<PAGE>
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 MARCH 31, 1997
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 No. 1-10410
HARRAH'S ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1411755
(State of Incorporation) (I.R.S. Employer
Identification No.)
1023 Cherry Road
Memphis, Tennessee 38117
(Address of principal executive offices)
(901) 762-8600
(Registrant's telephone number, including area code)
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 March 31, 1997, there were outstanding 101,705,901 shares of the
Company's Common Stock.
Page 1 of 60
Exhibit Index Page 38
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited Consolidated Condensed Financial Statements of
Harrah's Entertainment, Inc. ("Harrah's" or the "Company"), a Delaware
corporation, have been prepared in accordance with the instructions to Form
10-Q, and therefore do not include all information and notes necessary for
complete financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of operating results. Results of
operations for interim periods are not necessarily indicative of a full year of
operations. These Consolidated Condensed Financial Statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's 1996 Annual Report to Stockholders.
-2-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 103,135 $ 105,594
Receivables, less allowance for doubtful
accounts of $15,542 and $14,064 37,732 41,203
Deferred income tax benefits 25,455 25,551
Prepayments and other 18,270 18,401
Inventories 10,490 10,838
---------- ----------
Total current assets 195,082 201,587
---------- ----------
Land, buildings, riverboats and equipment 2,039,679 1,977,960
Less: accumulated depreciation (609,367) (588,066)
---------- ----------
1,430,312 1,389,894
Investments in and advances to nonconsolidated
affiliates 214,903 215,539
Deferred costs and other 162,540 167,053
---------- ----------
$2,002,837 $1,974,073
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 36,966 $ 44,934
Construction payables 11,587 17,975
Accrued expenses 160,585 139,892
Current portion of long-term debt 1,870 1,841
---------- ----------
Total current liabilities 211,008 204,642
Long-term debt 937,608 889,538
Deferred credits and other 100,869 97,740
Deferred income taxes 36,546 45,443
---------- ----------
1,286,031 1,237,363
---------- ----------
Minority interests 17,011 16,964
---------- ----------
Commitments and contingencies (Notes 3, 5, 6 and 7)
Stockholders' equity
Common stock, $0.10 par value, authorized
360,000,000 shares, outstanding 101,705,901
and 102,969,699 shares (net of 2,065,640 and
771,571 shares held in treasury) 10,170 10,297
Capital surplus 385,636 385,941
Retained earnings 285,244 290,797
Unrealized gains on marketable equity securities 35,823 51,394
Deferred compensation related to restricted stock (17,078) (18,683)
---------- ----------
699,795 719,746
---------- ----------
$2,002,837 $1,974,073
========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Quarter Ended
March 31, March 31,
1997 1996
-------- --------
Revenues
<S> <C> <C>
Casino $313,825 $321,146
Food and beverage 45,691 43,914
Rooms 26,700 26,850
Management fees 5,606 3,609
Other 16,512 20,725
Less: casino promotional allowances (34,235) (33,361)
-------- --------
Total revenues 374,099 382,883
-------- --------
Operating expenses
Direct
Casino 165,152 158,933
Food and beverage 22,805 22,434
Rooms 8,554 8,486
Depreciation of buildings, riverboats and equipment 24,582 20,071
Development costs 1,956 3,328
Preopening costs 7,466 214
Other 87,098 87,476
-------- --------
Total operating expenses 317,613 300,942
-------- --------
Operating profit 56,486 81,941
Corporate expense (7,592) (7,271)
Equity in income (losses) of nonconsolidated
affiliates (2,148) 161
Project reorganization costs (1,455) (2,401)
-------- --------
Income from operations 45,291 72,430
Interest expense, net of interest capitalized (17,815) (16,579)
Other income, including interest income 3,106 529
-------- --------
Income before income taxes and minority interests 30,582 56,380
Provision for income taxes (11,647) (21,383)
Minority interests (1,824) (3,587)
-------- --------
Net income $ 17,111 $ 31,410
======== ========
Earnings per share $ 0.17 $ 0.30
======== ========
Average common shares outstanding 102,156 103,379
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
First Quarter Ended
March 31, March 31,
1997 1996
-------- --------
Cash flows from operating activities
<S> <C> <C>
Net income $ 17,111 $ 31,410
Adjustments to reconcile net income
to cash flows from operating activities
Depreciation and amortization 28,010 23,434
Other noncash items 5,766 6,101
Minority interests' share of net income 1,824 3,587
Equity in losses (income) of nonconsolidated
affiliates 2,148 (161)
Net gains from asset sales (943) -
Net change in long-term accounts 2,088 1,321
Net change in working capital accounts 15,281 12,339
-------- --------
Cash flows provided by operating activities 71,285 78,031
-------- --------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions (65,806) (72,856)
(Decrease) increase in construction payables (6,388) 11,569
Proceeds from asset sales 2,846 468
Investments in and advances to nonconsolidated
affiliates (27,039) (15,220)
Other (886) (4,151)
-------- --------
Cash flows used in investing activities (97,273) (80,190)
-------- --------
Cash flows from financing activities
Net borrowings (repayments) under Revolving
Credit Facility 48,997 (4,100)
Purchases of treasury stock (22,790) -
Debt retirements (902) (290)
Minority interests' distributions, net of contributions (1,776) (3,544)
-------- --------
Cash flows provided by (used in)
financing activities 23,529 (7,934)
-------- --------
Net decrease in cash and cash equivalents (2,459) (10,093)
Cash and cash equivalents, beginning of period 105,594 96,345
-------- --------
Cash and cash equivalents, end of period $103,135 $ 86,252
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
Note 1 - Basis of Presentation and Organization
- -----------------------------------------------
Harrah's Entertainment, Inc. ("Harrah's" or the "Company" and including its
subsidiaries where the context requires), a Delaware corporation, is one of
America's leading casino companies and currently operates casino entertainment
facilities in eight states and New Zealand. Harrah's casino entertainment
facilities include casino hotels in all five major Nevada and New Jersey gaming
markets: Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada; and Atlantic City,
New Jersey. Harrah's riverboat and dockside casinos are in Joliet, Illinois;
Shreveport, Louisiana; Tunica and Vicksburg, Mississippi; and North Kansas City,
and St. Louis, Missouri. Harrah's owns a minority interest in and manages a
casino in Auckland, New Zealand, and also manages casinos on Indian lands near
Phoenix, Arizona and Seattle, Washington. Harrah's discontinued managing two
limited stakes casinos in Colorado at the end of the first quarter 1997.
The Consolidated Condensed Financial Statements include the accounts of
Harrah's and its majority-owned subsidiaries after elimination of all
significant intercompany accounts and transactions. Investments in 20% to 50%
owned companies and joint ventures are accounted for using the equity method.
Harrah's reflects its share of net income of these nonconsolidated affiliates in
Equity in income (losses) of nonconsolidated affiliates (see Note 7).
Certain amounts for the first quarter ended March 31, 1996 have been
reclassified to conform with the presentation for the first quarter ended March
31, 1997.
Note 2 - Stockholders' Equity
- -----------------------------
In addition to its common stock, Harrah's has the following classes of
stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 2,000,000 shares authorized -
Series A, $1.125 par value
In October 1996, Harrah's Board of Directors approved a plan which
authorized the purchase in open market and other transactions of up to 10% of
Harrah's outstanding shares of common stock. As of March 31, 1997, 2,018,300
shares had been purchased at an average price of $17.74 per share, and are being
held in treasury. The Company expects to acquire additional shares from time to
time at prevailing market prices through the December 31, 1997, expiration of
the approved plan.
-6-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 3 - Long-Term Debt
- -----------------------
Planned Redemption of 10 7/8% Notes
- -----------------------------------
On April 25, 1997, Harrah's announced that its principal operating
subsidiary, Harrah's Operating Company, Inc. ("HOC"), had called for redemption
on May 27, 1997, its $200 million in 10 7/8% Senior Subordinated Notes due 2002.
The call price is 104.833% of the principal amount, plus accrued and unpaid
interest through the redemption date. Harrah's will retire the notes using
proceeds from its revolving bank credit facility.
Interest Rate Agreements
- ------------------------
To manage the relative mix of its debt between fixed and variable rate
instruments, Harrah's enters into interest rate swap agreements to modify the
interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. At March 31, 1997, Harrah's was a party to the
following interest rate swap agreements pursuant to which it pays a variable
interest rate in exchange for receiving a fixed interest rate. The average
variable rate paid by Harrah's was 5.7% at March 31, 1997, and the average fixed
interest rate received was 5.9%. The impact of these interest rate swap
agreements on the effective interest rates of the associated debt was as
follows:
<TABLE>
<CAPTION>
Effective Next Semi-
Swap Rate at Annual Rate
Associated Rate March 31, Adjustment
Debt (LIBOR+) 1997 Date Swap Maturity
- -------------- ------ -------- ---------- -------------
10 7/8% Notes
<S> <C> <C> <C> <C>
$200 million 4.73% 10.46% April 15 October 1997
8 3/4% Notes
$50 million 3.42% 8.99% May 15 May 1998
$50 million 3.22% 8.95% July 15 July 1998
</TABLE>
In accordance with the terms of the interest rate swap agreements, the effective
interest rate on the $200 million 10 7/8% Notes was adjusted on April 15, 1997
to 10.82%.
Harrah's also maintains seven additional interest rate swap agreements to
effectively convert a total of $350 million in variable rate debt to a fixed
rate. Pursuant to the terms of these swaps, all of which reset quarterly,
Harrah's receives variable payments tied to LIBOR in exchange for its payments
at a fixed interest rate. The fixed rates to be paid by Harrah's and variable
rates to be received by Harrah's are summarized in the following table:
-7-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
- ----------------------------------
<TABLE>
<CAPTION>
Swap Rate
Swap Rate Received
Paid (Variable) at Swap
Notional Amount (Fixed) March 31, 1997 Maturity
- --------------- --------- -------------- ------------
<C> <C> <C> <C>
$50 million 7.910% 5.563% January 1998
$50 million 6.985% 5.625% March 2000
$50 million 6.951% 5.641% March 2000
$50 million 6.945% 5.641% March 2000
$50 million 6.651% 5.547% May 2000
$50 million 5.788% 5.555% June 2000
$50 million 5.785% 5.555% June 2000
</TABLE>
The differences to be paid or received under the terms of the interest rate
swap agreements are accrued as interest rates change and recognized as an
adjustment to interest expense for the related debt. Changes in the variable
interest rates to be paid or received by Harrah's pursuant to the terms of its
interest rate agreements will have a corresponding effect on its future cash
flows. These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. Harrah's minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
Note 4 - Supplemental Disclosure of Cash Paid for Interest and
- --------------------------------------------------------------
Taxes
- -----
The following table reconciles Harrah's interest expense, net of interest
capitalized, per the Consolidated Condensed Statements of Income, to cash paid
for interest:
<TABLE>
<CAPTION>
First Quarter Ended
March 31, March 31,
1997 1996
(In thousands) -------- --------
Interest expense, net of amount
<S> <C> <C>
capitalized $17,815 $16,579
Adjustments to reconcile to cash paid
for interest:
Net change in accruals (5,252) (3,695)
Amortization of deferred finance charges (797) (787)
Net amortization of discounts and premiums (3) (5)
------- -------
Cash paid for interest, net of amount
capitalized $11,763 $12,092
======= =======
Cash refunds of income taxes, net of
payments $(1,343) $(1,056)
======= =======
</TABLE>
-8-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities
- -----------------------------------------------
Contractual Commitments
- -----------------------
Harrah's is pursuing additional casino development opportunities that may
require, individually and in the aggregate, significant commitments of capital,
up-front payments to third parties, guarantees by Harrah's of third party debt
and development completion guarantees. As of March 31, 1997, Harrah's had
guaranteed third party loans and leases of $101 million, which are secured by
certain assets, and had commitments of $149 million, primarily
construction-related. In addition, Harrah's has committed to guarantee, subject
to completion of definitive loan documents, a $37 million third party loan for a
new development.
