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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5440
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AZTAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 86-0636534
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2390 East Camelback Road, Suite 400, Phoenix, Arizona 85016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 381-4100
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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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
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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
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PART III
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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"
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PART I
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ITEM 1. BUSINESS
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Aztar Corporation ("Aztar" or the "Company") was incorporated in Delaware
in June 1989 to operate the gaming business of Ramada Inc. ("Ramada") after
the restructuring of Ramada (the "Restructuring"). The Restructuring
involved the disposition of Ramada's hotel and restaurant businesses with
Ramada's shareholders retaining their interest in the gaming business. As
part of the Restructuring, the gaming business and certain other assets and
liabilities of Ramada were transferred to Aztar, and a wholly-owned
subsidiary of New World Hotels (U.S.A.), Inc. was merged with Ramada (the
"Merger"). In the Merger, each share of Ramada common stock was converted
into the right to receive $1.00 and one share of Aztar common stock. For
accounting purposes Aztar is treated as the continuing accounting entity
that is the successor to the historical Ramada and that has discontinued
the hotel and restaurant businesses.
The Company operates in major domestic gaming markets with casino hotel
facilities in Atlantic City, New Jersey, and in Las Vegas and Laughlin,
Nevada. The Company began operations of riverboat casinos on April 28,
1995 in Caruthersville, Missouri, and on December 7, 1995, in Evansville,
Indiana. The strategy at the Company's land-based facilities has been to
develop facilities with distinctive themes for the demographics of each
particular market and provide a full entertainment experience to attract
gaming patrons. The Company's riverboat casinos share a common theme and
brand. The Company's product concept is "the creation of fun, fantasy,
excitement and entertainment" in a casino gaming environment. While the
Company markets to the full spectrum of casino players, its focus is on the
middle and high end of the market.
The Company uses a database marketing system to create a loyal following of
repeat customers. This marketing approach, which is based on a combination
of computerized card reader technology and a "frequent flier" marketing
concept, allows the Company to direct its marketing costs and to optimize
the profit contribution of its targeted casino patrons.
TROPWORLD
TropWorld Casino and Entertainment Resort has a Boardwalk nostalgia theme.
The TropWorld complex encompasses 10 acres and has 220 yards of ocean beach
frontage along the Boardwalk in Atlantic City. TropWorld's 92,191-square-
foot casino contains 2,948 slot machines and 107 table games. The
TropWorld complex contains 1,020 hotel rooms, 80,000 square feet of
meeting, convention and banquet space, a 1,700-seat theatrical showroom
(the largest in Atlantic City) and parking facilities for approximately
3,000 vehicles. There is a wide variety of food and beverage facilities at
TropWorld, including gourmet restaurants and several medium-priced
restaurants. Recreational facilities at TropWorld include indoor and
outdoor swimming pools, tennis courts, a health and fitness club and a
jogging track.
The Company commenced construction in February 1995 on an expansion of
TropWorld that is scheduled to open in May 1996. The expansion will
consist primarily of a new 604-room hotel tower, resulting in a total of
1,624 hotel rooms. Other modifications and enhancements at TropWorld have
been timed to complement the new tower. Extensive renovation and upgrading
of the existing rooms began in October 1995 and will be completed by the
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time the new tower opens; a new beach-front buffet and high-volume express-
food restaurant opened in December 1995; a new and expanded coffee shop
will open in March 1996; and an elegant new hotel lobby and front desk will
open in a new location in April 1996. In addition, a brand new casino
floor entrance, a new baccarat room, a new Oriental games room, a unique
premium table player hotel entrance and lounge, and a concierge floor with
very large penthouse suites on the top floor of the new tower will all open
in May 1996. Upon completion of this project, TropWorld will have 3,100
slot machines and 105 table games.
With these additions, TropWorld will become the largest and most
diversified casino entertainment facility in Atlantic City, enabling the
casino to broaden its market beyond its traditional "high end of the
middle" market base to the upper end of the market, not only in slots but
especially in table games.
TROPICANA
Tropicana Resort and Casino is located on a 34-acre site on the southeast
corner of Las Vegas Boulevard (the "Strip") and Tropicana Avenue in Las
Vegas, Nevada. The Tropicana casino occupies 45,000 square feet and
contains 1,751 slot machines and 50 table games. Tropicana has a tropical
island theme and is promoted as The Island of Las Vegas. It has one of the
world's largest swimming pools and a five-acre water park and tropical
garden area. The main entrance and building facade create a colorful
Caribbean Village motif and the tropical theme is apparent in the decor of
the property, which includes a large collection of tropical birds and fish.
Tropicana has 1,908 hotel rooms and suites and approximately 100,000 square
feet of convention and exhibit space. Tropicana offers its guests a
variety of entertainment including laser light shows, a comedy club, lounge
shows and the Folies Bergere revue, which is the longest-running production
show in Las Vegas.
Tropicana is located at an intersection which is referred to as The New
Four Corners of Las Vegas. There are three other major casino hotel
properties located at this intersection, two of which, Excalibur and MGM
Grand, are open and operating, and the other, New York-New York is under
construction and expected to open in 1996. In addition, there are two
major casino hotels located near the intersection. Luxor, just south of
the intersection, is open and operating, and Monte Carlo, just north of the
intersection, is under construction and expected to open in 1996. There
has been an increase in the visitor traffic around Tropicana since the
opening of Luxor and MGM Grand in 1993. Pedestrian traffic at the
intersection has been made faster, safer and more convenient as a result of
pedestrian skywalks. The skywalks connect the four corners of the
intersection and have elevators and escalators set back from all four
corners. The Company has an additional pedestrian bridge connecting one of
the skywalks directly to the Tropicana casino.
A number of improvements are being made at the Tropicana to reestablish its
traditional leadership position in the high-end table games market. The
improvements in the facilities include reorienting the layout and
modernizing the look of the casino in keeping with its tropical island
theme, upgrading the premium slot player area, expanding the baccarat room
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and refurbishing the property's large suites. The Company's intent is to
make the Tropicana more attractive for our target audiences and take
advantage of even more walk-in customers available to the Tropicana as a
result of the 1996 property openings. The modifications have already begun
and will be largely completed by midyear 1996.
Management believes that the properties opening in 1996 will stimulate
additional walk-in traffic that provides increased opportunities for
Tropicana to attract its target customers and retain them through the
Company's database marketing system. There can be no assurance, however,
that the increased competition from these properties will not have an
adverse effect on Tropicana.
RAMADA EXPRESS
Ramada Express Hotel and Casino is located on 28 acres in Laughlin, Nevada.
Laughlin is situated on the Colorado River at Nevada's southern tip. The
facility features a Victorian-era railroad theme, including a train that
carries guests between the parking areas and the casino hotel. Ramada
Express has 1,500 hotel rooms; a 50,000-square-foot casino containing 1,670
slot machines and 36 table games; a 1,100-vehicle parking garage;
additional surface parking for 1,200 vehicles; three restaurants and a
lounge; and special event and retail space.
CASINO AZTAR CARUTHERSVILLE
The Company began operations of Casino Aztar in Caruthersville, Missouri on
April 28, 1995. Caruthersville is located on the Mississippi River
approximately 90 miles north of Memphis, Tennessee. Approximately 2.2
million people live within 100 miles of Caruthersville.
The "City of Caruthersville" casino riverboat has an approximate 14,000-
square-foot casino with 445 slot machines and 27 table games and had an
initial capacity of 600 passengers plus crew. In December 1995, the
Company in coordination with the U.S. Coast Guard made modifications to the
riverboat and increased capacity to 800 passengers plus crew in order to
alleviate capacity constraints on weekends. The facilities also include a
barge at river's edge for passenger boarding and disembarking. A pavilion
for ticketing and pre-boarding facilities, including a restaurant, a sports
lounge, a snack bar, and other amenities was opened in July 1995.
CASINO AZTAR EVANSVILLE
On December 7, 1995, the Company commenced operations of a riverboat casino
in Evansville, Indiana. Casino Aztar, featuring the "City of Evansville"
casino riverboat, is Indiana's first riverboat casino. Evansville, on the
Ohio River in southwestern Indiana, is a market of 650,000 persons within
50 miles, 2.5 million persons within 100 miles, including part of the
metropolitan Louisville, Kentucky area, and more than 3 million persons
within 120 miles. The Evansville casino is projected to have 2.3 million
visitors annually until additional competition emerges for the Louisville
market.
The "City of Evansville" casino riverboat is a replica of the historic
"Robert E. Lee" racing sidewheel steamboat. The casino riverboat is 310
feet long and 70 feet wide, with a capacity of 2,500 passengers plus a crew
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of 300. The casino contains 1,267 slot machines and 70 table games. The
project opened utilizing temporary facilities that included surface parking
and a 13,000-square-foot pavilion for passenger ticketing and related
services. A 250-room hotel; "Riverfront Pavilion", an entertainment
complex for pre-boarding facilities, restaurants, lounge and retail shops;
parking facilities for more than 1,600 vehicles and other amenities are
under construction and scheduled for completion by December 1996.
