-----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, WANdTVgtXXVgYhf7/clXyxYfjQ++cwShtFyMXgOXiVcwaoo5Hj6kk0TnKSRId48u tI/0DdV2iZeZ1tTHIM88Sw== 0000898430-96-002444.txt : 19960606 0000898430-96-002444.hdr.sgml : 19960606 ACCESSION NUMBER: 0000898430-96-002444 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951228 FILED AS OF DATE: 19960605 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AZTAR CORP CENTRAL INDEX KEY: 0000852807 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 860636534 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12092 FILM NUMBER: 96576814 BUSINESS ADDRESS: STREET 1: 2390 E CAMELBACK RD STE 400 CITY: PHOENIX STATE: AZ ZIP: 85016-3452 BUSINESS PHONE: 6023814100 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-K/A Amendment No. 1 (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1995 ---------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ---------------- Commission file number 1-5440 ---------------- AZTAR CORPORATION - ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 86-0636534 - ---------------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2390 East Camelback Road, Suite 400, Phoenix, Arizona 85016 - ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (602) 381-4100 --------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common stock, $.01 par value New York Preferred share purchase rights New York Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Facing Page (Continued) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was $289,490,013 at February 22, 1996 and is based on a closing price of $7.63 and 37,941,024 common shares outstanding. At February 22, 1996, the registrant had outstanding 38,341,106 shares of its common stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the registrant's 1996 definitive Proxy Statement, to be filed with the Commission, is incorporated by reference into this Form 10-K. The following cross-referenced index details the page location of such information. All other sections of the 1996 Proxy Statement are not required in Form 10-K and should not be considered a part thereof. Part and Item of the Form 10-K 1996 Proxy Statement - ------------------------------ -------------------- PART III -------- ITEM 10. Directors and Executive - ------- Officers of the Registrant Pages 2 and 3 under caption "Election of Directors of the Company" and page 5 under caption "Compliance with Section 16(a) of the Exchange Act" ITEM 11. Executive Compensation Pages 6 through 8 except - ------- under caption "Board Compensation Committee Report" ITEM 12. Security Ownership of - ------- Certain Beneficial Owners and Management Page 4 under captions "5% Beneficial Owners" and "Directors and Executive Officers" ITEM 13. Certain Relationships - ------- and Related Transactions Page 5 under caption "Transactions with Management and Others" 2 The financial statements, reported under Part II, Item 8. Financial Statements and Supplementary Data, are being resubmitted to correct maturities of long-term debt for the five years subsequent to December 28, 1995, as follows: Maturities of long-term debt for the five years subsequent to December 28, 1995 are as follows (in thousands): As Reported As Amended ------------ ---------- Year 1996 $ 466 $ 466 1997 439 439 1998 462 4,585 1999 403 26,653 2000 116,909 86,536 3 PART II ------- ITEM 8 - ------ The information required by Item 8 is included in this report on F-1 through F-28. 4 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 June 4, 1996 ----------------- ------------------------- ------------------ Registrant Robert M. Haddock Date Executive Vice President and Chief Financial Officer 5 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Aztar Corporation We have audited the consolidated balance sheets of Aztar Corporation and Subsidiaries as of December 28, 1995 and December 29, 1994, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 28, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aztar Corporation and Subsidiaries as of December 28, 1995 and December 29, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 28, 1995 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Phoenix, Arizona February 14, 1996 F-1 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 28, 1995 and December 29, 1994 ---------------------------------------- (in thousands, except share data) 1995 1994 --------- --------- Assets Current assets: Cash and cash equivalents $ 26,527 $ 43,861 Short-term investments -- 8,250 Accounts receivable, net 21,325 17,391 Refundable income taxes 1,261 723 Inventories 6,591 5,693 Prepaid expenses 9,417 9,992 Deferred income taxes 8,013 7,894 ---------- --------- Total current assets 73,134 93,804 Investments in and advances to unconsolidated partnership 11,467 12,627 Other investments 27,964 24,928 Property and equipment: Buildings, riverboats and equipment, net 711,454 635,678 Land 95,589 81,795 Construction in progress 46,102 37,965 Leased under capital leases, net 535 852 ---------- --------- 853,680 756,290 Deferred charges and other assets 46,993 27,710 ---------- --------- $1,013,238 $ 915,359 ========== ========= The accompanying notes are an integral part of these financial statements. F-2 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) December 28, 1995 and December 29, 1994 ---------------------------------------- (in thousands, except share data) 1995 1994 --------- --------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accruals $ 60,226 $ 39,447 Accrued payroll and employee benefits 18,012 15,467 Accrued interest payable 14,995 13,847 Income taxes payable 2,197 2,608 Current portion of long-term debt 466 666 Current portion of other long-term liabilities 6,172 636 ---------- --------- Total current liabilities 102,068 72,671 Long-term debt 496,439 430,212 Other long-term liabilities 30,699 21,986 Deferred income taxes 18,914 24,411 Contingencies and commitments Series B ESOP convertible preferred stock (redemption value $6,114 and $4,900) 5,459 4,711 Shareholders' equity: Common stock, $.01 par value (38,265,813 and 37,459,228 shares outstanding) 422 414 Paid-in capital 352,221 347,284 Retained earnings 24,922 30,555 Less: Treasury stock (17,027) (16,885) Unearned compensation (879) -- ---------- --------- Total shareholders' equity 359,659 361,368 ---------- --------- $1,013,238 $ 915,359 ========== ========= The accompanying notes are an integral part of these financial statements. F-3 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ----------------------------------- (in thousands, except per share data) 1995 1994 1993 Revenues --------- --------- --------- Casino $469,211 $443,392 $439,294 Rooms 40,543 41,514 32,248 Food and beverage 47,343 42,657 36,357 Other 15,772 13,877 10,863 -------- -------- -------- 572,869 541,440 518,762 Costs and expenses Casino 226,239 205,995 219,721 Rooms 24,967 25,268 19,495 Food and beverage 44,320 39,361 34,773 Other 10,250 7,753 6,737 Marketing 57,445 44,494 42,793 General and administrative 50,292 47,895 45,981 Utilities 13,605 13,556 12,328 Repairs and maintenance 20,986 19,905 19,953 Provision for doubtful accounts 3,611 3,102 1,566 Property taxes and insurance 19,927 17,781 16,729 Net rent 11,308 9,951 27,747 Depreciation and amortization 39,494 36,972 32,652 Preopening costs 7,724 -- 868 -------- -------- -------- 530,168 472,033 481,343 -------- -------- -------- Operating income 42,701 69,407 37,419 Interest income 3,251 3,139 24,172 Interest expense (51,052) (49,711) (45,363) -------- -------- -------- Income (loss) before other items, income taxes and extraordinary items (5,100) 22,835 16,228 Equity in unconsolidated partnership's loss (5,081) (4,169) (3,822) -------- -------- -------- Income (loss) before income taxes and extraordinary items (10,181) 18,666 12,406 Income taxes 5,187 (1,862) (1,024) -------- -------- -------- Income (loss) before extraordinary items (4,994) 16,804 11,382 Extraordinary items -- (2,708) -- -------- -------- -------- Net income (loss) $ (4,994) $ 14,096 $ 11,382 ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-4 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (continued) For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ----------------------------------- (in thousands, except per share data) 1995 1994 1993 -------- -------- -------- Earnings per common and common equivalent share: Income (loss) before extraordinary items $ (.14) $ .42 $ .28 Extraordinary items -- (.07) -- -------- -------- -------- Net income (loss) $ (.14) $ .35 $ .28 ======== ======== ======== Earnings per common share assuming full dilution: Income (loss) before extraordinary items * $ .41 $ .27 Extraordinary items * (.07) -- -------- -------- Net income (loss) * $ .34 $ .27 ======== ======== Weighted average common shares applicable to: Earnings per common and common equivalent share 39,026 38,196 38,367 Earnings per common share assuming full dilution * 39,224 39,429 * Anti-dilutive The accompanying notes are an integral part of these financial statements. F-5 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 -------------- (in thousands) 1995 1994 1993 ---------- ---------- ---------- Cash Flows from Operating Activities Net income (loss) $ (4,994) $ 14,096 $ 11,382 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 42,808 39,529 34,577 Provision for losses on accounts receivable 3,611 3,102 1,566 Loss on reinvestment obligation -- 950 991 Interest income -- -- 1,889 Rent expense (636) (5) (880) Distribution in excess of equity in income of partnership 1,160 1,149 1,449 Deferred income taxes (5,616) (3,043) (1,280) Change in assets and liabilities: (Increase) decrease in accounts receivable (7,545) (1,577) (1,442) (Increase) decrease in refundable income taxes (538) 1,339 -- (Increase) decrease in inventories and prepaid expenses (516) (1,121) (1,969) Increase (decrease) in accounts payable, accrued expenses and income taxes payable 25,066 1,434 1,955 Other items, net 6,375 5,780 2,087 --------- --------- --------- Net cash provided by (used in) operating activities 59,175 61,633 50,325 --------- --------- --------- Cash Flows from Investing Activities (Increase) decrease in invested funds 8,250 (8,250) -- Payments received on TropWorld second mortgage -- -- 24,400 Payments received on other notes receivable 1,009 965 2,191 Reduction in other investments 11,950 -- -- Increase in TropWorld second mortgage -- -- (24,400) Increase in other notes receivable -- -- (419) Purchases of property and equipment (135,863) (54,442) (77,804) Acquisition of AREI/AGP partnership interests, net of cash acquired -- -- (61,859) Additions to other long-term assets (28,463) (6,682) (6,391) --------- --------- --------- Net cash provided by (used in) investing activities $(143,117) $ (68,409) $(144,282) --------- --------- --------- The accompanying notes are an integral part of these financial statements. F-6 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 -------------- (in thousands) 1995 1994 1993 --------- --------- --------- Cash Flows from Financing Activities Proceeds from issuance of long-term debt $ 83,600 $254,795 $ 35,000 Proceeds from issuance of common stock 1,977 274 2,149 Principal payments on long-term debt (17,837) (231,507) (2,157) Debt issuance costs (80) (11,473) (969) Preferred stock dividend (754) (773) (787) Redemption of preferred stock (298) (230) (131) -------- -------- -------- Net cash provided by (used in) financing activities 66,608 11,086 33,105 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (17,334) 4,310 (60,852) Cash and cash equivalents at beginning of year 43,861 39,551 100,403 -------- -------- -------- Cash and cash equivalents at end of year $ 26,527 $ 43,861 $ 39,551 ======== ======== ======== Supplemental Cash Flow Disclosures Acquisition of AREI/AGP partnership interests: Working capital, other than cash $ -- $ -- $ 3,370 Notes receivable -- -- 242,605 Building and equipment -- -- (307,582) Capital lease assets, net -- -- 6,703 Long-term debt -- -- (5,682) Other long-term liabilities -- -- (1,273) -------- -------- -------- Net cash used in acquisition -- -- (61,859) Summary of non-cash investing and financing activities: Capital lease obligations incurred for property and equipment $ 41 $ 75 $ 385 Other long-term liabilities incurred for deferred charges and other assets 13,400 -- -- Other long-term liabilities incurred for property and equipment 535 -- -- Tax benefit from stock options and preferred stock dividend 907 722 431 Issuance of restricted stock 2,189 -- -- Forfeiture of restricted stock 142 -- -- Cash flow during the year for the following: Interest paid, net of amount capitalized $ 47,758 $ 47,087 $ 43,160 Income taxes paid 471 2,065 1,997 The accompanying notes are an integral part of these financial statements. F-7 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ------------- (in thousands) Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total -------- -------- --------- --------- --------- -------- Balance, December 31, 1992 $ 410 $344,574 $ 5,787 $(16,885) $ (137) $333,749 Stock options exercised 4 2,145 2,149 Tax benefit from stock options exercised 246 246 Preferred stock dividend, net of income tax benefit (610) (610) Amortization of unearned compensation 72 72 Net income 11,382 11,382 -------- -------- -------- -------- -------- -------- Balance, December 30, 1993 414 346,965 16,559 (16,885) (65) 346,988 Stock options exercised 274 274 Tax benefit from stock options exercised 45 45 Reduction in income tax valuation allowance 520 520 Preferred stock dividend, net of income tax benefit (620) (620) Amortization of unearned compensation 65 65 Net income 14,096 14,096 -------- -------- -------- -------- -------- -------- Balance, December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368 ======== ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-8 AZTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued) For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993 ------------- (in thousands) Unearned Common Paid-in Retained Treasury Compen- Stock Capital Earnings Stock sation Total ------- -------- --------- --------- --------- -------- Balance, December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368 Stock options exercised 5 1,972 1,977 Issuance of restricted stock 3 2,186 (2,189) -- Tax benefit from stock options exercised 779 779 Preferred stock dividend, net of income tax benefit (639) (639) Forfeiture of restricted stock (142) 142 -- Amortization of unearned 1,168 1,168 compensation Net income (loss) (4,994) (4,994) ------- -------- -------- -------- -------- -------- Balance, December 28, 1995 $ 422 $352,221 $ 24,922 $(17,027) $ (879) $359,659 ======= ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidated Statements Aztar Corporation ("Aztar" or the "Company") was incorporated in Delaware in June 1989 to operate the gaming business of Ramada Inc. ("Ramada") after the restructuring of Ramada (the "Restructuring"). The Restructuring involved the disposition of Ramada's hotel and restaurant businesses with Ramada's shareholders retaining their interest in the gaming business. As part of the Restructuring, the gaming business and certain other assets and liabilities of Ramada were transferred to Aztar, and a wholly-owned subsidiary of New World Hotels (U.S.A.), Inc. was merged with Ramada (the "Merger"). In the Merger, each share of Ramada common stock was converted into the right to receive $1.00 and one share of Aztar common stock. For accounting purposes Aztar is treated as the continuing accounting entity that is the successor to the historical Ramada and that has discontinued the hotel and restaurant businesses. The Company operates casino hotels in Atlantic City, New Jersey, at TropWorld and in Las Vegas and Laughlin, Nevada, at Tropicana and Ramada Express, respectively. The Company began operations of casino riverboats on April 28, 1995, in Caruthersville, Missouri, and on December 7, 1995, in Evansville, Indiana. A substantial portion of the Company's consolidated revenues and assets are concentrated at TropWorld. The consolidated financial statements include the accounts of Aztar and all of its controlled subsidiaries and partnerships. All subsidiary companies are wholly owned. In consolidating, all material intercompany transactions are eliminated. The Company uses a 52/53 week fiscal year ending on the Thursday nearest December 31, which includes 52 weeks in 1995, 1994 and 1993. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents Highly liquid investments purchased with an original maturity of three months or less are classified as cash equivalents. These instruments are stated at cost, which approximates fair value because of their short maturity. Short-term Investments Short-term investments purchased with an original maturity of over three months but less than one year are stated at cost, which approximates fair value because of their short maturity. Short-term investments at December 29, 1994, consisted of a bank certificate of deposit. F-10 Inventories Inventories, which consist primarily of food, beverage and operating supplies, are stated at the lower of cost or market value. Costs are determined using the first-in, first-out method. Advertising Costs Costs for advertising are expensed as incurred, except costs for direct- response advertising, which are capitalized and amortized over the period of the related program. Direct-response advertising costs consist primarily of mailing costs associated with direct-mail programs. Capitalized advertising costs, included in prepaid expenses, were immaterial at December 28, 1995 and December 29, 1994. Advertising costs that were expensed during the year were $12,951,000 in 1995, $9,001,000 in 1994 and $8,892,000 in 1993. Other Investments The Casino Reinvestment Development Authority ("CRDA") bonds are classified as held-to-maturity securities and are carried at amortized cost. Property and Equipment Property and equipment are stated at cost. During construction, the Company capitalizes interest and other direct and indirect development costs. Interest is capitalized monthly by applying the effective interest rate on certain borrowings to the average balance of expenditures. The interest that was capitalized during the year was $5,290,000 in 1995, $2,664,000 in 1994 and $3,491,000 in 1993. Depreciation and amortization are computed by the straight-line method based upon the following useful lives: buildings and improvements, 3-40 years; riverboats, barge, docking facilities and improvements, 3-25 years; furniture and equipment, 3-15 years; and leasehold improvements, shorter of lease term or asset useful life. Accumulated depreciation and amortization on buildings, riverboats and equipment was $202,897,000 at December 28, 1995 and $172,812,000 at December 29, 1994. Improvements, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance are expensed. The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss, if any, on disposition is recognized in income as realized. Deferred Charges Debt issuance costs are capitalized as incurred and amortized using the interest method. Capitalized debt issuance costs, net of accumulated amortization of $3,012,000 and $1,147,000, were $15,063,000 and $16,847,000 at December 28, 1995 and December 29, 1994, respectively. F-11 Costs incurred to obtain initial gaming licenses to operate a casino are capitalized as incurred and amortized evenly over ten years beginning with the commencement of operations; subsequent renewal costs are amortized evenly over the renewal period. Deferred licensing costs consist primarily of payments or obligations to civic and community organizations, legal and consulting fees, application and selection fees with associated investigative costs and direct internal salaries and related costs of development personnel. Deferred licensing costs in connection with initial gaming licenses of open and operating locations, net of accumulated amortization of $1,723,000 and $1,265,000, were $19,951,000 and $1,092,000 at December 28, 1995 and December 29, 1994, respectively. Preopening costs directly related to the opening of a gaming operation or major addition to a gaming operation are capitalized as incurred and expensed in the period the related facility commences operations. Preopening costs consist primarily of salaries and wages, marketing, temporary office expenses, professional fees and training costs. There were no capitalized preopening costs at December 28, 1995. Capitalized preopening costs were $817,000 at December 29, 1994. The Company is actively pursuing new development opportunities in certain gaming jurisdictions, as well as in jurisdictions in which gaming has not been approved. Development costs associated with these pursuits are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company has been selected as the operator of a new gaming facility, has applied for a gaming license or has obtained rights to a specific site. Development costs incurred subsequent to these criteria being met are capitalized. Development costs consist of deferred licensing costs and site acquisition costs. In jurisdictions in which gaming has not been approved, only site acquisition costs are capitalized. In the event a project is later determined not to be viable or the Company is not licensed to operate a facility at a site, the capitalized costs related to this project or site would be expensed. At December 28, 1995 and December 29, 1994, the Company had capitalized costs of $1,458,000 and $2,856,000, respectively, related to various development projects. It is reasonably possible that management's estimate of viability with regard to development projects may change in the near term. Equity Instruments The fair value based method of accounting is used for equity instruments issued to nonemployees for goods or services. The intrinsic value based method of accounting is used for stock-based employee compensation plans. F-12 