The agreements under which Harrah's manages casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund this payment, Harrah's must pay the shortfall to the
tribe. Such advances, if any, would be repaid to Harrah's in future periods in
which operations generate cash flow in excess of the required minimum payment.
These commitments will terminate upon the occurrence of certain defined events,
including termination of the management contract. As of March 31, 1997, the
aggregate monthly commitment pursuant to these contracts, which extend for
periods of up to 84 months from opening date, was $1.2 million, including
commitments for two projects with contracts approved by the National Indian
Gaming Commission that are under development but not yet open.
In addition to the amounts described above, as part of a transaction
whereby Harrah's effectively secured an option to a site for a potential casino,
Harrah's has extended its guarantee of a $22.9 million third party variable rate
bank loan pursuant to an agreement which expires February 28, 1998.
See Note 7 for discussion of the proposed completion guarantees issued by
Harrah's related to development of the New Orleans' casino.
-9-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
Severance Agreements
- --------------------
Harrah's has severance agreements with 37 of its senior executives, which
provide for payments to the executives in the event of their termination after a
change in control, as defined. These agreements provide, among other things, for
a compensation payment ranging from 1.5 times to 2.99 times the average of the
three highest years of annual compensation of the last five calendar years
preceding the change in control, as well as for accelerated vesting of any
compensation or awards payable to the executive under any of Harrah's incentive
plans. The estimated amount, computed as of March 31, 1997, that would be
payable under the agreements to these executives based on earnings and stock
options aggregated approximately $27.1 million.
Guarantee of Insurance Contract
- -------------------------------
Harrah's has guaranteed the value of a guaranteed investment contract with
an insurance company held by Harrah's defined contribution savings plan.
Harrah's has also agreed to provide non-interest-bearing loans to the plan to
fund, on an interim basis, withdrawals from this contract by retired or
terminated employees. Harrah's maximum exposure on this guarantee as of March
31, 1997, was $6.3 million.
Tax Sharing Agreements
- ----------------------
In connection with the 1995 spin-off of certain hotel operations (the "PHC
Spin-off") to Promus Hotel Corporation ("PHC"), Harrah's entered into a Tax
Sharing Agreement with PHC wherein each company is obligated for those taxes
associated with their respective businesses. Additionally, Harrah's is obligated
for all taxes for periods prior to the PHC Spin-off date which are not
specifically related to PHC operations and/or PHC hotel locations. Harrah's
obligations under this agreement are not expected to have a material adverse
effect on its consolidated financial position or results of operations.
-10-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
Note 5 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
Self-Insurance
- --------------
Harrah's is self-insured for various levels of general liability, workers'
compensation and employee medical coverage. Insurance claims and reserves
include accruals of estimated settlements for known claims, as well as accruals
of actuarial estimates of incurred but not reported claims.
Note 6 - Litigation
- -------------------
Harrah's is involved in various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the final outcome of these matters will
not have a material adverse effect upon Harrah's consolidated financial position
or its results of operations.
In addition to the matters described above, Harrah's and certain of its
subsidiaries have been named as defendants in a number of lawsuits arising from
the suspension of development of a land-based casino, and the closing of the
temporary gaming facility, in New Orleans, Louisiana, by Harrah's Jazz Company,
a partnership in which the Company owns an approximate 47% interest and which
has filed for protection under Chapter 11 of the U.S. Bankruptcy Code (see Note
7). The ultimate outcomes of these lawsuits cannot be predicted at this time,
and no provisions for the claims are included in the accompanying financial
statements. The Company intends to defend these actions vigorously. In the event
a bankruptcy reorganization plan is consummated, the Company anticipates that a
significant part of such litigation will be dismissed.
Note 7 - Nonconsolidated Affiliates
- -----------------------------------
Harrah's Jazz Company
- ---------------------
A Harrah's subsidiary owns an approximate 47% interest in Harrah's Jazz
Company ("Harrah's Jazz"), a partnership formed for purposes of developing,
owning and operating the exclusive land-based casino entertainment facility (the
"Rivergate Casino") in New Orleans, Louisiana, on the site of the former
Rivergate
-11-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- ----------------------------------------------
Convention Center. On November 22, 1995, Harrah's Jazz and its wholly-owned
subsidiary, Harrah's Jazz Finance Corp., filed petitions for relief under
Chapter 11 of the Bankruptcy Code. Harrah's Jazz filed a plan of reorganization
with the Bankruptcy Court on April 3, 1996 and has filed several subsequent
amendments to the plan (the "Plan"). On April 28, 1997, the Bankruptcy Court
held a confirmation hearing and approved the Plan.
Under the Plan, the assets and business of Harrah's Jazz would vest in
Jazz Casino Corporation, a newly formed corporation ("JCC"), on the effective
date of the Plan. JCC would be responsible for completing construction of the
Rivergate Casino. Under the Plan, Harrah's Jazz's existing public debt would
be canceled and the holders of that debt would receive 37.1% of the equity in
JCC's parent ("JCC Holding"). An additional 15% of the equity in JCC
Holding would be allocated to holders of such debt who execute certain
releases. A subsidiary of the Company would receive, in exchange for equity
investments and other consideration to be provided under the Plan,
approximately 40% of the equity in JCC Holding. Approximately 7.9% of the
equity in JCC Holding would be received by certain Harrah's Jazz
partner-related parties. In addition, holders of the public debt would
receive (i) $187.5 million in aggregate principal amount of 8% Senior
Subordinated Notes of JCC due 2006 with contingent payments, and (ii) a pro
rata share of Senior Subordinated Contingent Notes of JCC due 2006.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of
the Company has made debtor-in-possession loans to Harrah's Jazz,
totalling approximately $21.0 million as of March 31, 1997, to fund certain
obligations to the City of New Orleans and other cash requirements of
Harrah's Jazz. The Company has proposed to make up to $30 million in such
loans, however, there is no assurance that Harrah's Jazz will not require
debtor-in-possession loans from the Company in excess of the $30 million
currently proposed.
If the Plan is consummated, Harrah's would make a $75 million equity
investment in the project and deliver new completion guaranties. Any
debtor-in-possession financing, including the approximately $21.0
million in financing already advanced and discussed above, would be
repaid or converted into equity (and count toward the $75 million
investment referred to above) upon
-12-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- -----------------------------------------------
consummation of the Plan. The Plan also provides that JCC will obtain a
$155 million secured term loan and a $25 million revolving credit facility to
finance completion of the Rivergate Casino and provide JCC with working
capital availability, and that Harrah's will guarantee or provide credit support
for $95 million of the term loan and all of the revolving credit facility. If
the Plan is consummated, it is anticipated that Harrah's will also make an
additional $20 million subordinated loan to JCC to assist in financing
construction of the Rivergate Casino.
The Plan is subject to various approvals, including approval by the
Louisiana state legislature. There can be no assurance that such approvals
will be obtained, that definitive agreements necessary to consummate the Plan
will be reached or that the conditions to consummation of the Plan will be
met. If the Plan is consummated, it is expected that the consummation would
occur in third quarter 1997, and, based upon the consummation occurring at
such time, it is expected the casino would open in second quarter 1998.
Other
- -----
Summarized balance sheet and income statement information of
nonconsolidated gaming affiliates, which Harrah's accounted for using the equity
method, as of March 31, 1997 and December 31, 1996, and for the first quarters
ended March 31, 1997 and 1996 is included in the following tables.
<TABLE>
<CAPTION>
March 31, Dec. 31,
(In thousands) 1997 1996
Combined Summarized Balance Sheet Information -------- --------
<S> <C> <C>
Current assets $ 37,798 $ 33,516
Land, buildings, and equipment, net 415,514 391,133
Other assets 172,994 171,748
-------- --------
Total assets 626,306 596,397
-------- --------
Current liabilities 135,606 129,114
Long-term debt 482,962 486,740
-------- --------
Total liabilities 618,568 615,854
-------- --------
Net assets $ 7,738 $(19,457)
======== ========
</TABLE>
-13-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- -----------------------------------------------
<TABLE>
<CAPTION>
First Quarter Ended
March 31, March 31,
1997 1996
(In thousands) --------- -------
Combined Summarized Statements of Operations
<S> <C> <C>
Revenues $ 7,704 $ 6,795
======= =======
Operating loss $(8,014) $(3,279)
======= =======
Net loss $(6,382) $(3,124)
======= =======
</TABLE>
Harrah's share of nonconsolidated affiliates' combined net operating
results are reflected in the accompanying Consolidated Condensed Statements of
Income as Equity in income (losses) of nonconsolidated affiliates. Harrah's
investments in and advances to nonconsolidated affiliates are reflected in the
accompanying Consolidated Condensed Balance Sheets as follows:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1997 1996
(In thousands) -------- --------
Harrah's investments in and advances to
nonconsolidated affiliates
<S> <C> <C>
Accounted for under the equity method $123,246 $ 98,356
Equity securities available-for-sale
and recorded at market value 91,657 117,183
-------- --------
$214,903 $215,539
======== ========
</TABLE>
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", Harrah's adjusts the carrying value of certain marketable equity
securities to include unrealized gains. A corresponding adjustment is recorded
in the Company's stockholders' equity and deferred income tax accounts.
Condensed financial information relating to the Company's minority
ownership interest in a restaurant affiliate has not been presented since its
operating results and financial position are not material to Harrah's.
Note 8 - Summarized Financial Information
- -----------------------------------------
HOC is a wholly owned subsidiary and the principal asset of Harrah's.
