 at January 1, 1998 and January 2, 1997, respectively. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the Company. Management believes that its defenses are substantial in each of these matters and that the Company's legal posture can be successfully defended without material adverse effect on its consolidated financial statements. The Tropicana Las Vegas lease agreement contains a provision that requires the Company to maintain an additional security deposit with the lessor of $21,000,000 in cash or a letter of credit if the Tropicana Las Vegas operation fails to meet certain financial tests. The Company has a 50% partnership interest in the lessor. The Company has severance agreements with certain of its senior executives. Severance benefits consist of a lump-sum cash payment equal to either the sum of the executive's annual base salary plus the average of the executive's annual bonuses awarded in the preceding three years or twice this amount plus payment of the value in his outstanding stock options and vesting and distribution of any restricted stock. 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 $9,000,000 at January 1, 1998. NOTE 16. 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 1, 1998 and January 2, 1997, 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. F-29
1997 1996 ------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- Assets Other investments $ 22,319 $ 22,319 $ 26,697 $ 26,697 Liabilities Current portion of long-term debt 27,166 27,166 12,960 12,960 Current portion of other long-term liabilities 1,550 1,482 2,800 2,707 Long-term debt 491,932 526,871 527,006 532,852 Other long-term liabilities 3,000 2,542 5,500 4,544 Off-Balance-Sheet Letters of credit -- 6,500 -- 10,250
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 at January 2, 1997, also included a 90-day certificate of deposit which was valued at its carrying amount which was a reasonable estimate of fair value due to the relatively short period to maturity. The fair values of the Company's publicly traded debt were estimated based on the bid prices in the public bond markets. The carrying amounts of the revolving credit note are reasonable estimates of fair 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-30 NOTE 17. 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 1, 1998 and January 2, 1997. The Company's common stock is listed on the New York Stock Exchange.
First Second Third Fourth -------- -------- -------- -------- 1997 - ---- Revenues $189,756 $200,387 $201,874 $190,340 Operating income 17,054 21,750 21,311 7,277 Income (loss) before income taxes 597 5,355 5,040 (8,735) Income taxes 2,080 (1,926) (1,797) 3,828 Net income (loss) 2,677 3,429 3,243 (4,907) Earnings per share: Net income (loss) per common share .06 .07 .07 (.11) Net income (loss) per common share assuming dilution .05 .07 .07 (.11) 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 share: Net income (loss) per common share .02 -- -- .44 Net income (loss) per common share assuming dilution .02 -- -- .42 Common Stock Prices - ------------------- 1997 - High $ 8.50 $ 7.75 $ 7.88 $ 8.00 - Low 6.63 6.13 6.50 5.88 1996 - High 9.00 14.13 13.75 9.50 - Low 7.38 8.38 9.38 6.50
F-31 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 1, 1998 and January 2, 1997, and the related statements of operations, cash flows and partners' capital for each of the three years in the period ended January 1, 1998. 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 1, 1998 and January 2, 1997, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 1998, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 4, 1998 F-32 TROPICANA ENTERPRISES (A Nevada General Partnership) BALANCE SHEETS January 1, 1998 and January 2, 1997 ------------------------------------- (in thousands)
1997 1996 ---------- ---------- Assets Income producing properties $ 54,741 $ 57,464 Cash 1 1 Other receivable 943 958 Other assets 11,027 12,076 --------- --------- $ 66,712 $ 70,499 ========= ========= Liabilities and Partners' Capital Term loan payable $ 63,304 $ 66,171 Unearned rental income 884 929 --------- --------- 64,188 67,100 Partners' capital 2,524 3,399 --------- --------- $ 66,712 $ 70,499 ========= =========
The accompanying notes are an integral part of these financial statements. F-33 TROPICANA ENTERPRISES (A Nevada General Partnership) STATEMENTS OF OPERATIONS For the years ended January 1, 1998, January 2, 1997 and December 28, 1995 ----------------------------------- (in thousands)
1997 1996 1995 ---------- ---------- ---------- Revenues: Rent $ 16,554 $ 16,652 $ 17,098 Interest 37 46 68 --------- --------- --------- 16,591 16,698 17,166 --------- --------- --------- Costs and expenses: General and administrative 8 9 8 Interest 5,397 5,693 6,323 Depreciation and amortization 2,735 2,788 2,735 --------- --------- --------- 8,140 8,490 9,066 --------- --------- --------- Net income $ 8,451 $ 8,208 $ 8,100 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-34 TROPICANA ENTERPRISES (A Nevada General Partnership) STATEMENTS OF CASH FLOWS For the years ended January 1, 1998, January 2, 1997 and December 28, 1995 ------------------------------------ (in thousands)