FUTURE DEVELOPMENTS
During 1995, the number of new jurisdictions considering the legalization
of gaming significantly decreased compared to the number during 1990 to
1994. However, the Company is continuing its efforts to explore
opportunities in new jurisdictions considering gaming and in existing
gaming jurisdictions where the potential markets meet the Company's
standards for sound, meaningful long-term opportunities.
COMPETITION AND SEASONALITY
Competition
Although the Company has been able to compete successfully in its gaming
markets in the past, there can be no assurance that the Company will be
able to continue to compete successfully in these markets.
The Company faces intense competition in each of the markets in which its
land-based gaming facilities are located from other companies in the gaming
industry, some of which have significantly greater financial resources than
the Company. Such competition results, in part, from the geographic
concentration of competitors. All of the Company's land-based casinos
primarily compete with other casinos in their immediate geographic area.
The Company's riverboat casinos primarily compete with other riverboat
casinos in nearby states and in the case of the Caruthersville operation
with riverboat casinos in other cities of Missouri. The Evansville
operation will be competing with other riverboat casinos in Indiana when
they become operational. All of the Company's casinos compete to a lesser
extent with casinos in other locations, including Native American lands and
on cruise ships, and with other forms of legalized gaming in the United
States, including state-sponsored lotteries, off-track wagering and card
parlors. Several states have considered legalizing casino gaming and
others may do so in the future. Legalization of large-scale, unlimited
casino gaming in or near any major metropolitan area or increased gaming in
other areas could have an adverse economic impact on the business of any or
all of the Company's gaming facilities.
As of December 28, 1995, there were 11 casino hotel facilities operating in
Atlantic City in competition with TropWorld. Although no new casinos have
been opened in Atlantic City since April 1990, many of the existing casinos
have increased their gaming capacities in 1994 and 1995. In addition,
certain expansions have been announced for 1996. Two other companies have
announced a desire to open casino hotels in the future. The addition of
new casino hotels in the Atlantic City market could have the effect of
expanding the market or they could increase competition for the existing
market. In 1992, the Mashantucket Pequot Indian tribe began operating the
Foxwoods High Stakes Casino and Bingo Hall, one of the largest casinos in
the United States, in Ledyard, Connecticut. The adoption of legislation
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approving casino gaming in any jurisdiction near New Jersey, particularly
Delaware, Maryland, New York or Pennsylvania, could have a material adverse
effect on the Atlantic City market, depending on the form and scope of such
gaming.
Since the Mirage opened in late 1989, there have been four other major
casino hotels opened on the Las Vegas Strip. In addition, casino hotels
have opened or have been expanded in other parts of Las Vegas or near Las
Vegas. Downtown Las Vegas has added the "Fremont Street Experience" that
provides a cover for the street and light show in order to attract
customers. Two major casino hotels on the Las Vegas Strip are under
construction and expected to open in 1996 and two others have been
announced for later openings. Development is also expected to occur
sometime in the future on the Las Vegas Strip to the south of Tropicana.
The experience through 1995 has been that these new developments have
expanded the Las Vegas market. There can be no assurance, however, that
the increased competition from the new casinos will not have an adverse
effect on Tropicana.
In the Laughlin market, there have been expansions of existing casino
hotels and in February 1995, the Mojave Indian Tribe opened a 300-room
hotel with approximately 25,000 square feet of casino space in Nevada
approximately 8 miles south of Laughlin. The Laughlin market has been
affected by the Native American casinos in Arizona and California and
additional capacity at Stateline, Nevada and on the Boulder Highway in Las
Vegas.
Competition involves not only the quality of casino, room, restaurant,
entertainment and convention facilities, but also room, food and beverage
prices. The level of gaming activity also varies significantly from time
to time depending on general economic conditions, marketing efforts, hotel
occupancies and the offering of special events and promotions. The extent
and quality of complimentary services to attract high-stakes players and,
in Atlantic City, casino customers arriving under bus programs, the
personal attention offered to guests and casino customers, advertising,
entertainment, slot machine pay-out rates and credit policies with respect
to high-stakes players are also important competitive factors. As a
result, operating results can be adversely affected by significant cash
outlays for advertising and promotion and complimentary services to
patrons, the amount and timing of which are partially dictated by the
policies of competitors. If operating revenues are insufficient to allow
management the flexibility to match the promotions of competitors, the
number of the Company's casino patrons may decline, with an adverse effect
on its financial performance.
Seasonality
TropWorld experiences seasonal fluctuations in casino play that management
believes are typical of casino hotel operations in Atlantic City.
Operating results indicate that casino play is seasonally higher during the
months of May through October; consequently the Company's revenues during
the first and fourth quarters have generally been lower than for the second
and third quarters and from time to time the Company has experienced losses
in the first and fourth quarters. Because TropWorld's operating results
are especially dependent upon operations in the summer months, any event
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that adversely affects the operating results of TropWorld during such
period could have a material adverse effect on the Company's operations and
financial condition. Given Atlantic City's location, it is also subject to
occasional adverse weather conditions such as storms and hurricanes that
would impede access to Atlantic City, thus adversely impacting operations.
The gaming markets in Las Vegas and Laughlin experience a slight decrease
in gaming activity in the hot summer months and during the holiday period
between Thanksgiving and Christmas. Since the Company's casino riverboats
just opened in 1995, there has not been a full year's operating experience
to substantiate seasonality; however, the Company expects that casino
revenues will be higher in the spring and summer months than in the fall
and winter months.
CREDIT POLICY AND CONTROL PROCEDURES
As is customary in the gaming industry and necessitated by competitive
factors, the Company's gaming activities are conducted on a credit as well
as a cash basis, except in Missouri, which prohibits gaming on a credit
basis. Credit policies vary widely from one operator to another and are
largely dependent on the profile of the targeted customers. Table games
players, for example, are typically extended more credit than slot players,
and high-stakes players are typically extended more credit than patrons who
tend to wager lower amounts. The Company currently markets to customers in
all gaming segments; however, its credit policy will vary from facility to
facility based upon the various types of customers at each facility.
Gaming debts are legally enforceable under the current laws of Indiana, New
Jersey and Nevada; it is not clear, however, that all other states will
honor these policies. The uncollectibility of gaming receivables could
have a material adverse effect on results of operations. Provisions for
estimated uncollectible gaming receivables have been made in order to
reduce gaming receivables to amounts deemed to be collectible.
Gaming operations at the casinos are subject to risk of substantial loss as
a result of employee or patron dishonesty, credit fraud or illegal slot
machine manipulation. The Company has in place stringent control
procedures to minimize such risks; however, there can be no assurance that
losses will not occur. Current controls include supervision of employees,
monitoring by electronic surveillance equipment and use of two-way mirrors.
In New Jersey, the Company's activities are observed and monitored on an
ongoing basis by agents of both the New Jersey Casino Control Commission
(the "New Jersey Commission") and the New Jersey Division of Gaming
Enforcement (the "New Jersey Division"), each of which maintains a staff on
the premises of TropWorld. Similarly, in Nevada the Company's gaming
subsidiaries must comply with certain regulatory requirements concerning
casino and game security and surveillance, and the gaming operations of
Tropicana and Ramada Express are subject to routine audit and supervision
by agents of the Nevada State Gaming Control Board (the "Nevada Board").
In Missouri and Indiana, the Company's casino riverboat operations are
subject to the control procedures of the Missouri Gaming Commission and the
Indiana Gaming Commission, respectively. The Missouri Gaming Commission
maintains a staff at Casino Aztar Caruthersville and the Indiana Gaming
Commission maintains a staff at Casino Aztar Evansville.
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REGULATION
General
Regulatory aspects of the gaming business are pervasive in nature and the
following description should not be construed as a complete summary of all
the regulatory requirements faced by the Company. Gaming authorizations,
once obtained, can be suspended or revoked for a variety of reasons. If
the Company were ever precluded from operating one of its gaming
facilities, it would, to the extent permitted by law, seek to recover its
investment by sale of the property affected, but there can be no assurance
that the Company would recover its full investment. In addition, the
Nevada Gaming Commission (the "Nevada Commission") and the New Jersey
Commission have the authority to require a holder or beneficial owner of
the Company's securities to be found to be suitable or to qualify under
applicable laws or regulations.
From time to time, legislative and regulatory changes are proposed that
could be adverse to the Company. In addition, from time to time,
investigations are conducted relating to the gaming industry. TropWorld,
Casino Aztar Caruthersville and Casino Aztar Evansville are required to
report certain cash transactions to the U.S. Department of the Treasury
pursuant to the Bank Secrecy Act. Violation of the reporting requirements
of the Bank Secrecy Act could result in civil as well as criminal penalties
including fines and/or imprisonment. The State of Nevada has adopted a
regulation similar to the Bank Secrecy Act which requires the Nevada
facilities to document and/or report certain currency transactions to the
Nevada Board. Violation of this regulation could result in action by the
Nevada authorities to fine or revoke, suspend, impose conditions upon or
fail to renew the Nevada facilities' licenses and/or the Company's
licensing approval. These reporting requirements are not expected to have
any adverse effects on the Company's casino operations.