Summarized financial information of HOC as of March 31, 1997 and December 31,
1996 and for the first quarters ended March 31, 1997 and 1996 prepared on the
same basis as Harrah's was as follows:
-14-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Note 8 - Summarized Financial Information (Continued)
- -----------------------------------------------------
<TABLE>
<CAPTION>
March 31, Dec. 31,
1997 1996
(In thousands) ---------- ----------
<S> <C> <C>
Current assets $ 191,134 $ 199,838
Land, buildings, riverboats and
equipment, net 1,430,312 1,389,894
Other assets 377,361 382,516
---------- ----------
1,998,807 1,972,248
---------- ----------
Current liabilities 196,603 191,689
Long-term debt 937,608 889,538
Other liabilities 137,937 143,705
Minority interests 17,011 16,964
---------- ----------
1,289,159 1,241,896
---------- ----------
Net assets $ 709,648 $ 730,352
========== ==========
First Quarter Ended
March 31, March 31,
1997 1996
(In thousands) -------- --------
Revenues $374,062 $382,838
======== ========
Income from operations $ 44,766 $ 71,830
======== ========
Income before income taxes and
minority interests $ 30,057 $ 55,990
======== ========
Net income $ 16,770 $ 31,020
======== ========
</TABLE>
The agreements governing the terms of the Company's debt contain certain
covenants which, among other things, place limitations on HOC's ability to pay
dividends and make other restricted payments, as defined, to Harrah's. The
amount of HOC's restricted net assets, as defined, computed in accordance with
the most restrictive of these covenants regarding restricted payments (other
than for repurchases of Harrah's common stock), was approximately $699.2 million
at March 31, 1997. With respect to any payments by HOC to Harrah's for the
purpose of providing funds to Harrah's for the repurchase of its common stock,
the amount of HOC's restricted net assets under such covenant was approximately
$545.5 million at March 31, 1997.
-15-
<PAGE>
Item 2. Management's Discussion and Analysis
---------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
The following discussion and analysis of the financial position and
operating results of Harrah's Entertainment, Inc. ("Harrah's" or the "Company")
for first quarter 1997 and 1996 updates, and should be read in conjunction with,
Management's Discussion and Analysis of Financial Position and Results of
Operations ("MD&A") presented in Harrah's 1996 Annual Report. References to
Harrah's or the Company include its consolidated subsidiaries where the context
requires.
RESULTS OF OPERATIONS
- ---------------------
Overall
- -------
In first quarter 1997, Harrah's financial results continued to be affected,
as have the results of many of its competitors, by increased supply and
competition within the casino entertainment industry. Also impacting Harrah's
first quarter 1997 results were weather- and construction-related business
interruptions at several of its properties. Though Harrah's revenue levels
declined only slightly from the prior year, the impact of increased competition
and business interruptions significantly impacted Harrah's operating profit and
margins, as noted in the following table.
<TABLE>
<CAPTION>
First Quarter Percentage
(in millions, except --------------- Increase/
earnings per share) 1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Revenues $374.1 $382.9 (2.3)%
Operating profit 56.5 81.9 (31.0)%
Income from operations 45.3 72.4 (37.4)%
Net income 17.1 31.4 (45.5)%
Earnings per share 0.17 0.30 (43.3)%
Operating margin 12.1% 18.9% (6.8)pts
</TABLE>
The financial impact of these events can also be seen in the following
table, which summarizes contributions to operating profit (income from
operations before corporate expense, equity in income (losses) of
nonconsolidated affiliates and project reorganization costs) by major operating
division for the twelve month periods ended March 31, 1997, 1996 and 1995 in
millions of dollars and as a percent of the total for each of Harrah's
divisions:
-16-
<PAGE>
<TABLE>
<CAPTION>
Contribution for Twelve Months Ended March 31,
---------------------------------------------
In Millions of Dollars Percent of Total
---------------------- ----------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Riverboat $129 $172 $136 40% 45% 40%
Atlantic City 75 85 80 23 22 24
Southern Nevada 59 74 74 18 19 22
Northern Nevada 55 69 70 17 18 21
Indian/Limited Stakes 9 8 4 3 2 1
Development costs (11) (17) (22) (3) (4) (6)
Other 8 (7) (6) 2 (2) (2)
---- ---- ---- --- --- ---
Subtotal 324 384 336 100% 100% 100%
Project writedowns === === ===
and reserves (52) (93) -
Preopening costs (13) - (15)
---- ---- ----
Operating profit $259 $291 $321
==== ==== ====
</TABLE>
DIVISION OPERATING RESULTS AND DEVELOPMENT PLANS
- ------------------------------------------------
Riverboat Division
- ------------------
<TABLE>
<CAPTION>
First Quarter Percentage
--------------- Increase/
(in millions) 1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Casino revenues $148.0 $145.2 1.9 %
Total revenues 157.3 152.1 3.4 %
Operating profit 29.2 41.0 (28.8)%
Operating margin 18.6% 27.0% (8.4)pts
</TABLE>
Despite increased revenues for the Division in first quarter 1997 over the
1996 first quarter, operating margins and profits declined in the face of new
and increased competition in several riverboat markets over the past year.
First quarter revenues, operating profit and margins at Harrah's Joliet in
Illinois declined as compared to the prior year due to the near doubling of
regional supply introduced in neighboring Indiana since June 1996. First quarter
gaming volume at Harrah's Joliet declined 26% in 1997 from the prior year
period, significantly impacting property revenues. Operating profit and margins
were further impacted by higher marketing and promotional expenses that resulted
from the increased competition. The Company has made certain operating
adjustments at the Joliet property, including a modification of the cruising
schedule, in an effort to stabilize operating results. These modifications
helped lead to a 35% improvement in operating profit from fourth quarter 1996 to
first quarter 1997. Though management believes that these adjustments have
stabilized the
-17-
<PAGE>
property's operating results, revenues and operating profit at Harrah's Joliet
are not expected to return to their previous levels. Harrah's is continuing its
evaluation of a proposed expansion project at the Joliet property, but no
decisions regarding the expansion have been made.
Harrah's two properties in Tunica, Mississippi reported a combined operating
loss for first quarter 1997 due to the continuing highly competitive environment
in that market. Subsequent to the end of first quarter 1997, Harrah's announced
its intention to close the original Tunica casino and focus its efforts in the
Tunica market on the newer Tunica Mardi Gras property, which opened in April
1996. The Company is continuing to explore its options for the ultimate
disposition of the original Tunica building. A reserve for the impairment of the
original Tunica property was recorded in fourth quarter 1996. The Company will
evaluate whether any additional reserves are required upon the final
determination of the disposition of the property. During second quarter 1997,
the Company acquired its minority partner's interest in both Tunica properties.
The cost of this acquisition was not material to Harrah's.
Harrah's North Kansas City achieved higher revenues in first quarter 1997
over the 1996 period, due primarily to the Company's addition of a second
riverboat casino in May 1996. Operating profit declined 21% from the prior
year's first quarter, however, due to increased marketing and promotional costs
brought on by additional competition, including a major new property that opened
in January 1997. Also contributing to the decline was the decision during the
1996 first quarter to discontinue the property's admission charge.
Harrah's Shreveport posted record revenues and operating profit in first
quarter 1997 as the Company's performance in this market remained strong.
Harrah's is continuing its evaluation of various expansion scenarios for its
Shreveport facility. Harrah's plans to complete this evaluation and could begin
construction of the expansion as early as mid-year 1997, with phased openings
and a targeted completion date during the last half of 1998, if the expansion
proceeds. Any expansion project is subject to the receipt of necessary
regulatory approvals and reaching a definitive agreement with the City of
Shreveport.
On March 11, 1997, Harrah's opened its St. Louis Riverport casino
entertainment complex in Maryland Heights, Missouri, a suburb of St. Louis. The
facility includes four riverboat casinos, two of which are owned and operated by
Harrah's, and shoreside facilities jointly-owned with Players International,
Inc., including a 291-room Harrah's-managed hotel and an entertainment mall.
Harrah's two riverboats contain a combined total of approximately 52,000 square
feet of casino space, 1,230 slot machines and 80 table games. Harrah's
investment in the
-18-
<PAGE>
Maryland Heights development project is expected to total $180 million, of which
approximately $156 million had been invested at March 31, 1997, including
approximately $97 million in contributions to the partnership developing the
shoreside facilities. Because this facility opened late in the quarter, first
quarter operating results from the development were not material.
Atlantic City
- -------------
<TABLE>
<CAPTION>
First Quarter Percentage
--------------- Increase/
(in millions) 1997 1996 (Decrease)
----- ----- ----------
<S> <C> <C> <C>
Casino revenues $76.0 $72.7 4.5 %
Total revenues 82.6 78.5 5.2 %
Operating profit 14.9 14.7 1.4 %
Operating margin 18.0% 18.7% (0.7)pts
</TABLE>
In Atlantic City, Harrah's 1997 first quarter revenues improved from 1996
levels, but the continuing competitive environment in that market resulted in
relatively small profit growth and decreasing margins. Harrah's continues to
incur higher than historical complimentary and promotional expenses in order to
maintain its relative competitive position. A new 416- room hotel tower is
expected to begin opening in late second quarter 1997. This represents the final
phase of an $83.7 million expansion project, of which approximately $63 million
had been spent as of March 31, 1997.
No decisions regarding whether or not to proceed with a possible second
phase to its Atlantic City expansion have been made. Such decisions are
dependent, in part, upon substantive progress on development of new casino hotel
projects in the Marina area of Atlantic City by other companies.
Southern Nevada Division
- ------------------------
<TABLE>
<CAPTION>
First Quarter Percentage
--------------- Increase/
(in millions) 1997 1996 (Decrease)
----- ----- ----------
<S> <C> <C> <C>
Casino revenues $43.7 $50.3 (13.1)%
Total revenues 64.6 75.6 (14.6)%
Operating profit 10.9 19.5 (44.1)%
Operating margin 16.9% 25.8% (8.9)pts
</TABLE>
1997 first quarter results in Southern Nevada continue to be impacted by
construction disruptions at Harrah's Las Vegas, where a $200 million expansion
and renovation project continues. The construction activity has often impeded
access to the Las Vegas property, resulting in a 15% decrease in first quarter
gaming volume compared with the
-19-
<PAGE>
prior year period. Operating profits and margins have been further impacted due
to the difficulty in reducing certain fixed costs proportionately with the
revenue declines, along with higher operating costs associated with the
construction disruptions. The additional casino space and the facade
improvements are being opened in phases and are expected to be completed during
third quarter 1997. Harrah's is scheduled to begin opening the hotel rooms in
May 1997, with completion of the tower expected by the end of third quarter
1997. As of March 31, 1997, approximately $123 million had been spent on this
project.
Harrah's Laughlin continues to be affected by competition from neighboring
Arizona and California Indian casinos and from high profile new Las Vegas area
casino developments. In first quarter 1997, gaming volume declined 6.8% from the
prior year period, resulting in lower revenues, operating profit and operating
margin.
At the present time, no definitive plans have been completed related to
Harrah's previously announced interest in the construction or acquisition of a
second Las Vegas property, and there is no assurance the Company will construct
or acquire such a property.
Northern Nevada Division
- ------------------------
<TABLE>
<CAPTION>
First Quarter Percentage
--------------- Increase/
(in millions) 1997 1996 (Decrease)
----- ----- ----------
<S> <C> <C> <C>
Casino revenues $46.1 $52.9 (12.9)%
Total revenues 61.2 70.5 (13.2)%
Operating profit 5.2 10.4 (50.0)%
Operating margin 8.5% 14.8% (6.3)pts
</TABLE>
In Northern Nevada, 1997 first quarter operations were significantly
impacted by weather conditions, where flooding in the region twice closed the
primary access road to Lake Tahoe for a combined total of forty-five days, and
closed Harrah's Reno for one day. Though Harrah's properties were able to regain
portions of the lost revenue as access to the properties improved, the costs of
operating the casinos during these slow periods and the additional expenses
incurred in connection with these events negatively impacted overall profit
margins. At Harrah's Reno and Harrah's Lake Tahoe, first quarter gaming volume
fell 3.5% and 15.1% respectively, and operating profit fell 36.7% and 53.3%,
respectively, from their prior year levels, due in large part to these events.