1997 1996 1995 ---------- ---------- ---------- Cash flows from operating activities: Net income $ 8,451 $ 8,208 $ 8,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,735 2,788 2,735 Changes in assets and liabilities: Other receivables 15 (122) 417 Other assets 1,037 1,110 636 Unearned rental income (45) 14 (68) --------- --------- --------- Net cash provided by operating activities 12,193 11,998 11,820 --------- --------- --------- Cash flows from financing activities: Repayment of term loan (2,867) (2,674) (2,494) Distribution to partners (9,326) (9,324) (9,326) --------- --------- --------- Net cash (used in) provided by financing activities (12,193) (11,998) (11,820) --------- --------- --------- 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 $ 5,407 $ 5,633 $ 6,323 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-35 TROPICANA ENTERPRISES (A Nevada General Partnership) STATEMENTS OF PARTNERS' CAPITAL For the years ended January 1, 1998, January 2, 1997 and December 28, 1995 ----------------------------------- (in thousands)
Total Partners' Adamar Jaffe Capital ---------- ---------- ---------- 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 Net income 4,225 4,226 8,451 Cash withdrawals (4,663) (4,663) (9,326) --------- --------- --------- Balance, January 1, 1998 $ (1,547) $ 4,071 $ 2,524 ========= ========= ==========
The accompanying notes are an integral part of these financial statements. F-36 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. On February 2, 1998, Aztar acquired an option to purchase the Jaffe partnership interest. The option agreement extends for a period of up to 18 months and gives Aztar an unconditional right, but not the obligation, to purchase the Jaffe partnership interest. The Partnership uses a 52/53 week fiscal year ending on the Thursday nearest to December 31, which includes 52 weeks in 1997, 53 weeks in 1996 and 52 weeks in 1995. 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. Aztar has engaged an investment bank to explore alternatives for a major redevelopment of the Tropicana Property. It is reasonably possible that the carrying value of some or all of the Partnership's assets may change in the near term. 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. F-37 TROPICANA ENTERPRISES (A Nevada General Partnership) NOTES TO FINANCIAL STATEMENTS-(Continued) 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. 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 1, 1998 and January 2, 1997, the income producing properties consist of the following (in thousands): 1997 1996 ---------- ---------- Buildings $ 84,226 $ 84,226 Less accumulated depreciation (40,902) (38,179) --------- --------- 43,324 46,047 Land 11,417 11,417 --------- --------- $ 54,741 $ 57,464 ========= ========= 4. Other Assets: At January 1, 1998 and January 2, 1997, other assets consist of the following (in thousands): 1997 1996 ---------- ---------- Accrued rent $ 10,896 $ 11,933 Deferred lease costs 131 143 --------- --------- $ 11,027 $ 12,076 ========= ========= 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 a prior 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 F-38 TROPICANA ENTERPRISES (A Nevada General Partnership) NOTES TO FINANCIAL STATEMENTS-(Continued) 5. Term Loan Payable: (Continued) Eurodollar interest period, if earlier. Interest based on the prime rate is payable quarterly. The effective interest rate was 8.33% for the year ended January 1, 1998. 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 1, 1998 are as follows (in thousands): 1998 $ 3,075 1999 3,297 2000 56,932 -------- $ 63,304 ======== 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 $10,896,000 and $11,933,000, as of January 1, 1998 and January 2, 1997, respectively, which represents future rent payments. Minimum future rentals on the non-cancelable operating lease as of January 1, 1998, excluding contingent rental income as described above, are as follows (in thousands): 1998 14,178 1999 14,178 2000 14,178 2001 14,288 2002 14,325 Thereafter 115,794 --------- $ 186,941 ========= 7. Related Parties: The Partnership leases substantially all of the operating facilities at the Tropicana Property to HRN. The Partnership recognized rental income of $16,554,000 in 1997, $16,652,000 in 1996 and $17,098,000 in 1995 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-39 Management's Discussion and Analysis Financial Condition - Liquidity and Capital Resources Sources and Uses The principal sources of liquidity and capital in 1997 were cash from operations and a bank credit line. The company's bank credit line consists of two facilities. The primary facility 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 second facility ("Supplemental Credit Facility" and when together with the Credit Facility, the "Credit Facilities") is also a reducing revolving credit facility and is provided by some members of the same group of banks as the Credit Facility with the same managing agent; it matures on March 15, 1999. The maximum amount available under the Credit Facility was reduced to $147.5 million on December 31, 1997 and it will be reduced quarterly in annual amounts of $35 million in each year until maturity. The maximum amount available under the Supplemental Credit Facility was $25 million on December 31, 1997 and it will reduce quarterly beginning on June 30, 1998 by $4 million until maturity. As of January 1, 1998, there have been