Regulation and Licensing - Nevada
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, "Nevada Act"); and (ii) various local
regulation. The gaming operations of Tropicana and Ramada Express are
subject to the licensing and regulatory control of the Nevada Commission,
the Nevada Board and the Clark County Liquor and Gaming Licensing Board
(the "Clark County Board") (collectively, the "Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are
concerned with, among other things; (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with gaming
at any time or in any capacity; (ii) the establishment and maintenance of
responsible accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming
Authorities; (iv) the prevention of cheating and fraudulent practices; and
(v) the provision of a source of state and local revenues though taxation
and licensing fees. Change in such laws, regulations and procedures could
have an adverse effect on the Company.
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Hotel Ramada of Nevada ("HRN") is the Company's wholly-owned subsidiary
which operates the casino at Tropicana and Ramada Express, Inc. ("Express")
is the Company's wholly-owned subsidiary which operates the casino at
Ramada Express. HRN and Express are both required to be licensed by the
Nevada Gaming Authorities. The gaming licenses require the periodic
payment of fees and taxes and are not transferable. The Company is
registered by the Nevada Commission as a publicly traded corporation
("Registered Corporation") and as such, it is required periodically to
submit detailed financial and operating reports to the Nevada Commission
and furnish any other information which the Nevada Commission may require.
No person may become a stockholder of, or receive any percentage of profits
from, HRN or Express without first obtaining licenses and approvals from
the Nevada Gaming Authorities. The Company, HRN and Express have obtained
from the Nevada Gaming Authorities the various registrations, approvals,
permits and licenses required in order to engage in gaming activities in
Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, HRN or
Express in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of HRN and Express must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers,
directors and key employees of the Company who are actively and directly
involved in gaming activities of HRN and Express may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause
which they deem reasonable. A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the
Nevada Gaming Authorities and in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate
position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, HRN or Express, the companies involved would
have to sever all relationships with such person. In addition, the Nevada
Commission may require the Company, HRN or Express to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are
not subject to judicial review in Nevada.
The Company, HRN and Express are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material
loans, leases, sales of securities and similar financing transactions by
HRN and Express must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by HRN or Express,
the gaming licenses held by HRN or Express could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
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regulatory procedures. In addition, HRN, Express, the Company and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to
operate the Company's Nevada gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment
(except for the reasonable rental value of the Company's Nevada gaming
properties) could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of any gaming license or the appointment of a
supervisor could (and revocation of any gaming license would) materially
adversely affect the Company.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of the
Company's voting securities determined if the Nevada Commission has reason
to believe that such ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs
of investigation incurred by the Nevada Gaming Authorities in conducting
any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada
Commission. The Nevada Act requires that beneficial owners of more than
10% of the Company's voting securities apply to the Nevada Commission for a
finding of suitability within thirty days after the Chairman of the Nevada
Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act,
which acquires more than 10%, but not more than 15%, of the Company's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of
business as an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members of the
board of directors of the Company, any change in the Company's corporate
charter, bylaws, management, policies or operations of the Company, or any
of its gaming affiliates, or any other action which the Nevada Commission
finds to be inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in
its management, policies or operations; and (iii) such other activities as
the Nevada Commission may determine to be consistent with such investment
intent. If the beneficial holder of voting securities who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners.
The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable.
The same restrictions apply to a record owner if the record owner, after
11
request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership
of the common stock of a Registered Corporation beyond such period of time
as may be prescribed by the Nevada Commission may be guilty of a criminal
offense. The Company is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder or to have
any other relationship with the Company, HRN or Express, the Company (i)
pays that person any dividend or interest upon voting securities of the
Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise,
or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his voting securities for cash at fair market value.
Additionally, the Clark County Board has taken the position that it has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation such as the Company to file
applications, be investigated and be found suitable to own the debt
security of a Registered Corporation. If the Nevada Commission determines
that a person is unsuitable to own such security, then pursuant to the
Nevada Act, the Registered Corporation can be sanctioned, including the
loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest,
or any distribution whatsoever; (ii) recognizes any voting right by such
unsuitable person in connection with such securities; (iii) pays the
unsuitable person remuneration in any form; or (iv) makes any payment to
the unsuitable person by way of principal, redemption, conversion,
exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record
holder may be required to disclose the identity of the beneficial owner to
the Nevada Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company is also
required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require the
Company's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. On June 21, 1995, the Nevada Commission granted the Company
prior approval to make public offerings for a period of one year, subject
to certain conditions ("Shelf Approval"). However, the Shelf Approval may
be rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf
Approval does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
12
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the
prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and
Nevada Commission in a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission may also
require controlling stockholders, officers, directors and other persons
having a material relationship or involvement with the entity proposing to
acquire control, to be investigated and licensed as part of the approval
process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate
defense tactics affecting Nevada gaming licensees and Registered
Corporations that are affiliated with those operations, may be injurious to
stable and productive corporate gaming. The Nevada Commission has
established a regulatory scheme to ameliorate the potentially adverse
effects of these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability of corporate
gaming operators and their affiliates; (ii) preserve the beneficial aspects
of conducting business in the corporate form; and (iii) promote a neutral
environmental for the orderly governance of corporate affairs. Approvals
are, in certain circumstances, required from the Nevada Commission before
the Company can make exceptional repurchases of voting securities above the
current market price thereof and before a corporate acquisition opposed by
management can be consummated. The Nevada Act also requires prior approval
of a plan of recapitalization proposed by the Company's Board of Directors
in response to a tender offer made directly to the Registered Corporation's
stockholders for the purposes of acquiring control of the Registered
Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations
are conducted. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are
based upon either: (i) a percentage of the gross revenues received; (ii)
the number of gaming devices operated; or (iii) the number of table games
operated. A casino entertainment tax is also paid by HRN and Express where
entertainment is furnished in connection with the selling of food,
refreshments or merchandise in a cabaret, nightclub, cocktail lounge or
casino showroom.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (a
"Licensee", or collectively, "Licensees"), and who proposes to become
involved in a gaming venture outside of Nevada is required to deposit with
the Nevada Board, and thereafter maintain, a revolving fund in the amount
of $10,000 to pay the expenses of investigation of the Nevada Board of
their participation in such foreign gaming. The revolving fund is subject
to increase or decrease in the discretion of the Nevada Commission.
Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. A Licensee is also subject to
13
disciplinary action by the Nevada Commission if it knowingly violates any
laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fails to conduct the foreign gaming operation in accordance with
the standards of honesty and integrity required of Nevada gaming
operations, engages in activities that are harmful to the State of Nevada
or its ability to collect gaming taxes and fees, or employs a person in the
foreign operation who has been denied a license or finding of suitability
in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages is also subject to licensing, control and
regulation by the Clark County Board. All licenses are revokable and are
not transferable. The Clark County Board has full power to limit,
condition, suspend or revoke any such license and any such disciplinary
action could (and revocation would) have a material adverse effect upon the
operations of the Company.
Regulation and Licensing - New Jersey
The ownership and operation of casino hotel facilities and gaming
activities in Atlantic City, New Jersey, are subject to extensive state
regulation under the New Jersey Casino Control Act (the "New Jersey Act")
and the regulations of the New Jersey Commission. In general, the New
Jersey Act and regulations provide for more extensive controls over a
broader scope of gaming-related activities than does the Nevada regulatory
system.
The New Jersey Act and regulations concern primarily the financial
stability and character of casino licensees, their intermediary and holding
companies, their employees, their security holders and others financially
interested in casino operations, the nature of hotel and casino facilities
and a wide range of gaming and non-gaming related operations. The New
Jersey Act and regulations include detailed provisions concerning, among
other things, financial and accounting practices used in connection with
casino operations, residence and equal employment opportunities for
employees of casino operators, contractors for casino facilities and
others; rules of games, levels of supervision of games and methods of
selling and redeeming chips; manner of granting credit, duration of credit
and enforceability of gaming debts; manufacture, distribution and sale of
gaming equipment; security standards, management control procedures,
accounting and cash control methods and reports to gaming authorities;
advertising of casinos and standards for entertainment and distribution of
alcoholic beverages in casinos. A number of these provisions require
practices which are different from those in Nevada and some of them result
in casino operating costs being higher than those in comparable facilities
in Nevada.
The New Jersey Act also established the New Jersey Division to investigate
all license applications, enforce the provisions of the New Jersey Act and
attendant regulations and prosecute all proceedings for violations of the
New Jersey Act and regulations before the New Jersey Commission. The New
Jersey Division also conducts audits and continuing reviews of all casino
operations.
14
Adamar of New Jersey, Inc. ("Adamar"), a wholly-owned subsidiary of the
Company, has been licensed (subject to quadrennial renewal) by the New
Jersey Commission to operate TropWorld. In November 1982, the New Jersey
Commission granted a plenary license to Adamar. In November 1995, the
license was renewed for a period of four years. The Company and Ramada New
Jersey Holdings Corporation ("Holdings"), another of the Company's New
Jersey gaming subsidiaries, have been approved as qualified holding
companies for Adamar's casino license. Officers and directors of the
Company and Adamar and employees who work at casino hotel facilities
operated by Adamar also have been or must be approved or licensed. In
addition, all contracts affecting the facilities have been or must be
approved, and all enterprises that conduct business with Adamar must
register with the New Jersey Commission and those enterprises that conduct
gaming related businesses or that conduct business on a regular and
continuing basis, as defined by the regulations under the New Jersey Act,
must be licensed by the New Jersey Commission.