-20-
<PAGE>
Indian and Limited Stakes
- -------------------------
Revenues and operating profit from Harrah's Indian and limited stakes
casinos increased in first quarter 1997 over the 1996 period, due primarily to
higher management fees from Harrah's Phoenix Ak-Chin casino.
As previously announced, on March 31, 1997, Harrah's discontinued its
management of both Colorado casinos. This action did not have a material impact
on Harrah's first quarter 1997 financial statements.
Harrah's continues to pursue additional development opportunities for
casinos on Indian land and has received National Indian Gaming Commission
("NIGC") approval of development and management agreements with the Eastern Band
of Cherokees for a casino development at Cherokee, North Carolina. Construction
on this project is underway and the $82 million facility, which will contain
approximately 60,000 square feet of casino space, is expected to open during
fourth quarter 1997. Though Harrah's is not funding this development, it has
guaranteed the related bank financing, of which $15.6 million was outstanding at
March 31, 1997.
In early 1997, Harrah's received NIGC approval of development and management
agreements with the Prairie Band of Potawatomi Indians for a development near
Topeka, Kansas. Construction will begin during second quarter 1997, subject to
completion of financing, on a $37 million casino facility that will include
approximately 27,000 square feet of casino space. This facility, which is
expected to be completed by the end of 1997, assuming timely receipt of all
approvals and permits, will be managed by a Harrah's subsidiary and financed by
loans which Harrah's will guarantee.
Harrah's has also previously announced agreements with other Indian tribes,
which are in various stages of negotiation and are subject to certain
conditions, including approval from appropriate government agencies. If the
necessary approvals for these projects are received, Harrah's would likely
guarantee the related bank financing for the projects, which could be
significant.
The agreements under which Harrah's manages casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund this payment, Harrah's must pay the shortfall to the
tribe. Such advances, if any, would be repaid to Harrah's in future periods in
which operations generate cash flow in excess of the required minimum payment.
These
-21-
<PAGE>
commitments will terminate upon the occurrence of certain defined events,
including termination of the management contract. As of March 31, 1997, the
aggregate monthly commitment pursuant to these contracts which extend for
periods of up to 84 months from opening date, was $1.2 million, including
commitments for two projects with contracts approved by the National Indian
Gaming Commission that are under development but not yet open.
See DEBT and LIQUIDITY section for further discussion of Harrah's guarantees
of debt related to Indian projects.
Other
- -----
During first quarter 1996, Harrah's Sky City in Auckland, New Zealand
opened, the first Harrah's casino entertainment facility outside the United
States. The facility includes 51,500 square feet of casino space, a 344-room
hotel, a 770-seat theater and other amenities. Construction continues on a
1,066-foot sky tower, the final phase of the Sky City project, which is expected
to open in August, 1997. This facility is owned by Sky City Limited, a New
Zealand publicly-traded company in which Harrah's owns a 12.5% equity interest,
and is managed by Harrah's for a fee. Management fees received from Harrah's Sky
City are reported in Revenues-Management Fees. Dividends received from Sky City
Limited are included in Other income.
Development costs for first quarter 1997 decreased from prior year levels
due to lower levels of development activity.
OTHER FACTORS AFFECTING NET INCOME
- ----------------------------------
<TABLE>
<CAPTION>
First Quarter Percentage
(Income)/Expense --------------- Increase/
(in millions) 1997 1996 (Decrease)
----- ----- ----------
<S> <C> <C>
Preopening costs $ 7.5 $ 0.2 N/M
Equity in (income) losses of
nonconsolidated affiliates 2.1 (0.2) N/M
Corporate expense 7.6 7.3 4.1 %
Project reorganization costs 1.5 2.4 (37.5)%
Interest expense, net 17.8 16.6 7.2 %
Other income (3.1) (0.5) N/M
Effective tax rate 38.1% 37.9% 0.2 pts
Minority interests $ 1.8 $ 3.6 (50.0)%
</TABLE>
Preopening costs for 1997 include costs incurred in connection with the
first quarter 1997 opening of Harrah's St. Louis Riverport casino property,
along with ongoing costs related to the expansion at Harrah's Las Vegas
property. 1996 preopening costs related to an expansion at Harrah's North Kansas
City
-22-
<PAGE>
property. Equity in (income) losses of nonconsolidated affiliates for first
quarter 1997 consists primarily of losses from Harrah's share of the joint
venture portion of the St. Louis development, including its $1.6 million share
of the joint venture's preopening costs, partially offset by Harrah's share of
income from a restaurant affiliate. Harrah's previously reported its share of
joint venture pre-interest operating results in Revenues-other, and its share of
joint venture interest expense as Interest expense, net, from nonconsolidated
affiliates. Prior year amounts have been restated to conform to the current
year's presentation.
Corporate expense increased slightly in 1997 over 1996. Project
reorganization costs represent Harrah's costs, including legal fees, associated
with the on-going development of a reorganization plan for the New Orleans
casino (see Harrah's Jazz Company section). Interest expense increased in 1997
over 1996, primarily as a result of higher debt levels. Other income increased
in 1997 due to the inclusion in 1997 of dividend income from Harrah's New
Zealand investment and a gain on the sale of nonoperating property.
The effective tax rates for all years are higher than the federal statutory
rate primarily due to state income taxes. Minority interests reflect joint
venture partners' shares of income at joint venture riverboat casinos and
decreased in 1997 from the prior year level as a result of lower Joliet
earnings.
In fourth quarter 1997, Harrah's will adopt the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share", which establishes
new standards for computing and presenting earnings per share. The following
table presents actual earnings per share and pro forma earnings per share
computed as if the provisions SFAS No. 128 been in effect for the first quarter:
<TABLE>
<CAPTION>
First Quarter
-------------
1997 1996
----- -----
Earnings per share
<S> <C> <C>
As reported $0.17 $0.30
Pro forma (basic) 0.17 0.31
Pro forma (diluted) 0.17 0.30
</TABLE>
HARRAH'S JAZZ COMPANY
- ---------------------
For an update of the status of the efforts to reorganize Harrah's Jazz
Company, which filed a petition for relief under Chapter 11 of the Bankruptcy
Code on November 22, 1995, see Note 7 to the accompanying Consolidated Condensed
Financial Statements.
-23-
<PAGE>
CAPITAL SPENDING AND DEVELOPMENT SUMMARY
- ----------------------------------------
In addition to the specific development and expansion projects discussed
above, Harrah's performs on-going refurbishment and maintenance at its casino
entertainment facilities in order to maintain the Company's quality standards.
Harrah's also continues to pursue development opportunities for additional
casino entertainment facilities that meet its strategic and return on investment
criteria. Prior to the receipt of necessary regulatory approvals, the costs of
pursuing development projects are expensed as incurred. Construction-related
costs incurred after the receipt of necessary approvals are capitalized and
depreciated over the estimated useful life of the resulting asset. Preopening
costs incurred during the construction period are deferred and expensed at the
respective property's opening.
The Company's planned development projects, if they go forward, will
require, individually and in the aggregate, significant capital commitments and,
if completed, may result in significant additional revenues. The commitment of
capital, the timing of completion and the commencement of operations of casino
entertainment development projects are contingent upon, among other things,
negotiation of final agreements and receipt of approvals from the appropriate
political and regulatory bodies. Cash needed to finance projects currently under
development as well as additional projects being pursued by Harrah's will be
made available from operating cash flows, the bank Facility (see Debt and
Liquidity section), Harrah's existing shelf registration (see Debt and Liquidity
section), joint venture partners, specific project financing, guarantees by
Harrah's of third party debt and, if necessary, additional Harrah's debt and/or
equity offerings. Harrah's capital spending for first quarter 1997 totalled
approximately $93 million. Estimated total capital expenditures for 1997 are
expected to be $325 million to $375 million, including the projects discussed in
the Division Operating Results and Development Plans section, the refurbishment
of existing facilities and other projects, but excluding the possible purchase
or construction of a second Las Vegas property and the possible second phase of
Harrah's Atlantic City expansion.
In May 1997, preliminary agreements, entered into in October 1996,
relating to a potential casino development in the Philippines, were
terminated.
DEBT AND LIQUIDITY
- ------------------
Bank Facility
- -------------
As of March 31, 1997, $530.0 million in borrowings were outstanding under
the Company's $1.1 billion revolving credit facility (the "Bank Facility"), with
an additional $19.5 million committed to back letters of credit. After
consideration of these borrowings, $550.5 million of additional borrowing
-24-
<PAGE>
capacity was available to the Company as of March 31, 1997. Subsequent to March
31, 1997, Harrah's requested and received from its bank group a consent to
release collateral under the existing terms of the Bank Facility agreement,
along with approval to utilize over $200 million of available capacity to retire
its 10 7/8% Senior Subordinated Notes (see below).
Senior Subordinated Notes
- -------------------------
On April 25, 1997, Harrah's announced that its principal operating
subsidiary, Harrah's Operating Company, Inc. ("HOC"), had called for redemption
its $200 million in 10 7/8% Senior Subordinated Notes due 2002. The redemption
will occur on May 27, 1997, at a call price of 104.833%, plus accrued and unpaid
interest through the redemption date. Harrah's will retire the notes using
proceeds from its Bank Facility, and expects to record an extraordinary charge,
net of tax, of approximately $8 million during second quarter 1997 in
conjunction with the redemption.
Interest Rate Agreements
- ------------------------
As of March 31, 1997, Harrah's was a party to the following interest rate
swap agreements on certain fixed rate debt:
<TABLE>
<CAPTION>
Effective Next Semi-
Swap Rate at Annual Rate
Associated Rate March 31, Adjustment
Debt (LIBOR+) 1997 Date Swap Maturity
- -------------- ------ --------- ----------- -------------
10 7/8% Notes
<S> <C> <C> <C> <C>
$200 million 4.73% 10.46% April 15 October 1997
8 3/4% Notes
$50 million 3.42% 8.99% May 15 May 1998
$50 million 3.22% 8.95% January 15 July 1998
</TABLE>
In accordance with the terms of the interest rate swap agreements, the effective
interest rate on the $200 million of 10 7/8% Notes was adjusted on April 15,
1997, to 10.82%.
Harrah's also maintains seven additional interest rate swap agreements which
effectively convert variable rate debt to a fixed rate. The following table
summarizes the terms of these swap agreements, all of which reset on a quarterly
basis, as of March 31, 1997:
<TABLE>
<CAPTION>
Swap Rate
Received
Swap Rate (Variable) at Swap
Notional Amount Paid (Fixed) Mar. 31, 1997 Maturity
- --------------- ----------- ------------- ------------
<C> <C> <C> <C>
$50 million 7.910% 5.563% January 1998
$50 million 6.985% 5.625% March 2000
$50 million 6.951% 5.641% March 2000
$50 million 6.945% 5.641% March 2000
$50 million 6.651% 5.547% May 2000
$50 million 5.788% 5.555% June 2000
$50 million 5.785% 5.555% June 2000
</TABLE>
-25-
<PAGE>
These agreements contain a credit risk that the counterparties may be unable
to meet the terms of the agreements. Harrah's minimizes that risk by evaluating
the creditworthiness of its counterparties, which are limited to major banks and
financial institutions, and does not anticipate nonperformance by the
counterparties.