no borrowings under the Supplemental Credit Facility. The Credit Facilities bear 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 January 2, 1997, the outstanding balance under the Credit Facility was $160 million. During 1997, the company borrowed $238 million and repaid $259 million, leaving an outstanding balance of $139 million at January 1, 1998. The Credit Facilities impose 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 Facilities prohibit dividends on the company's common stock, other than dividends payable in common stock, and repurchases of the company's common stock with certain limited exceptions. In addition, the Credit Facilities contain certain quarterly financial tests, including a minimum net worth, a minimum debt service coverage ratio, a maximum debt to operating cash flow ratio ("Leverage Ratio") and a maximum senior debt to operating cash flow ratio ("Senior Leverage Ratio"). In calculating the leverage ratios, uncollateralized letters of credit are considered to be debt. At January 1, 1998, the Leverage Ratio was 4.12 to 1 and the allowable Leverage Ratio was 4.90 to 1. Future periodic reductions take the allowable Leverage Ratio to 4.60 to 1 at December 31, 1998 and 4.45 to 1 at July 1, 1999. At January 1, 1998, the Senior Leverage Ratio was 1.47 to 1 and the allowable Senior Leverage Ratio was 1.75 to 1. The allowable Senior Leverage Ratio decreases periodically to 1.40 to 1 at December 31, 1998 and 1.05 to 1 at December 30, 1999. The company has commenced discussions to obtain a new bank credit line that would increase the availability of funds and extend the maturity. If the company were successful in obtaining a new bank credit line, the unamortized deferred financing charges associated with the existing bank credit line would be written off as an extraordinary charge on the early extinguishment of debt. At January 1, 1998, the unamortized deferred financing charges associated with the Credit Facilities were $2.6 million. During 1997, the company's purchases of property and equipment related to payments on the Evansville Riverboat Casino project completed in late 1996, a slot machine expansion in Atlantic City and routine capital expenditures at all of the company's locations. F-40 Future Development 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 operation of the Las Vegas Tropicana. On February 2, 1998, the company acquired an option to purchase the 50% partnership interest that it does not own. The option agreement extends for a period of up to 18 months and gives the company an unconditional right, but not the obligation, to purchase the partnership interest for $120 million. The company has engaged an investment bank to explore alternatives for a major redevelopment of the property. The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature of the redevelopment ultimately undertaken by the company. Commitments 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 monthly principal payments that total $3.1 million or $3.3 million each year, with a final payment of approximately $57 million due at maturity. The Term Loan balance at January 1, 1998, is approximately $63 million. The company has commenced discussions to extend the maturity of the Term Loan. 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 million in cash or a letter of credit if the Tropicana Las Vegas operation fails to meet certain financial tests. A determination has been made for the year ended January 1, 1998, that the additional security deposit was not required. The financial tests are calculated quarterly based on the preceding twelve months of operations. Results of Operations - 1997 versus 1996 Aztar's consolidated revenues were $782.4 million for 1997, an increase of 1% from $777.5 million in 1996. Rooms revenue was higher in 1997 than in 1996 because 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 and the company opened its 250-room hotel at Casino Aztar Evansville in December 1996. A factor that limited the increase in consolidated revenues was that the 1997 fiscal year included 52 weeks whereas the 1996 fiscal year included 53 weeks. Consolidated operating income in 1997 was $67.4 million. 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 hotel at Casino Aztar Evansville. The consolidated provision for doubtful accounts increased by $7.1 million in 1997 compared with 1996 as a result of increasing the allowance for potential uncollectible markers associated with Asian guests at the Las Vegas Tropicana and the premium table game business at both Tropicanas. Consolidated rent expense increased $5.7 million in 1997 compared with 1996 primarily as a result of an increased number of operating leases associated with expanded casino facilities at the Atlantic City Tropicana. The analysis of the performance of each of Aztar's properties follows. F-41 Tropicana Atlantic City Tropicana Casino and Resort in Atlantic City, New Jersey had total revenues of $399.2 million in 1997 compared with $385.9 million in 1996 and operating income of $50.7 million in 1997 compared with $36.0 million in 1996. 