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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q




(Mark One)

(X)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended   July 4, 2002                                

                               OR

( )

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from                to               


Commission file number    1-5440                               


                                AZTAR CORPORATION                            
            (Exact name of registrant as specified in its charter)



          Delaware                
(State or other jurisdiction of
incorporation or organization)

 



           86-0636534           

       (I.R.S. Employer
        Identification No.)


2390 East Camelback Road, Suite 400, Phoenix, Arizona            85016       
(Address of principal executive offices)                      (Zip Code)


Registrant¢ s telephone number, including area code (602) 381-4100


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      



At August 1, 2002, the registrant had outstanding 37,309,579 shares of its common stock, $.01 par value.




















AZTAR CORPORATION AND SUBSIDIARIES

FORM 10-Q

INDEX



     

PART I.

FINANCIAL INFORMATION

PAGE
- ----

  Item 1.

Financial Statements

 



Consolidated Balance Sheets at July 4, 2002 and January 3,
2002





Consolidated Statements of Operations for the quarters and
six months ended July 4, 2002 and June 28, 2001





Consolidated Statements of Cash Flows for the six months
ended July 4, 2002 and June 28, 2001





Consolidated Statements of Shareholders' Equity for the
six months ended July 4, 2002 and June 28, 2001




Notes to Consolidated Financial Statements


  Item 2.

Management's Discussion and Analysis of Financial
Condition and Results of Operations


14 

  Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19 

PART II.

OTHER INFORMATION


  Item 1.

Legal Proceedings

20 

  Item 4.

Submission of Matters to a Vote of Security Holders

20 

  Item 6.

Exhibits and Reports on Form 8-K

20 

























2







AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)





Assets
Current assets:
  Cash and cash equivalents
  Accounts receivable, net
  Inventories
  Prepaid expenses
  Deferred income taxes, net

    Total current assets

Investments in and advances to unconsolidated
  partnership
Other investments

Property and equipment:
  Buildings, riverboats and equipment, net
  Land
  Construction in progress
  Leased under capital leases, net


Intangible assets
Other assets

July 4,  
    2002    



$   57,193  
22,192  
8,139  
10,571  
    18,192  

116,287  


- --  
16,110  


746,147  
214,935  
38,537  
       380  
999,999  

44,265  
     6,318  

$1,182,979  
==========  

January 3, 
    2002    



$   92,122  
22,158  
7,752  
10,464  
    16,934  

149,430  


6,414  
23,544  


716,758  
104,957  
22,661  
       662  
845,038  

29,172  
     7,358  

$1,060,956  
==========  




























The accompanying notes are an integral part of these financial statements.



3







AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)(continued)
(in thousands, except share data)





Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable and accruals
  Accrued payroll and employee benefits
  Accrued interest payable
  Income taxes payable
  Current portion of long-term debt
  Current portion of other long-term liabilities

    Total current liabilities

Long-term debt
Other long-term liabilities
Deferred income taxes
Contingencies and commitments
Series B ESOP convertible preferred stock
   (redemption value $14,892 and $10,607)

Shareholders' equity:
  Common stock, $.01 par value (37,309,579 and
    36,644,767 shares outstanding)
  Paid-in capital
  Retained earnings
  Accumulated other comprehensive loss
  Less: Treasury stock

    Total shareholders' equity

   July 4,  
    2002    



$   59,178  
29,364  
9,118  
6,174  
5,366  
       618  

109,818  

541,564  
14,107  
20,347  


5,750  



524  
439,275  
203,139  
(353) 
  (151,192

   491,393  

$1,182,979  
==========  

   January 3, 
    2002    



$   61,144  
30,450  
9,505  
2,131  
1,428  
     1,498  
 
106,156  

458,659  
20,495  
15,846  


5,959  



517  
431,455  
173,409  
(353) 
  (151,187

   453,841  

$1,060,956  
==========  














The accompanying notes are an integral part of these financial statements.



4







AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the periods ended July 4, 2002 and June 28, 2001
(in thousands, except per share data)

 

    Second Quarter    

      Six Months     


Revenues
  Casino
  Rooms
  Food and beverage
  Other

Costs and expenses
  Casino
  Rooms
  Food and beverage
  Other
  Marketing
  General and administrative
  Utilities
  Repairs and maintenance
  Provision for doubtful accounts
  Property taxes and insurance
  Rent
  Depreciation and amortization


Operating income

  Interest income
  Interest expense
  Equity in unconsolidated
    partnership's loss

Income before income taxes

  Income taxes


Net income


Net income per common share

Net income per common share assuming
  dilution

Weighted-average common shares
  applicable to:
  Net income per common share
  Net income per common share
    assuming dilution

  2002   

$164,994 
20,597 
14,646 
  10,864 
211,101 

68,820 
10,108 
13,774 
8,041 
20,500 
17,700 
4,265 
6,387 
454 
6,242 
2,534 
  12,668 
 171,493 

39,608 

253 
(10,735)

      -- 

29,126 

 (12,648)


$ 16,478 
======== 

$    .44 


$    .42 



37,291 

39,208 

  2001   
 
$165,472 
20,804 
14,418 
  10,162 
210,856 

69,331 
10,231 
14,024 
8,146 
20,134 
19,408 
3,849 
5,894 
970 
6,153 
4,782 
  12,931 
 175,853 

35,003 

328 
  (9,084)

    (962)

25,285 

  (9,273)


$ 16,012 
======== 

$    .42 


$    .40 



37,566 

39,114 

  2002   
 
$329,640 
39,031 
28,601 
  19,823 
417,095 

138,290 
19,752 
27,021 
16,149 
39,611 
38,110 
7,756 
12,757 
1,368 
12,569 
6,800 
  25,207 
 345,390 

71,705 

641 
(21,090)

    (458)

50,798 

 (20,561)


$ 30,237 
======== 

$    .80 


$    .77 



37,089 

39,060 

  2001   
 
$331,769 
39,060 
28,885 
  19,486 
419,200 

142,310 
19,582 
28,166 
16,296 
40,083 
38,752 
8,327 
12,067 
1,844 
12,392 
9,689 
  25,927 
 355,435 

63,765 

716 
 (19,162)

  (1,980)

43,339 

 (15,936)


$ 27,403 
======== 

$    .71 


$    .69 



37,889 

39,353 








The accompanying notes are an integral part of these financial statements.