Guarantees of Third Party Debt
- ------------------------------
As part of a transaction whereby Harrah's has retained an option to a site
for a potential casino, Harrah's has extended its guarantee of a third party's
$22.9 million variable rate bank loan through February 28, 1998. In connection
with this extension, Harrah's has also agreed to fund the monthly interest
payments to the lender on behalf of the third party, and is to be repaid from
the proceeds from the sale of certain assets of the third party. The guaranty
contains an element of risk that, should the borrower be unable to perform, the
Company could become responsible for repayment of at least a portion of the
obligation. Harrah's has reduced this exposure by obtaining a security interest
in certain assets of the third party.
As described in the Division Operating Results and Development Plans --
Indian and Limited Stakes section, Harrah's may guarantee all or part of the
debt incurred by Indian tribes with which Harrah's has entered a management
contract to fund development of casinos on the Indian lands. For all existing
guarantees of Indian debt, Harrah's has obtained a first lien on the personal
property (tangible and intangible) of the casino enterprise. There can be no
assurance, however, the value of such property would satisfy Harrah's
obligations in the event these guarantees were enforced. Additionally, Harrah's
has received limited waivers from the Indian tribes of their sovereign immunity
to allow Harrah's to pursue its rights under the contracts between the parties
and to enforce collection efforts as to any assets in which a security interest
is taken.
Shelf Registration
- ------------------
To provide for additional financing flexibility, Harrah's, together with its
wholly-owned subsidiary HOC, have available until October 1997 an effective
shelf registration statement with the Securities and Exchange Commission. The
statement allows the issuance of up to $200 million of Harrah's common stock or
HOC preferred stock or debt securities. The issue price of the Harrah's common
stock or the terms and conditions of the HOC preferred stock or debt securities,
which would be unconditionally guaranteed by Harrah's, would be determined by
market conditions at the time of issuance.
-26-
<PAGE>
EQUITY TRANSACTIONS
- -------------------
In October 1996, Harrah's Board of Directors approved a plan which
authorizes the purchase in the open market of up to ten percent of Harrah's
outstanding shares of common stock. As of March 31, 1997, 2,018,300 shares had
been purchased at a cost of approximately $35.8 million and are being held in
treasury. The Company expects to acquire additional shares from time to time at
prevailing market prices through the December 31, 1997 expiration of the
approved plan.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
Competitive Pressures
- ---------------------
As compared to the early 1990's, the number of new markets opening for
development in the past year has been much more limited and existing markets
have become much more competitive. The focus of many casino operators has
shifted to investing in existing markets, in an effort both to attract new
customers and to gain a greater market share of existing customers. As companies
have completed these expansion projects, supply has grown at a faster pace than
demand in some markets and competition has increased significantly. Furthermore,
several operators, including Harrah's, have announced plans for additional
developments or expansions in some markets. The impact that these projects will
have on Harrah's operations, if they are completed, cannot be determined at this
time.
Harrah's properties in the traditional gaming markets of Nevada and New
Jersey have generally reacted less significantly to the changing competitive
conditions, as the amount of supply change within these markets has represented
a smaller percentage change than that experienced in some riverboat markets. In
Las Vegas, several major developments have opened within the past few years and
numerous new developments and property expansions, including an expansion at
Harrah's Las Vegas, are underway. Historically, the Las Vegas market has grown
sufficiently to absorb these additions to its supply, but there can be no
assurance that such growth will continue. In the Atlantic City market,
additional casino space and hotel rooms have opened within the past year and
several major developments are proposed. This activity has intensified
competition during the last year, increasing promotional costs and reducing
margins.
In riverboat markets, the recent additions to supply have had a more
noticeable impact, due to the fact that competition was limited in the early
stages of many of these markets. In Joliet, the opening in late second quarter
1996 of Indiana riverboats, effectively doubling the Chicago area capacity, has
resulted in a
-27-
<PAGE>
significant decline in Harrah's gaming volume from the 1996 first quarter.
In Tunica, a major new property opened in June 1996, and several
existing properties, including Harrah's, added hotel rooms and other
amenities and more are planned. In response to competitive pressures in this
market and in order to focus its efforts on Harrah's Tunica Mardi Gras
Casino, Harrah's has announced that it will close its original Tunica
property in May 1997 and continues to evaluate its plans for that
property's disposition. In October 1996, a fourth casino entered the
Shreveport market, and in January 1997, a major new development
opened in the Kansas City market. Thus far, the Shreveport
development has not significantly impacted Harrah's operating results. In
Kansas City, Harrah's operating profit levels have declined as a result of
the increasing competition in that market.
Over the past several years, there has also been a significant increase in
the number of casinos on Indian lands, made possible by the Indian Gaming
Regulatory Act of 1988. Harrah's manages two such facilities and two additional
properties are currently under development. The future growth potential from
Indian casinos is also uncertain, however.
Although the short-term effect of these competitive developments on the
Company has been negative, Harrah's is not able to determine the long-term
impact, whether favorable or unfavorable, that these trends and events will have
on its current or future markets. Management believes that the geographic
diversity of Harrah's operations, its multi-market customer base and the
Company's continuing efforts to establish Harrah's as a premier brand name have
well-positioned Harrah's to face the challenges present within the industry.
Harrah's has recently unveiled WINet, a sophisticated nationwide customer
database, and its national Gold Card, a nationwide frequent- player card
scheduled for implementation later this year, both of which it believes will
provide competitive advantages, particularly with players who visit more than
one market.
Political Uncertainties
- -----------------------
The casino entertainment industry is subject to political and regulatory
uncertainty. In 1996, the U.S. government formed a federal commission to study
the casino gaming industry. At this time, the role of the commission and the
ultimate impact that it will have on the industry is uncertain. From time to
time, individual jurisdictions have also considered legislation which could
adversely impact Harrah's operations, and the likelihood or outcome of similar
legislation in the future is difficult to predict.
The casino entertainment industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate. From time to
time, various state and federal legislators and officials have proposed changes
in tax laws, or
-28-
<PAGE>
in the administration of such laws, which would affect the industry. It is not
possible to determine with certainty the scope or likelihood of possible future
changes in tax laws or in the administration of such laws. If adopted, such
changes could have a material adverse effect on Harrah's financial results.
INTERCOMPANY DIVIDEND RESTRICTION
- ---------------------------------
Agreements governing the terms of its debt require Harrah's to abide by
covenants which, among other things, limit HOC's ability to pay dividends and
make other restricted payments, as defined, to Harrah's. The amount of HOC's
restricted net assets, as defined, computed in accordance with the most
restrictive of these covenants regarding restricted payments (other than for the
repurchase of Harrah's common stock) was approximately $699.2 million at March
31, 1997. With respect to any payments by HOC to Harrah's for the purpose of
providing funds to Harrah's for the repurchase of its common stock, the amount
of HOC's restricted net assets under such covenant was approximately
$545.5 million at March 31, 1997. Harrah's principal asset is the stock of
HOC, a wholly-owned subsidiary which holds, directly and through
subsidiaries, the principal assets of Harrah's businesses. Given this
ownership structure, these restrictions should not impair Harrah's ability to
conduct its business through its subsidiaries, to pursue its development
plans or to complete the stock repurchase program.
PRIVATE SECURITIES LITIGATION REFORM ACT
- ----------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission ("SEC") (as well as information included in
oral statements or other written statements made or to be made by the Company)
contains statements that are forward looking. These include statements relating
to the following activities, among others: (A) operations and expansions of
existing properties, including future performance, anticipated scope and opening
dates of expansions, and exit plans with respect to certain properties; (B)
planned openings and development of Indian casinos that would be managed by the
Company; (C) the plan of reorganization and its various facets for New Orleans;
(D) implementation of the stock repurchase program and planned capital
expenditures for 1997; (E) the possible acquisition/construction of a second
property in Las Vegas, Nevada; and (F) the impact of the WINet and Gold Card
programs. These activities involve important factors that could cause actual
results to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company. These include, but are not
limited to, the following factors as well as other factors described from time
to time in
-29-
<PAGE>
the Company's reports filed with the SEC: construction factors, including zoning
issues, environmental restrictions, soil conditions, weather and other hazards,
site access matters and building permit issues; access to available and feasible
financing; regulatory and licensing approvals, third party consents and
approvals, and relations with partners, owners and other third parties; business
and economic conditions; litigation, judicial actions and political
uncertainties, including gaming legislation and taxation; and the effects of
competition including locations of competitors and operating and marketing
competition. Any forward looking statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
-30-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
--------------------------
On September 26, 1995, Harrah's New Orleans Investment Company
("HNOIC"), an indirect subsidiary of the Company, filed in the United States
District Court for the Eastern District of Louisiana a suit styled Harrah's New
Orleans Investment Company v. New Orleans Louisiana Development Corporation,
Civil No. 95-3166. At issue in the suit is the percentage of ownership that New
Orleans/Louisiana Development Corporation ("NOLDC") holds in Harrah's Jazz
Company ("HJC"), a Louisiana partnership whose general partners are HNOIC, NOLDC
and Grand Palais Casino, Inc. This declaratory judgment action seeks to confirm
that, as of September 26, 1995, NOLDC's percentage interest in the Harrah's Jazz
Company partnership was only 13.73% and, therefore, NOLDC is not a "Material
Partner" in HJC. This case was put on "administrative hold" after the filing by
NOLDC of a Chapter 11 bankruptcy petition on November 21, 1995. Should it be put
back on the active list, HNOIC or the appropriate post-bankruptcy entity would
vigorously prosecute it. At the time the case was put on "administrative hold,"
no discovery on the merits had been taken and no answer had been filed by NOLDC.
On September 28, 1995, NOLDC filed suit against the Company and various
of its corporate affiliates in New Orleans Louisiana Development Corporation v.
Harrah's Entertainment, formerly d/b/a The Promus Companies, Harrah's New
Orleans Investment Company, Harrah's New Orleans Management Company, Harrah's
Jazz Company, and Promus Hotels, formerly d/b/a Embassy Suites, Inc., Civil No.
95-14653, filed in the Civil District Court for the Parish of Orleans. The case
was subsequently removed by defendants to the United States District Court for
the Eastern District of Louisiana. In this suit, NOLDC seeks to realign
ownership interests in HJC among HNOIC and NOLDC. NOLDC also seeks an
unspecified dollar amount of damages sufficient to compensate it for the losses
it alleges it has suffered as a result of actions of defendants. NOLDC has
indicated that it intends to seek to remand the suit to the Civil District
Court. The case was also put on "administrative hold" by the District Court
Judge as a result of NOLDC's bankruptcy filing. The Company and other defendants
intend to vigorously defend the action should it be put back on the active case
list. At the time it was put on "administrative hold," no answer had been filed
by any defendant and no discovery had been taken.
