Aztar Corporation Business Information, Profile, and History

Company Perspectives:

Our product concept is the creation of fun, fantasy, excitement and entertainment in a casino gaming environment. Each of our casinos is designed and operated to serve the unique demographics of its particular market. Our staff is dedicated to the principles of friendliness and service. Our goal is to enhance through operating excellence the value of our shareholders' investment in our company while maintaining a prudent financial position.

History of Aztar Corporation

Aztar Corporation, a spinoff from the late 1980s restructuring of Ramada Inc., is a mid-tier U.S. casino operator owning and operating geographically diverse properties. Aztar operates three major casino hotels: the Tropicana Casino and Resort in Atlantic City, the Tropicana Resort and Casino in Las Vegas, and the Ramada Express Hotel and Casino in Laughlin, Nevada--as well as two Casino Aztar riverboat casinos in Evansville, Indiana, and Caruthersville, Missouri. Combined, the five properties encompass more than 300,000 square feet of casino space with in excess of 9,100 slot machines and 300 gaming tables. Aztar manages 5,700 casino hotel guestrooms, 200,000 square feet of meeting space, various entertainment facilities, and more than 60 restaurants and lounges.

The Late 1980s Restructuring of Ramada

The late 1980s were difficult years for Ramada Inc. as increased competition in the hotel industry led to declining profits and, ultimately, losses. The company posted profits of $17.2 million in 1985, $10.3 million in 1986, and $4.9 million in 1987. On the way to posting a $5.1 million loss in 1988, the company decided in October of that year to restructure by selling its restaurant and hotel groups and retaining only its gaming operations, deemed by company officials as the Ramada assets with the best future. The restructuring was also undertaken to prevent a hostile takeover that the company felt was "grossly inadequate from a financial standpoint." Ramada sold its 152-restaurant Marie Callender chain early in 1989 to the Wilshire Restaurant Group Inc. for $54.5 million. It then reached agreement with New World Hotel (Holdings) Ltd. of Hong Kong to sell all of its hotel operations, including more than 800 hotels and motor inns worldwide, and the Ramada name for $540 million. New World's price included $280 million to be paid to Ramada shareholders and the assumption of approximately $260 million of Ramada's debt.

Before the New World deal could be consummated, a complicated restructuring had to occur, including a new financing plan, and approvals had to be granted by Ramada's shareholders and the gaming regulators of New Jersey and Nevada. The approval process occurred twice because the initial restructuring arrangement was changed because of a downturn in the junk bond market. The original plan had Aztar raising $400 million through the issuance of $230 million in junk bonds and $170 million in first-mortgage notes backed by the company's TropWorld Casino in Atlantic City. The revised plan dropped the junk bonds altogether. It also reduced the amount paid to Ramada shareholders from $7 per share to $1 (but the shareholders would receive one share of Aztar stock for each share of Ramada stock instead of a half-share) and Aztar's initial debt load from $423 million to $189 million. Experts on gaming companies viewed the revised plan as a much healthier one for the new company because they believed $423 million was too great of an initial debt for the company to handle through casino revenues.

The restructured company was to be run by former senior managers of Ramada and its gaming division, including Richard Snell (who was chairman, president, and chief executive of Ramada and became chairman and chief executive of Aztar), Paul E. Rubeli (executive vice-president and head of Ramada's gaming division, who became president and chief operating officer of Aztar), and Robert M. Haddock (who retained the same title with Aztar that he held with Ramada--executive vice-president and chief financial officer). Aztar's board was initially composed of nine former Ramada directors, with Haddock filling in the tenth slot that had been vacated. In December 1989 the revised plan was approved overwhelmingly by Ramada shareholders. The gaming regulators of Nevada and New Jersey also approved the plan that month, leading to the closing of the hotel sale. The new Aztar Corporation was born, with a name coined to play on the word "star" combined with the beginning of the word "Aztec," a reference to the gold- and silver-rich Aztec Empire, whose wealth the new gaming company wished to strive for. Aztar's headquarters remained in Ramada's main office in Phoenix. (The first two initials of the new company name were said to be only coincidentally the same as the two-letter postal abbreviation for Arizona.)