The New Jersey Commission has broad discretion regarding the issuance,
renewal, revocation and suspension of casino licenses. Casino licenses are
not transferable. A casino hotel facility must also continually satisfy
certain requirements concerning, among other things, the number of
qualifying sleeping units and the relationship between the number of
qualifying sleeping units and the square footage of casino space. The
Company believes that TropWorld continues to meet such requirements.
The New Jersey Act further provides that each person who directly or
indirectly holds any beneficial interest or ownership of the securities
issued by a casino licensee or any of its intermediary or holding
companies, those persons who, in the opinion of the New Jersey Commission,
have the ability to control the casino licensee or its intermediary or
holding companies or elect a majority of the board of directors of said
companies, other than a banking or other licensed lending institution which
makes a loan or holds a mortgage or other lien acquired in the ordinary
course of business, and lenders and underwriters of said companies may be
required to seek qualification from the New Jersey Commission. However,
because the Company is a publicly traded holding company, in accordance
with the provisions of the New Jersey Act, a waiver of qualification may be
granted by the New Jersey Commission, with the concurrence of the Director
of the Division, if it is determined that said persons or entities are not
significantly involved in the activities of Adamar and, in the case of
security holders, do not have the ability to control the Company or elect
one or more of its directors. There exists a rebuttable presumption that
any person holding 5% or more of the equity securities of a casino
licensee's intermediary or holding company or a person having the ability
to elect one or more of the directors of such a company has the ability to
control the company and thus must obtain qualification from the New Jersey
Commission.
Notwithstanding this presumption of control, the New Jersey Act provides
for a waiver of qualification for passive "institutional investors," as
defined by the New Jersey Act, if the institutional investor purchased the
securities for investment purposes only and where such securities
constitute (i) less than 10% of the equity securities of a casino
licensee's holding or intermediary company or (ii) debt securities of a
casino licensee's holding or intermediary company representing a percentage
15
of the outstanding debt of such company not exceeding 20% or a percentage
of any issue of the outstanding debt of such company not exceeding 50%.
The waiver of qualification is subject to certain conditions including,
upon request of the New Jersey Commission, filing a certified statement
that the institutional investor has no intention of influencing or
affecting the affairs of the issuer. Additionally, a waiver of
qualification may also be granted to institutional investors holding a
higher percentage of securities of a casino licensee's holding or
intermediary company upon a showing of good cause.
If the institutional investor is granted such a waiver and subsequently
determines to influence or affect the affairs of the issuer, it must
provide not less than 30 days notice of such intent and file with the New
Jersey Commission an application for qualification before taking any action
which may influence or affect the affairs of the issuer, except that an
institutional investor holding voting securities shall be permitted to vote
on matters put to the vote of the holders of outstanding voting securities.
If an institutional investor that has been granted a waiver subsequently
changes its investment intent, or if the New Jersey Commission finds
reasonable cause to believe that the institutional investor may be found
unqualified, no action other than divestiture shall be taken by the
investor with respect to the security holdings until there has been
compliance with the provisions of the New Jersey Act concerning Interim
Casino Authorization. The provisions of the New Jersey Act concerning
Interim Casino Authorization provide that whenever a security holder of
either equity or debt is required to qualify pursuant to the New Jersey
Act, the security holder shall, within 30 days after the New Jersey
Commission determines that qualification is required or declines to waive
qualification, (i) file a completed application for qualification, along
with an executed and approved Trust Agreement, wherein all securities of
the holding or intermediary company held by that security holder are placed
in trust pending qualification, or (ii) file a notice of intent to divest
itself of such securities as the New Jersey Commission may require so as to
remove the need for qualification, which securities must be divested within
120 days from the date such determination was made.
The New Jersey Act further requires that corporate licensees and their
subsidiaries, intermediaries and holding companies adopt certain provisions
in their certificates of incorporation that require certain remedial action
in the event that an individual owner of any security of such company is
found disqualified under the New Jersey Act. The required certificate of
incorporation provisions vary depending on whether the stock of the company
subject to the requirements of the New Jersey Act is publicly or privately
traded. Pursuant to the New Jersey Act, the certificate of incorporation
of a publicly held company must provide that any securities of such
corporation are held subject to the condition that if a holder is found to
be disqualified by the New Jersey Commission pursuant to the New Jersey Act
such holder shall dispose of his interest in such company. The certificate
of incorporation of a privately held company must create the absolute right
of the company to repurchase at the market price or purchase price,
whichever is the lesser, any security, share or other interest in the
company in the event the New Jersey Commission disapproves a transfer in
accordance with the provisions of the New Jersey Act.
16
The Company is a publicly held company and, accordingly, a provision has
been placed in the Company's Restated Certificate of Incorporation which
provides that a holder of the Company's securities must dispose of such
securities if the holder is found disqualified under the New Jersey Act.
In addition, the Restated Certificate of Incorporation for the Company
provides that the Company may redeem the stock of any holder found to be
disqualified.
If, at any time, it is determined that Adamar has violated the New Jersey
Act or regulations, or if any security holder of the Company, Adamar or
Holdings who is required to be qualified under the New Jersey Act is found
disqualified but does not dispose of the securities, Adamar could be
subject to fines or its license could be suspended or revoked. If Adamar's
license is revoked, the New Jersey Commission could appoint a conservator
to operate and to dispose of any casino hotel facilities of Adamar. Net
proceeds of a sale by a conservator and net profits of operations by a
conservator (at least up to an amount equal to a fair return on Adamar's
investment which is reasonable for casinos or hotels) would be paid to
Adamar.
In addition to compliance with the New Jersey Act and regulations relating
to gaming, any facility built in Atlantic City by Adamar or any other
subsidiary of the Company must comply with the New Jersey and Atlantic City
laws and regulations relating to, among other things, the Coastal Area
Facilities Review Act, construction of buildings, environmental
considerations, operation of hotels and the sale of alcoholic beverages.
The New Jersey Commission is authorized to establish fees for the issuance
or renewal of casino licenses. Yearly casino hotel alcoholic beverage
license fees are payable for each facility in any of five specified
categories in any licensed casino hotel. There is also an annual license
fee on each slot machine. The New Jersey Commission is also authorized by
regulation to establish annual fees for the issuance and renewal of
licenses other than casino licenses.
The New Jersey Act imposes an annual tax of eight percent on gross revenues
(as defined in the New Jersey Act). In addition, casino licensees are
required to invest one and one-quarter percent of gross casino revenues for
the purchase of bonds to be issued by the Casino Reinvestment Development
Authority or make other approved investments equal to that amount; in the
event the investment requirement is not met, the casino licensee is subject
to a tax in the amount of two and one-half percent on gross revenues.
Regulation and Licensing - Missouri
On November 3, 1992, a statewide referendum authorized gaming in the state
of Missouri on the Missouri and the Mississippi Rivers. Local approval
from the home dock municipality, as required by the legislation, was also
obtained from the City of Caruthersville in the November 3, 1992 election.
On April 29, 1993, Missouri enacted revised legislation (the "Missouri
Gaming Law") which amended the existing legislation. The Missouri Gaming
Law established the Missouri Gaming Commission, which is responsible for
the licensing and regulation of riverboat gaming in Missouri and has the
discretion to approve license applications for riverboat gaming facilities.
In July 1993, the Company was chosen by the City of Caruthersville as the
preferred applicant to develop a gaming facility, and on September 20,
1993, the Company, through its subsidiary Aztar Missouri Gaming Corporation
17
("Aztar Missouri"), filed its initial application with the Missouri Gaming
Commission. The Missouri Gaming Commission conducted a formal
investigation of Aztar Missouri's application and granted an owner/operator
gaming license to Aztar Missouri on April 26, 1995.
In a decision handed down on January 25, 1994, the Missouri Supreme Court
held that games of chance were prohibited under the Missouri constitution.
On April 5, 1994, Missouri voters narrowly defeated the adoption of a
constitutional amendment that would have excepted excursion boats and
floating facilities from the constitutional prohibition on lotteries.
Local voters did re-approve gaming in the City of Caruthersville in the
April 5, 1994 election. Following the April 5, 1994 election, the Missouri
legislature amended the existing Missouri Gaming Law to clarify certain
definitions and to resolve some constitutional questions raised in the
Missouri Supreme Court decision. Pursuant to the Missouri Gaming Law, as
revised, the Missouri Gaming Commission has issued eight gaming licenses
throughout the state: one in Caruthersville, two in the St. Louis area,
four in the Kansas City area, and one in St. Joseph.
In a statewide election held on November 8, 1994, Missouri voters approved
the adoption of an amendment to the Missouri Constitution which permits the
legislature to allow games of chance to be conducted on excursion boats and
floating facilities on the Mississippi River and the Missouri River. As a
result of the amendment, full-scale gaming is now available in Missouri.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
There can be no assurances that any future challenges, if brought, would
not further interfere with full-scale gaming operations in Missouri,
including the operations of Aztar Missouri.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. Aztar Missouri, any subsidiaries, and certain of its officers
and employees are and will be subject to certain regulations. As part of
the application and licensing process for a gaming license, the applicant
must submit detailed financial, operating and other reports to the Missouri
Gaming Commission. Each applicant has an ongoing duty to update the
information provided to the Missouri Gaming Commission in the application.