Revenue Recognition Casino revenue consists of gaming win net of losses. Revenues exclude the retail value of complimentary food and beverage, accommodations and other goods and services provided to customers. The estimated costs of providing such complimentaries have been classified as casino expenses through interdepartmental allocations as follows (in thousands): 1995 1994 1993 -------- -------- -------- Rooms $ 19,329 $ 17,767 $ 18,992 Food and beverage 34,369 33,610 33,287 Other 3,894 4,741 6,666 -------- -------- -------- $ 57,592 $ 56,118 $ 58,945 ======== ======== ======== Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share Earnings per common and common equivalent share are computed based on the weighted average number of common shares outstanding after consideration of the dilutive effect of restricted stock and stock options. Earnings per common share, assuming full dilution, are computed based on the weighted average number of common shares outstanding after consideration of the dilutive effect of restricted stock, stock options and the assumed conversion of the preferred stock at the stated rate. In calculating the 1995, 1994 and 1993 earnings per share for both computations, dividends of $639,000, $620,000 and $610,000, respectively, on the Series B ESOP Convertible Preferred Stock are deducted in arriving at income applicable to the common stock. The 1995, 1994 and 1993 dividends are net of income tax benefits of $128,000, $157,000 and $185,000, respectively. Reclassifications Certain reclassifications have been made in the 1994 Consolidated Balance Sheet and the 1994 and 1993 Consolidated Statements of Operations in order to be comparable with the 1995 presentations. F-13 NOTE 2. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, long-term investments and trade accounts receivable. The Company places its cash and temporary cash investments with high-credit-quality financial institutions. At times, such investments may be in excess of the FDIC and SIPC insurance limits. The Company had certificates of deposit at one financial institution that were classified as other investments at December 28, 1995 and as short-term investments at December 29, 1994. TropWorld has a concentration of credit risk in the northeast region of the U.S. Approximately 40% of the receivables at the Nevada operations are concentrated in Asian and Latin American customers and the remainder of their receivables are concentrated in California and the southwest region of the U.S. As a general policy, the Company does not require collateral for these receivables. At December 28, 1995 and December 29, 1994, the net receivables at TropWorld were $9,503,000 and $7,951,000, respectively, and the net receivables at Tropicana and Ramada Express combined were $11,395,000 and $9,394,000, respectively. An allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses; however, it is reasonably possible that this estimate could change in the near term. At December 28, 1995 and December 29, 1994, the allowance for doubtful accounts was $9,905,000 and $10,720,000, respectively. NOTE 3. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIP The Company's investment in unconsolidated partnership is a noncontrolling partnership interest of 50% in Tropicana Enterprises, a Nevada general partnership that owns the real property and certain personal property that the Company leases in the operation of Tropicana. The Company uses the equity method of accounting for this investment and in connection with the lease expensed rents of $17,098,000 in 1995, $15,267,000 in 1994 and $12,684,000 in 1993, of which 50% was eliminated in consolidation. F-14 Summarized balance sheet information and operating results for the unconsolidated partnership are as follows (in thousands): 1995 1994 -------- -------- Current assets $ 835 $ 636 Noncurrent assets 73,440 77,427 Current liabilities 915 983 Noncurrent liabilities 68,845 71,339 1995 1994 1993 -------- -------- -------- Revenues $ 17,166 $ 15,360 $ 12,815 Operating expenses (2,743) (2,748) (2,755) -------- -------- -------- Operating income 14,423 12,612 10,060 Interest expense (6,323) (4,492) (3,793) -------- -------- -------- Net income $ 8,100 $ 8,120 $ 6,267 ======== ======== ======== The Company's share of the above operating results, after intercompany eliminations, is as follows (in thousands): 1995 1994 1993 -------- -------- -------- Equity in unconsolidated partnership's loss $ (5,081) $ (4,169) $ (3,822) NOTE 4. OTHER INVESTMENTS At December 28, 1995 and December 29, 1994, other investments consisted of (in thousands): 1995 1994 -------- -------- CRDA deposits, net of a valuation allowance of $5,927 and $9,233 $16,596 $22,089 CRDA bonds, net of an unamortized discount of $1,420 and $1,311 3,118 2,839 Certificate of deposit 8,250 -- ------- ------- $27,964 $24,928 ======= ======= The Company deposits funds with the CRDA to satisfy a New Jersey assessment based upon its casino revenues. Deposits with the CRDA bear interest at two-thirds of market rates resulting in a fair value lower than cost. If not used for other purposes, the CRDA deposits are used to invest in bonds issued by the CRDA as they become available that also bear interest at two- thirds of market rates. The CRDA bonds have various contractual maturities that range from 29 to 50 years. Actual maturities may differ from contractual maturities because of prepayment rights. F-15 The Company has executed an agreement with the CRDA for approximately $25,000,000 in funding in connection with an expansion project at TropWorld. Construction of the expansion commenced in February 1995 and is scheduled for completion in May 1996. The expansion will consist primarily of a new 604-room hotel tower, with additional restaurant and support facilities in the existing operation. The Company receives funds from the CRDA based on expenditures made for the project to the extent that the Company has available funds on deposit with the CRDA that qualify for this funding. During 1995, the Company received approximately $11,900,000 in funding from the CRDA under this agreement. At December 28, 1995, the Company had approximately $900,000 in available deposits with the CRDA that qualified. The balance of funding will result from portions of future CRDA deposits. The Company has a certificate of deposit which is pledged as collateral for a $13,450,000 letter of credit. The letter of credit was obtained in connection with the Company's obligation to make certain payments over the next five years to the City of Evansville, Indiana as well as other civic and community organizations. The letter of credit will be reduced as certain of these payments are made and the collateral will be released as the letter of credit is reduced below $8,250,000. NOTE 5. LONG-TERM DEBT At December 28, 1995 and December 29, 1994, long-term debt included (in thousands): 1995 1994 -------- -------- 11% Senior Subordinated Notes Due 2002; redeemable beginning October 1, 1997 at 103.143% $200,000 $200,000 13 3/4% Senior Subordinated Notes Due 2004 ($180,000 principal amount, 14% effective interest rate); redeemable beginning October 1, 1999 at 106.875%; net of unamortized discount 177,768 177,650 Reducing revolving credit note; floating rate, 8.39% at December 28, 1995; matures December 31, 1999 