<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, 1998
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, 1998, there were outstanding 101,099,242 shares of the
Company's Common Stock.
Page 1 of 48
Exhibit Index Page 43
<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 1997 Annual Report to Stockholders.
-2-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
--------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 115,588 $ 116,443
Receivables, less allowance for doubtful accounts of $12,110 and
$11,462 43,276 43,767
Deferred income tax benefit 16,426 17,436
Prepayments and other 25,302 21,653
Inventories 12,122 13,011
--------- ---------
Total current assets 212,714 212,310
--------- ---------
Land, buildings, riverboats and equipment 2,184,213 2,153,340
Less: accumulated depreciation (705,161) (675,286)
--------- ---------
1,479,052 1,478,054
Investments in and advances to nonconsolidated affiliates 155,445 152,401
Deferred costs, notes receivable and other 192,265 162,741
--------- ---------
$2,039,476 $2,005,506
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 38,922 $ 45,233
Construction payables 125 7,186
Accrued expenses 161,692 156,694
Current portion of long-term debt 1,236 1,837
--------- ---------
Total current liabilities 201,975 210,950
Long-term debt 938,546 924,397
Deferred credits and other 98,799 98,177
Deferred income taxes 23,091 22,361
--------- ---------
1,262,411 1,255,885
--------- ---------
Minority interests 14,593 14,118
--------- ---------
Commitments and contingencies (Notes 3, 5, 6, 7 and 9)
Stockholders' equity
Common stock, $0.10 par value, authorized 360,000,000 shares,
outstanding 101,099,242 and 101,035,898 shares (net of 3,005,495
and 3,001,568 shares held in treasury) 10,110 10,104
Capital surplus 390,015 388,925
Retained earnings 372,622 349,386
Accumulated other comprehensive income 4,223 2,884
Deferred compensation related to restricted stock (14,498) (15,796)
--------- ---------
762,472 735,503
--------- ---------
$2,039,476 $2,005,506
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share First Quarter Ended
amounts) ----------------------
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Casino $ 342,896 $ 313,825
Food and beverage 49,725 45,691
Rooms 32,078 26,700
Management fees 10,177 5,606
Other 17,665 16,512
Less: casino promotional allowances (38,094) (34,235)
---------- ----------
Total revenues 414,447 374,099
---------- ----------
Operating expenses
Direct
Casino 176,238 165,152
Food and beverage 25,545 22,805
Rooms 9,610 8,554
Depreciation of buildings, riverboats and equipment 29,480 24,582
Development costs 1,838 1,956
Project opening costs 2,654 7,466
Other 100,649 87,098
---------- ----------
Total operating expenses 346,014 317,613
---------- ----------
Operating profit 68,433 56,486
Corporate expense (6,650) (7,592)
Equity in losses of nonconsolidated affiliates (2,791) (2,148)
Venture restructuring costs (926) (1,455)
---------- ----------
Income from operations 58,066 45,291
Interest expense, net of interest capitalized (19,326) (17,815)
Other income, including interest income 4,130 3,106
---------- ----------
Income before income taxes and minority interests 42,870 30,582
Provision for income taxes (15,921) (11,647)
Minority interests (2,046) (1,824)
---------- ----------
Income before extraordinary loss 24,903 17,111
Extraordinary loss, net of income tax benefit of $724 (1,667) --
---------- ----------
Net income $ 23,236 $ 17,111
---------- ----------
---------- ----------
</TABLE>
-4-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<S> <C> <C>
Earnings per share-basic
Income before extraordinary loss $ 0.25 $ 0.17
Extraordinary loss, net (0.02) --
---------- ----------
Net income $ 0.23 $ 0.17
---------- ----------
---------- ----------
Earnings per share-diluted
Income before extraordinary loss $ 0.25 $ 0.17
Extraordinary loss, net (0.02) --
---------- ----------
Net income $ 0.23 $ 0.17
---------- ----------
---------- ----------
Average common shares outstanding 100,133 101,624
---------- ----------
---------- ----------
Average common and common equivalent shares outstanding 101,200 102,169
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) First Quarter Ended
----------------------
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 23,236 $ 17,111
Adjustments to reconcile net income to cash flows from operating activities
Extraordinary loss, before income taxes 2,391 --
Depreciation and amortization 33,272 28,010
Other noncash items 7,034 5,766
Minority interests' share of income 2,046 1,824
Equity in losses of nonconsolidated affiliates 2,791 2,148
Net gains from asset sales (19) (943)
Net change in long-term accounts (9,680) 2,088
Net change in working capital accounts (8,628) 15,281
---------- ----------
Cash flows provided by operating activities 52,443 71,285
---------- ----------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions (29,202) (65,806)
Decrease in construction payables (7,061) (6,388)
Proceeds from asset sales 50 2,846
Investments in and advances to nonconsolidated affiliates (6,316) (27,039)
Increase in notes receivable (22,908) --
Other 144 (886)
---------- ----------
Cash flows used in investing activities (65,293) (97,273)
---------- ----------
Cash flows from financing activities
Net borrowings under Revolving Credit Facility 14,499 48,997
Scheduled debt retirements (933) (902)
Purchases of treasury stock -- (22,790)
Minority interests' distributions, net of contributions (1,571) (1,776)
---------- ----------
Cash flows provided by financing activities 11,995 23,529
---------- ----------
Net decrease in cash and cash equivalents (855) (2,459)
Cash and cash equivalents, beginning of period 116,443 105,594
---------- ----------
Cash and cash equivalents, end of period $ 115,588 $ 103,135
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-6-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(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. 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 manages casinos on Indian lands near Phoenix, Arizona;
Seattle, Washington; Cherokee, North Carolina; and Topeka, Kansas. Harrah's also
manages a casino in Auckland, New Zealand, under terms of an agreement expected
to be terminated in June 1998.