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. The 1996 operating margin was negatively impacted by severe winter weather and disruption from the construction of the new hotel tower and improvements made to the casino. Casino revenue was up $6.7 million in 1997 compared to 1996. Tropicana Atlantic City continued its emphasis that began in 1995 on the games revenue segment of the business and had a full-year benefit of the improvements made to the casino in 1996 in connection with the games business. As a result of this, games revenue increased by $21.1 million or 21% in 1997 compared to 1996 in spite of a slight decline in the table games win percentage. Slot revenue decreased in 1997 compared to 1996 as a result of a decrease in coin offers to slot players. The slot revenue percentage of total casino revenue decreased to 66% in 1997 compared to 71% in 1996 and 76% in the 1995 to 1993 time frame. Rooms revenue increased 39% in 1997 compared to 1996 as a result of a 30% increase in rooms occupied on a non-complimentary basis and an increase in the average daily room rate. The availability of rooms increased in late April 1996 when the new hotel tower increased capacity by 60%. Casino costs were $13.4 million lower in 1997 compared to 1996. A $20.5 million reduction in coin offers to slot players was partially offset by increased costs associated with the games segment of the business. The reduction in coin offers consisted of a $14.3 million reduction in direct mail and cash-back coin offers and a $6.2 million reduction in line and charter bus coin. Marketing costs were $6.9 million higher and the provision for doubtful accounts was $1.9 million higher in 1997 compared with 1996 as a result of the emphasis on the games business. Rooms costs were 26% higher in 1997 compared with 1996 primarily due to increased direct costs associated with the increase in occupied rooms. Operating income is after depreciation and amortization of $22.1 million in 1997 compared with $21.7 million in 1996 and rent expense of $7.3 million in 1997 compared with $2.9 million in 1996. 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 $156.4 million in 1997 compared with $167.4 million in 1996 and an operating loss of $9.3 million in 1997 compared with operating income of $0.8 million in 1996. Operating loss or income is after rent expense of $9.8 million in 1997 compared with $9.1 million in 1996 and depreciation and amortization of $9.5 million in 1997 compared with $8.6 million in 1996. Casino revenue decreased by 12% in 1997 compared to 1996 primarily as a result of a decrease in baccarat revenue. The volume of baccarat play decreased by 40% in 1997 compared to 1996 as the company experienced a decrease in baccarat play by Asian guests. The volume of baccarat play was much higher in 1996 than it had been in recent years. Baccarat revenue as a percent of casino revenue declined to 9% in 1997 compared to 14% in 1996. Baccarat revenue was F-42 only 1% of casino revenue in 1995. Slot revenue decreased by 10% in 1997 compared to 1996 due to a supply increase in the market. Casino costs were 6% lower in 1997 compared to 1996 as a result of the lower casino revenue. The provision for doubtful accounts increased by $5.0 million in 1997 compared with 1996 as a result of increasing the allowance for uncollectible markers associated with Asian guests and the premium table game business. Ramada Express Ramada Express Hotel and Casino in Laughlin, Nevada had total revenues of $83.4 million in 1997 compared with $82.5 million in 1996. The trends in 1997 were similar to those experienced in 1996. Casino revenue increased in an overall market that again declined in 1997. The overall market remains weak as competition continues from Indian casinos and expansions in Las Vegas. Casino costs and marketing costs were higher as the company incurred increased costs in order to increase market share in this declining market. As a result, the operating margin, as measured by operating income before depreciation and amortization, declined to 21% in 1997 from 22% in 1996 and 24% in 1995. Operating income at Ramada Express was $10.6 million in 1997 compared with $11.2 million in 1996. Operating income is after depreciation and amortization of $7.1 million in both 1997 and 1996 and rent expense of $0.5 million in 1997 compared with $0.3 million in 1996. Casino Aztar Evansville Casino Aztar Evansville in Evansville, Indiana had total revenues of $119.3 million in 1997 compared with $115.2 million in 1996 and operating income of $28.8 million in 1997 compared with $27.5 million in 1996. The 1996 operating income is after the writeoff of $0.7 million of preopening costs associated with the opening of the passenger pavilion, parking garage and 250-room hotel. Casino revenue was down only slightly in 1997 compared to 1996 as a decrease in admissions as a result of the increased competition from other riverboats in Indiana was offset by an increase in win per admission. The admissions in 1997 were 2.1 million compared to 2.4 million in 1996 and the win per admission was $51.18 in 1997 compared with $45.85 in 1996. The existing competition in Indiana on the Ohio River comes from two operations in the Cincinnati, Ohio market area. A riverboat casino has been granted a certificate of suitability to operate in Indiana in the closer Louisville, Kentucky market area. This riverboat casino needs certain regulatory approvals before it is granted a license to operate. The owners of this operation have