Aztar Missouri has frequently updated its application materials since it
was initially licensed. In addition to the information required of the
applicant, directors, officers and other key persons must submit Personal
Disclosure Forms which include detailed personal financial information and
are subject to thorough investigations. In addition, certain officers and
directors of Aztar have submitted Personal Disclosure Forms to the Missouri
Gaming Commission. All gaming employees must obtain an occupational
license issued by the Missouri Gaming Commission.
The operators' licenses are issued through application to the Missouri
Gaming Commission, which requires, among other things, (a) investigations
into an applicant's character, financial responsibility and experience
qualifications and (b) that applicants furnish (i) an affirmative action
plan for the hiring and training of minorities and women and (ii) an
economic development or impact report. License fees are a minimum of
$50,000 for the initial application and $25,000 annually thereafter.
18
Licenses are to last for a term of two years, except that the first license
and subsequent renewal granted to each gaming operator are to be for terms
of one year. Aztar Missouri and its officers and certain employees are in
the process of the first renewal of the owner/operator license and
occupational licenses. In connection with this renewal, certain officers
and directors of Aztar have been requested to submit updated Personal
Disclosure Forms. Aztar Missouri has no reason to believe that these
renewal applications will not be approved. The Missouri Gaming Commission
has begun its investigation of Aztar Missouri's renewal application.
However, there can be no assurance that Aztar Missouri's renewal
application will be approved in a timely manner or at all.
The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violations of the Missouri Gaming Law and the
rules and regulations promulgated thereunder. Penalties include forfeiture
of all gaming equipment used for improper gaming and fines of up to three
times an operator's highest daily gross adjusted receipts during the
preceding twelve months. The gaming licenses may not be transferred nor
pledged as collateral, and the Missouri Gaming Law regulations bar a
licensee from taking any of the following actions without prior approval by
the Missouri Gaming Commission: (a) any individual transfer of an interest
of 5% or greater, either directly or indirectly, in a publicly traded
company which holds a license; (b) distribution of assets in excess of 5%
of accumulated earnings of a licensee to anyone with an ownership interest
in the licensee; or (c) entering into any transaction with a dollar value
in excess of a certain threshold ($500,000 to $1,000,000). The
restrictions on transfer of ownership apply to the Company as well as the
direct licensee, Aztar Missouri.
The bulk of the Missouri administrative rules contains detailed
requirements concerning the operation of a licensed excursion gaming boat
facility. These include a charge of two dollars per gaming customer that
licensees must pay to the Missouri Gaming Commission, minimum payout
requirements, a 20% tax on adjusted gross receipts, prohibitions against
providing credit to gaming customers (except for the use of credit cards
and cashing checks) and a requirement that each licensee reimburse the
Missouri Gaming Commission for all costs of any Missouri Gaming Commission
staff necessary to protect the public on the licensee's riverboat.
Licensees also must submit audited quarterly financial reports to the
Missouri Gaming Commission and pay the associated auditing fees. Other
areas of operation which are subject to regulation under the Missouri rules
are the size, denomination and handling of chips and tokens; the
surveillance methods and computer monitoring of electronic games;
accounting and audit methods and procedures; and approval of an extensive
internal control system. The Missouri rules also require that all of an
operator's purchases must be from suppliers licensed by the Missouri Gaming
Commission.
Although the Missouri Gaming Law provides no limit on the amount of
riverboat space that may be used for gaming, the Missouri Gaming Commission
is empowered to impose such space limitations through the adoption of rules
and regulations. Additionally, United States Coast Guard safety
regulations could affect the amount of riverboat space that may be devoted
to gaming. In addition, the Missouri Gaming Law imposes a $500 loss limit
19
per cruise and requires licensees to maintain scheduled cruises or
excursions with boarding and de-boarding times, regardless of whether a
gaming riverboat actually cruises the river, or has been granted continuous
docking status pursuant to the Missouri Gaming Law, as described below.
With respect to the availability of dockside gaming, which may be more
profitable than cruise gaming, the Missouri Gaming Commission is empowered
to determine on a city and county-specific basis where such gaming is
appropriate and shall be permitted. Dockside gaming in Missouri may differ
from dockside gaming in other states, because the Missouri Gaming
Commission has the ability to require "simulated cruising". This
requirement would permit customers to board dockside riverboats only at
specified times and would prohibit boarding during the period of a
simulated cruise, which is expected to last for two to three hours.
However, customers are permitted to leave the facility at any time. The
Missouri Gaming Commission has authorized seven of eight licensed
facilities to operate all or a portion of their facilities on a
continuously docked basis with a "simulated cruise" schedule. On February
15, 1996, the Commission granted Aztar Missouri the authority to operate
gambling games on part of its floating facility, previously used for non-
gaming activities, such as ticketing, under the continuous docking
provision of the Missouri Gaming Law. The Commission's order does not
affect Aztar Missouri's riverboat facility, the City of Caruthersville,
which does not have the authority to conduct gambling games while
continuously docked.
Regulation and Licensing - Indiana
The ownership and operation of riverboat casinos in certain designated
waters are subject to extensive state regulation under the Indiana
Riverboat Gambling Act (the "Indiana Act") and regulations which the
Indiana Gaming Commission is authorized to adopt under the Indiana Act.
The Indiana Act and the regulations the Indiana Gaming Commission has
adopted to date and is expected to adopt in the future are significant to
the Company's prospects for successfully operating its Evansville, Indiana
based riverboat casino and associated developments.
The Indiana Act extends broad and pervasive regulatory powers and authority
to the Indiana Gaming Commission. The Indiana Gaming Commission took
office in September 1993, and, thus far, its activities have been
predominantly directed toward establishing a regulatory and administrative
infrastructure for licensing of prospective applicants for the limited
number of riverboat owner's licenses authorized by the Indiana Act (five
for operations docking on Lake Michigan, one on a landlocked lake in
Southwestern Indiana and five on the Ohio River, including the Company's
facility in Evansville, Indiana), and on developing systems and "rules of
the game" for the actual operation of riverboat casinos. The Indiana
Gaming Commission has adopted a set of regulations under the Indiana Act
which covers numerous operational matters concerning riverboat casinos
licensed by the Commission and has proposed other rules for adoption. The
regulatory climate in Indiana may be more costly than exists in other
states.
20
Among regulations adopted is one dealing with riverboat excursions, routes
and public safety. The Indiana Act requires licensed riverboat casinos to
be cruising vessels. Another statute and the regulations carry out the
legislative intent with appropriate recognition of public safety needs.
The regulations explicitly preclude "dockside gambling". For purposes of
the regulations, dockside gambling is defined to mean gambling on a vessel
which is permanently moored and not self-propelled and allows unlimited
passenger ingress and egress. Instead, the regulations define the type of
excursions riverboats must conduct based upon location (Lake Michigan or
the Ohio River), weather conditions and other safety factors.
Excursions must have a two- to four-hour duration. An excursion begins at
the time embarkation begins and concludes at the end of disembarkation if
gambling continues during disembarkation. Embarkation and disembarkation
may not exceed thirty minutes each. When the embarkation period ends, a
gangway or its equivalent must be closed so that no further embarkation is
possible.
For Ohio River excursions, such as those the Company is conducting through
its Evansville operation, "full excursions" must be conducted at all times
during a year unless, for safety reasons, a "limited excursion" is
authorized by the master of the riverboat under the regulations. A "full
excursion" is a cruise on the Ohio River; a "limited excursion" is not a
cruise but a simulation where the gangway of a boat is closed with no
further ingress until the end of the designated excursion period.
Passengers may disembark during a limited excursion.
The Indiana Act extends to the master of each licensed riverboat the
discretion to keep the boat docked in circumstances where specific weather
conditions or water conditions present a danger to the riverboat and its
passengers and crew, where the riverboat or docking facility is undergoing
mechanical or structural repair, where water conditions present a danger to
the riverboat, its passengers and crew or to other vessels or where the
master has been notified that a condition exists which would cause a
violation of federal law if the riverboat were to cruise. In those
circumstances, the master may, upon written certification, keep the vessel
docked, and gaming may be conducted without cruising.
The Company, through an Indiana subsidiary, has received from the Indiana
Gaming Commission a riverboat owner's license for the Evansville, Indiana
market. The Company has completed requirements for formal licensing and
commenced operations in Evansville on December 7, 1995. The Ohio River has
waters in both Indiana and Kentucky in the Evansville vicinity. Because
riverboat casino gambling is illegal in Kentucky, authorities of that state
have raised issues about Indiana-licensed riverboats operating in Kentucky
waters. The Company's Evansville riverboat cruises from its dock without
entering Kentucky waters, thereby avoiding those issues.