Aztar at Its 1989 Birth

Following the completed restructuring, Aztar's assets consisted of three of the four gaming properties that had been owned by Ramada (in July 1989, in the midst of the restructuring, Ramada closed Eddie's Fabulous 50s Casino, a standalone casino in Reno, Nevada, because of declining revenues). In 1989 the TropWorld Casino and Entertainment Resort was the largest casino in Atlantic City with 1,014 rooms. Located on the famous boardwalk, it also boasted 80,000 square feet of exhibit and meeting space and a casino area of 88,000 square feet. Previously called the Tropicana, it had just been reopened in September 1988 after the completion of a two-year, $200 million expansion. As part of a company strategy to develop "megafacilities," the expansion featured the addition of a two-acre indoor entertainment venue called Tivoli Pier, an attraction that aimed to replicate the peak of the Atlantic City boardwalk. It included various high-tech attractions and games, strolling performers, and a Ferris wheel four stories high. Other TropWorld amenities included the 1,700-seat TropWorld Showroom (at the time the largest in Atlantic City), 18 restaurants and bars, a health club, a miniature golf course, a comedy club, and retail shops. In the face of this major expansion, Aztar would need to absorb the TropWorld's start-up costs and also await major improvements in Atlantic City's infrastructure that were scheduled to be completed over the next several years, including expansion of highway, rail, and airport access and the construction of a new convention center. Company officials believed that the TropWorld was well positioned to take advantage of the increased tourism and convention business that these improvements promised to bring.

In Las Vegas, Aztar had inherited the Tropicana Resort and Casino, which was located on the southeast corner of Las Vegas Boulevard and Tropicana Avenue. Following the completion of a major expansion in 1986, Ramada had introduced a tropical island theme to the casino, calling it "The Island of Las Vegas." The Tropicana featured 1,910 rooms, 100,000 square feet of exhibit and meeting space, and 45,000 square feet of casino space (with 993 slot machines and 72 table games). The facility also featured several other attractions, including the famous "Folies Bergère" show, more than a dozen restaurants and bars, and a five-acre water park. With water one of its major themes, the Tropicana was the first casino to offer swim-up slot machines and blackjack. While 1988 had been the casino's best year ever, company officials believed it was ready for further growth, in particular with the expected mid-1990 opening of the Excalibur Hotel & Casino directly across Las Vegas Boulevard. They believed the new 4,000-room facility would bring additional people to the southern end of the "Strip," where the Tropicana stood alone, unable to attract the many gamblers who like to move from casino to casino.

The third casino in the original Aztar threesome was the Ramada Express Hotel and Casino in Laughlin, Nevada, a fast-growing gambling mecca located in extreme southeastern Nevada near both the California and Arizona borders. Construction of the Ramada Express, the newest but smallest of the three casinos, was completed in 1988. A Victorian-era railroad theme was established in 406 rooms and 30,000 square feet of casino space, with "The Gambling Train of Laughlin" transporting guests from the parking lot to the front door. Although it featured fewer facilities than the larger Aztar properties, the casino enjoyed a significant share of this much-smaller market and had an ideal location in the middle of Laughlin's gambling district.

Early 1990s Struggles

The initial few years after the restructuring were difficult ones for Aztar. Revenues fell from $522.3 million in 1989 to $508.2 million in 1990 to $481.3 million in 1991. Following an operating profit of $67.4 million in 1990, Aztar managed only a $61.4 million profit in 1991. Many factors contributed to the company's struggles. In 1990 a breach of contract case, which was originally brought against Ramada in the early 1980s and assumed by Aztar following the restructuring, cost the company $34.3 million. Competition was increased with a casino building boom in 1989 and 1990, which saw the completion of the 3,000-room Mirage and 4,000-room Excalibur in Las Vegas, a 2,000-room Hilton in Laughlin, and Atlantic City's 1,250-room Taj Mahal (which made TropWorld the second largest casino in Atlantic City). This increased capacity greatly exceeded demand with the onset of economic recession, and in particular when the Persian Gulf crisis of late 1990 and the war in early 1991 greatly decreased travel and tourism traffic. Adding to the difficulties for the Nevada casinos was California's severe recession, while TropWorld felt the impact of the deep recession in the northeastern United States.