116,600 50,000 Other notes payable; 7% to 14.6%; maturities to 2002 1,814 2,115 Obligations under capital leases 723 1,113 -------- -------- 496,905 430,878 Less current portion (466) (666) -------- -------- $496,439 $430,212 ======== ======== Maturities of long-term debt for the five years subsequent to December 28, 1995 are as follows (in thousands): Year 1996 $ 466 1997 439 1998 4,585 1999 26,653 2000 86,536 F-16 The 11% Senior Subordinated Notes (the "11% Notes") are due on October 1, 2002. Interest on the 11% Notes is payable semiannually on April 1 and October 1. The 11% Notes are redeemable at the option of the Company, in whole or in part, on or after October 1, 1997, at prices from 103.143% of the principal amount plus interest declining to 100% plus interest beginning October 1, 1999. The 13 3/4% Senior Subordinated Notes (the "13 3/4% Notes") are due on October 1, 2004. Interest on the 13 3/4% Notes is payable semiannually on April 1 and October 1. The 13 3/4% Notes are redeemable at the option of the Company, in whole or in part, on or after October 1, 1999, at prices from 106.875% of the principal amount plus interest declining to 100% plus interest beginning October 1, 2003. The 11% Notes and 13 3/4% Notes, ranked pari passu, are general unsecured obligations of the Company and are subordinated in right of payment to all present and future Senior indebtedness (as defined) of the Company. Upon change of control of the Company, the holders of the 11% Notes and 13 3/4% Notes would have the right to require repurchase of the respective notes at par plus accrued interest. Certain covenants in the 11% Notes and 13 3/4% Notes limit the ability of the Company to incur indebtedness or engage in mergers, consolidations or sales of assets. The reducing revolving credit note (the "Bank Credit Facility") matures on December 31, 1999. The beginning maximum amount of the Bank Credit Facility was approximately $207,000,000. The maximum amount of the Bank Credit Facility reduces quarterly beginning on March 31, 1996 in the annual amounts of $25,000,000 in 1996 and $35,000,000 in each year thereafter until maturity. The Bank Credit Facility is collateralized by all the property of TropWorld, Ramada Express and the riverboat casino operations and, with certain exceptions, the stock of the Company's subsidiaries. Interest is computed on the outstanding principal balance based upon, at the Company's option, a one-, two-, three- or six-month Eurodollar rate plus a margin ranging from 1.25% to 2.75%, or the prime rate plus a margin ranging from zero to 1.50%. The applicable margin is dependent upon the Company's outstanding indebtedness (as defined) and operating cash flow. Effective February 16, 1996, the margin was at the highest level. Interest computed based upon the Eurodollar rate is payable quarterly or on the last day of the applicable Eurodollar interest period, if earlier. Interest computed based upon the prime rate is payable quarterly. The Company incurs a commitment fee ranging from 0.375% to 0.5% per annum on the unused portion of the Bank Credit Facility. The reducing revolving loan agreement governing the Bank Credit Facility (the "Loan Agreement") imposes various restrictions on the Company, including limitations on its ability to incur additional debt, commit funds to maintenance capital expenditures (as defined), merge or sell assets. The Loan Agreement limits the Company on its ability to commit funds to new venture capital expenditures (as defined) for a single project in excess of $50,000,000 with the following exceptions: (i) a riverboat casino project in Evansville, Indiana; (ii) a riverboat casino project in Caruthersville, Missouri; (iii) a hotel tower expansion project at TropWorld and (iv) up to $50,000,000 in a certain type of new venture entity. The permitted new venture capital expenditures have certain individual project maximum amounts and there is a certain limitation in the aggregate. The Loan Agreement also prohibits dividends on the Company's common stock, other than those payable in common stock, and repurchases of the Company's common F-17 stock with certain limited exceptions. In addition, the Loan Agreement contains certain quarterly financial tests, including a minimum net worth, a minimum debt service coverage ratio and a maximum debt to operating cash flow ratio. The maximum debt to operating cash flow financial test was waived at December 28, 1995. This maximum debt to operating cash flow ratio as calculated under the Loan Agreement was 5.26 to 1 at December 28, 1995 and the allowable ratio decreases to 3.75 to 1 at January 2, 1997. NOTE 6. LEASE OBLIGATIONS The Company is a lessee under a number of noncancelable lease agreements involving land, buildings, leasehold improvements and equipment, some of which provide for contingent rentals based on revenues, the consumer price index and/or interest rate fluctuations. The leases extend for various periods up to 16 years and generally provide for the payment of executory costs (taxes, insurance and maintenance) by the Company. Certain of these leases have provisions for renewal options ranging from 1 to 15 years, primarily under similar terms, and/or options to purchase at various dates. Properties leased under capital leases are as follows (in thousands): 1995 1994 -------- -------- Furniture and equipment $ 9,393 $ 9,451 Less accumulated amortization (8,858) (8,599) -------- -------- $ 535 $ 852 ======== ======== Amortization of furniture and equipment leased under capital leases, computed on a straight-line basis, was $299,000 in 1995, $289,000 in 1994 and $1,899,000 in 1993. Minimum future lease obligations on long-term, noncancelable leases in effect at December 28, 1995 are as follows (in thousands): Year Capital Operating ---- -------- --------- 1996 $ 227 $ 9,807 1997 160 9,484 1998 146 9,070 1999 146 8,788 2000 146 8,508 Thereafter 37 77,471 -------- -------- 862 $123,128 ======== Amount representing interest (139) -------- Net present value 723 Less current portion (180) -------- Long-term portion $ 543 ======== The above net present value is computed based on specific interest rates determined at the inception of the leases. F-18 Net rent expense is detailed as follows (in thousands): 1995 1994 1993 -------- -------- -------- Minimum rentals $ 7,618 $ 8,121 $ 30,565 Contingent rentals 3,690 1,830 7,512 Less: Minimum lease income -- -- (2,773) Maintenance reimbursement -- -- (7,557) -------- -------- -------- $ 11,308 $ 9,951 $ 27,747 ======== ======== ======== NOTE 7. OTHER LONG-TERM LIABILITIES At December 28, 1995 and December 29, 1994, other long-term liabilities consisted of (in thousands): 1995 1994 -------- -------- Accrued rent expense $ 13,043 $ 13,679 Obligation to City of Evansville and other civic and community organizations 13,400 -- Deferred compensation and retirement plans 9,739 8,789 Las Vegas Boulevard beautification assessment 535 -- Deferred income 154 154 -------- -------- 36,871 22,622 Less current portion (6,172) (636) -------- -------- $ 30,699 $ 21,986 ======== ======== NOTE 8. REDEEMABLE PREFERRED STOCK A series of preferred stock consisting of 100,000 shares has been designated Series B ESOP Convertible Preferred Stock (the "ESOP Stock") and those shares were issued on December 20, 1989, to the Company's Employee