5







AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the periods ended July 4, 2002 and June 28, 2001
(in thousands)

 

      Six Months      



Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
    Depreciation and amortization
    Provision for losses on accounts receivable
    (Gain) loss on reinvestment obligation
    Rent expense
    Distribution (less than )in excess of equity in
      income of partnership
    Deferred income taxes
    Change in assets and liabilities:
      (Increase) decrease in accounts receivable
      (Increase) decrease in inventories and
        prepaid expenses
      Increase (decrease) in accounts payable,
        accrued expenses and income taxes payable
      Other items, net

  Net cash provided by (used in) operating activities

Cash Flows from Investing Activities
Reduction in other investments
Purchases of property and equipment
Acquisition of Tropicana Enterprises partnership
  interests
Additions to other long-term assets

  Net cash provided by (used in) investing activities

Cash Flows from Financing Activities
Proceeds from issuance of long-term debt
Proceeds from issuance of common stock
Principal payments on long-term debt
Principal payments on other long-term liabilities
Repurchase of common stock
Preferred stock dividend
Redemption of preferred stock

  Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period

    Cash and cash equivalents at end of period

  2002   


$  30,237 


25,971 
1,368 
(2,681)
(171)

(414)
3,243 

(1,402)

(494)

3,932 
    1,331 

   60,920
 


12,655 
(29,483)

(117,500)
   (3,192)

 (137,520)


99,000 
4,499 
(61,094)
(13)
- -- 
(234)
     (487)

   41,671 

(34,929)
   92,122 

$  57,193 
========= 

  2001   


$  27,403 


26,529 
1,844 
606 
(520)

277 
6,696 

(2,297)

(1,430)

(3,727)
      200 

   55,581 


835 
(30,138)

- -- 
   (2,762)

  (32,065)


119,200 
839 
(132,968)
(13)
(17,061)
(256)
     (315)

  (30,574)

(7,058)
   48,080 

$  41,022 
========= 










The accompanying notes are an integral part of these financial statements.



6







AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)(continued)
For the periods ended July 4, 2002 and June 28, 2001
(in thousands)




 

     Six Months      



Supplemental Cash Flow Disclosures

Acquisition of Tropicana Enterprises partnership interests:
  Investments in and advances to unconsolidated partnership
  Buildings, net
  Land
  Intangible assets
  Other assets
  Current portion of long-term debt
  Current portion of other long-term liabilities
  Long-term debt
  Other long-term liabilities

    Net cash used in acquisition

Summary of non-cash investing and financing activities:
  Exchange of common stock in lieu of cash payments in
    connection with the exercise of stock options
  Other long-term liabilities reduced for intangible assets

Cash flow during the period for the following:
  Interest paid, net of amount capitalized
  Income taxes paid

  2002   




$   6,828 
(41,411)
(109,979)
(15,331)
1,000 
4,148 
(847)
44,773 
   (6,681)

$(117,500)



$       5 
      -- 


$  20,755 
9,952 

  2001   




$     -- 
- -- 
- -- 
- -- 
- -- 
- -- 
- -- 
- -- 
      -- 

$     -- 



$     13 
     50 


$ 19,492 
12,408 




























The accompanying notes are an integral part of these financial statements.



7







AZTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
For the periods ended July 4, 2002 and June 28, 2001
(in thousands, except number of shares)


 

     Six Months      



Common stock:
  Beginning balance
  Stock options exercised for 665,034 and 112,999 shares

    Ending balance

Paid-in capital:
  Beginning balance
  Stock options exercised
  Tax benefit from stock options exercised

    Ending balance

Retained earnings:
  Beginning balance
  Preferred stock dividend and losses on redemption
  Net income

    Ending balance

Accumulated other comprehensive loss:
  Beginning and ending balance

Treasury stock:
  Beginning balance
  Repurchase of 1,447,800 shares of common stock at cost
    in 2001
  Repurchase of 222 and 1,081 shares of common stock,
    at cost, in connection with stock options exercised

    Ending balance

  2002   


$     517 
        7 

      524 


431,455 
4,497 
    3,323 

  439,275 


173,409 
(507)
   30,237 

  203,139 


     (353)


(151,187)

- -- 

       (5)

 (151,192)

$ 491,393 
========= 

  2001   


$     515 
        1 

      516 


428,537 
851 
      205 

  429,593 


116,194 
(398)
   27,403 

  143,199 


       -- 


(122,540)

 (17,061)

      (13)

 (139,614)

$ 433,694 
========= 




















The accompanying notes are an integral part of these financial statements.



8







AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


Note 1: General

The consolidated financial statements reflect all adjustments, such adjustments being normal recurring accruals, which are necessary, in the opinion of management, for the fair presentation of the results of the interim periods; interim results, however, may not be indicative of the results for the full year.