commenced at-risk construction in order to be able to operate sooner if regulatory approvals are obtained. In addition, a fifth license could be granted to operate a riverboat casino on the Ohio River in Indiana; however, the Indiana Gaming Commission has delayed the consideration of this license. Rooms revenue was $2.7 million in 1997, an increase of $2.6 million over 1996 as the hotel opened in December 1996. Food and beverage revenue increased $3.0 million over 1996 as the passenger pavilion containing expanded food and beverage facilities opened in the fourth-quarter 1996. Rooms costs and food and beverage costs increased with the increase in revenues. As a result of the expanded facilities, property taxes and insurance, along with depreciation and amortization, also increased. Casino Aztar Evansville reduced marketing costs by 20% in 1997 compared to 1996. These costs were higher in 1996 as the operation established itself in the F-43 market. Operating income is after depreciation and amortization of $9.3 million in 1997 compared with $8.3 million in 1996 and rent expense of $3.4 million in 1997 compared with $3.0 million in 1996. Casino Aztar Caruthersville Casino Aztar Caruthersville in Caruthersville, Missouri had total revenues of $24.1 million in 1997 compared with $26.5 million in 1996 and an operating loss of $2.8 million in 1997 compared with an operating loss of $3.7 million in 1996. The operating losses are after depreciation and amortization of $3.3 million in 1997 compared with $3.5 million in 1996. During 1997, the company eliminated some marginal business, which resulted in lower revenues and reduced costs. In addition, the company implemented its plans and opened a climate-controlled pavilion and an outdoor arena. These facilities are used for exhibitions, entertainment, rodeo competitions and other events. The company has some unused land at this site and is searching for development opportunities with other entities to use the land for facilities that would complement the company's operations. The riverboat at Casino Aztar Caruthersville floats directly on the Mississippi River and is unaffected by the recent Missouri Supreme Court decision that requires casino riverboats in Missouri to be operated solely over and in contact with the surface of the rivers on which gaming is allowed by the Missouri constitution. Other casino riverboats in Missouri may not meet this requirement. 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 $0.1 million in 1997 compared with $2.1 million in 1996. Interest Expense Interest expense was $62.5 million in 1997 compared with $58.6 million in 1996. The increase in interest expense was primarily a result of discontinuing the capitalization of interest as the company's major construction projects were completed in phases in 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 ("IRS") has completed its examination of the income tax returns for the years 1988 and 1989 and has settled with Ramada for all but one issue. Income taxes for 1997 include a non-recurring tax benefit of $2.3 million primarily related to cash received as a result of the settlement between the IRS and Ramada. Income taxes for 1996 include a benefit of approximately $21 million related to this settlement. 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 F-44 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 Atlantic City 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 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 F-45 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 Las Vegas 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. 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 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 F-46 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 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. Casino Aztar Evansville had total revenues of $115.2 million in 1996 compared with $5.5 million in the 1995 period of operations. 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 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 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. 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 F-47 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. Other Matters In June 1997, the Financial Accounting Standards Board ("FASB") adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"), which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS 130 is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented. SFAS 130 will not have an effect on the company's financial statements currently being presented because the company, at this time, has no items of comprehensive income other than net income. In June 1997, the FASB adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"), which supersedes FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented. SFAS 131 will not have a material effect on the company's financial statements as the required information is either currently being presented by the company or it is not applicable to the company. In accordance with the FASB Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121"), the company performed a review of whether anticipated net cash flows in connection with its Casino Aztar Caruthersville operation will be sufficient to recover the