Beginning on November 28, 1995, eight separate class action suits
were filed against the Company and various of its corporate affiliates,
officers and directors in the United States District Court for the Eastern
District of Louisiana. They are Ben F. D'Angelo, Trustee for Ben F. D'Angelo
Revocable Trust v. Harrah's
-31-
<PAGE>
Entertainment Corp., Michael D. Rose, Philip G. Satre and Ron Lenczycki; Max
Fenster v. Harrah's Entertainment, Inc., Harrah's New Orleans Investment
Company, Grand Palais Casino, Inc., Philip G. Satre, Colin V. Reed, Michael N.
Regan, Christopher B. Hemmeter, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers, Inc., and BT Securities Corp.; Goldie Rosenbloom
v. Harrah's Entertainment Corp., Michael D. Rose, Philip G. Satre and Ron
Lenczycki; Barry Ross v. Harrah's New Orleans Investment Company, Philip G.
Satre, Colin V. Reed, Lawrence L. Fowler, Michael N. Regan, Cezar M. Froelich,
Ulric Haynes, Jr., Wendell Gauthier, T. George Solomon, Jr., Duplain W. Rhodes,
III, Harrah's Entertainment, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc., and BT Securities Corp.; Louis Silverman v.
Harrah's Entertainment, Inc., Harrah's New Orleans Investment Company, Grand
Palais Casino, Inc., Philip G. Satre, Colin V. Reed, Michael N. Regan,
Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation; Florence Kessler v. Philip G. Satre, Colin V. Reed, Charles A.
Ledsinger, Jr., Michael N. Regan, Lawrence L. Fowler, Christopher B. Hemmeter,
Cezar M. Froelich, Ulric Haynes, Jr., Wendell H. Gauthier, T. George Solomon,
Jr., Duplain W. Rhodes, III, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc., and BT Securities Corporation; Warren
Zeiller and Judith M.R. Zeiller v. Harrah's Entertainment Corp., Michael D.
Rose, Philip G. Satre, and Ron Lenczycki; and Charles Zwerving and Helene
Zwerving v. Harrah's Entertainment Corp., Philip G. Satre, Colin V. Reed,
Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation. Per Court Order of January 26, 1996, the above plaintiffs filed a
consolidated complaint in the action numbered 95-3925 In Re Harrah's
Entertainment, Inc. Securities Litigation. The consolidated complaint alleges
that various misstatements and omissions were made in connection with the sale
of Harrah's Jazz Company 14.25% First Mortgage Notes and thereafter, and seeks
unspecified damages, as well as costs of legal proceedings. On April 25, 1997,
the United States District Court preliminarily approved a settlement of this
matter, scheduling the final fairness hearing for June 26, 1997.
On December 6, 1995 Centex Landis, the general contractor for the
permanent casino being developed by HJC, filed suit against the Company, among
others, in the Civil District Court for The Parish of Orleans in Centex Landis
Construction Co., Inc. v. Harrah's Entertainment, Inc. formally d/b/a The Promus
Companies, Inc.; and Ronald A. Lenczycki, Civil No. 95-18101. Defendants removed
the case to the United States District Court for the Eastern District of
Louisiana and it was subsequently transferred to the Bankruptcy Court handling
the HJC bankruptcy. This suit seeks to collect more than $40 million allegedly
owed to Centex Landis by HJC from the Company under guarantee, fraud, fraudulent
advertising and unfair trade practice theories. The Company and the other
defendant intend to vigorously defend the action and have filed an answer
denying all of plaintiff's allegations. No discovery has been taken in the
action.
-32-
<PAGE>
Russell M. Swody, et al. v. Harrah's New Orleans Management Company and
Harrah's Entertainment, Inc., Civil No. 95-4118, was filed against the Company
on December 13, 1995 in the United States District Court for the Eastern
District of Louisiana, and subsequently amended. Swody is a class action lawsuit
under the Worker Adjustment and Retraining Notification Act ("WARN Act") and
seeks damages for alleged failure to timely notify workers terminated by
Harrah's New Orleans Management Company at the time of the HJC bankruptcy.
Plaintiffs seek unspecified damages, as well as costs of legal proceedings, for
themselves and all members of the class. An answer has been filed denying all of
plaintiffs' allegations.
Swody was consolidated with Susan N. Poirier, Darlene A. Moss, et al.
v. Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, and
Harrah's Operating Company, Civil No. 96-0215, which was filed in the United
States District Court for the Eastern District of Louisiana on January 17, 1996,
and subsequently amended. Poirier seeks not only damages under the WARN Act, but
also under the Employee Retirement Income Security Act ("ERISA") for the alleged
wrongful failure to provide severance to those terminated. Similar proofs of
claims were filed by Ms. Poirier in the Bankruptcy Court for the Eastern
District of Louisiana in the HJC, HNOIC and Harrah's Jazz Finance Corp.
bankruptcy cases.
A settlement has been reached with the Swody and Poirier plaintiffs,
which calls for a payment to be made by HJC in exchange for the dismissal of all
actions, which settlement is contingent on the consummation of the Plan of
Reorganization for HJC. That settlement has already been determined to be fair
to all class members by the Bankruptcy Court.
On December 29, 1995 in the Civil District Court for The Parish of Orleans,
the City of New Orleans filed suit against the Company and others in City of New
Orleans and Rivergate Development Corporation v. Harrah's Entertainment, Inc.
(f/k/a The Promus Companies, Inc.), Grand Palais Casino, Inc., Embassy Suites,
Inc., First National Bank of Commerce and Ronald A. Lenczycki, Civil No.
95-19285. This suit seeks to require the Company, among others, to complete
construction of the permanent casino being developed by HJC under theories of
breach of completion guarantee contract, breach of implied duty of good faith,
detrimental reliance, misrepresentation, and false advertising. Plaintiff seeks
unspecified damages, as well as costs of legal proceedings. Defendants have
removed the suit to the United States District Court for the Eastern District of
Louisiana and it was then transferred to the Bankruptcy Court handling the HJC
bankruptcy. The Company and the other defendants have filed an answer denying
all of plaintiffs' allegations and intend to vigorously defend the action.
-33-
<PAGE>
Louisiana Economic Development and Gaming Corporation v. Harrah's
Entertainment, Inc. and Harrah's Operating Company, Inc., Civil No. 424328, was
filed on January 23, 1996 in the Nineteenth Judicial Court of the State of
Louisiana, Parish of East Baton Rouge. On February 21, 1996, the Company and the
other defendants removed the case to the Federal District Court for the Middle
District of Louisiana and asked that it be transferred to the Bankruptcy Court
handling the HJC bankruptcy. The case has been transferred. A motion for
reconsideration has been filed by LEDGC. In this suit LEDGC seeks to require the
Company and Harrah's Operating Company to complete construction of the permanent
casino being developed by HJC under theories of breach of completion guarantee
contract, breach of implied duty of good faith, detrimental reliance,
misrepresentation and, in the alternative, seeks damages. The Company has filed
an answer and counterclaim against LEDGC. LEDGC has moved to have that
counterclaim dismissed and/or for summary judgment. No ruling has yet been made
by the court. The defendants intend to vigorously defend the action and
prosecute their counterclaim.
-34-
<PAGE>
Item 4. Submission of Matters To a Vote of Security Holders
-----------------------------------------------------------
The Company held its annual stockholders meeting on April 25, 1997. The
following matters were voted upon at the meeting:
1. Election of Class I Directors
-----------------------------
Votes Cast
------------------------
Against or
Name of Director Elected For Withheld
------------------------- --- --------
Joe M. Henson 88,610,542 1,328,853
R. Brad Martin 88,611,906 1,327,489
Eddie N. Williams 88,581,390 1,358,005
Name of Each Other Director Whose Term of
Office as Director Continued After the Meeting
----------------------------------------------
James L. Barksdale
Susan Clark-Johnson
James B. Farley
Ralph Horn
Walter J. Salmon
Philip G. Satre
Boake A. Sells
2. Ratification of Arthur Against or
Andersen LLP as the For Withheld Abstentions
Company's independent --- -------- -----------
public accountants for 89,049,612 686,328 202,455
the 1997 calendar year.
-----------------------
3. Stockholder proposal Against or
relating to elimination For Withheld Abstentions
of Stockholder Rights --- -------- -----------
Plan.* 33,596,806 31,736,931 696,557
-----------------------
*There were 23,908,101 broker nonvotes with regard to this proposal. This
proposal failed because it did not achieve the affirmative vote of 75% of
outstanding shares as required by the Company's Certificate of Incorporation.
-35-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------------------
(a) Exhibits
*EX-4.1 Second Amendment, dated as of April 25, 1997, to
Rights Agreement, dated as of October 25, 1996,
between Harrah's Entertainment, Inc.
and The Bank of New York.
*EX-10.1 Amendment dated February 20, 1997 to 1996 Non-
Management Director's Stock Incentive Plan.
*EX-10.2 Amendment, dated May 5, 1997, to Employment
Agreement of Philip G. Satre dated as of
February 25, 1994.
*EX-11 Computation of per share earnings.
*EX-27 Financial Data Schedule.
* Filed herewith.
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
-36-
<PAGE>
Signature
---------
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.
HARRAH'S ENTERTAINMENT, INC.
May 13, 1997 BY: MICHAEL N. REGAN
-----------------------
Michael N. Regan
Vice President and Controller
(Chief Accounting Officer)
-37-
<PAGE>
Exhibit Index
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------ ----------
EX-4.1 Second Amendment, dated as of April 25, 39
1997, to Rights Agreement, dated as of
October 25, 1996, between
Harrah's Entertainment, Inc. and
The Bank of New York.
EX-10.1 Amendment dated February 20, 1997 55
to 1996 Non-Management Director's
Stock Incentive Plan.
EX-10.2 Amendment, dated May 5, 1997 to 57
Employment Agreement of Philip G.
Satre dated as of February 25, 1994.
EX-11 Computation of per share earnings. 59
EX-27 Financial Data Schedule.
-38-
<PAGE>
Exhibit 4.1
SECOND AMENDMENT TO RIGHTS AGREEMENT
SECOND AMENDMENT, dated as of April 25, 1997 (this "Second
Amendment") to the Rights Agreement (the "Rights Agreement"), dated as of
October 5, 1996, between Harrah's Entertainment, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, a New York corporation, as Rights
Agent (the "Rights Agent"), as amended by the First Amendment thereto, dated as
of February 21, 1997 (the "First Amendment"). Unless the context indicates to
the contrary, capitalized terms used and not defined herein shall have the
meanings ascribed to them in the Rights Agreement.
The Company and the Rights Agent have previously entered into
the Rights Agreement and the First Amendment thereto. The Board of Directors of
the Company has authorized and declared a dividend of one Right for each Common
Share of the Company outstanding at the close of business on the Record Date,
and has authorized the issuance of one Right (subject to adjustment as provided
in the Rights Agreement) with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date, each Right initially
representing the right to purchase one two-hundredth of a share of Series A
Special Stock of the Company, upon the terms and subject to the conditions set
forth in the Rights Agreement.