The notes to the interim consolidated financial statements are presented to enhance the understanding of the financial statements and do not necessarily represent complete disclosures required by generally accepted accounting principles. The interest that was capitalized during the second quarter and six months ended 2002 was $576,000 and $1,077,000, respectively; it was $267,000 and $478,000 during the second quarter and six months ended 2001. Capitalized costs related to various development projects, included in intangible assets, were $310,000 and $5,990,000 at July 4, 2002 and January 3, 2002, respectively. For additional information regarding significant accounting policies, long-term debt, lease obligations, and other matters applicable to the Company, reference should be made to the Company's Annual Report to Shareholders for the year ended January 3, 2002.

Certain reclassifications have been made in the January 3, 2002 Consolidated Balance Sheet in order to be comparable with the July 4, 2002 presentation.


Note 2: Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets." SFAS 142 is effective for fiscal years beginning after December 15, 2001 and applies to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. Effective January 4, 2002, the Company ceased amortization of the cost of its initial gaming licenses because it was determined, under the criteria established in SFAS 142, that these assets have an indefinite life. Amortization expense related to the cost of the Company's initial gaming licenses during the second quarter and six months ended 2001 was $660,000 and $1,326,000, respectively.

A reconciliation of the Company's reported net income to proforma net income to give effect to SFAS 142 for the periods ended July 4, 2002 and June 28, 2001 is as follows (in thousands, except per share data):

 

    Second Quarter    

      Six Months     



Reported net income
Addback: Initial gaming licenses
  amortization, net of income
  tax of $264 and $530 in 2001
Proforma net income

Net income per common share:
  Reported net income
  Initial gaming licenses
    amortization
  Proforma net income

Net income per common share
  assuming dilution:
  Reported net income
  Initial gaming licenses
    amortization
  Proforma net income

  2002   

$ 16,478 

      -- 
$ 16,478 
======== 


$    .44 

      -- 
$    .44 
======== 


$    .42 

      -- 
$    .42 
======== 

  2001   

$ 16,012 

     396 
$ 16,408 
======== 


$    .42 

     .01 
$    .43 
======== 


$    .40 

     .01 
$    .41 
======== 

  2002   

$ 30,237 

      -- 
$ 30,237 
======== 


$    .80 

     .-- 
$    .80 
======== 


$    .77 

      -- 
$    .77 
======== 

  2001   

$ 27,403 

     796 
$ 28,199 
======== 


$    .71 

     .02 
$    .73 
======== 


$    .69 

     .02 
$    .71 
======== 


9







AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)


In August 2001, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." The objectives of SFAS 143 are to establish accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 is effective for fiscal years beginning after June 15, 2002. Based upon a preliminary review, the Company has no asset retirement obligation at July 4, 2002.


Note 3: Acquisition

On February 28, 2002, the Company purchased the 50% partnership interest in Tropicana Enterprises that it did not own. After credits, the Company paid $117,500,000. The source of funds for this purchase was cash on hand of $47,500,000 and $70,000,000 in borrowings under its revolving credit facility ("Revolver"). In addition, the Company assumed $48,921,000 of partnership debt that the Company was servicing through its rent payments. This purchase eliminates, after February 28, 2002, the Company's real estate rent expense at the Las Vegas Tropicana and its equity in unconsolidated partnership's loss. The Company's real estate rent expense at the Las Vegas Tropicana during the six months ended 2002 was $1,361,000 net of intercompany eliminations; it was $2,160,000 and $4,372,000 net of intercompany eliminations during the second quarter and six months ended 2001. The Company's equity in unconsolidated partnership's loss during the six months ended 2002 was $458,000; it was $962,000 and $1,980,000 during the second quarter and six months ended 2001. The purchase, however, increases depreciation and interest expenses and decreases interest income after February 28, 2002. As part of the acquisition, the Company acquired the 50% interest in the Tropicana trademark, an intangible asset with an indefinite life, that it did not already own as part of its interest in the partnership, at an allocated cost of $22,172,000 based upon a preliminary appraisal report.

Note 4: Investments in and Advances to Unconsolidated Partnership

Following are summarized operating results prior to the acquisition for the Company's unconsolidated partnership, accounted for using the equity method for the periods ended July 4, 2002 and June 28, 2001 (in thousands):

 

   Second Quarter   

    Six Months      



Revenues
Operating expenses

Operating income
Interest expense

    Net income

  2002   

$     -- 
      -- 

- -- 
      -- 

$     -- 
======== 

  2001   

$  4,320 
    (691)

3,629 
    (964)

$  2,665 
======== 

  2002   

$  2,722 
    (473)

2,249 
    (253)

$  1,996 
======== 

  2001   

$  8,744 
  (1,375)

7,369 
  (2,047)

$  5,322 
======== 


The Company's share of the above operating results, after intercompany eliminations, is as follows (in thousands):

 

   Second Quarter   

    Six Months      



Equity in unconsolidated
  partnership's loss

  2002   

$     -- 

  2001   

$   (962)

  2002   

$   (458)

  2001   

$ (1,980)







10







AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)


Note 5:  Las Vegas Tropicana Development

The Company is conducting feasibility studies to master-plan a potential development of the Las Vegas Tropicana site. The master plan envisions the creation of two separate but essentially equal and inter-connected sites. The north site would be developed by the Company. The south site would be held for future Company development, joint venture development, or sale for development by another party.

For development of a potential project on the north site, the Company plans to complete a detailed design development effort with construction documents and estimated construction costs by the summer of 2003, at which time the Company will decide whether or not to proceed. The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature and timing of the development we ultimately undertake, if any. If we decide to abandon any facilities in the development process, we would have to conduct a review for impairment and review their useful lives with a possible adjustment to depreciation and amortization expense. These reviews could have a material adverse effect on our consolidated results of operations.