Stock Ownership Plan (the "ESOP"). The ESOP purchased the shares for $10,000,000 with funds borrowed from a subsidiary of the Company. These funds are repayable in even semiannual payments of principal and interest at 13 1/2% per year over a 10-year term. During 1995, 1994 and 1993, respectively, 2,797 shares, 2,206 shares and 1,203 shares were redeemed primarily in connection with employee terminations and at December 28, 1995, cumulative redemptions totaled 7,322 shares. The ESOP Stock has an annual dividend rate of $8.00 per share per annum payable semiannually in arrears. These shares have no voting rights except under certain limited, specified conditions. Shares not allocated to participant accounts and those shares not vested may be redeemed at $100 per share. Shares may be converted into common stock at $9.46 and have a liquidation preference of $100 per share. F-19 The shares that have been allocated to the ESOP participant accounts and have vested are redeemable at the higher of appraised value, conversion value or $100 per share, by the participant upon termination. The excess of the redemption value of the ESOP Stock over the carrying value is charged to retained earnings upon redemption. In the event of default in the payment of dividends on the ESOP Stock for six consecutive semiannual periods, each outstanding share would have one vote per share of common stock into which the preferred stock is convertible. NOTE 9. CAPITAL STOCK The Company is authorized to issue 10,000,000 shares of preferred stock, par value $.01 per share, issuable in series as the Board of Directors may designate. Approximately 40,000 shares of preferred stock have been designated Series A Junior Participating Preferred Stock but none have been issued. The Company is authorized to issue 100,000,000 shares of common stock with a par value of $.01 per share. Shares issued were 42,222,646 at December 28, 1995, and 41,427,819 at December 29, 1994. Common stock outstanding was net of 3,956,833 and 3,968,591 treasury shares at December 28, 1995 and December 29, 1994, respectively. One preferred stock purchase right (a "Right") is attached to each share of the Company's common stock. Each Right will entitle the holder, subject to the occurrence of certain events, to purchase a unit with no par value (a "Unit") consisting of one one- thousandth of a share of Series A Junior Participating Preferred Stock at a purchase price of $40.00 per Unit subject to adjustment. The Rights will expire in December 1999 if not earlier redeemed by the Company at $.01 per Right. The Company issued 292,000 shares of restricted common stock in 1995 to certain executive officers and key employees; however, 18,000 of these shares were forfeited in 1995. The restrictions on 138,000 of the unforfeited shares will lapse over a three-year period commencing on the date of issuance. The restrictions on 102,000 of the unforfeited shares lapsed during 1995 after the common stock price hit certain performance targets. The restrictions on the remaining 34,000 of unforfeited shares will lapse if the common stock price closes at or above $10.00 per share for ten consecutive trading days. Compensation expense in connection with this issuance was $1,168,000 in 1995. Compensation expense in connection with prior issuances of restricted common stock were $65,000 and $72,000 in 1994 and 1993, respectively. In accordance with the Merger agreement, 666,572 shares of common stock that had not been claimed by the shareholders of Ramada were returned to the Company in December 1990 to be held as treasury shares until claimed. During 1995, 1994 and 1993, respectively, 29,758, 23,551 and 42,519 shares were claimed; the balance of unclaimed shares was 393,448 as of December 28, 1995. During 1990, the Board of Directors authorized the Company to make discretionary repurchases of up to 4,000,000 shares of its common stock from time to time in the open market or otherwise and at December 28, 1995, there remains 591,900 shares that could be repurchased under this authority. No shares were repurchased under this program in 1995, 1994 or 1993. Repurchased and forfeited shares are stated at cost and held as treasury shares to be used for general corporate purposes. F-20 Changes in the number of common shares reserved under the Company's stock option plan for directors who are not employees of the Company ("Nonemployee Director Stock Option Plan") are as follows (in thousands of shares): Number of Price Range Shares of Options --------- ----------- Balance, December 31, 1992 62 $5.50-$6.75 Granted 9 $6.75 -------- Balance, December 30, 1993 71 $5.50-$6.75 Granted 13 $6.00-$6.75 Cancelled, expired or surrendered (8) $5.50-$6.75 -------- Balance, December 29, 1994 76 $5.50-$6.75 Granted 9 $9.63 -------- Balance, December 28, 1995 85 $5.50-$9.63 ======== All options granted under the Nonemployee Director Stock Option Plan are immediately exercisable on the date of grant and expire ten years from the date of grant. At December 28, 1995, December 29, 1994 and December 30, 1993, common shares reserved for future grants of options under this plan were 165,000, 174,000 and 179,000, respectively. Changes in the number of common shares reserved under the Company's employee stock option plans are as follows (in thousands of shares): Number of Price Range Shares of Options --------- ----------- Balance, December 31, 1992 3,833 $3.19-$8.15 Granted 50 $7.63 Exercised (339) $3.19-$8.15 Cancelled, expired or surrendered (42) $6.49-$8.15 -------- Balance, December 30, 1993 3,502 $3.19-$8.15 Granted 110 $5.88-$7.00 Exercised (77) $3.19-$5.00 Cancelled, expired or surrendered (57) $5.00-$7.38 -------- Balance, December 29, 1994 3,478 $3.19-$8.15 Granted 670 $7.00-$9.25 Exercised (503) $3.19-$8.15 Cancelled, expired or surrendered (43) $6.05-$8.15 -------- Balance, December 28, 1995 3,602 $3.19-$9.25 ======== At December 28, 1995, December 29, 1994 and December 30, 1993, options exercisable under the Company's employee stock option plans were 2,842,000, 3,289,000 and 3,077,000, respectively; shares reserved for future grants were 844,000, 1,745,000 and 1,797,000, respectively. In addition to the common shares reserved under stock option plans at December 28, 1995, the Company has 980,000 common shares reserved for the conversion of the ESOP Stock. The Company also has 40,563 shares of preferred stock reserved for exercise of the Rights. F-21 NOTE 10. BENEFIT PLANS The Company has a defined benefit pension plan, which is not currently funded, for certain former executive employees. The Company has a nonqualified defined benefit retirement plan, which is not required to be funded by the Company, for certain senior executives. The Company has a defined contribution savings plan that covers substantially all employees who are not covered by a collective bargaining unit. Contributions to the savings plan are discretionary. Total pension and savings plan expense was $822,000 for 1995, $782,000 for 1994 and $689,000 for 1993. The Company also contributed $2,305,000, $2,182,000 and $1,990,000 in 1995, 1994 and 1993, respectively, to trusteed pension plans under various collective bargaining agreements. The Company has a deferred compensation plan for designated executives and a similar plan for outside directors. The plans provide