Aztar's management--now led by Rubeli who took over the CEO slot in February 1990 and then the chairman position two years later--adopted several strategies to address the difficult environment. While many casinos battled each other for customers through such bargains as reduced room rates, package deals that included transportation, and cheap buffet-style meals, Aztar decided not to chase after people lured by these bargains because they did not tend to spend much money gambling. Rather than trying to attract all potential gamblers, the company decided to take a niche approach to its marketing by concentrating on what they called the "high end of the middle market." Such customers spend between $100 and $400 gambling during an average day. In Las Vegas, for example, this placed the Tropicana between such lower-end casinos as Circus Circus, whose guests spend less than $100 per day, and upscale casinos such as Caesars Palace, a facility for high rollers. In essence, the company sought to attract fewer people who would spend more in their casinos than to seek a high volume of gamblers. To this end, Aztar eliminated many of the bargains it once offered. One strategy to reach its desired clientele and to encourage repeat visitors was the initiation of a program modeled after airline frequent-flier programs. Another tactic was to deemphasize baccarat, favored by high rollers, and concentrate on slot machines.

While the company pursued its new marketing strategy in Atlantic City and Las Vegas, it decided in 1991 to expand its Ramada Express casino in Laughlin. Laughlin had also seen a huge increase in hotel rooms in 1990 and 1991 (nearly doubling to more than 8,000 rooms), but Aztar management saw a window of opportunity for expansion during the next two years based on the limited capacity of Laughlin's water and sewer system. Because the Ramada Express had been designed to accommodate 1,200 rooms (at the time it was built, Ramada lacked sufficient capital to build it to its capacity), it could be expanded with its current water and sewer allocations. Aztar calculated that other casinos could add only an additional 1,500 rooms in Laughlin based on their water and sewer capacities. In late 1992, the $75 million expansion began. Upon its completion in September 1993, Aztar had increased the hotel space of the Ramada Express to 1,500 rooms with the addition of an 1,100-room tower, and also added 20,000 square feet of additional casino space (for a total of 50,000 square feet), a new parking garage, and additional meeting space and restaurants.

The company's strategies began to pay off with revenues beginning to turn around in 1992. That year Aztar realized a 6 percent increase in revenues over the previous year, from $481.3 million to $512 million. The slow but steady growth continued the next two years with revenues of $518.8 million in 1993 and $541.4 million in 1994. Evidence that the company's marketing strategy was working came in the form of increased revenue from slot machines, up 19 percent in 1992. Aztar was also able to solidify its financial position during this period. Late in 1992 the company refinanced $171 million in high-yield notes, reducing its debt payments in the process. In 1993 it bought out the limited partners that had owned a majority interest in the TropWorld property for approximately $62 million in cash, gaining complete control over Aztar's largest asset.

Mid- to Late 1990s Expansion of Existing Casinos and into Riverboat Casinos

Having cleaned up its finances and showing improved results, Aztar in the mid-1990s turned its attention to expansion, while continuing to vigilantly protect its solid trio of original casinos. With the Tropicana in the weakest position in the increasingly competitive Las Vegas market, the company undertook a minor renovation project in 1993. Where it once stood alone on the southern end of the Strip, the Tropicana now shared a corner with both the 4,000-room Excalibur and the newly opened 5,000-room MGM Grand, with another new neighbor, the 2,500-room Luxor, nearby. While this boom in what became known as "The New Four Corners of Las Vegas" promised to bring increasing numbers of people to the vicinity of the Tropicana, company officials felt they needed to redesign the casino's front entrance and facade to entice additional walk-in business from the surrounding resorts. With a "Caribbean Island" theme highlighting the design, the renovations were completed in early 1994. These included new stores accessible from the street, a "Wildlife Walk" connecting the casino's two towers and featuring natural displays of live birds and other tropical wildlife, and other improvements. At about the same time, the state of Nevada completed construction of a skywalk system connecting "The New Four Corners of Las Vegas," an improvement that promised to increase traffic among the Tropicana and its neighboring casinos.

Aztar was beginning to feel the effects of competition from outside the cities in which its casinos operated, and decided that its first new developments should occur in these nascent gambling areas. By 1993, 14 states had legalized casino gambling and additional states had approved or were considering legalized gambling on riverboats or Indian reservations. The company's first target would be riverboat gambling operations in the Midwest. The riverboat strategy followed closely Aztar's increasing emphasis on slot machine players, since this type of gambling venue is typically dominated by slot machines. In early 1995 the Indiana Gaming Commission approved Aztar's plan for a riverboat casino in downtown Evansville. The $100 million project included a 310-foot, 2,500-passenger riverboat, a casino onboard with 1,250 slot machines and 70 gaming tables, a hotel with 250 rooms, a pavilion entertainment complex, and parking for 1,600 vehicles. The company estimated that the casino, which commenced operations in late 1995, becoming the first casino property in Indiana, could draw 2.3 million visitors each year, provided competition did not arise within nearby Louisville.