The net book value of the property and equipment used in the operation of the Las Vegas Tropicana, excluding land at a cost of $109,979,000, was $64,118,000 at July 4, 2002. The net book value of accounts receivable, inventories and prepaid expenses at the Las Vegas Tropicana was $7,792,000 at July 4, 2002. It is reasonably possible that the carrying value of some or all of these assets may change in the near term.

Note 6:  Long-term Debt

Long-term debt consists of the following (in thousands):




8 7/8% Senior Subordinated Notes Due 2007
9% Senior Subordinated Notes Due 2011
Revolver; floating rate, 3.8% at July 4, 2002;
    matures June 30, 2005
Term loan ("Term Loan"); floating rate, 4.7%
    at July 4, 2002; matures June 30, 2005
Tropicana Enterprises loan; floating rate, 3.8%
    at July 4, 2002; matures June 30, 2005
Other notes payable; 14.6%; matures
    October 2002
Obligations under capital leases

Less current portion

July 4, 
   2002   

$235,000  
175,000  

40,000  

48,500  

47,554  

241  
     635  
546,930  
  (5,366
$541,564  
========  

January 3,
   2002   

$235,000  
175,000  

- --  

48,750  

- --  

225  
   1,112  
460,087  
  (1,428
$458,659  
========  

The Tropicana Enterprises loan calls for monthly principal payments of $342,000 to $419,000, with a final payment of approximately $34,000,000 due at maturity. The Tropicana Enterprises loan is collateralized by the Las Vegas Tropicana property. Interest is computed based upon, at the borrower's option, a one-, two-, three- or six-month Eurodollar rate plus a margin ranging from 1.25% to 2.25%, or the prime rate plus a margin ranging from zero to 1.00%. The applicable margin is dependent upon the Company's outstanding indebtedness and operating cash flow.






11







AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)


Note 7:  Other Long-term Liabilities

Other long-term liabilities consist of the following (in thousands):




Deferred compensation and retirement plans
Accrued rent expense
Las Vegas Boulevard beautification
    assessment

Less current portion

July 4, 
   2002   

$ 14,363  
- --  

     362  
14,725  
    (618
$ 14,107  
========  

January 3,
   2002   

$ 13,919  
7,699  

     375  
21,993  
  (1,498
$ 20,495  
========  

Note 8: Income Taxes

The Internal Revenue Service ("IRS") has completed its examination of the Company's income tax returns for the years 1992 and 1993 and has settled for all but two issues. The two issues involve the deductibility of certain complimentaries provided to customers and the deductibility of a portion of payments on certain liabilities related to the restructuring of Ramada Inc. (the "Restructuring"). The Company has filed a petition in the United States Tax Court for these two issues for 1992 and 1993. The IRS is examining the Company's income tax returns for 1994 through 1999 and has settled for all but the same two issues. The New Jersey Division of Taxation is examining the New Jersey income tax returns for the years 1995 through 1998. Management believes that adequate provision for income taxes and interest has been made in the financial statements.

The Indiana Department of Revenue ("IDR") is examining the income tax returns for the years 1998 through 2000. The Company has received proposed assessments from the IDR in connection with the examination of the Company's Indiana income tax returns for the years 1996 and 1997. Those assessments are based on the IDR's position that the Company's gaming taxes that are based on gaming revenue are not deductible for Indiana income tax purposes. The Company filed a petition in Indiana Tax Court and oral arguments were heard in April 2001. The Company believes that it has meritorious legal defense to those assessments and has not recorded an accrual for payment. It is reasonably possible that the Company's estimate may change in the near term. The amount involved, including the Company's estimate of interest, net of a federal income tax benefit assuming continuation through July 4, 2002, was approximately $8,700,000 at July 4, 2002.

On July 2, 2002, the State of New Jersey enacted the Business Tax Reform Act, which is retroactive to the beginning of 2002. As a result, the Company's second-quarter income tax provision includes an additional $1,800,000 to provide for the effect of this new tax legislation on the Company's July 4, 2002 year-to-date results.
















12







AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)


Note 9: Earnings Per Share

Net income per common share excludes dilution and is computed by dividing income applicable to common shareholders by the weighted-average number of common shares outstanding. Net income per common share, assuming dilution, is computed based on the weighted-average number of common shares outstanding after consideration of the dilutive effect of stock options and the assumed conversion of the preferred stock at the stated rate.

The computations of net income per common share and net income per common share, assuming dilution, for the periods ended July 4, 2002 and June 28, 2001, are as follows (in thousands, except per share data):

 

   Second Quarter    

     Six Months      


Net income

Less: preferred stock dividends
  and losses on redemption

Income available to common
  shareholders

Plus: income impact of assumed
  conversion of dilutive preferred
  stock

Income available to common
  shareholders plus dilutive
  potential common shares

Weighted-average common shares
  applicable to net income per
  common share

Effect of dilutive securities:
  Stock option incremental shares
  Assumed conversion of preferred
  stock
Dilutive potential common
  shares

Weighted-average common shares
  applicable to net income per
  common share assuming dilution


  Net income per common share

  Net income per common share
    assuming dilution

  2002   
$ 16,478 


    (248)


16,230 



     114 



$ 16,344 
======== 


37,291 


1,309 

     608 

   1,917 



39,208 
======== 

$    .44 
======== 

$    .42 
======== 

  2001   
$ 16,012 


    (270)