company's investment in that operation. At January 1, 1998, the company had approximately $46 million in carrying value of long-lived assets and certain identifiable intangibles associated with Casino Aztar Caruthersville. In performing this review, the company considered a number of factors, including, but not limited to, anticipated revenues and the duration thereof, expected operating costs, the competitive environment and future legislative and regulatory changes. Although the results of the company's review did not have an effect on the carrying value for Casino Aztar Caruthersville at January 1, 1998, there can be no assurance that this will be true in the future. Management has initiated an enterprise-wide program to prepare the company's computer systems and applications for the year 2000. This is necessary because computer programs have been written using two digits rather than four to define the applicable year. The company expects to incur internal staff costs as well as consulting and other expenses related to infrastructure and facilities enhancements necessary to prepare the systems for the year 2000. Tropicana Atlantic City has undertaken a $6 million capital program, which is F-48 expected to be complete by September 1999, to purchase upgrades for its major hardware and software systems. When this capital program is completed, the Atlantic City Tropicana should have addressed most of its year 2000 issues. Tropicana Las Vegas and Ramada Express are still evaluating their year 2000 issues. The costs of testing and conversion are not yet known, although they are not expected to be material. Casino Aztar Evansville and Casino Aztar Caruthersville use primarily third-party standard vendor software and are working with such vendors to ensure year 2000 compliance. The company expects its year 2000 date conversion projects to be completed on a timely basis. However, there can be no assurance that the systems of other companies on which the company's systems rely will be timely converted or that any such failure to convert by another company would not have an adverse effect on the company's systems. Private Securities Litigation Reform Act Certain information included in Aztar's 1997 Form 10-K and other materials filed or to be filed by the company with the Securities and Exchange Commission ("SEC")(as well as information included in oral statements or other written statements made or to be made by the company including those made in Aztar's 1997 annual report) contains statements that are forward-looking. These include forward-looking statements relating to the following activities, among others: operation and expansion of existing properties, including future performance; redevelopment of the Las Vegas Tropicana and financing and/or concluding an arrangement with a partner for such redevelopment; other business development activities; refinancing of the company's indebtedness; and arrangement of new credit facilities. These activities involve important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the company. These include, but are not limited to, the following factors as well as other factors described from time to time in the company's reports filed with the SEC: construction and development factors, including zoning issues, environmental restrictions, soil conditions, weather and other hazards, site access matters and building permit issues; factors affecting leverage and debt service, including sensitivity to fluctuation in interest rates; access to available and feasible financing; regulatory and licensing approvals, third- party consents and approvals, and relations with partners, owners and other third parties; business and economic conditions; litigation, judicial actions and political uncertainties, including gaming legislation and taxation; and the effects of competition, including locations of competitors and operating and marketing competition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. F-49 SUMMARY OF SELECTED FINANCIAL DATA Aztar Corporation and Subsidiaries For the Five Years Ended January 1, 1998
1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Statement of Operations Data (in thousands) Revenues $782,357 $777,472 $572,869 $541,440 $518,762 Operating income (a) 67,392 58,943 42,701 69,407 37,419 Net interest income and expense (a) (60,517) (56,210) (47,801) (46,572) (21,191) Equity in unconsolidated partnership's loss (4,618) (4,793) (5,081) (4,169) (3,822) Income (loss) before extraordinary items 4,442 20,639 (4,994) 16,804 11,382 Extraordinary items -- -- -- (2,708) -- Net income (loss) 4,442 20,639 (4,994) 14,096 11,382 Common Stock Data (per share) Income (loss) before extraordinary items: Income (loss) per common share $ .08 $ .48 $ (.15) $ .43 $ .29 Income (loss) per common share assuming dilution .08 .46 (.15) .41 .27 Cash dividends declared -- -- -- -- -- Equity 9.82 9.76 9.40 9.65 9.29 Balance Sheet Data (in thousands at year end) Total assets $1,091,496 $1,119,582 $1,013,238 $915,359 $877,171 Long-term debt 491,932 527,006 496,439 430,212 404,086 Series B ESOP convertible preferred stock 6,593 6,022 5,459 4,711 3,905 Shareholders' equity 444,038 439,274 359,659 361,368 346,988 (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 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.