A riverboat owner's license has an initial effective period of five years
but is subject to an annual renewal requirement. The Indiana Gaming
Commission has broad discretion with respect to the initial issuance of
licenses and also with respect to the renewal, revocation, suspension and
control of riverboat owner's licenses. Officers, directors and principal
21
owners of the actual license holder and employees who are to work on the
riverboat are subject to substantial disclosure requirements as a part of
securing necessary licenses. Significant contracts are subject to
disclosure and approval processes. Suppliers of gaming equipment and
materials must also be licensed under the Indiana Act.
The Indiana Act requires licensees to disclose to the Indiana Gaming
Commission the identity of all 1% or greater owners of public companies.
The Indiana Gaming Commission also requires a broad and comprehensive
disclosure of financial and operating information on licensees and their
principal officers. The Company has provided full information and
documentation to the Indiana Gaming Commission.
In addition to receiving a license to conduct riverboat casino operations
from the Indiana Gaming Commission, the Company has secured permits and
approvals from the United States Army Corps of Engineers to develop the
facilities it is using to conduct operations. The Company has received a
specialized alcoholic beverage permit for riverboat operations. The permit
extends serving privileges far beyond those which otherwise exist under
Indiana law. Permanent landside operations at the Company's hotel
development must secure other alcoholic beverage permits to conduct
operations. All building permits and other approvals for the permanent
facilities have been received, and the project is under construction.
The Indiana Act prescribes a tax on adjusted gross receipts from gambling
games authorized under the Indiana Act at the rate of 20% on adjusted gross
receipts. For this purpose, adjusted gross receipts means the total of all
cash and property received from gaming operations less cash paid out as
winnings and uncollectible gaming receivables. Indiana corporations are
also subject to the Indiana gross income tax, the Indiana adjusted gross
income tax and the Indiana supplemental corporate net income tax.
EMPLOYEES
The Company employs approximately 9,900 people, of which approximately
3,000 employees are represented by unions. Of the approximately 4,200
employees at TropWorld, approximately 1,400 are covered by collective
bargaining contracts. Substantially all of such employees are covered by a
contract that expires in 1999 and a small number are covered by contracts
that expire in 1996. At Tropicana, approximately 1,600 of the 2,600
employees are covered by collective bargaining contracts. Substantially
all of such employees are covered by contracts that expire in 1997 and the
remainder are covered by contracts that expire in 1998, 1999 or 2000. At
Ramada Express there are approximately 1,500 employees, none of which are
covered by collective bargaining agreements. The Company has approximately
1,000 employees and 500 employees, respectively, at Casino Aztar Evansville
and Casino Aztar Caruthersville, none of which are covered by collective
bargaining agreements.
TRADEMARKS
The Company uses a variety of trade names, service marks and trademarks and
believes it has all the licenses necessary to conduct its business. The
Company has registered several service marks and trademarks with the United
States Patent and Trademark Office or otherwise acquired the licenses to
use those which are material to the conduct of the Company's business as a
whole.
22
The Company and Adamar of Nevada are the beneficiaries of an agreement with
Tropicana Enterprises, the owner of certain properties related to
Tropicana, and the Jaffe family regarding the use of the name "Tropicana"
for the operation of a casino hotel in Atlantic City and in connection with
the operation of a casino hotel in New York State (if gaming were to be
authorized in New York State). Pursuant to such agreement, the Company has
registered the name under the Lanham Act. Upon the occurrence of certain
events, the right to use the name reverts to Tropicana Enterprises.
Ramada has licensed the Company to use the name "Ramada" in conjunction
with the operation of Ramada Express, and will not use or permit the use of
the name "Ramada" in Laughlin, Nevada by any other person or entity.
The Company has registered the following important service marks: Aztar,
Trop, TropWorld, Trop Park, TropWorld Casino and Entertainment Resort and
The Island of Las Vegas. The Company believes there are no other
trademarks or service marks the use of which is material to the conduct of
the Company's business as a whole.
ITEM 2. PROPERTIES
- -------------------
TROPWORLD.
TropWorld is located on a 10-acre site in Atlantic City, New Jersey. In
July 1993, TropWorld became wholly owned by the Company.
TROPICANA.
Tropicana is located on a 34-acre site in Las Vegas, Nevada. Tropicana is
owned by Tropicana Enterprises and is leased to HRN, which operates the
casino and hotel under the lease ( the "Tropicana Lease"), which expires in
2011. The Company, through its wholly-owned subsidiary, Adamar of Nevada,
owns a noncontrolling 50% general partnership interest in Tropicana
Enterprises. The remaining 50% general partnership interest in Tropicana
Enterprises is held by various individuals and trusts associated with the
Jaffe family subject to certain preferences on liquidation. The Company
does not have the right to purchase Tropicana from Tropicana Enterprises
and does not have the right to purchase the remaining partnership interest
in Tropicana Enterprises that is not owned by Adamar of Nevada.
RAMADA EXPRESS.
Ramada Express is located on a 28-acre site in Laughlin, Nevada. Ramada
Express is wholly owned by the Company.
CASINO AZTAR CARUTHERSVILLE
Casino Aztar operates on and from a 37-acre site next to the Mississippi
River in downtown Caruthersville, Missouri. The site and facilities are
wholly owned by the Company.
23
CASINO AZTAR EVANSVILLE
Casino Aztar operates on and from a base 8-acre site next to the Ohio River
in downtown Evansville, Indiana. Approximately 4 1/2 acres are leased.
The lease is for 10 years with 3 options to renew for 5 years each. The
remaining approximately 3 1/2 acres are wholly owned by the Company. For
the first year of operation, the Company also owns or leases another
approximate 21 acres for parking purposes.
NEW GAMING JURISDICTIONS
In connection with the Company's development of its business in new
jurisdictions, the Company has an option to purchase land in Bensalem,
Pennsylvania.
GENERAL.
The Company leases its corporate headquarters located in Phoenix, Arizona
and owns or leases certain other facilities which are not material to the
Company's operations.
Substantially all land, casino hotel buildings, casino riverboats,
pavilions, furnishings and equipment owned by the Company are pledged as
collateral under long-term debt agreements.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company and more than 40 other major casino operators, as well as
various manufacturers and distributors of video poker and electronic slot
machines, have been named as defendants in an action originally filed in
the United States District Court for the Middle District of Florida,
Orlando Division, entitled William H. Poulos, On Behalf of Himself and All
Others Similarly Situated v. Caesars World, Inc., et al., Case No. 94-478-
CIV-ORL-22, filed on April 26, 1994. This action was consolidated with
another subsequently filed action in that court entitled William Ahearn, On
Behalf of Himself and All Others Similarly Situated v. Caesars World, Inc.,
et al., Case No. 94-532-CIV-ORL-22 (the "Actions"). Both Actions were
brought under RICO and state common law and seek compensatory and punitive
damages in excess of $1 billion from the defendants. The complaints allege
that the defendants took part in a scheme intended to induce people to play
video poker and electronic slot machines based on false beliefs concerning
how those machines actually operate as well as the extent to which there is
actually an opportunity to win on any given play. The precise nature of
the Company's alleged role in the alleged fraud and conspiracy to defraud
is not discernible from the complaints.
On December 9, 1994, the Florida Court ordered that the consolidated cases
be transferred to the United States District Court for the District of
Nevada. That transfer has occurred and the Nevada Court has assumed
control of the cases. The new case numbers are CV-S-94-1126-LDG(RJJ) and
CV-S-94-1137-LDG(RJJ). Numerous defendants (including the Company) have
moved to dismiss the complaint for failure to state a claim. No hearing
has been set on this motion. The plaintiffs have filed a motion seeking to
certify the consolidated actions as a class action. The defendants
(including the Company) have opposed certification of the class. No
hearing date has been set on this motion. The parties submitted a joint
24
status report to the Court on January 18, 1995. All discovery has been
stayed by the Court pending the entry of a scheduling order. The
plaintiffs have filed a motion asking the Court to hold a case management
and scheduling conference and to permit discovery to resume. The Company
(and all other defendants) have opposed this motion, and have suggested to
the Court that consideration of the pending motions would be the more
effective means of handling the case, since the granting of the motion to
dismiss would end the case and obviate the need for scheduling or
management of the case. No argument date has been set.
On September 26, 1995, an action entitled Larry Schreier, On behalf of
Himself and All Others Similarly Situated v. Caesars World, Inc., et al.,
Case No. CV-S-95-00923-DWH(RJJ)(the "Schreier Case") was commenced in the
United States District Court for the District of Nevada. The case was
thereafter transferred to Judge Lloyd D. George and assigned the Case No.
CV-S-95-00923-LDG(RJJ). The Schreier Case is identical to Case Nos. CV-S-
94-1126-LDG(RJJ) and CV-S-94-1137-LDG(RJJ)(collectively, the "Poulos/Ahearn
Case") in all material respects, except that the named plaintiff purports
to represent a class of persons somewhat smaller than the class in the
Poulos/Ahearn Case; to wit: (i) all persons who are members of "slot clubs"
and played electronic slot machines; and (ii) all persons who have played
in video poker tournaments. The plaintiffs in the Schreier Case are
represented by the same lawyers who represent the plaintiffs in the
Poulos/Ahearn Case. The defendants (including the Company) have moved to
dismiss the complaint on the same grounds as in the previously described
Poulos/Ahearn case, as well as on the ground that this case was filed for
an improper purpose, an attempt to circumvent prior rulings of the Court in
the Poulos/Ahearn Case. No hearing date has been set on the motion.