15,742 



      -- 



$ 15,742 
======== 


37,566 


881 

     667 

   1,548 



39,114 
======== 

$    .42 
======== 

$    .40 
======== 

  2002   
$ 30,237 


    (507)


29,730 



     230 



$ 29,960 
======== 


37,089 


1,363 

     608 

   1,971 



39,060 
======== 

$    .80 
======== 

$    .77 
======== 

  2001   
$ 27,403 


    (398)


 27,005 



      -- 



$ 27,005 
======== 


37,889 


792 

     672 

   1,464 



39,353 
======== 

$    .71 
======== 

$    .69 
======== 










13







AZTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)


Note 10: Contingencies and Commitments

The Company agreed to indemnify Ramada Inc. ("Ramada") against all monetary judgments in lawsuits pending against Ramada and its subsidiaries as of the conclusion of the Restructuring on December 20, 1989, as well as all related attorneys' fees and expenses not paid at that time, except for any judgments, fees or expenses accrued on the hotel business balance sheet and except for any unaccrued and unreserved aggregate amount up to $5,000,000 of judgments, fees or expenses related exclusively to the hotel business. Aztar is entitled to the benefit of any crossclaims or counterclaims related to such lawsuits and of any insurance proceeds received. In addition, the Company agreed to indemnify Ramada for certain lease guarantees made by Ramada. In connection with these matters, the Company's accrued liability was $3,833,000 at both July 4, 2002 and January 3, 2002.

The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the Company. Management believes that its defenses are substantial in each of these matters and that the Company's legal posture can be successfully defended without material adverse effect on its consolidated financial position, results of operations or cash flows.

The Company has severance agreements with certain of its senior executives. Severance benefits range from a lump-sum cash payment equal to three times the sum of the executive's annual base salary and the average of the executive's annual bonuses awarded in the preceding three years plus payment of the value in the executive's outstanding stock options and vesting and distribution of any restricted stock to a lump-sum cash payment equal to the executive's annual base salary. In certain agreements, the termination must be as a result of a change in control of the Company. Based upon salary levels and stock options at July 4, 2002, the aggregate commitment under the severance agreements should all these executives be terminated was approximately $43,000,000 at July 4, 2002.

At July 4, 2002, the Company had commitments of approximately $175,000,000 for the Atlantic City Tropicana expansion project.

Item 2. Management's Discussion and Analysis

Financial Condition

On February 28, 2002, we purchased the 50% partnership interest in Tropicana Enterprises that we did not own. After credits, we paid $117.5 million. The source of funds for this purchase was cash on hand of $47.5 million and borrowings of $70.0 million under our Revolver. In addition, we assumed $48.9 million of partnership debt that we were servicing through our rent payments. This purchase eliminates, after February 28, 2002, our real estate rent expense at the Las Vegas Tropicana and our equity in unconsolidated partnership's loss. Our real estate rent expense at the Las Vegas Tropicana during the six months ended 2002 was $1.4 million net of intercompany eliminations; it was $2.2 million and $4.4 million net of intercompany eliminations during the second quarter and six months ended 2001. Our equity in unconsolidated partnership's loss during the six months ended 2002 was $0.5 million; it was $1.0 million and $2.0 million during the second quarter and six months ended 2001. The purchase, however, i ncreases depreciation and interest expenses and decreases interest income after February 28, 2002. We anticipate that the net result will be accretive to net income and earnings per share. This purchase simplifies our ownership structure of the Las Vegas Tropicana and our financial statements.

We are conducting feasibility studies to master-plan a potential development of the site. The master plan envisions the creation of two separate but essentially equal and inter-connected 17-acre development sites. The north site would be developed by us. The south site would be held for our future development, joint venture development, or sale for development by another party. For development of a

14







AZTAR CORPORATION AND SUBSIDIARIES


potential project on the north site, we plan to complete a detailed design development effort with construction documents and estimated construction costs by the summer of 2003, at which time we will decide whether or not to proceed. The amount and timing of any future expenditure, and the extent of any impact on existing operations, will depend on the nature and timing of the development we ultimately undertake, if any. If we decide to abandon any facilities in the development process, we would have to conduct a review for impairment and review their useful lives with a possible adjustment to depreciation and amortization expense. These reviews could have a material adverse effect on our results of operations.

The Indiana Department of Revenue is examining our income tax returns for the years 1998 through 2000. We have received proposed assessments from the IDR in connection with the examination of our Indiana income tax returns for the years 1996 and 1997. Those assessments are based on IDR's position that our gaming taxes that are based on gaming revenue are not deductible for Indiana income tax purposes. We filed a petition in Indiana Tax Court and oral arguments were heard in April 2001. We believe that we have meritorious legal defense to those assessments and have not recorded an accrual for payment. It is reasonably possible that our estimate may change in the near term. The amount involved, including our estimate of interest, net of a federal income tax benefit assuming continuation through July 4, 2002, was approximately $8.7 million at July 4, 2002.

On July 1, 2002, our gaming taxes in Indiana at Casino Aztar Evansville increased from 20% to 22.5% of casino revenue and on August 1, 2002, we began dockside gaming, which increases accessibility to our casino riverboat by eliminating cruising schedules. With dockside gaming, our gaming taxes will be based on a graduated scale from 15% to 35% of casino revenue and our admissions tax will be $3 per person versus $3 per person per cruise.