During December 1997, the Company announced the planned acquisition of
Showboat, Inc. ("Showboat") (See Note 9).
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, $1.125 par value, 5,000,000 shares authorized -
Series A Special Stock, 2,000,000 shares designated
Note 3 - Long-Term Debt
- -----------------------
Revolving Credit Facilities
- ---------------------------
As of March 31, 1998, Harrah's bank financing consisted of a $950 million
reducing revolving and letter of credit facility maturing July 31, 2000, and a
separate $150 million revolving credit facility, renewable annually at the
lenders option through the July 31, 2000, maturity date (collectively, the
"Facility"). Of the $1.1 billion total borrowing capacity available to the
Company under the Facility, there is a sub-limit of $50 million for letters of
credit. Scheduled reductions of the borrowing
-7-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
- -----------------------------------
capacity available under the $950 million facility are as follows: $50
million, July 1998; $75 million, January 1999; $75 million, July 1999; $100
million, January 2000, and $650 million, July 2000. On April 1, 1998, the
Facility was amended and restated, increasing the $950 million facility to
$1.95 billion, which increases total borrowing capacity to $2.1 billion.
Scheduled reductions of the borrowing capacity remain unchanged except that
the scheduled reduction for July 2000 increases from $650 million to $1.65
billion.
As of March 31, 1998, Harrah's borrowings under the Facility were $735.0
million and an additional $28.6 million was committed to back certain letters
of credit. After consideration of these borrowings and the increase in
borrowing capacity available to the Company due to the April 1 amendment,
$1.3 billion of the Facility, as amended and restated, was available to
Harrah's. However, pursuant to the terms of the amended and restated
Facility, $1 billion of the available capacity is restricted as to its use:
$800 million is only available to fund the Showboat acquisition and related
refinancing transactions and $200 million may only be used to retire the
Company's 8 3/4% Notes.
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, 1998, 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 5.8% at March 31, 1998, and the average
fixed interest rate received was 5.4%. The impact of these interest rate swap
agreements on the effective interest rates of the associated debt was as
follows:
-8-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
- ----------------------------------
<TABLE>
<CAPTION>
Effective
Swap Rate at
Associated Rate March 31,
Debt (LIBOR+) 1998 Swap Maturity
- --------------- ------------- ------------- -------------
<S> <C> <C> <C>
8 3/4% Notes
$50 million 3.42% 9.45% May 15, 1998
$50 million 3.22% 8.85% July 15, 1998
</TABLE>
Harrah's also maintains six additional interest rate swap agreements to
effectively convert a total of $300 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:
<TABLE>
<CAPTION>
Swap Rate
Swap Rate Received
Paid (Variable) at
Notional Amount (Fixed) March 31, 1998 Swap Maturity
- ---------------- ----------- -------------- --------------
<S> <C> <C> <C>
$50 million 6.985% 5.688% March 2000
$50 million 6.951% 5.688% March 2000
$50 million 6.945% 5.688% March 2000
$50 million 6.651% 5.625% May 2000
$50 million 5.788% 5.688% June 2000
$50 million 5.785% 5.688% 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.
-9-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
- ----------------------------------
On April 1, 1998, Harrah's announced that its principal operating
subsidiary, Harrah's Operating Company, Inc. ("HOC"), had called for
redemption on May 1, 1998, all $200 million of its 8 3/4% Senior Subordinated
Notes due 2000. The call price is 102.0% of the principal amount plus accrued
and unpaid interest through the redemption date. Harrah's retired the notes
on May 1, 1998, using proceeds from its revolving bank credit facility.
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,
1998 1997
(In thousands) ----------- -----------
<S> <C> <C>
Interest expense, net of amount capitalized $ 19,326 $ 17,815
Adjustments to reconcile to cash paid for interest:
Net change in accruals 4,567 (5,252)
Amortization of deferred finance changes (649) (797)
Net amortization of discounts and premiums (2) (3)
----------- -----------
Cash paid for interest, net of amount capitalized $ 23,242 $ 11,763
----------- -----------
----------- -----------
Cash refunds of income taxes, net of payments $ (219) $ (1,343)
----------- -----------
----------- -----------
</TABLE>
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, 1998,
-10-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities (Continued)
- -----------------------------------------------------------
Harrah's had guaranteed third party loans and leases of $133 million, which
are secured by certain assets, and had commitments of $57 million, primarily
construction-related.