Pursuant to Section 26 of the Rights Agreement, the Company
and the Rights Agent may from time to time supplement or amend the Rights
Agreement in accordance with the provisions of such Section. The parties deem it
advisable to supplement and amend the Rights Agreement as provided in this
Second Amendment.
Accordingly, in consideration of the promises and mutual
agreements herein set forth, the parties hereby agree as follows:
1. Exhibit B. Form of Right Certificate
The form of Right Certificate attached to the Rights Agreement
as Exhibit B is hereby amended and restated in its entirety as set forth in
Exhibit B attached hereto.
2. Exhibit C. Summary of Rights to Purchase Special
Shares
The Summary of Rights to Purchase Special Shares attached to
the Rights Agreement as Exhibit C is hereby amended and restated in its entirety
as set forth in Exhibit C attached hereto.
1
<PAGE>
3. Except as expressly set forth herein, nothing herein shall
be deemed or construed to alter or amend the Rights Agreement in any respect,
and, except as amended and supplemented hereby, the Rights Agreement shall
remain in full force and effect in accordance with the provisions thereof.
Unless the context indicates otherwise, each reference in the Rights Agreement
to "this Rights Agreement" and the words "hereof", "hereto" and words of similar
import shall mean the Rights Agreement, as amended and supplemented hereby.
4. This Second Amendment shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
5. This Second Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
[signature page to follow]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Rights Agreement to be duly executed and their respective corporate
seals to be hereunto affixed, this 6th day of May, 1997.
HARRAH'S ENTERTAINMENT, INC.
By /s/ E. O. Robinson, Jr.
--------------------------------
Name: E. O. Robinson, Jr.
Title: Senior Vice President and
General Counsel
[SEAL]
THE BANK OF NEW YORK
By /s/ John I. Sivertsen
-------------------------------
Name: John I. Sivertsen
Title: Vice President
[SEAL]
S-1
<PAGE>
EXHIBIT B
---------
[Form of Right Certificate]
Certificate No. R- Rights
-----
NOT EXERCISABLE AFTER OCTOBER 5, 2006 OR EARLIER IF NOTICE OF
REDEMPTION OR EXCHANGE IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED
PURSUANT TO AN AGREEMENT OF THE TYPE DESCRIBED IN SECTION 1.3(ii)(A)(4)
OF THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
OPTION OF THE COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION
11.1.2 OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON, OR ITS AFFILIATES OR ASSOCIATES, OR ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED
BY THIS CERTIFICATE ARE HELD OR HAVE BEEN HELD BY A PERSON WHO IS OR
WAS AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING
PERSON OR A NOMINEE THEREOF. THIS RIGHT CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY HAVE BECOME NULL AND VOID AS SPECIFIED IN SECTION
11.1.2 OF THE RIGHTS AGREEMENT.]1/
Right Certificate
HARRAH'S ENTERTAINMENT, INC.
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of
which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of October 5, 1996, as the same may
be amended from time to time (the "Rights Agreement"), between Harrah's
Entertainment, Inc., a Delaware corporation (the "Company"), and The Bank of New
York, a New York corporation authorized to do a banking business, as Rights
Agent (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date and prior to 5:00 P.M. (New York City time) on October 5,
2006, at the offices of the Rights Agent, or its
- ---------------------
1. The portion of the legend in brackets shall be inserted only
if applicable and shall replace the preceding sentence.
B-1
<PAGE>
successors as Rights Agent, designated for such purpose, one two- hundredth of a
fully paid, nonassessable share of Series A Special Stock, par value $1.125 per
share (the "Special Shares") of the Company, at a purchase price of $130.00 per
one two- hundredth of a share, subject to adjustment (the "Purchase Price"),
upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase and certification duly executed along with a signature
guarantee and such other and further documentation as the Rights Agent may
reasonably request. The number of Rights evidenced by this Right Certificate
(and the number of one two-hundredths of a Special Share which may be purchased
upon exercise thereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of October 5, 1996 based on the Special
Shares as constituted at such date.
Upon the occurrence certain events described in Section 11.1.2
of the Rights Agreement, if the Rights evidenced by this Right Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person, (ii) a transferee of any such Acquiring Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become void, and no holder hereof shall have any right to exercise
such Rights under any provision of the Rights Agreement or otherwise from and
after the occurrence of such event described in Section 11.1.2 of the Rights
Agreement.
Capitalized terms used in this Right Certificate without
definition shall have the meanings ascribed to them in the Rights Agreement. As
provided in the Rights Agreement, the Purchase Price and the number and kind of
Special Shares or other securities which may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal offices of the
Company and the Rights Agent.
B-2
<PAGE>
This Right Certificate, with or without other Right
Certificates, upon surrender at the offices of the Rights Agent designated for
such purpose along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
one two-hundredths of a Special Share as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Board
of Directors may, at its option, (i) redeem the Rights evidenced by this Right
Certificate at a redemption price of $0.01 per Right at any time prior to the
earlier of (A) the Shares Acquisition Date or (B) the Final Expiration Date, or
(ii) exchange Common Shares for the Rights evidenced by this Certificate, in
whole or in part, after the occurrence of a Trigger Event. In the event that,
pursuant to the last sentence of Section 1.1 of the Rights Agreement, the Board
of Directors determines that a Person has become an Acquiring Person
inadvertently, and such Person divests Common Shares in accordance with such
sentence, then the Company's right of redemption shall be deemed to have not
expired as a result of such inadvertent acquisition.
No fractional Special Shares will be issued upon the exercise
of any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one two-hundredth of a Special Share, which may, at the election of
the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Special Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
B-3
<PAGE>
If any term, provision, covenant or restriction of the Rights
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of the Rights Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in the Rights Agreement to the contrary,
if any such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors of the
Company determines in its good faith judgment that severing the invalid language
from the Rights Agreement would adversely affect the purpose or effect of the
Rights Agreement, the Company's right of redemption shall be reinstated and
shall not expire until the close of business on the tenth day following the date
of such determination by the Board of Directors.
This Right Certificate shall not be valid or binding for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers
of the Company and its corporate seal. Dated as of .
Attest: HARRAH'S ENTERTAINMENT, INC.
By By
--------------------- ------------------------
Title: Title:
Countersigned:
THE BANK OF NEW YORK
By
----------------------
Authorized Signature
B-4
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
-------------
hereby sells, assigns and transfers unto
------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Please print name and address
of transferee)
this Right Certificate and the Rights evidenced thereby, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint [Name] Attorney, to transfer the within Right Certificate on the books
of the within-named Company, with full power of substitution.
Dated:
------------------
----------------------------
Signature
Signature Guaranteed:
- -------------------------
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
B-5
<PAGE>
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ]
are not beneficially owned by an Acquiring Person or an Affiliate or an
Associate (as such terms are defined in the Rights Agreement) thereof; and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by
this Right Certificate from any Person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate thereof.
Dated:
-----------------
----------------------------
Signature
Signature Guaranteed:
- -------------------------
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- ----------------------------------------------------------------
NOTICE
------
The signature in the foregoing Form of Assignment must conform to
the name as written upon the face of this Right Certificate in every particular,
without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment is not completed, the Company will deem the beneficial owner of the
Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate hereof and, in the case of an Assignment, will affix a
legend to that effect on any Right Certificates issued in exchange for this
Right Certificate.
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Right Certificate.)
To: HARRAH'S ENTERTAINMENT, INC.
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase the
Special Shares issuable upon the exercise of such Rights (or such other
securities of the Company or of any other Person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of:
Please insert social security
or other identifying number
- ------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------
Dated:
------------------
----------------------------
Signature
Signature Guaranteed:
- -------------------------
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
B-7
<PAGE>
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ]
are not beneficially owned by an Acquiring Person or an Affiliate or an
Associate thereof; and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by
this Right Certificate from any person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate thereof.
Dated:
------------------
----------------------------
Signature
Signature Guaranteed:
- -------------------------
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- ----------------------------------------------------------------
NOTICE
------
The signature in the foregoing Form of Election to Purchase must
conform to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Election to Purchase is not completed, the Company will deem the beneficial
owner of the Rights evidenced by this Right Certificate to be an Acquiring
Person or an Affiliate or Associate hereof.
B-8
<PAGE>
EXHIBIT C
As described in the Rights Agreement, Rights which are held
by or have been held by Acquiring Persons or Associates or
Affiliates thereof (as defined in the Rights Agreement) shall
become null and void.
SUMMARY OF RIGHTS TO PURCHASE
SPECIAL SHARES
On July 19, 1996 the Board of Directors of Harrah's Entertainment,
Inc. (the "Company") declared a dividend of one Right for each share of common
stock, $0.10 par value (the "Common Shares"), of the Company outstanding at the
close of business on October 5, 1996 (the "Record Date"). As long as the Rights
are attached to the Common Shares, the Company will issue one Right (subject to
adjustment) with each new Common Share so that all such shares will have
attached Rights. When exercisable, each Right will entitle the registered holder
to purchase from the Company one two-hundredth of a share of Series A Special
Stock (the "Special Shares") at a price of $130 per one two-hundredth of a
Special Share, subject to adjustment (the "Purchase Price"). The description and
terms of the Rights are set forth in a Rights Agreement, dated as of October 5,
1996, as the same may be amended from time to time (the "Rights Agreement"),
between the Company and The Bank of New York, as Rights Agent (the "Rights
Agent").
Until the earlier to occur of (i) ten (10) days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the Common Shares or (ii) ten (10) days (or such
later date as may be determined by action of at least a majority of Continuing
Directors (as defined below) prior to such time as any Person becomes an
Acquiring Person) following the commencement or announcement of an intention to
make a tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a person or group of 15% or more of the Common
Shares (the earlier of (i) and (ii) being called the "Distribution Date,"
whether or not either such date occurs prior to the Record Date), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate together
with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date,
the Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption, exchange, termination or expiration of
the Rights),
C-1
<PAGE>
new Common Share certificates issued after the close of business on the Record
Date upon transfer or new issuance of the Common Shares will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption, exchange, termination or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares, with or without a
copy of this Summary of Rights, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and,
thereafter, such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on October 5, 2006, subject to the Company's right to extend
such date (the "Final Expiration Date"), unless earlier redeemed or exchanged by
the Company or terminated.
Each Special Share purchasable upon exercise of the Rights will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend of 200 times the dividend, if any,
declared per Common Share. In the event of liquidation, the holders of the
Special Shares will be entitled to a minimum preferential liquidation payment of
$200 per share but will be entitled to an aggregate payment of 200 times the
payment made per Common Share. Each Special Share will have 200 votes and will
vote together with the Common Shares. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Special Share will be entitled to receive 200 times the amount received per
Common Share. These rights are protected by customary antidilution provisions.
Because of the nature of the Special Share's dividend, liquidation and voting
rights, the value of one two-hundredth of a Special Share purchasable upon
exercise of each Right should approximate the value of one Common Share.