On April 22, 2002, we commenced construction of the previously disclosed major expansion of our Atlantic City Tropicana. The cost of the expansion, excluding tenant improvements, is targeted to be $225 million, against which we hope to realize third-party contributions, public sector subsidies, tax rebates and other credits, the present value of which could reduce the cost by up to $50 million. During the six months of 2002, our purchases of property and equipment, including capitalized interest of $1.1 million, were $10.9 million for this project.

At July 4, 2002, we had commitments of approximately $175,000,000 for the Atlantic City Tropicana expansion project.

Results of Operations

Six Months Ended July 4, 2002 Compared to Six Months Ended June 28, 2001

Our consolidated revenues in the first half of 2002 were $417.1 million, down slightly from $419.2 million in the first half of 2001. Our 2002 fiscal first half did not have the benefit of a New Year's weekend, while the year-earlier first half did.

Consolidated operating income for the first half of 2002 was $71.7 million, a 12% improvement over $63.8 million for the first half of 2001. Consolidated rent expense was $2.9 million or 30% lower in the 2002 versus 2001 six-month period. As a result of our acquisition of the partnership interest in Tropicana Enterprises, we have eliminated, after February 28, 2002, our real estate rent expense at the Las Vegas Tropicana, which was $1.4 million prior to the acquisition in the first half of 2002 and $4.4 million in the first half of 2001, net of intercompany eliminations. In addition, the acquisition eliminates, after February 28, 2002, our equity in unconsolidated partnership's loss.




15







AZTAR CORPORATION AND SUBSIDIARIES


Consolidated interest expense was $1.9 million or 10% higher in the 2002 versus 2001 six-month period. The increase in interest expense was primarily a result of higher levels of debt outstanding offset by an increase in capitalized interest relating to the Atlantic City Tropicana expansion. Capitalized interest was $0.6 million higher in the 2002 versus 2001 six-month period.

On July 2, 2002, the State of New Jersey enacted the Business Tax Reform Act, which is retroactive to the beginning of 2002. As a result, our second-quarter income tax provision includes an additional $1.8 million to provide for the effect of this new tax legislation on our July 4, 2002 year-to-date results.

TROPICANA ATLANTIC CITY Total revenues at Tropicana Atlantic City were $224.8 million in the first half of 2002, up slightly from $222.9 million in the first half of 2001. Tropicana Atlantic City had operating income of $46.3 million in the first half of 2002, an 11% improvement over $41.9 million in the first half of 2001. Operating income is after rent and depreciation and amortization expenses. Rent expense was $1.2 million in the six months ended 2002 compared with $1.3 million in the six months ended 2001. Depreciation and amortization was $14.2 million in the 2002 six-month period compared with $13.2 million in the 2001 six-month period.

TROPICANA LAS VEGAS At Tropicana Las Vegas, total revenues were $75.3 million in the first half of 2002, a 7% decrease from $80.7 million in the first half of 2001. Casino revenue was 8% lower in the 2002 versus 2001 six-month period, primarily due to a 9% decrease in slot revenue combined with a 3% decrease in games revenue. The decline in games revenue was a result of a decrease in the volume of play. Rooms revenue was 8% lower in the 2002 versus 2001 six-month period as a result of a decrease in the average daily rate combined with lower occupancy.

Tropicana Las Vegas had operating income of $9.0 million in the first half of 2002, a 32% increase from $6.8 million in the first half of 2001. Consistent with the decreases in casino revenue and rooms revenue, casino costs were 12% lower and rooms costs were 1% lower in the 2002 versus 2001 six-month period. Operating income is after rent and depreciation and amortization expenses. Rent expense was $1.7 million in the 2002 six-month period compared with $4.8 million in the 2001 six-month period. As a result of our acquisition of the partnership interest in Tropicana Enterprises, we have eliminated, after February 28, 2002, our real estate rent expense at the Las Vegas Tropicana, which was $1.4 million prior to the acquisition in the first half of 2002 and $4.4 million in the first half of 2001, net of intercompany eliminations. Depreciation and amortization was $3.5 million in the 2002 six-month period compared with $4.0 million in the 2001 six-month period.

RAMADA EXPRESS At Ramada Express, total revenues were $49.0 million in the first half of 2002, down 3% from $50.6 million in the first half of 2001. Casino revenue was 4% lower in the 2002 versus 2001 six-month period primarily due to a 4% decrease in slot revenue. Operating income was $10.5 million in the first half of 2002, a 6% decrease from $11.2 million in the first half of 2001. Consistent with the decrease in casino revenue, casino costs were 3% lower in the 2002 versus 2001 six-month period. Operating income is after rent and depreciation and amortization expenses. Rent expense was $0.2 million in both periods. Depreciation and amortization was $3.0 million in the six months ended 2002 compared with $2.8 million in the six months ended 2001.

CASINO AZTAR EVANSVILLE Total revenues at Casino Aztar Evansville were $55.3 million in the first half of 2002, up 6% from $52.3 million in the first half of 2001. Casino revenue was 6% higher in the 2002 versus 2001 six-month period primarily due to a 10% increase in slot revenue. Admissions to our casino riverboat increased 16% in the first half of 2002 compared with the first half of 2001. Operating income was $11.6 million in the first half of 2002, a 17% improvement over $9.9 million in the first half of 2001. Casino costs were 7% higher in the 2002 versus 2001 six-month period primarily due to the increase in casino revenue. Operating income is after rent and depreciation and amortization expenses. Rent expense was $3.5 million in the six months ended 2002 compared with $3.2 million in

16







AZTAR CORPORATION AND SUBSIDIARIES


the six months ended 2001. Depreciation and amortization was $3.1 million in the first half of 2002 compared with $4.5 million in the first half of 2001. Amortization decreased primarily as a result of ceasing amortization of the cost of our initial gaming license beginning January 4, 2002 because it was determined, under the criteria established in SFAS 142 that is effective in 2002, that this asset has an indefinite life.