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, 1998, the
aggregate monthly commitment pursuant to these contracts, which extend for
periods of up to 57 months from March 31, 1998, was $1.2 million.
See Note 7 for discussion of the proposed completion guarantees related to
development of the New Orleans' casino.
Severance Agreements
- --------------------
As of March 31, 1998, Harrah's has severance agreements with 41 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 of 1.5 or 3.0 times the
executive's average annual compensation, as defined, as well as for accelerated
payment or 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, 1998, that would be payable under the agreements to these
executives based on earnings and stock options aggregated approximately $54.2
million.
-11-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities (Continued)
- -----------------------------------------------------------
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, 1998, was $6.0 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.
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 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
-12-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 6 - Litigation (Continued)
- -------------------------------
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 not consummated, the Company
anticipates that such lawsuits, which are presently inactive, would become
active, and additional lawsuits would be filed.
On November 25, 1997, the Missouri Supreme Court issued a ruling that
defined the state constitutional requirements for floating casino facilities in
artificial basins. Subsequently, the Missouri Gaming Commission (the
"Commission") attempted to issue disciplinary resolutions that effectively would
have amended the gaming licenses of the Company's Missouri casinos, and numerous
other floating casino facilities in the Commission's jurisdiction, to preclude
games of chance, subject to evidentiary hearings that were to be held if the
licensees filed appeals to prove compliance with the Supreme Court's ruling.
Prior to the Commission's action, Harrah's and other licensees filed petitions
in the Circuit Court of Cole County, Missouri, and succeeded in having the Court
issue an order restraining the Commission from taking any such disciplinary
action. The Commission has appealed to the Missouri Supreme Court to permit it
to proceed with its intended actions. The Supreme Court will hear the appeal in
May 1998, but the Circuit Court order restraining the Commission remains in
effect pending the Supreme Court's decision on the appeal. Harrah's has also
filed suit seeking declaratory judgment that its gaming facilities meet the
state constitutional mandates as established by the Missouri Supreme Court.
Management is unable to predict at this time the final outcome of this matter or
whether that outcome could materially affect the Company's results of
operations, cash flows or financial position of its Missouri casinos.
In addition to the matters described above, 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.
-13-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates
- -----------------------------------
Harrah's Jazz Company
- ---------------------
A subsidiary of the Company owns an approximate 47% interest in Harrah's
Jazz Company ("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 Convention Center. In November 1995, Jazz and its
wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed petitions for relief
under Chapter 11 of the Bankruptcy Code. Jazz filed a plan of
reorganization with the Bankruptcy Court in April 1996 and filed several
subsequent amendments to the plan (the "Plan"). In April 1997, the Bankruptcy
Court confirmed and approved the Plan.
In November 1997, January 1998 and April 1998, the Bankruptcy court
approved modifications to the confirmed Plan. This most recent plan, which is
supported by, among others, the Governor of Louisiana and the Mayor of New
Orleans, contemplates that a newly formed limited liability company, Jazz
Casino Company, L.L.C. ("JCC"), would be responsible for completing
construction of the Rivergate Casino, a subsidiary of the Company would
receive approximately 40% of the equity in JCC's parent, and the Company
would, among other things, manage the casino pursuant to an amended
management agreement, make a $75 million equity investment in the project
(less any debtor-in-possession financing provided to the project), guarantee
initially JCC's $100 million annual payment under the casino operating
contract to the State of Louisiana gaming board (the "State Guarantee"),
guarantee up to $154 million of a JCC bank credit facility of up to $224
million, guarantee to the State, City, banks and bondholders completion
and opening of the Rivergate Casino within 12 months from the consummation of
the plan (subject to force majeure) and make a $10 million subordinated loan
to JCC to finance the Rivergate Casino. With respect to the State Guarantee,
the Company would be obligated to guarantee JCC's first $100 million annual
payment obligation and, if certain cash flow tests and other conditions are
satisfied each year, to renew the guarantee each year for a maximum term of
approximately five years. The Company's obligations under the guarantee for the
first year or any succeeding year would be limited to a guarantee of the
$100 million payment obligation of JCC for the year in which the guarantee is
in effect and would be secured by a first priority lien on JCC's assets.
JCC's payment obligation would be
-14-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- -----------------------------------------------
$100 million at the commencement of each twelve month period under the casino
operating contract and would decline on a daily basis by 1/365 of $100
million to the extent payments are made each day by JCC to Louisiana's gaming
board.
Final consummation of the plan is subject to or otherwise depends on
numerous approvals and determinations, including approval from the Company's
Board of Directors, the City of New Orleans City Council, and
others, and a judicial determination by the Louisiana Supreme Court that the
State of Louisiana gaming board is authorized to approve and execute the casino
operating contract without the approval of the Louisiana State Legislature.