Motions have been made by defendants in another related case pending in the
same court entitled Poulos vs. Ambassador Cruise Lines, et al., Case No.
CV-S-95-936-LDG(RLH), to consolidate that case with the Poulos/Ahearn Case.
The Company does not oppose the consolidation of these two cases. The
plaintiff in the Schreier Case has filed a motion to consolidate that case
with the Poulos/Ahearn Case and the Poulos vs. Ambassador Cruise Lines
case. The Court has denied that motion.
Aztar and numerous other major casino operators were named as defendants in
an action filed in late August 1995 in the United States District Court for
the District of New Jersey, Camden Division, entitled Thomas Hyland
(Plaintiff) v. Griffin Investigations, et al., Case No. 95cv2236(JEI). The
Plaintiff seeks certification of the case as a class action, and claims
generally that the treatment of card counters by the defendants is in
violation of the Sherman Act, the Fair Credit Reporting Act and other laws.
Plaintiff did not specify the amount of damages he is seeking. On
November 1, 1995, the Company moved to dismiss the complaint and therefore
has not yet filed an answer. Counsel for Plaintiff has not yet responded
to the Company's motion to dismiss. Pursuant to Local Rule upon perfection
of the motion, it will be submitted to the Court for consideration.
The Company believes that plaintiffs' allegations are without merit, and it
intends to defend the actions vigorously.
25
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business or asserted by way of defense or
counterclaim in actions filed by the Company. Management believes that its
defenses are substantial in each of these matters and that the legal
posture of the Company can be successfully defended or satisfactorily
settled without material adverse effect on its consolidated financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
26
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The registrant has elected not to include information concerning its
executive officers in its 1996 Proxy Statement, as allowed by the Proxy
Statement instructions. The registrant relies on General Instruction G(3)
of this report on Form 10-K in presenting the following information on its
executive officers.
Tenure
-----------------
With Present
Name Office Age Company Position
- ------------------- ---------------------------- --- -------- --------
Paul E. Rubeli Chairman of the Board, 52 17 years 4 years
President and Chief
Executive Officer
Robert M. Haddock Executive Vice President 51 15 years 9 years
and Chief Financial
Officer
Nelson W. Armstrong,
Jr. Vice President, 54 23 years 6 years
Administration, and Secretary
Joe C. Cole Vice President, 57 8 years 8 years
Corporate Communications
Meridith P. Sipek Controller 49 18 years 6 years
Neil A. Ciarfalia Treasurer 48 1 year 1 year
Paul E. Rubeli. Mr. Rubeli joined Ramada in 1979 as Group Vice President,
Industrial Operations. He served as Executive Vice President, Gaming, of
Ramada from 1982 to December 1989, when he was appointed President and
Chief Operating Officer, of the Company in the Restructuring. He was
appointed President and Chief Executive Officer in February 1990 and was
appointed Chairman of the Board in addition to his other positions in
February 1992.
Robert M. Haddock. Mr. Haddock joined Ramada in 1980 and held various
positions before becoming Executive Vice President and Chief Financial
Officer in March 1987, serving in that capacity until the Restructuring,
when he assumed the same position with the Company.
Nelson W. Armstrong, Jr. Mr. Armstrong joined Ramada in 1973 as an
accounting supervisor and held various positions on the corporate
accounting staff, serving as Vice President and Controller, of Ramada and
then of the Company after the Restructuring until he was appointed Vice
President, Administration, and Secretary, of the Company in March 1990.
Joe C. Cole. Mr. Cole joined Ramada in March 1988 as Vice President,
Corporate Communications, after having been affiliated with Phoenix
Newspapers Inc. for 26 years as a reporter, columnist and editor. He
became Vice President, Corporate Communications, of the Company in the
Restructuring.
27
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
- ------------------------------------------------
Meridith P. Sipek. Mr. Sipek joined Ramada's corporate accounting staff in
1977 as a manager and held various positions in corporate and hotel
accounting, serving as Hotel Group Controller, before being named Assistant
Corporate Controller, of Ramada and then of the Company after the
Restructuring. He was appointed Controller, of the Company in March 1990.
Neil A. Ciarfalia. Mr. Ciarfalia joined the Company in 1995 as Treasurer.
Prior to joining the Company, Mr. Ciarfalia spent 11 years with the commercial
aircraft division of Saab-Scania AB. During that time, he served Saab as
President of the various divisional finance companies which arranged or
provided financing for the acquisition of Saab aircraft and related products.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
Aztar had 11,248 shareholders of record as of February 22, 1996.
The additional information required by this Item 5 is included in this report
on F-17, F-28 and F-39.
ITEMS 6, 7, and 8
- -----------------
The information required by Item 6 is included in this report on F-39; by Item
7, on F-29 through F-38; and by Item 8, on F-1 through F-28.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
PART III
--------
ITEMS 10, 11, 12 and 13
- -----------------------
The information required by Items 10, 11, 12 and 13 is incorporated by
reference to the registrant's definitive Proxy Statement to be filed with the
Commission. A cross-referenced index is located on the facing page of this
report. Information concerning the registrant's executive officers is
presented above under a separate caption in Part I of this report.
28
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
Page No.
--------
(a) 1. Financial Statements:
Report of Independent Accountants F-1
Consolidated Balance Sheets, December 28, 1995 and
December 29, 1994 F-2
Consolidated Statements of Operations for the years ended
December 28, 1995, December 29, 1994 and December 30, 1993 F-4
Consolidated Statements of Cash Flows for the years ended
December 28, 1995, December 29, 1994 and December 30, 1993 F-6
Consolidated Statements of Shareholders' Equity for the
years ended December 28, 1995, December 29, 1994 and
December 30, 1993 F-8
Notes to Consolidated Financial Statements F-10
2. Financial Statement Schedules:
Report of Independent Accountants S-1
II - Valuation and Qualifying Accounts S-2
All other schedules are omitted because the required information
is either presented in the financial statements or notes
thereto, or is not present in amounts sufficient to require
submission of the schedules.
3. Exhibits:
3 Articles of Incorporation and By-Laws *
4 Instruments Defining the Rights of Security
Holders, Including Indentures *
10 Material Contracts *
11 Statement Regarding Computation of Per Share Earnings *
21 Subsidiaries of the Registrant *
23 Consents of Experts and Counsel *
27 Financial Data Schedule *
* See exhibit index at page E-1 of this report for a listing of
exhibits filed with this report and those incorporated by
reference.
All other exhibits have been omitted because the information is
not required or is not applicable.
29
(b) Reports on Form 8-K:
The Company did not file any report on Form 8-K during the
quarter ended December 28, 1995.
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act
of 1933, the undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8 No. 33-32399 and No. 33-44794
(filed January 5, 1990 and December 24, 1991, respectively):
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AZTAR CORPORATION By ROBERT M. HADDOCK March 21, 1996
----------------- ------------------------- ------------------
Registrant Robert M. Haddock Date
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
PAUL E. RUBELI Chairman of the Board, President March 21, 1996
- ------------------------- and Chief Executive Officer, and ----------------
Paul E. Rubeli Director
ROBERT M. HADDOCK Executive Vice President and March 21, 1996
- ------------------------- Chief Financial Officer, and ----------------
Robert M. Haddock Director
MERIDITH P. SIPEK Controller March 21, 1996
- ------------------------- ----------------
Meridith P. Sipek
JOHN B. BOHLE Director March 21, 1996
- ------------------------- ----------------
John B. Bohle
E. M. CARSON Director March 21, 1996
- ------------------------- ----------------
Edward M. Carson
A. S. GITTLIN Director March 21, 1996
- ------------------------- ----------------
A. Sam Gittlin
JOHN R. NORTON, III Director March 21, 1996
- ------------------------- ----------------
John R. Norton, III
ROBERT S. ROSOW Director March 21, 1996
- ------------------------- ----------------
Robert S. Rosow
R. SNELL Director March 21, 1996
- ------------------------- ----------------
Richard Snell
VESTA VALENTINE TEMEN Director March 21, 1996
- ------------------------- ----------------
Vesta Valentine Temen
TERENCE W. THOMAS Director March 21, 1996
- ------------------------- ----------------
Terence W. Thomas
CARROLL V. WILLOUGHBY Director March 21, 1996
- ------------------------- ----------------
Carroll V. Willoughby 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Aztar Corporation
We have audited the consolidated balance sheets of Aztar Corporation and
Subsidiaries as of December 28, 1995 and December 29, 1994, and the related
consolidated statements of operations, cash flows and shareholders' equity
for each of the three years in the period ended December 28, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Aztar Corporation and Subsidiaries as of December 28, 1995 and
December 29, 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
28, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
February 14, 1996
F-1
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, 1995 and December 29, 1994
----------------------------------------
(in thousands, except share data)
1995 1994
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 26,527 $ 43,861
Short-term investments -- 8,250
Accounts receivable, net 21,325 17,391
Refundable income taxes 1,261 723
Inventories 6,591 5,693
Prepaid expenses 9,417 9,992
Deferred income taxes 8,013 7,894
---------- ---------
Total current assets 73,134 93,804
Investments in and advances to unconsolidated
partnership 11,467 12,627
Other investments 27,964 24,928
Property and equipment:
Buildings, riverboats and equipment, net 711,454 635,678
Land 95,589 81,795
Construction in progress 46,102 37,965
Leased under capital leases, net 535 852
---------- ---------
853,680 756,290
Deferred charges and other assets 46,993 27,710
---------- ---------
$1,013,238 $ 915,359
========== =========
The accompanying notes are an integral part of these financial statements.