CASINO AZTAR CARUTHERSVILLE Total revenues at Casino Aztar Caruthersville were $12.7 million in both periods. Casino Aztar Caruthersville had operating income of $1.0 million in the first half of 2002, an improvement over $0.8 million in the first half of 2001. Operating income is after depreciation and amortization of $1.4 million in both periods.

Quarter Ended July 4, 2002 Compared to Quarter Ended June 28, 2001

Our consolidated revenues in the 2002 second quarter were $211.1 million, up slightly from $210.9 million in the 2001 second quarter. Consolidated operating income was $39.6 million in the second quarter of 2002, a 13% improvement over $35.0 million in the second quarter of 2001. Consolidated general and administrative costs were 9% lower in the 2002 versus 2001 second quarter primarily due to a $2.0 million net gain recorded at Tropicana Atlantic City as a result of the commencement of our expansion project. A gain resulting from the return of our CRDA deposits was partially offset by a loss on asset disposals caused by the expansion project. Consolidated rent expense was $2.3 million or 48% lower in the 2002 versus 2001 second quarter. As a result of our acquisition of the partnership interest in Tropicana Enterprises, we have eliminated, after February 28, 2002, our real estate rent expense at the Las Vegas Tropicana, which was $2.2 million in the second quarter of 2001, net of intercompany eliminatio ns. In addition, the acquisition eliminates, after February 28, 2002, our equity in unconsolidated partnership's loss.

Consolidated interest expense was $1.7 million or 18% higher in the 2002 versus 2001 second quarter. The increase in interest expense was primarily a result of higher levels of debt outstanding offset by an increase in capitalized interest relating to the Atlantic City Tropicana expansion. Capitalized interest was $0.3 million higher in the 2002 versus 2001 second quarter.

On July 2, 2002, the State of New Jersey enacted the Business Tax Reform Act, which is retroactive to the beginning of 2002. As a result, our second-quarter income tax provision includes an additional $1.8 million to provide for the effect of this new tax legislation on our July 4, 2002 year-to-date results.

TROPICANA ATLANTIC CITY Total revenues at Tropicana Atlantic City were $114.5 million in the 2002 second quarter, down slightly from $116.3 million in the 2001 second quarter. Casino revenue was 4% lower in the 2002 versus 2001 second quarter, primarily reflecting a 7% decrease in games revenue combined with a 2% decrease in slot revenue. The decline in games revenue was primarily a result of a decrease in the volume of play while the decline in slot revenue was a result of a decrease in the hold percentage to 7.7% from 7.9%.

Tropicana Atlantic City had operating income of $25.7 million in the 2002 second quarter compared with $25.8 million in the 2001 second quarter. Casino costs were 2% lower in the 2002 versus 2001 second quarter. General and administrative costs were 24% lower in the 2002 versus 2001 second quarter primarily due to the $2.0 million net gain discussed above. Operating income is after rent and depreciation and amortization expenses. Rent expense was $0.5 million in the 2002 second quarter compared with $0.6 million in the 2001 second quarter. Depreciation and amortization was $7.1 million in the second quarter of 2002 compared with $6.6 million in the second quarter of 2001.




17







AZTAR CORPORATION AND SUBSIDIARIES


TROPICANA LAS VEGAS At Tropicana Las Vegas, total revenues were $39.2 million in the 2002 second quarter, down slightly from $39.7 million in the 2001 second quarter. Operating income was $6.5 million in the second quarter of 2002 compared with $3.6 million in the second quarter of 2001. Operating income is after rent and depreciation and amortization expenses. Rent expense was $0.2 million in the 2002 second quarter compared with $2.4 million in the 2001 second quarter. As a result of our acquisition of the partnership interest in Tropicana Enterprises, we have eliminated, after February 28, 2002, our real estate rent expense at the Las Vegas Tropicana, which was $2.2 million in the second quarter of 2001, net of intercompany eliminations. Depreciation and amortization was $1.8 million in the second quarter of 2002 compared with $2.0 million in last year's second quarter.

RAMADA EXPRESS At Ramada Express, total revenues were $23.9 million in both periods. Operating income was $4.6 million in the 2002 second quarter compared with $4.5 million in the 2001 second quarter. Operating income is after rent and depreciation and amortization expenses. Rent expense was $0.1 million in both periods. Depreciation and amortization was $1.5 million in the 2002 second quarter compared with $1.4 million in the 2001 second quarter.

CASINO AZTAR EVANSVILLE Total revenues at Casino Aztar Evansville were $27.4 million in the 2002 second quarter, up 10% from $25.0 million in the 2001 second quarter. Casino revenue was 10% higher in the 2002 versus 2001 second quarter primarily due to a 15% increase in slot revenue. Admissions to our casino riverboat increased 19% in the 2002 second quarter compared with the 2001 second quarter. Operating income was $5.4 million in the 2002 second quarter, a 29% increase from $4.2 million in the 2001 second quarter. Casino costs were 11% higher in the 2002 versus 2001 second quarter primarily due to the increase in casino revenue. Operating income is after rent and depreciation and amortization expenses. Rent expense was $1.6 million in both periods. Depreciation and amortization was $1.6 million in the second quarter of 2002 compared with $2.2 million in the second quarter of last year. Amortization decreased primarily as a result of ceasing amortization of the cost of our initial gaming license b eginning January 4, 2002 because it was determined, under the criteria established in SFAS 142 that is effective in 2002, that this asset has an indefinite life.