The Louisiana Supreme Court is expected to determine this issue before the
end of May 1998. Assuming a favorable Louisiana Supreme Court judicial
determination, final consummation of the plan also depends on there being no
action by the Louisiana State Legislature which infringes upon such
authorization of the State of Louisiana gaming board or otherwise adversely
affects the project. The Legislature will be in session until June 10, 1998,
and then adjourn until the spring of 1999. There can be no assurance that
these approvals and determinations will be obtained and adverse legislative
developments will not occur and that such plan will be consummated.
During the course of the bankruptcy of Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Jazz, totaling
approximately $36.3 million as of March 31, 1998, to fund certain payments to
the City of New Orleans and other cash requirements of Jazz. The Company
has committed to provide up to $40 million in debtor-in-possession loans to
Jazz, conditioned upon Jazz meeting certain milestones in the
bankruptcy. Such committed debtor-in-possession financing is not expected to be
sufficient for Jazz to consummate the plan. The approval of the
Company's Board of Directors will be necessary for the Company to provide any
debtor-in-possession financing in excess of $40 million.
-15-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- -----------------------------------------------
Other
- -----
Summarized balance sheet and income statement information of
nonconsolidated gaming affiliates, including Jazz, which Harrah's accounted
for using the equity method, as of March 31, 1998 and December 31, 1997, and
for the first quarters ended March 31, 1998 and 1997 is included in the
following tables.
<TABLE>
<CAPTION>
(In Thousands) March 31, Dec. 31,
1998 1997
---------- ----------
<S> <C> <C>
Combined Summarized Balance Sheet Information
Current assets $ 18,563 $ 18,937
Land, buildings and equipment, net 380,022 379,147
Other assets 180,084 179,976
---------- ----------
Total assets 578,669 578,060
---------- ----------
Current liabilities 106,311 108,406
Long-term debt 471,391 467,970
---------- ----------
Total liabilities 577,702 576,376
---------- ----------
Net assets $ 967 $ 1,684
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
First Quarter Ended
March 31, March 31,
1998 1997
---------- ----------
<S> <C> <C>
(In thousands)
Combined Summarized Statements of
Operations
Revenues $ 4,719 $ 7,704
---------- ----------
---------- ----------
Operating loss $ (8,821) $ (8,014)
---------- ----------
---------- ----------
Net loss $ (6,567) $ (6,382)
---------- ----------
---------- ----------
</TABLE>
-16-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- -----------------------------------------------
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 first quarter
1998 financial results include its share of an extraordinary loss recognized
by a nonconsolidated affiliate due to that entity's reorganization and
refinancing of its debt.
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,
1998 1997
---------- ----------
<S> <C> <C>
(In thousands)
Harrah's investments in and advances to nonconsolidated affiliates
Accounted for under the equity method $ 132,898 $ 132,049
Equity securities available-for-sale and recorded at market value 22,547 20,352
---------- ----------
$ 155,445 $ 152,401
---------- ----------
---------- ----------
</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 - Comprehensive Income
- -----------------------------
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in the Company's financial statements.
As defined in SFAS No. 130, comprehensive income consists of all changes,
including net income, in the Company's equity during a period, except those
-17-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(UNAUDITED)
Note 8 - Comprehensive Income (Continued)
- -----------------------------------------
resulting from investments by or distributions to the Company's stockholders.
The provisions of SFAS No. 130 are effective for years beginning after
December 31, 1997, and its provisions must be adopted for interim periods in
the year of adoption.
Harrah's total comprehensive income for the current and prior years are as
follows:
<TABLE>
<CAPTION>
First Quarter Ended
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
(In thousands)
Net income $ 23,236 $ 17,111
Other comprehensive income
Unrealized gains (losses) on marketable equity securities 2,195 (25,526)
Tax (provision) expense (856) 9,955
----------- -----------
1,339 (15,571)
----------- -----------
Total comprehensive income $ 24,575 $ 1,540
----------- -----------
----------- -----------
</TABLE>
-18-
<PAGE>
Note 9 - Showboat Acquisition Activities
- ----------------------------------------
On April 23, 1998, the stockholders of Showboat approved the planned
acquisition of Showboat by Harrah's. Upon receipt of Australian regulatory
approval and satisfaction of other conditions specified in the merger agreement
between Showboat and Harrah's, closing of the acquisition transaction is
expected in May 1998.
In conjunction with its acquisition of Showboat, on May 13, 1998, the
Company commenced a fixed spread cash tender offer for all of Showboat's
outstanding 9 1/4% First Mortgage Bonds due 2008 and 13% Senior Subordinated
Notes due 2009 (collectively, "the Notes"). Concurrently with the tender
offer, Harrah's is soliciting consents from the holders of the Notes to
amend the respective Indentures governing each of the Notes to eliminate or
modify substantially all of the negative covenants, certain events of
default, and to make certain other changes to the Indentures. The tender
offer is scheduled to expire on June 10, 1998, unless extended. The tender
offer and consent solicitation are conditioned upon, among other things,
consummation of the acquisition of Showboat by Harrah's and the
receipt of tenders and consents from not less than a majority in aggregate
principal amount outstanding of each series of Notes.