F-2
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
December 28, 1995 and December 29, 1994
----------------------------------------
(in thousands, except share data)
1995 1994
--------- ---------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accruals $ 60,226 $ 39,447
Accrued payroll and employee benefits 18,012 15,467
Accrued interest payable 14,995 13,847
Income taxes payable 2,197 2,608
Current portion of long-term debt 466 666
Current portion of other long-term liabilities 6,172 636
---------- ---------
Total current liabilities 102,068 72,671
Long-term debt 496,439 430,212
Other long-term liabilities 30,699 21,986
Deferred income taxes 18,914 24,411
Contingencies and commitments
Series B ESOP convertible preferred stock
(redemption value $6,114 and $4,900) 5,459 4,711
Shareholders' equity:
Common stock, $.01 par value (38,265,813
and 37,459,228 shares outstanding) 422 414
Paid-in capital 352,221 347,284
Retained earnings 24,922 30,555
Less: Treasury stock (17,027) (16,885)
Unearned compensation (879) --
---------- ---------
Total shareholders' equity 359,659 361,368
---------- ---------
$1,013,238 $ 915,359
========== =========
The accompanying notes are an integral part of these financial statements.
F-3
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-----------------------------------
(in thousands, except per share data)
1995 1994 1993
Revenues --------- --------- ---------
Casino $469,211 $443,392 $439,294
Rooms 40,543 41,514 32,248
Food and beverage 47,343 42,657 36,357
Other 15,772 13,877 10,863
-------- -------- --------
572,869 541,440 518,762
Costs and expenses
Casino 226,239 205,995 219,721
Rooms 24,967 25,268 19,495
Food and beverage 44,320 39,361 34,773
Other 10,250 7,753 6,737
Marketing 57,445 44,494 42,793
General and administrative 50,292 47,895 45,981
Utilities 13,605 13,556 12,328
Repairs and maintenance 20,986 19,905 19,953
Provision for doubtful accounts 3,611 3,102 1,566
Property taxes and insurance 19,927 17,781 16,729
Net rent 11,308 9,951 27,747
Depreciation and amortization 39,494 36,972 32,652
Preopening costs 7,724 -- 868
-------- -------- --------
530,168 472,033 481,343
-------- -------- --------
Operating income 42,701 69,407 37,419
Interest income 3,251 3,139 24,172
Interest expense (51,052) (49,711) (45,363)
-------- -------- --------
Income (loss) before other items, income
taxes and extraordinary items (5,100) 22,835 16,228
Equity in unconsolidated partnership's loss (5,081) (4,169) (3,822)
-------- -------- --------
Income (loss) before income taxes and
extraordinary items (10,181) 18,666 12,406
Income taxes 5,187 (1,862) (1,024)
-------- -------- --------
Income (loss) before extraordinary items (4,994) 16,804 11,382
Extraordinary items -- (2,708) --
-------- -------- --------
Net income (loss) $ (4,994) $ 14,096 $ 11,382
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-4
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-----------------------------------
(in thousands, except per share data)
1995 1994 1993
-------- -------- --------
Earnings per common and common equivalent
share:
Income (loss) before extraordinary
items $ (.14) $ .42 $ .28
Extraordinary items -- (.07) --
-------- -------- --------
Net income (loss) $ (.14) $ .35 $ .28
======== ======== ========
Earnings per common share assuming full
dilution:
Income (loss) before extraordinary
items * $ .41 $ .27
Extraordinary items * (.07) --
-------- --------
Net income (loss) * $ .34 $ .27
======== ========
Weighted average common shares
applicable to:
Earnings per common and common
equivalent share 39,026 38,196 38,367
Earnings per common share assuming
full dilution * 39,224 39,429
* Anti-dilutive
The accompanying notes are an integral part of these financial statements.
F-5
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
--------------
(in thousands)
1995 1994 1993
---------- ---------- ----------
Cash Flows from Operating Activities
Net income (loss) $ (4,994) $ 14,096 $ 11,382
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 42,808 39,529 34,577
Provision for losses on accounts
receivable 3,611 3,102 1,566
Loss on reinvestment obligation -- 950 991
Interest income -- -- 1,889
Rent expense (636) (5) (880)
Distribution in excess of equity in
income of partnership 1,160 1,149 1,449
Deferred income taxes (5,616) (3,043) (1,280)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (7,545) (1,577) (1,442)
(Increase) decrease in refundable
income taxes (538) 1,339 --
(Increase) decrease in inventories
and prepaid expenses (516) (1,121) (1,969)
Increase (decrease) in accounts payable,
accrued expenses and income taxes
payable 25,066 1,434 1,955
Other items, net 6,375 5,780 2,087
--------- --------- ---------
Net cash provided by (used in) operating
activities 59,175 61,633 50,325
--------- --------- ---------
Cash Flows from Investing Activities
(Increase) decrease in invested funds 8,250 (8,250) --
Payments received on TropWorld second
mortgage -- -- 24,400
Payments received on other notes receivable 1,009 965 2,191
Reduction in other investments 11,950 -- --
Increase in TropWorld second mortgage -- -- (24,400)
Increase in other notes receivable -- -- (419)
Purchases of property and equipment (135,863) (54,442) (77,804)
Acquisition of AREI/AGP partnership
interests, net of cash acquired -- -- (61,859)
Additions to other long-term assets (28,463) (6,682) (6,391)
--------- --------- ---------
Net cash provided by (used in) investing
activities $(143,117) $ (68,409) $(144,282)
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-6
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
--------------
(in thousands)
1995 1994 1993
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt $ 83,600 $254,795 $ 35,000
Proceeds from issuance of common stock 1,977 274 2,149
Principal payments on long-term debt (17,837) (231,507) (2,157)
Debt issuance costs (80) (11,473) (969)
Preferred stock dividend (754) (773) (787)
Redemption of preferred stock (298) (230) (131)
-------- -------- --------
Net cash provided by (used in)
financing activities 66,608 11,086 33,105
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (17,334) 4,310 (60,852)
Cash and cash equivalents at beginning
of year 43,861 39,551 100,403
-------- -------- --------
Cash and cash equivalents at end
of year $ 26,527 $ 43,861 $ 39,551
======== ======== ========
Supplemental Cash Flow Disclosures
Acquisition of AREI/AGP partnership interests:
Working capital, other than cash $ -- $ -- $ 3,370
Notes receivable -- -- 242,605
Building and equipment -- -- (307,582)
Capital lease assets, net -- -- 6,703
Long-term debt -- -- (5,682)
Other long-term liabilities -- -- (1,273)
-------- -------- --------
Net cash used in acquisition -- -- (61,859)
Summary of non-cash investing and
financing activities:
Capital lease obligations incurred
for property and equipment $ 41 $ 75 $ 385
Other long-term liabilities incurred
for deferred charges and other assets 13,400 -- --
Other long-term liabilities incurred
for property and equipment 535 -- --
Tax benefit from stock options
and preferred stock dividend 907 722 431
Issuance of restricted stock 2,189 -- --
Forfeiture of restricted stock 142 -- --
Cash flow during the year for the following:
Interest paid, net of amount capitalized $ 47,758 $ 47,087 $ 43,160
Income taxes paid 471 2,065 1,997
The accompanying notes are an integral part of these financial statements.
F-7
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 28, 1995, December 29, 1994 and December 30, 1993
-------------
(in thousands)
Unearned
Common Paid-in Retained Treasury Compen-
Stock Capital Earnings Stock sation Total
-------- -------- --------- --------- --------- --------
Balance,
December 31, 1992 $ 410 $344,574 $ 5,787 $(16,885) $ (137) $333,749
Stock options
exercised 4 2,145 2,149
Tax benefit
from stock
options exercised 246 246
Preferred stock
dividend, net of
income tax benefit (610) (610)
Amortization of
unearned
compensation 72 72
Net income 11,382 11,382
-------- -------- -------- -------- -------- --------
Balance,
December 30, 1993 414 346,965 16,559 (16,885) (65) 346,988
Stock options
exercised 274 274
Tax benefit
from stock
options exercised 45 45
Reduction in income
tax valuation
allowance 520 520
Preferred stock
dividend, net of
income tax benefit (620) (620)
Amortization of
unearned
compensation 65 65
Net income 14,096 14,096
-------- -------- -------- -------- -------- --------
Balance,
December 29, 1994 $ 414 $347,284 $ 30,555 $(16,885) $ -- $361,368
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-8
AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
For the Years Ended December 28, 1995, December 29, 1994 and De