CASINO AZTAR CARUTHERSVILLE Total revenues at Casino Aztar Caruthersville were $6.1 million in the 2002 second quarter, a slight increase from $6.0 million in the 2001 second quarter. Casino Aztar Caruthersville had operating income of $0.5 million in the second quarter of 2002, an improvement over $0.3 million in the second quarter of 2001. Operating income is after depreciation and amortization of $0.7 million in both periods.

Impact of Post-Sept 11 Events

The September 11 terrorist acts and their effect on air travel as well as the ensuing economic conditions have resulted in an increased level of uncertainty with regard to our near-term operating results. Based on a review of our results since then, it appears that the Las Vegas Tropicana was our only property that was affected by the lingering effects. We are unable to predict any future effects.

Insurance

Effective June 30, 2002, we renewed our property insurance. As a result of conditions in the insurance markets, our property insurance costs increased substantially. We anticipate additional increases in our other major insurance coverages (primarily general liability and Directors and Officers) when they are renewed on November 1, 2002.






18







AZTAR CORPORATION AND SUBSIDIARIES


Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." The objectives of SFAS 143 are to establish accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. SFAS 143 is effective for fiscal years beginning after June 15, 2002. Based upon a preliminary review, the Company has no asset retirement obligation at July 4, 2002.

Private Securities Litigation Reform Act

Certain information included in Aztar's Form 10-K for the year ended January 3, 2002, this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us including those made in Aztar's 2001 annual report) contains statements that are forward-looking. These include forward-looking statements relating to the following activities, among others: operation and expansion of existing properties, including future performance; development of the Las Vegas Tropicana and financing and/or concluding an arrangement with a partner for such development; other business development activities; uses of free cash flow; stock repurchases; debt repayments; and use of derivatives. These forward-looking statements generally can be identified by phrases such as we "believe," "expect," "anticipate," "foresee," "forecast," "estimate," "target," or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. Such forward-looking information involves important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by us or on our behalf. These risks and uncertainties include, but are not limited to, the following factors as well as other factors described from time to time in Aztar's reports filed with the SEC: those factors relating to terrorist activities; construction and development factors, including zoning issues, environmental restrictions, soil conditions, weather and other hazards, site access matters and building permit issues; factors affecting leverage and debt service, including sensitivity to fluctuation in interest rates; access to available and feasible financing; regulatory and licensing matters; third-party consents, app rovals and representations, and relations with partners, owners, suppliers and other third parties; reliance on key personnel; business and economic conditions; the cyclical nature of the hotel business and the gaming business; the effects of weather; market prices of our common stock; litigation, judicial actions and political uncertainties, including gaming legislation and taxation; and the effects of competition, including locations of competitors and operating and marketing competition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of information that affects information incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2002 see "Note 6: Long-term Debt" of the Notes to Consolidated Financial Statements included in this Form 10-Q under Item 1.










19







AZTAR CORPORATION AND SUBSIDIARIES


PART II - OTHER INFORMATION


Item 1. Legal Proceedings

In connection with Case No. CV-S-94-1126-DAE(RJJ)-BASE FILE (the "Poulos/Ahearn Case"), Case No. CV-S-95-00923-DWH(RJJ) (the "Schreier Case") and Case No. CV-S-95-936-LDG(RLH) (the "Cruise Ship Case"), (collectively, the "Consolidated Cases"), as reported under Part I, Item 3 of the Company's Form 10-K for the year ended January 3, 2002, a status conference was held on March 27, 2002, as reported under Part II, Item 1 of the Company's Form 10-Q for the quarter ended April 4, 2002. At the status conference, Judge Ezra advised the parties of the following:

 

-

He was recusing himself from the case and sending it to the Chief Judge for reassignment.

 

-

He would not decide the motion for class certification, but would provide his research, etc. to the newly assigned judge.

 

-

He would lift the stay of merits discovery as to the named plaintiffs and the particular claims made by them.

On April 9, 2002, the actions were re-assigned to Judge Roger Hunt. The new case number is CV-S-94-1126-RLH(RJJ). By order entered June 26, 2002, the District Court denied the plaintiffs' motion for class certification. On July 11, 2002, the plaintiffs filed a motion with the Court of Appeals for the Ninth Circuit seeking permission to appeal the order denying class certification. On July 22, 2002, the defendants filed their brief in opposition to plaintiffs' motion.

Item 4. Submission of Matters to a Vote of Security Holders

At the Company's annual meeting of shareholders held on May 9, 2002, one item was voted on as follows:

 

1.

The persons whose names are set forth below were elected as directors to serve until the 2005 annual meeting or until their retirement date or until their successors are elected and qualified. The relevant voting information is as follows:

   

        Votes Cast       

 
 

    Nominee    
John B. Bohle
Paul E. Rubeli

    For   
32,688,018
26,558,327

  Withheld   
806,380   
6,936,071   

 


Item 6. Exhibits and Reports on Form 8-K

 (a)

Exhibits

   


None.


 (b)


Reports on Form 8-K


 


On July 11, 2002, the Company filed a report on Form 8-K under Item 5. Other Events to report the resignation of a Director of Aztar Corporation on July 10, 2002, who resigned in order to become president of a company that is a competitor of Aztar Corporation.










20











AZTAR CORPORATION AND SUBSIDIARIES

SIGNATURES





Pursuant to the requirements 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.












Date  August 8, 2002          

        AZTAR CORPORATION        
          (Registrant)          






By  ROBERT M. HADDOCK         
    Robert M. Haddock
    President and Chief Financial Officer





































21