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, 1998 S-1 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AZTAR CORPORATION AND SUBSIDIARIES For the Years Ended January 1, 1998, January 2, 1997 and December 28, 1995 (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: 1997 $ 11,261 $ 12,944(a) $ 6,286(b) $ 17,919 1996 9,905 5,892(a) 4,536(b) 11,261 1995 10,720 3,611(a) 4,426(b) 9,905 Deferred income tax asset valuation allowance: 1997 $ 4,328 $ 1,206(a) $ 653(b) $ 4,881 1996 8,196 718(a) 4,586(c) 4,328 1995 11,572 287(a) 3,663(c) 8,196 Valuation allowance for interest differential on CRDA deposits 1997 $ 6,425 $ 569(a) $ 288(d) $ 6,706 1996 5,927 729(a) 231(d) 6,425 1995 9,233 -- 365(d) 5,927 2,941(e) (a) Charged to costs and expenses. (b) Related assets charged against the account. (c) Reflects reductions of $3,641,000 and $3,622,000 in 1996 and 1995, respectively, with a corresponding decrease in income tax expense. The remainder of the reductions in 1996 and 1995 represented charges of deferred tax assets against the valuation allowance account. (d) Reflects transfer to unamortized discount for the issuance of CRDA bonds. (e) 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, filed as Exhibit 10.4(d) to Aztar Corporation's 1996 Form 10-K and incorporated herein by reference. 10.5(a) Supplemental Reducing Revolving Loan Agreement, dated as of March 13, 1997, among Aztar Corporation, Adamar of New Jersey, Inc., Ramada Express, Inc. and the banks therein named; 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 April 3, 1997 and incorporated herein by reference. *Indicates a management contract or compensatory plan or arrangement. E-2 EXHIBIT INDEX - ------------- 10.5(b) First Amendment to Supplemental Reducing Revolving Loan Agreement, dated as of June 10, 1997, among Aztar Corporation, Adamar of New Jersey, Inc., Ramada Express, Inc. and the banks therein named; 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 July 3, 1997 and incorporated herein by reference. *10.6 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. *10.7(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. 10.7(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. 10.7(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. 10.7(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. 10.8(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. 10.8(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. 10.9 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. *Indicates a management contract or compensatory plan or arrangement. E-3 EXHIBIT INDEX - ------------- 10.10 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. 10.11 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. 10.12 Master Consent Agreement, dated July 18, 1989, by and among Ramada Inc., Adamar of Nevada, Hotel Ramada of Nevada, Adamar of New Jersey, Inc., Aztar Corporation, Tropicana Enterprises, Trop C.C. and the Jaffe Group, with attached exhibits, filed as Exhibit 10.50 to Aztar Corporation's Registration Statement No. 33-29562 and incorporated herein by reference. *10.13 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. *10.14 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. 10.15 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. *10.16 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. *10.17 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. *10.18 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. *Indicates a management contract or compensatory plan or arrangement. E-4 EXHIBIT INDEX - ------------- *10.19 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. 10.20 Option Agreement, dated February 2, 1998, between Aztar Corporation and parties constituting the Jaffe Group, filed as Exhibit 99.2 to Aztar Corporation's Form 8-K/A, dated February 3, 1998, 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-5 EX-11 2 EXHIBIT 11 AZTAR CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS For the Years Ended January 1, 1998, January 2, 1997 and December 28, 1995 ------------------------------------- (in thousands, except per share data)