for the payment of benefits commencing at retirement. The Company is substantially funding the plans through the purchase of life insurance. Net expense recognized in 1995, 1994 and 1993 was $183,000, $183,000 and $180,000, respectively. The Company's ESOP covers substantially all non-union employees. The Company will make contributions to the ESOP so that, after the dividends are paid on the Company's ESOP Stock, the ESOP can make its debt service payments to the Company. Cash dividends and contributions, respectively, paid to the ESOP were $754,000 and $1,121,000 in 1995, $773,000 and $1,102,000 in 1994 and $787,000 and $1,088,000 in 1993. Compensation expense recognized in 1995, 1994 and 1993, respectively, was $1,107,000, $1,214,000 and $1,311,000. NOTE 11. INCOME TAXES The (provision) benefit for income taxes before extraordinary items is comprised of (in thousands): 1995 1994 1993 Current: -------- -------- -------- Federal $ (429) $ (4,588) $ (2,231) State -- (317) (73) -------- -------- -------- (429) (4,905) (2,304) Deferred: -------- -------- -------- Federal 1,170 2,174 378 State 4,446 869 902 -------- -------- -------- 5,616 3,043 1,280 -------- -------- -------- $ 5,187 $ (1,862) $ (1,024) ======== ======== ======== The Company is responsible, with certain exceptions, for the taxes of Ramada through December 20, 1989. The Internal Revenue Service has completed its examination of the income tax returns for the years 1986 and 1987. Ramada has signed a partial agreement for those two years and has filed a petition with the U.S. Tax Court for two remaining issues. Management expects those two issues to be resolved on satisfactory terms prior to trial. The Internal Revenue Service is examining the income tax returns for the years 1988 through 1993. The New Jersey Division of F-22 Taxation is examining the income tax returns for the years 1986 through 1989. Management believes that adequate provision for income taxes and interest has been made in the financial statements. In connection with the Internal Revenue Service examinations of the years 1986 through 1989, management has been conservative in providing for amounts that could be due upon settlement. It is reasonably possible that these examinations could be favorably settled in the near term. General business credits are taken as a reduction of the provision for federal income taxes during the year such credits become available. The following table provides a reconciliation between the federal statutory rates and the (provision) benefit for income taxes when both are expressed as a percentage of pretax income. 1995 1994 1993 -------- -------- -------- Tax (provision) benefit at statutory rate 35.0 % (35.0)% (35.0)% (Increase) decrease in tax resulting from: State income taxes (7.2) 2.5 4.3 Contributions and gifts (2.4) (.7) (.6) Disallowance of business meals (13.5) (6.7) (4.1) Lobbying and nondeductible dues (2.1) -- -- Restricted stock and nonqualified stock options .7 .7 .7 IRS examination .2 (4.1) (7.9) General business credits 4.1 2.2 4.2 Change in valuation allowance 35.6 31.4 30.3 Other, net .5 (.3) (.2) ------- ------- ------- 50.9 % (10.0)% (8.3)% ======= ======= ======= The income tax effects of loss carryforwards, tax credit carryforwards and temporary differences between financial and income tax reporting that give rise to the deferred income tax assets and liabilities at December 28, 1995 and December 29, 1994, are as follows (in thousands): 1995 1994 --------- --------- Net operating loss carryforward $ 18,015 $ 15,266 Accrued rent expense 5,415 4,840 Accrued bad debt expense 4,476 5,255 Accrued compensation 5,134 4,705 Accrued liabilities 3,976 2,704 General business credit carryforward 7,021 6,851 -------- -------- Gross deferred tax assets 44,037 39,621 -------- -------- Deferred tax asset valuation allowance (8,196) (11,572) -------- -------- Other (2,049) (743) Partnership investment (5,291) (5,250) Depreciation and amortization (17,958) (17,129) Ramada tax sharing agreement (21,444) (21,444) -------- -------- Gross deferred tax liabilities (46,742) (44,566) -------- -------- Net deferred tax liabilities $(10,901) $(16,517) ======== ======== F-23 Gross deferred tax assets are reduced by a valuation allowance. Realization of the net deferred tax asset at December 28, 1995, is dependent on generating sufficient taxable income prior to expiration of the net operating loss carryforward. Although realization is not assured, management believes it is more likely than not that all of the net deferred tax asset will be realized. The beginning-of-year valuation allowances were reduced during 1995, 1994 and 1993 which caused a decrease in income tax expense of $3,622,000, $6,286,000, and $3,878,000, respectively. In addition, $520,000 that was included in the December 30, 1993 valuation allowance was allocated to shareholders' equity during 1994. At December 28, 1995, tax benefits are available for federal income tax purposes as follows (in thousands): Net operating losses $35,732 General business credits 3,390 These tax benefits will expire in the years 2003 through 2010 if not used. The Company also has alternative minimum tax credit carryforwards of $3,631,000 that can be carried forward indefinitely and offset against the regular federal income tax liability. In addition, the Company has net operating loss carryforwards for state income tax purposes that will expire in the following years if not used (in thousands): 1996 $23,943 1997 15,310 1998 18,209 1999 12,549 2000 6,245 2001 9,606 2002 498 2010 10,272 NOTE 12. EXTRAORDINARY ITEMS In 1994, the Company expensed the remaining unamortized deferred financing costs and unamortized discount in connection with early redemptions of debt. These items were reflected in the 1994 Consolidated Statement of Operations as an extraordinary loss of $2,708,000, which was net of an income tax benefit of $1,776,000. NOTE 13. CONTINGENCIES AND COMMITMENTS The Company agreed to indemnify Ramada against all monetary judgments in lawsuits pending against Ramada and its subsidiaries as of the conclusion of the Restructuring on December 20, 1989, as well as all related attorneys' fees and expenses not paid at that time, except for any judgments, fees or expenses accrued on the hotel business balance sheet and except for any unaccrued and unreserved aggregate amount up to $5,000,000 of judgments, fees or expenses related exclusively to the hotel business. Aztar is entitled to the benefit of any crossclaims or counterclaims related to such lawsuits and of any insurance proceeds received. In addition, the Company agreed to indemnify Ramada for various lease guarantees made by Ramada relating to the restaurant business conducted through its Marie Callender Pie Shops, Inc. subsidiary. In connection with these matters, the Company has an accrued liability of $3,941,000 and $3,963,000 at December 28, 1995 and December 29, 1994, respectively. F-24 The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the Company. Management believes that its defenses are substantial in each of these matters and that the Company's legal posture can be successfully defended without material adverse effect on its consolidated financial statements. The Tropicana lease agreement contains a provision that requires the Company to maintain an additional