Meanwhile, a smaller $55 million riverboat project opened in the spring of 1995 in Caruthersville, Missouri, a town in southeastern Missouri on the Mississippi River about 90 miles north of Memphis, Tennessee. This facility featured a 600-passenger riverboat with a casino of 500 slot machines and 30 gaming tables, an entertainment and ticketing pavilion, parking for 1,000 vehicles, and a recreational vehicle (RV) park. At the same time, Aztar was also pursuing several other riverboat facilities. In early 1995 Newport News, Virginia, selected the company to develop a riverboat casino, but Aztar had to await legislative consideration of the legalization of gambling in the state before proceeding. For these and future operations, Aztar decided to use a brand-name marketing strategy to connect the riverboat casinos. "Casino Aztar" was tied to the particular site, as in "Casino Aztar Caruthersville."

The company also undertook a major addition to the TropWorld casino in Atlantic City, including a new hotel tower with 604 rooms (including six large penthouse suites), additional restaurants, a large poker room with an expanded baccarat and Asian game room, and other new facilities. The $75 million expansion, completed in the summer of 1996, gave the casino more than 1,600 hotel rooms, making it the largest hotel in New Jersey. Upon completion, the casino reassumed the Tropicana Casino and Resort name.

In order to finance the TropWorld addition and the new riverboat casinos, Aztar secured a financing package from a group of ten banks late in 1994. The package totaled $280 million, the fourth largest such package ever made within the gambling industry, with $73 million to refinance debt on the Tropicana and $207 million in revolving credit secured by the TropWorld and Ramada Express properties. Further financing was provided in 1996 by the issuance of an additional 6.3 million shares of common stock through two secondary offerings, raising net proceeds of $55.8 million.

These funds were also earmarked for enhancements to the Casino Aztar in Evansville. Late in 1996 the riverboat casino gained a 44,000-square-foot passenger pavilion featuring passenger ticketing facilities, three restaurants, a sidewalk cafe, an entertainment lounge, and a gift shop. Also added to the site were a 1,600-space parking garage and a 250-room hotel.

Aztar's biggest long-term capital project involved the Tropicana Resort in Las Vegas. The Tropicana had on the one hand benefited from its New Four Corners location as two more megaresorts opened nearby, the Monte Carlo and New York-New York. On the other hand, the aging casino, which opened in 1957, was at a serious competitive disadvantage compared to its glittering new, "hot" casino resort neighbors. Ultimately, Aztar aimed to completely overhaul the casino or even raze it to make room for an entirely modern, "must-see" destination. Financially, Aztar was in no position to undertake such a project in the late 1990s, and the management also wanted to wait and see how well the market absorbed all the new properties sprouting up on or near the Strip. Another issue was the ownership of the site. Although Aztar managed the casino and its various operations, the land and buildings themselves were owned by a 50-50 partnership between Aztar and the Jaffe family (the latter's interest dating back to when the casino first opened). Before undertaking any large-scale renovation or the building of a new property on the site, Aztar wanted to have full ownership. In February 1998 the company purchased an option to buy out the Jaffe family for $120 million. A year later, this 18-month option was then extended to 2002.

Early 2000s and Beyond

Throughout the late 1990s and into the early 2000s, while its competitors built $1 billion properties and/or acquired smaller casino operators, Aztar concentrated on paying down and refinancing its debt and repurchasing stock. The former helped drive net interest expense down from $60.5 million in 1997 to $37.6 million in 2001. Not coincidentally, Aztar's net income figures in the early 2000s were much higher than those of the late 1990s--$58 million in 2001, for example, compared to $4.4 million in 1997.

Much stronger financially, Aztar in February 2002 exercised its option to buy out the Jaffe family from the Tropicana Las Vegas property and then began conducting feasibility studies on future developments at the site. By 2003 Aztar had developed tentative plans for the 34-acre site. They called for the property to be divided into two interconnected 17-acre sites. For the northern site, the company envisioned a new development encompassing 2,500 hotel rooms and suites; a 120,000-square-foot casino; 200,000 square feet of dining, entertainment, and retail facilities; a four-acre rooftop pool recreation deck overlooking the Strip; and a 3,800-car parking garage. The project was projected to cost at least $700 million, part of which would need to be raised through the capital markets. The company planned to hold onto the southern site for future solo or joint development or sale to another party. At least twice, Aztar delayed making a final decision on whether to go ahead with the redevelopment in Las Vegas. Part of the reason for these delays was a simultaneous major--and sometimes troubled--expansion of the Atlantic City Tropicana.