The Purchase Price payable, and the number of Special Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Special
Shares, (ii) upon the grant to holders of the Special Shares of certain rights
or warrants to subscribe for or purchase Special Shares or convertible
securities at less than the current market price of the Special Shares or (iii)
upon the distribution to holders of the Special Shares of evidences of
indebtedness, cash,
C-2
<PAGE>
securities or assets (excluding regular periodic cash dividends at a rate not in
excess of 125% of the rate of the last regular periodic cash dividend
theretofore paid or, in case regular periodic cash dividends have not
theretofore been paid, at a rate not in excess of 50% of the average net income
per share of the Company for the four quarters ended immediately prior to the
payment of such dividend, or dividends payable in Special Shares (which
dividends will be subject to the adjustment described in clause (i) above)) or
of subscription rights or warrants (other than those referred to above).
In the event that a Person becomes an Acquiring Person (except
pursuant to certain cash offers for all outstanding Common Shares approved by
the Board) or if the Company were the surviving corporation in a merger with an
Acquiring Person or any affiliate or associate of an Acquiring Person and the
Common Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the 15% stockholder
(which Rights will thereafter be void), will thereafter have the right to
receive upon exercise that number of Common Shares (or, in certain
circumstances, cash, property or other securities of the Company) having a
market value of two times the then current Purchase Price of the Right. With
certain exceptions, in the event that (i) the Company is acquired in a merger or
other business combination transaction in which the Company is not the surviving
corporation or its Common Shares are changed or exchanged (other than a merger
which follows certain cash offers for all outstanding Common Shares approved by
the Board) or (ii) more than 50% of the Company's assets or earning power is
sold, proper provision shall be made so that each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the then current Purchase Price of the Right.
At any time after a Person becomes an Acquiring Person and prior to
the acquisition by such Acquiring Person of 50% or more of the outstanding
Common Shares, the Board of Directors may cause the Company to acquire the
Rights (other than Rights owned by an Acquiring Person which have become void),
in whole or in part, in exchange for that number of Common Shares having an
aggregate value equal to the Spread (the excess of the value of the Common
Shares issuable upon exercise of a Right after a Person becomes an Acquiring
Person over the Purchase Price) per Right (subject to adjustment).
C-3
<PAGE>
No adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. No fractional shares will be issued and in lieu thereof, a payment in
cash will be made based on the market price of the Special Shares on the last
trading date prior to the date of exercise.
The Rights may be redeemed in whole, but not in part, at a price of
$0.01 per Right (the "Redemption Price") by the Board of Directors at any time
prior to the earlier of (i) the first date of public announcement that a Person
has become an Acquiring Person or (ii) the Final Expiration Date. In the event
that, pursuant to the last sentence of Section 1.1 of the Rights Agreement, the
Board of Directors determines that a Person has become an Acquiring Person
inadvertently, and such Person divests Common Shares in accordance with such
sentence, then the Company's right of redemption shall be deemed to have not
expired as a result of such inadvertent acquisition. Immediately upon the action
of the Board of Directors of the Company electing to redeem the Rights, the
Company shall make an announcement thereof, and upon such election, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The term "Continuing Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the time that
any Person becomes an Acquiring Person, and any person who is subsequently
elected to the Board if such person is recommended or approved by a majority of
the Continuing Directors. Continuing Directors do not include an Acquiring
Person, or an affiliate or associate of an Acquiring Person, or any
representative of the foregoing.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company beyond those as an existing
stockholder, including, without limitation, the right to vote or to receive
dividends.
Any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, amend or supplement the Rights Agreement without the approval of any
holders of Right Certificates to cure any ambiguity, to correct or supplement
any provision contained therein which may be defective or inconsistent with any
other provisions therein, to shorten or lengthen any time period under the
Rights Agreement (so long as, under certain circumstances, a majority of
Continuing Directors approve such shortening or lengthening) or, so long as the
interests of the holders of Right Certificates
C-4
<PAGE>
(other than an Acquiring Person or an affiliate or associate of an Acquiring
Person) are not adversely affected thereby, to make any other provisions in
regard to matters or questions arising thereunder which the Company and the
Rights Agent may deem necessary or desirable, including but not limited to
extending the Final Expiration Date. The Company may at any time prior to such
time as any Person becomes an Acquiring Person amend the Rights Agreement to
lower the thresholds described above to not less than the greater of (i) any
percentage greater than the largest percentage of the outstanding Common Shares
then known by the Company to be beneficially owned by any person or group of
affiliated or associated persons and (ii) 10%.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-5
<PAGE>
Exhibit 10.1
Amendment (this "Amendment") to the
Harrah's Entertainment, Inc.
1996 Non-Management Directors Stock Incentive Plan
(the "Plan")
This Amendment is effective February 20, 1997, pursuant to
approval by the Committee under the Plan and by the Human
Resources Committee of the Board of Directors of Harrah's
Entertainment, Inc. ("Company").
1. Section 2 of the Plan is hereby amended to add the
following sentence to the end of such section:
Notwithstanding the foregoing, the Human Resources Committee of the
Board of Directors of the Company (the "HRC") shall exercise any and
all rights, duties and powers of the Committee under the Plan to the
extent required by the applicable exemptive conditions of Rule 16b-3
under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
as determined by the HRC in its sole discretion.
2. The third sentence of the first paragraph of Section 7
of the Plan is hereby amended to read in its entirety:
The deferral election form signed by the participant prior to the plan
year will be irrevocable except in case of hardship (as defined in
Section 8) as determined in good faith by the HRC pursuant to Section
8, provided, however, that a participant may, prior to January 1 of the
year preceding the year that the participant's termination of service
occurs, submit an amended election form to the HRC for HRC approval
indicating a requested change in the participant's elected method for
the grant of the deferred shares upon termination of service (i.e., as
to either a lump sum of shares within 30 days after termination of
service or approximately equal annual installments over a period of two
to ten years), and upon the HRC's approval of the requested change
within 90 days after submission of the requested change, such change
shall be effective. If the HRC does not approve the change, the
participant's original election will remain in effect.
3. Section 8 is hereby amended to add the following
sentence to the end of such section:
For purposes of this Section 8, the Committee shall be the HRC.
4. Section 10(a) of the Plan is hereby amended to add the
following proviso to the end of such section:
<PAGE>
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such adjustment shall be
subject to approval by the HRC.
5. Section 10(b) of the Plan is hereby amended to add the
following proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such termination shall be
subject to approval by the HRC.
6. Section 10(c) of the Plan is hereby amended to provide
in its entirety as follows:
(c) No adjustment or action under this Section 10 or any other
provision of this Plan shall be authorized to the extent such
adjustment or action would violate Section 16 of the Securities
Exchange Act of 1934, as amended, or the applicable exemptive
conditions of Rule 16b-3. The number of shares finally granted under
this Plan shall always be rounded to the next whole number.
7. Section 10(d) of the Plan is hereby amended to add the
following proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such decision shall be subject
to approval by the HRC.
8. Section 11 of the Plan is hereby amended to read in its
entirety as follows:
Amendment. The Committee may terminate, modify or amend the Plan in
such respect as it shall deem advisable, without obtaining approval
from the Company's stockholders or the HRC except as such approval may
be required pursuant to the applicable exemptive conditions of Rule
16b-3 or Section 16 of the Securities Exchange Act of 1934, as amended.
No termination, modification or amendment of the Plan may, without the
consent of a participant, adversely affect a participant's rights under
an award granted prior thereto.
* * * *
Executed and approved this 20th day of February, 1997.
/s/ Philip G. Satre
----------------------------------------
Philip G. Satre, Chairman, President and
Chief Executive Officer and Sole Member of
the Committee under the Plan
-2-
<PAGE>
Exhibit 10.2
May 5, 1997
Mr. Philip G. Satre
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117
RE: Amendment to Employment Agreement
Dear Mr. Satre:
Pursuant to action taken by the Board of Directors on February 21,
1997, this letter agreement ("this Amendment") amends your Employment Agreement
dated February 25, 1994 (the "Agreement") between you and Harrah's
Entertainment, Inc. (formerly The Promus Companies Incorporated) (the
"Company").
In consideration of the mutual covenants herein contained, it is agreed
as follows:
1. All references in the Agreement to "Chief Executive
Officer" are changed to read "Chairman of the Board and
Chief Executive Officer."
2. The reference to your salary of "$450,000" in the
first sentence of paragraph 4 of the Agreement is changed to
read "$800,000."
It is understood these changes are effective as of January 1,
1997.
3. Notwithstanding any provision in the Agreement to the
contrary, in the event your active employment as an executive officer
with the Company, or its direct or indirect subsidiaries, terminates
for any reason, any TARSAP shares granted to you which are unvested on
the date of such termination of active employment will be forfeited as
of 12:00 p.m. on such date, provided, it is understood that the Human
Resources Committee of the Board of Directors could approve an
exception, in its discretion, based on its review of the circumstances
at that time.
4. Except as specifically amended herein, all terms
and conditions of the Agreement remain unchanged and
continue in full force and effect.
<PAGE>
If this Amendment sets forth our agreement on the subject matter
hereof, please sign and return to the Company the enclosed copy of this
Amendment which will then constitute our binding agreement on this subject.
Very truly yours,
HARRAH'S ENTERTAINMENT, INC.
By: /s/ E. O. Robinson, Jr.
-------------------------
Title: Senior Vice President
AGREED:
/s/ Philip G. Satre
- -------------------------
Philip G. Satre
-2-
<PAGE>
Exhibit 11
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF PER SHARE EARNINGS
First Quarter Ended
March 31, March 31,
1997 1996
------------ ------------
Net income $ 17,111,000 $ 31,410,000
============ ============
Primary Earnings Per Share
Weighted average number of common
shares outstanding 101,610,624 102,597,657
Common stock equivalents
Additional shares based on
average market price for
period applicable to:
Restricted stock - 53,002
Stock options 544,937 727,888
------------ ------------
Average number of primary common
and common equivalent shares
outstanding 102,155,561 103,378,547
============ ============
Primary earnings per common and
common equivalent share
Net income $ 0.17 $ 0.30
============ ============
Fully Diluted Earnings Per Share
Average number of primary common and
common equivalent shares outstanding 102,155,561 103,378,547
Additional shares based on
period-end price applicable to:
Restricted stock - 4,951
Stock options - 161,102
------------ ------------
Average number of fully diluted
common and common equivalent
shares outstanding 102,155,561 103,544,600
============ ============
Fully diluted earnings per common and
common equivalent share
Net income $ 0.17 $ 0.30
============ ============
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 103,135
<SECURITIES> 0
<RECEIVABLES> 53,274
<ALLOWANCES> 15,542
<INVENTORY> 10,490
<CURRENT-ASSETS> 195,082
<PP&E> 2,039,679
<DEPRECIATION> 609,367
<TOTAL-ASSETS> 2,002,837
<CURRENT-LIABILITIES> 211,008
<BONDS> 937,608
0
0
<COMMON> 10,170
<OTHER-SE> 689,625
<TOTAL-LIABILITY-AND-EQUITY> 2,002,837
<SALES> 0
<TOTAL-REVENUES> 374,099
<CGS> 0
<TOTAL-COSTS> 317,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,815
<INCOME-PRETAX> 30,582
<INCOME-TAX> 11,647
<INCOME-CONTINUING> 17,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,111
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