security deposit with the lessor of approximately $21,251,000 in cash or a letter of credit if the Tropicana operation fails to meet certain financial tests. This requirement was waived at December 28, 1995. The Company has a 50% partnership interest in the lessor. The Company has severance agreements with certain of its senior executives. Severance benefits for three of the executives consist of, among other things, a lump-sum cash payment equal to twice the sum of the executive's annual base salary plus twice the average of the executive's annual bonuses awarded in the three years preceding termination of employment, payment of the value in their outstanding stock options and vesting and distribution of any restricted stock. Certain other executives would receive a lump-sum cash payment equal to their annual base salary plus a three-year average of their annual bonus, plus the other described benefits. Some of the executives would receive a lump-sum cash payment equal to their base salary. In certain agreements, the termination must be as a result of a change in control of the Company. Based upon current salary levels and stock options, the aggregate commitment under the severance agreements should all these executives be terminated, is approximately $15,300,000 as of December 28, 1995. At December 28, 1995, the Company had commitments of approximately $75,000,000 for the purchase of property and equipment. NOTE 14. ACQUISITION In July 1993, the Company acquired the partnership interests in Ambassador Real Estate Investors, L.P. ("AREI") and Ambassador General Partnership ("AGP"). AREI owned a 99.9% general partnership interest in AGP, which acquired a substantial interest in TropWorld in a sale-leaseback transaction in 1984. The acquisition has been accounted for as a purchase by the Company. The aggregate consideration, including costs incurred to complete the transaction, was approximately $62,000,000 in cash. The Company had a $10,000,000 revolving credit note to fund a portion of the purchase price. This acquisition did not significantly change Aztar's total assets. The cash paid by Aztar and notes receivable from AGP were replaced on Aztar's balance sheet by the assets acquired, which consisted primarily of building and equipment. The additional $10,000,000 of indebtedness incurred by Aztar was more than offset by a reduction of indebtedness to AGP. The Company's consolidated statements of operations include the results of AGP from its acquisition until its dissolution in November 1994. After intercompany eliminations, the acquisition has the following effects on consolidated results: Most of the reduction in Aztar interest income from the replacement of the AGP notes receivable is offset by a reduction in rent expense. Aztar's net income is affected negatively primarily by an increase in depreciation expense. F-25 If the acquisition had occurred at the beginning of the year ended December 30, 1993,the Company's results of operations would have been as follows (in thousands, except per share data): 1993 -------- (unaudited) Revenues $518,762 Income before extraordinary items 7,846 Net income 7,846 Earnings per common and common equivalent share: Income before extraordinary items $ .19 Net income .19 Earnings per common share assuming full dilution: Income before extraordinary items $ .18 Net income .18 NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents (in thousands) the carrying amounts and estimated fair values of the Company's financial instruments at December 28, 1995 and December 29, 1994, respectively. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Assets Short-term investments $ -- $ -- $ 8,250 $ 8,250 Other investments 27,964 27,964 24,928 24,928 Liabilities Current portion of long-term debt 466 466 666 666 Current portion of other long-term liabilities 4,900 4,854 -- -- Long-term debt 496,439 518,021 430,212 416,362 Other long-term liabilities 8,500 6,968 -- -- Off-Balance-Sheet Letter of credit -- 13,450 -- 13,450 The carrying amounts shown in the table are included, if applicable, in the Consolidated Balance Sheets under the indicated captions. All of the Company's financial instruments are held or issued for purposes other than trading. The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments. F-26 Short-term investments are valued at their carrying amounts included in the balance sheets, which are reasonable estimates of fair value due to the relatively short period to maturity. Other investments consisted of deposits with the CRDA and CRDA bonds that bear interest at two-thirds of market rates resulting in a fair value lower than cost. The carrying amounts of these deposits and bonds are presented net of a valuation allowance and an unamortized discount that result in an approximation of fair values. Other investments at December 28, 1995, also included a 90-day certificate of deposit which was valued at its carrying amount which is a reasonable estimate of fair value due to the relatively short period to maturity. The fair values of the Company's publicly traded debt were estimated based on the bid prices in the public bond markets. The carrying amounts of the revolving credit note are reasonable estimates of fair value because this note is carried with a floating interest rate. The amounts reported for other long-term liabilities relate to the Company's obligation to the City of Evansville and other civic and community organizations. The fair values were estimated by discounting expected cash flows using a discount rate commensurate with the risks involved. The fair value of the letter of credit was estimated to be the same as the contract value based on the nature of the fee arrangement with the issuing financial institution. F-27 NOTE 16. UNAUDITED QUARTERLY RESULTS/COMMON STOCK PRICES The following unaudited information shows selected items in thousands, except per share data, for each quarter in the years ended December 28, 1995 and December 29, 1994. The Company's common stock is listed on the New York Stock Exchange. First Second Third Fourth -------- -------- -------- -------- 1995 - ---- Revenues $135,568 $145,390 $154,935 $136,976 Operating income (loss) 15,763 13,792 18,994 (5,848) Income (loss) before income taxes 3,046 623 5,907 (19,757) Income taxes (1,086) (98) (1,333) 7,704 Net income (loss) 1,960 525 4,574 (12,053) Earnings per common and common equivalent share: Net income (loss) .05 .01 .11 (.31) Earnings per common share assuming full dilution: Net income (loss) .05 .01 .11 * 1994 - ---- Revenues $130,566 $135,747 $146,847 $128,280 Operating income 16,844 18,800 22,343 11,420 Income (loss) before income taxes and extraordinary items 4,638 6,622 10,121 (2,715) Income taxes (85) (41) (2,554) 818 Extraordinary items -- -- -- (2,708) Net income (loss) 4,553 6,581 7,567 (4,605) Earnings per common and common equivalent share: Income (loss) before extraordinary items .11 .17 .19 (.05) Net income (loss) .11 .17 .19 (.12) Earnings per common share assuming full dilution: Income (loss) before extraordinary items .11 .16 .19 * Net income (loss) .11 .16 .19 * Common Stock Prices - ------------------- 1995 - High $ 9.13 $10.00 $10.50 $ 9.13 - Low 5.63 8.00 7.63 6.88 1994 - High 7.88 7.13 7.38 7.00 - Low 6.25 5.38 5.75 5.38 * Anti-dilutive F-28 -----END PRIVACY-ENHANCED MESSAGE-----