-19-
<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., (referred to in this
discussion, together with its consolidated subsidiaries where appropriate, as
"Harrah's" or the "Company,") for first the quarter of 1998 and 1997 updates,
and should be read in conjunction with, Management's Discussion and Analysis of
Financial Position and Results of Operations presented in Harrah's 1997 Annual
Report.
RESULTS OF OPERATIONS
- ---------------------
OVERALL
- -------
Harrah's is beginning to see results of strategic actions taken in 1997.
Measurable increases in cross-market play reflect the success of Harrah's
industry-leading Total Gold player reward and recognition card, coupled with
enhanced database marketing capabilities enabling the Company to better target
promotions and offers to the appropriate customer segments.
<TABLE>
<CAPTION>
First Quarter Percentage
-------------------- Increase
(in millions, except 1998 1997 (Decrease)
earnings per share) --------- --------- -------------
<S> <C> <C> <C>
Revenues $ 414.4 $ 374.1 10.8%
Operating profit 68.4 56.5 21.2%
Income from operations 58.1 45.3 28.3%
Income before extraordinary loss 24.9 17.1 45.5%
Net income 23.2 17.1 35.7%
Earnings per share--diluted
Before extraordinary loss 0.25 0.17 47.1%
Net income 0.23 0.17 35.3%
Operating margin 14.0% 12.1% 1.9pts
</TABLE>
Harrah's posted record revenues for first quarter of $414.4 million, a 10.8%
increase over first quarter 1997. The newly refurbished Harrah's Las Vegas led
this increase with a 50% increase in revenues, coupled with a full-quarter's
revenue contribution by Harrah's St. Louis-Riverport, which opened in March
1997, and the addition of management fees from two recently opened
Harrah's-brand casinos on Indian lands. These factors also contributed to
increased operating income, net income and earnings per share over prior year.
-20-
<PAGE>
In addition to the Company's improved operating results, progress continued
during the quarter on the planned acquisition of Showboat, Inc. ("Showboat"). A
significant step in this process was completed subsequent to the end of first
quarter 1998 when Showboat's stockholders approved and adopted the merger with
Harrah's at their April 23, 1998 meeting. Upon receipt of certain regulatory
approvals and satisfaction of other conditions specified in the Merger Agreement
between Showboat and Harrah's, closing is expected in May 1998.
The approval by Showboat's stockholders followed the April 1, 1998, closing
on Harrah's amended and restated bank credit facility, giving the Company the
largest bank credit facility in the casino entertainment industry at $2.1
billion. This expanded facility provides the borrowing capacity necessary to
fund the Showboat acquisition and related refinancing transactions, as well as
the capacity to retire Harrah's 8 3/4% Notes (see Debt and Liquidity--Early
Extinguishment of Debt).
DIVISION OPERATING RESULTS AND DEVELOPMENT PLANS
- ------------------------------------------------
Riverboat Division
- ------------------
<TABLE>
<CAPTION>
First Quarter Percentage
-------------------- Increase
(in millions) 1998 1997 (Decrease)
--------- --------- -------------
<S> <C> <C> <C>
Casino revenues $ 160.1 $ 148.0 8.2%
Total revenues 170.3 157.3 8.3%
Operating profit 35.6 29.2 21.9%
Operating margin 20.9% 18.6% 2.3pts
</TABLE>
Revenues and operating profit for the Division increased for first quarter
1998 over the comparable prior year period. 1998 included a full quarter of
operations for Harrah's St. Louis-Riverport, which opened in March 1997. During
first quarter 1997, Harrah's operated a second property in the Tunica,
Mississippi market, which was closed in second quarter 1997. Harrah's operating
results in most riverboat markets in which it competes have stabilized and are
beginning to show improvements.
-21-
<PAGE>
Illinois
- --------
Revenues declined 4.1% at Harrah's Joliet compared to the first quarter of
1997 due to increased competition from the riverboat casinos in neighboring
Indiana. Operating profit, however, increased 14.3% and operating margin
increased 5 percentage points compared to the same period last year due to
operating adjustments, including a modification of the cruising schedule, and
efficiencies which have helped stabilize results at Harrah's Joliet.
During first quarter 1998 construction was completed on a climate-controlled
walkway joining Harrah's Joliet's self-parking garage to its pavilion, and a
new VIP lounge was opened. Harrah's continues to evaluate the possible
construction of a hotel at this property.
Louisiana
- ---------
Harrah's Shreveport recorded record revenues and operating profit for first
quarter 1998. Despite increased competition in the market over the past two
years, this property remains a stable performer. Plans are underway to commence
construction of expanded parking facilities at Harrah's Shreveport, and the
Company is evaluating the possible expansion of the facilities to include a
hotel and additional restaurant and meeting facilities. Any expansion project is
subject to the receipt of necessary regulatory approvals.