Construction began on the $285 million expansion in April 2002. One component of the expansion was a 2,400-space state-of-the-art parking garage. On October 30, 2003, a part of the ten-story garage collapsed while under construction, killing four workers and injuring 20 others. The tragedy forced the temporary closure of the casino's 600-room tower and of major entrances to the property. Gambling and lodging revenue was therefore lost, construction was set back, and Aztar now had to contend with numerous lawsuits arising from the collapse. These difficulties were compounded by a five-week strike by some of the Atlantic City Tropicana workers in the fall of 2004. The expansion was finally completed in November 2004, eight months later than originally planned.

The centerpiece of the addition was a 200,000-square-foot dining, entertainment, and retail center dubbed "The Quarter"--a Las Vegas-style resort destination for Atlantic City that followed the successful opening in July 2003 of the Borgata, a $1.1 billion Las Vegas-style casino resort. The Quarter was designed to capture the ambience of Old Havana in its pre-Castro heyday. (The original Tropicana casino was in fact located in Old Havana. Opened in 1939, it continued to operate under Fidel Castro right into the early 21st century as a nightclub only, famous for its risqué floor shows.) Upon opening, The Quarter included more than two dozen shops ranging from the traditional (Brooks Brothers) to the trendy (Chico's) to the whimsical (Houdini's Magic Shop); nine restaurants, including several imported from New York City (e.g., Carmine's) and Philadelphia (e.g., Cuba Libre Restaurant & Rum Bar); and lounges, clubs, a karaoke bar, and an IMAX theater. The expansion also included a new 502-room hotel tower geared to the convention trade. The entire top floor of the new tower was dedicated to boardrooms and hospitality suites with ocean views, providing the Tropicana with another 20,000 square feet of meeting and convention space.

This expansion ended up being the final large project in Rubeli's career at Aztar. After having led the company since just after the Ramada spinoff, Rubeli retired in March 2005. Taking over as chairman, president, and CEO was Haddock, who had served as president and CFO since May 2002. Haddock assumed the top position at a crucial time, when Aztar was evaluating the rollout of the Atlantic City expansion and also reviewing the market in Las Vegas to weigh the prospects for the proposed redevelopment of the Tropicana property located in that gambling mecca. While the decision on whether to go ahead with the huge Las Vegas project remained pending, rumors continued to circulate about a possible sale of the company, either to another casino operator or perhaps a private equity fund.

Principal Subsidiaries: Adamar Garage Corporation; Adamar of Nevada; Adamar of New Jersey, Inc.; Atlantic-Deauville, Inc.; Aztar Development Corporation; Aztar Indiana Gaming Company, L.L.C.; Aztar Missouri Riverboat Gaming Company, L.L.C.; Hotel Ramada of Nevada; Ramada Express, Inc.; Ramada New Jersey, Inc.; Ramada New Jersey Holdings Corporation; Tropicana Enterprises.

Principal Operating Units: Tropicana Casino and Resort; Casino Aztar Evansville; Casino Aztar Caruthersville; Tropicana Resort and Casino; Ramada Express Hotel and Casino.

Principal Competitors: Harrah's Entertainment, Inc.; MGM Mirage; Caesars Entertainment, Inc.; Mandalay Resort Group; Trump Hotels & Casino Resorts, Inc.; Boyd Gaming Corporation; Argosy Gaming Company.

Chronology

• Key Dates:
• 1989: Ramada Inc. divests its restaurant and hotel operations to concentrate on its three hotel casinos; company is renamed Aztar Corporation.
• 1992: A $75 million expansion of the Ramada Express casino in Laughlin, Nevada, begins.
• 1993: Aztar purchases full control of the TropWorld casino in Atlantic City.
• 1995: Operations begin at Aztar's two riverboat casinos, in Evansville, Indiana, and Caruthersville, Missouri.
• 1996: Following a $75 million expansion, the TropWorld casino is renamed Tropicana Casino and Resort.
• 2002: Company takes full ownership of the Tropicana in Las Vegas.
• 2004: A $285 million expansion of the Atlantic City Tropicana is completed, featuring the addition of The Quarter entertainment and retail complex.