1997 1996 1995 -------- -------- -------- Net income (loss) $ 4,442 $ 20,639 $ (4,994) Deduct: preferred stock dividends and losses on redemption (net of income tax benefits of $71, $99 and $128, credited to retained earnings) (634) (715) (639) -------- -------- -------- Income (loss) applicable to computations $ 3,808 $ 19,924 $ (5,633) ======== ======== ======== Weighted-average common shares applicable to net income(loss) per common share 45,121 41,121 38,013 Effect of dilutive securities: Stock option incremental shares 657 1,051 -- Assumed conversion of preferred stock 909 960 -- -------- -------- -------- 1,566 2,011 -- -------- -------- -------- Weighted-average common shares applicable to net income(loss) per common share assuming dilution in accordance with SFAS 128 46,687 43,132 38,013 Additional effect of dilutive securities for purposes of Exhibit 11: Stock option incremental shares -- -- 1,004 Assumed conversion of preferred stock -- -- 997 -------- -------- -------- -- -- 2,001 -------- -------- -------- Weighted-average common shares applicable to net income(loss) per common share assuming dilution for purposes of Exhibit 11 46,687 43,132 40,014 ======== ======== ======== Net income(loss) per common share $ .08 $ .48 $ (.15) ======== ======== ======== Net income(loss) per common share assuming dilution in accordance with SFAS 128 $ .08 $ .46 $ (.15) ======== ======== ======== Net income(loss) per common share assuming dilution for purposes of Exhibit 11 $ .08 $ .46 $ (.14) ======== ======== ========
EX-21 3 EXHIBIT 21 SUBSIDIARIES OF AZTAR CORPORATION The Company has no parent corporation. In addition to the subsidiaries listed below, the Company has eight 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 4 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, 1998 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 1, 1998 and January 2, 1997 and for each of the three years in the period ended January 1, 1998, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Phoenix, Arizona March 19, 1998 EX-27 5
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at January 1, 1998 and the Consolidated Statement of Operations for the year ended January 1, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JAN-1-1998 JAN-1-1998 46,129 0 62,052 17,919 6,779 118,818 1,174,806 271,927 1,091,496 124,729 491,932 6,593 0 491 443,547 1,091,496 51,776 782,357 54,736 408,476 37,990 12,944 62,543 6,875 (2,185) 4,442 0 0 0 4,442 .08 .08
EX-27 6
5 Restated Financial Data Schedule 1,000 9-MOS JAN-1-1998 OCT-2-1997 32,702 0 56,093 14,822 6,641 100,415 1,171,564 263,940 1,082,612 101,574 500,753 6,422 0 491 448,545 1,082,612 39,142 592,017 41,351 307,165 28,825 7,261 47,181 14,475 1,643 9,349 0 0 0 9,349 .20 .19
EX-27 7
5 Restated Financial Data Schedule 1,000 6-MOS JAN-1-1998 JUL-3-1997 43,200 0 54,333 15,018 7,161 109,648 1,173,892 258,195 1,103,051 115,980 509,805 6,316 0 491 445,268 1,103,051 25,849 390,143 27,327 203,116 18,772 5,205 31,555 8,276 (154) 6,106 0 0 0 6,106 .13 .12
EX-27 8
5 Restated Financial Data Schedule 1,000 3-MOS JAN-1-1998 APR-3-1997 31,783 0 49,996 12,300 6,818 94,920 1,165,449 247,165 1,092,340 100,134 518,613 6,175 0 489 441,310 1,092,340 12,732 189,756 13,206 100,768 9,248 2,154 15,801 1,763 (2,080) 2,677 0 0 0 2,677 .06 .05
EX-27 9
5 Restated Financial Data Schedule 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 51,299 777,472 53,249 421,212 39,505 5,892 58,577 2,733 (22,699) 20,639 0 0 0 20,639 .48 .46
EX-27 10
5 Restated Financial Data Schedule 1,000 9-MOS JAN-2-1997 SEP-26-1996 31,238 0 41,464 10,441 6,947 87,778 1,145,033 227,077 1,087,739 109,877 504,807 5,889 0 489 418,735 1,087,739 37,634 573,976 39,037 311,963 29,417 3,347 42,572 6,321 1,923 856 0 0 0 856 .01 .01
EX-27 11
5 Restated Financial Data Schedule 1,000 6-MOS JAN-2-1997 JUN-27-1996 29,623 0 34,949 10,183 7,176 81,328 1,116,589 218,060 1,063,728 99,135 548,813 5,770 0 424 361,717 1,063,728 24,881 369,699 25,615 201,462 18,055 2,114 28,245 3,973 761 809 0 0 0 809 .01 .01
EX-27 12
5 Restated Financial Data Schedule 1,000 3-MOS JAN-2-1997 MAR-28-1996 33,656 0 35,843 10,722 6,897 83,711 1,090,028 220,069 1,037,470 102,971 519,833 5,646 0 423 360,383 1,037,470 12,188 180,206 12,603 98,272 8,755 1,371 13,642 2,560 602 769 0 0 0 769 .02 .02
EX-27 13
5 Restated Financial Data Schedule 1,000 12-MOS DEC-28-1995 DEC-28-1995 26,527 0 31,230 9,905 6,591 73,134 1,065,435 211,755 1,013,238 102,068 496,439 5,459 0 422 359,237 1,013,238 41,906 572,869 43,782 311,594 34,591 3,611 51,052 (5,100) (5,187) (4,994) 0 0 0 (4,994) (.15) (.15)
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