Mississippi
- -----------
Combined first quarter revenues by Harrah's Mississippi properties declined
from the prior year primarily due to the closure during second quarter 1997 of
Harrah's original property in the Tunica market. Harrah's Vicksburg's operating
profit increased 58.4% over first quarter 1997. Vicksburg's increases were
partially offset by the impact of construction disruptions on operations during
early first quarter at the Tunica property, as a result of a project to further
enhance the property's offerings to meet the needs of the Company's target
customers. The Company continues to explore its options for the original Tunica
property.
-22-
<PAGE>
Missouri
- --------
Harrah's North Kansas City's revenues for first quarter 1998 were a
record, up more than 4.5% over the same period in 1997. Operating profit
increased 24.5% over the same period last year. Despite the significant
competitive capacity added to the market, Harrah's continues to lead the
overall Kansas City market in profitability and most other measures of
performance.
Harrah's St. Louis-Riverport casino reported a first quarter 1998
operating profit of $2.2 million. The St. Louis-Riverport entertainment
complex in Maryland Heights, Missouri, a suburb of St. Louis, opened on March
11, 1997. The facility includes four riverboat casinos, two of which are
owned and operated by Harrah's, and shoreside facilities jointly-owned with
another casino company. Harrah's pro-rata share of the operating losses of
the shoreside facilities joint venture was $2.7 million for the quarter and
is reported separately in the Consolidated Condensed Income Statement and
included in Equity in losses of nonconsolidated subsidiaries (see Other
Factors Affecting Net Income).
Atlantic City
- -------------
<TABLE>
<CAPTION>
First Quarter Percentage
-------------------- Increase/
(in millions) 1998 1997 (Decrease)
--------- --------- -------------
<S> <C> <C> <C>
Casino revenues $ 79.0 $ 76.0 3.9%
Total revenues 86.5 82.6 4.7%
Operating profit 17.1 14.9 14.7%
Operating margin 19.8% 18.0% 1.8pts
</TABLE>
Atlantic City achieved record revenues in first quarter 1998 and operating
profit and margin increased over the same period last year. A new 416-room hotel
tower opened in second quarter 1997 and contributed to substantial incremental
room nights sold at the property during the quarter.
In connection with its consideration of a further expansion of the Harrah's
Atlantic City property, the Company continues to monitor the progress of efforts
by other companies to develop new casino hotel projects in the Atlantic City
Marina area.
-23-
<PAGE>
Southern Nevada Division
- ------------------------
<TABLE>
<CAPTION>
First Quarter Percentage
-------------------- Increase/
(in millions) 1998 1997 (Decrease)
--------- --------- -------------
<S> <C> <C> <C>
Casino revenues $ 57.9 $ 43.7 32.5%
Total revenues 85.0 64.6 31.6%
Operating profit 13.2 10.9 20.9%
Operating margin 15.5% 16.9% (1.4)pts
</TABLE>
Record revenues in Southern Nevada for first quarter 1998 were driven by
Harrah's Las Vegas where revenues were 50.2% over last year and a record high
for that property. These results were driven by the success of the extensive
renovation and expansion completed in fourth quarter 1997 and the positive
impact of customer loyalty and cross-market customer benefits like Harrah's
Total Gold program. The slight decline in operating margin reflects the
additional depreciation associated with the extensive renovation and the
difficulty in adjusting certain operating costs proportionately with the
increased revenues. Harrah's Laughlin reported stable revenues and operating
profit for the first quarter.
No definitive plans have been announced related to Harrah's previously
announced interest in the construction or acquisition of an additional 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) 1998 1997 (Decrease)
--------- --------- -------------
<S> <C> <C> <C>
Casino revenues $ 45.9 $ 46.1 (0.4)%
Total revenues 61.5 61.2 0.5 %
Operating profit 3.8 5.2 (26.9)%
Operating margin 6.2% 8.5% (2.3)pts
</TABLE>
In Northern Nevada, Harrah's matched the prior year's depressed revenues,
but at a higher cost, particularly in Reno, where weather-related disruptions
played havoc with access from primary feeder markets in Northern California.
During the quarter, highways 50 and 80 into the Lake Tahoe and Reno markets from
California experienced double the number of days in which the roads were either
closed or where "chain control" was in effect, compared to the same period in
1997, in which there were also unusual, but not quite as severe, weather issues.
-24-
<PAGE>
Managed Casinos-Indian Lands
- ----------------------------
Harrah's Indian gaming and other managed results were led by the addition of
management fees from newly opened tribal-owned casinos for the Eastern Band of
Cherokee in Cherokee, North Carolina, which opened in November 1997, and the
Prairie Band of Potawatomi north of Topeka, Kansas, which opened in January
1998.
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 repayments 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, 1998, the aggregate monthly commitment pursuant to the contracts for the
four Indian-owned facilities now open, which extend for periods of up to 57
months from March 31, 1998, was $1.2 million.
See DEBT and LIQUIDITY section for further discussion of Harrah's guarantees
of debt related to Indian projects.
Other Gaming Operations
- -----------------------
The Company manages for a fee the Sky City casino complex in Auckland, New
Zealand. During second quarter 1997, Harrah's announced that Sky City Limited,
owner of the Sky City facility, will buy out Harrah's management contract.
Harrah's will continue to manage the facility under its fee agreement until June
30, 1998, when it will receive a termination fee computed in accordance with the
terms of the contract.
-25-
<PAGE>
During first quarter 1998, the Company launched the first brand advertising
campaign by a casino company and introduced its new attraction strategy aimed
at the Company's target customer segment. The planned cost of the brand
advertising campaign is expected to be funded primarily by the displacement
of advertising and marketing dollars spent by the individual properties in
the past. First quarter 1998 costs for the campaign totaled approximately $4
million.
Other Factors Affecting Net Income
- ----------------------------------
<TABLE>
<CAPTION>
First Quarter Percentage
-------------------- Increase/
(Income) Expense 1998 1997 (Decrease)
(in millions) --------- --------- -------------
<S> <C> <C> <C>
Development costs $ 1.8 $ 2.0 28.6%
Project opening costs 2.7 7.5 (64.0)%
Corporate expense 6.7 7.6 (12.4)%
Equity in losses of nonconsolidated affiliates 2.8 2.1 29.9%
Project reorganization costs 0.9 1.5 (36.2)%
Interest expense, net 19.3 17.8 8.5%
Other income (4.1) (3.1) 86.4%
Effective tax rate 37.1% 38.1% (1.0)pt
Minority interests $ 2.0 $ 1.8 12.2%
Extraordinary loss, net of income taxes 1.7 -- N/M
</TABLE>
Project opening costs for first quarter 1998 include costs incurred in
connection with renovation at Harrah's Tunica and the costs incurred in
connection with an initiative to develop and implement the strategies and
employee training programs designed to better focus the Company on serving its
targeted customers. 1997 project opening costs related to the first quarter
opening of Harrah's St. Louis-Riverport casino property.
Corporate expense decreased 12.4% in first quarter 1998 from the prior year
level due to cost savings and timing of incurrence of expenses as compared to
the prior year.
Equity in losses of nonconsolidated affiliates consists of losses from the
St. Louis joint venture and from the Company's investment in an in-flight gaming
company, partially offset by Harrah's share of income from a restaurant
affiliate.
-26-
<PAGE>
Venture restructuring 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 first quarter 1998 over 1997, primarily as a
result of lower capitalized interest due to completion of major construction
projects during 1997.
Other income increased in first quarter 1998 due to higher interest income
earned by the Company on the cash surrender value of certain life insurance
policies.
The effective tax rates for all periods are higher than the federal
statutory rate primarily due to state income taxes. Minority interests reflects
joint venture partner's share of income at a riverboat casino and decreased in
1998 from the prior year level as a result of lower earnings from that
riverboat.
The extraordinary loss reported in first quarter 1998 represents Harrah's
share of an extraordinary loss recognized by a nonconsolidated affiliate due to
its reorganization and refinancing of its debt.
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.
CAPITAL SPENDING AND DEVELOPMENT SUMMARY
- ----------------------------------------
In addition to the planned Showboat acquisition and the specific development
and expansion projects discussed in the Division Operating Results and
Development Plans section, 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 and
acquisition 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
-27-
<PAGE>
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. Project opening costs are
expensed as incurred.
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 are
expected to be made available from operating cash flows, the Bank Facility (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 the first
three months of 1998 totaled approximately $58.3 million. Estimated total
capital expenditures for 1998 are expected to be between $150 million and $180
million, excluding the planned purchase of Showboat, the possible purchase or
construction of a second Las Vegas property and the possible second phase of
Harrah's Atlantic City expansion.
DEBT AND LIQUIDITY
- ------------------
Bank Facility
- -------------
As of March 31, 1998, $735.0 million in borrowings were outstanding under
the Company's revolving credit facility (the "Bank Facility"), with an
additional $28.6 million committed to back letters of credit. The amended and
restated bank credit facility dated April 1, 1998, increased the Bank Facility
to $2.1 billion and modified the debt covenants. After consideration of the
outstanding borrowings as of March 31, 1998, and the increase in borrowing
capacity available to the Company due to the April 1 amendment, $1.3 billion of
additional borrowing capacity was available to the Company. However, pursuant
to the terms of the amended and restated Bank Facility, $1 billion of the
available capacity is restricted as to its use: $800 million is only available
to fund the Showboat acquisition and related refinancing transactions and
$200 million may only be used to retire the Company's 8 3/4% Notes. Pursuant
to the terms of the Bank Facility, the available capacity is scheduled to be
reduced by $50 million in July 1998.
-28-
<PAGE>
Early Extinguishment of Debt
- ----------------------------
On April 1, 1998, Harrah's principal operating subsidiary, Harrah's
Operating Company, Inc. ("HOC"), called for redemption all $200 million of its
8 3/4% Senior Subordinated Notes due 2002 (the "Notes") at a call price of
102.0%, plus accrued and unpaid interest through the May 1, 1998, redemption
date. The Company retired the Notes using proceeds from its amended and restated
Bank Facility. Redemption of the 8 3/4% Notes using funds drawn under the Bank
Facility will reduce interest costs on this $200 million by approximately
2.5 percentage points, based on current rates. An extraordinary charge, net
of tax, of approximately $3.3 million will be recorded during second quarter
1998 in conjunction with this early extinguishment of debt.
Showboat Debt Tender Offer
- --------------------------
In conjunction with the pending acquisition of Showboat, the Company
commenced, on May 13, 1998, a fixed spread cash tender offer for all of
Showboat's outstanding 9 1/4% First Mortgage Bonds due 2008 and 13% Senior
Subordinated Notes due 2009 (collectively, "the Notes"). The consideration
to be paid to the holders of validly tendered Notes will be determined on the
second business day preceding the expiration of the tender offer. This
consideration will be a price resulting in a yield to the first redemption
date of the Notes equal to the yield, plus a fixed spread, of a specified
reference security maturing at the first redemption date of each Note, plus
accrued interest. Harrah's will record the liabilities assumed in the
Showboat acquisition, including the Notes, at their fair value as of the
consummation date of the transaction. The difference, if any, between the fair
value of the Notes on the consummation date and the consideration paid to the
holders of the Notes as a result of this tender offer will be recorded by
Harrah's as an extraordinary item.
Concurrently with the tender offer, Harrah's is soliciting consents from
the holders of the Notes to amend the respective Indentures governing each of
the Notes to eliminate or modify substantially all of the negative covenants,
certain events of default, and to make certain other changes to the
Indentures. The tender offer is scheduled to expire on June 10, 1998, unless
extended. The tender offer and consent solicitation are conditioned upon,
among other things, consummation of the acquisition of Showboat by Harrah's
and the receipt of tenders and consents from not less than a
majority in aggregate principal amount outstanding of each series of Notes.
-29-
<PAGE>
Interest Rate Agreements
- ------------------------
To manage the relative mix of its debt between fixed and variable rate
instruments, Harrah's has entered into interest rate swap agreements to modify
the interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. The differences to be paid or received by the
Company under the terms of its 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 swap 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.
For more information regarding the Company's interest rate swap agreement as
of March 31, 1998, please see Note 3 to the accompanying Consolidated
Condensed Financial Statements.
Guarantees of Third Party Debt
- ------------------------------
As part of a transaction whereby Harrah's retained an option to a site for
a casino should casino gaming have been authorized in the jurisdiction,
Harrah's guaranteed a third party's $22.9 million variable rate bank loan,
which matured on February 28, 1998. During first quarter 1998, the third
party defaulted on the repayment of the debt and the Company has purchased
the loan in accordance with the provisions of its guarantee. The element of
risk that the Company might be unable to collect the receivable has been
reduced by obtaining a security interest in certain assets including real
estate owned by the third party and stock interests in the third party.
The Company has initiated an action to foreclose the real estate.
No reserve has been recorded for this receivable, based upon management's
current analysis of the value of the underlying collateral.
-30-
<PAGE>
As described in the Division Operating Results and Development
Plans--Managed Casino--Indian Lands 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
certain 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. The aggregate outstanding balance of such debt as of March
31, 1998, was $126.3 million.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
Competitive Pressures
- ---------------------
Due to the limited number of new markets opening for development, the
focus of many casino operators has shifted to investing in existing markets
in an effort to attract new customers, increasing competition in those
markets. Harrah's properties in the long-established 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 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. As companies have completed
expansion projects, supply has typically 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 the additional supply will have on Harrah's operations
cannot be determined at this time.
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 four such facilities. The future growth
potential from Indian casinos is also uncertain, however.
-31-
<PAGE>
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 introduced WINet, a sophisticated nationwide customer database, and
its Total Gold Card, a nationwide reward and recognition card, both of which it
believes provide competitive advantages, particularly with players who visit
more than one market.
Industry Consolidation
- ----------------------
As evidenced by a number of recent public announcements by casino
entertainment companies of plans to acquire or be acquired by other companies,
including Harrah's December 1997 announcement of its agreement to acquire
Showboat, consolidation in the gaming industry is now underway. The Company
believes it is well-positioned to pursue additional strategic acquisitions to
further enhance its distribution, strengthen its access to target customers
and leverage its technological and centralized services infrastructure.
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
gambling in the United States, including 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 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.
-32-
<PAGE>
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
net assets which are restricted by these covenants was approximately
$759.4 million at March 31, 1998. 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 or to pursue its development plans.
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; (B) planned development of casinos that would be
-33-
<PAGE>
owned or managed by the Company and the pursuit of strategic acquisitions;
(C) the proposed plan of reorganization and its various facets for New
Orleans; (D) planned capital expenditures for 1998 and beyond; (E) the
possible acquisition or construction of an additional property in Las Vegas;
(F) the impact of the WINet and Total Gold Card Programs; and (G) completion
of the acquisition of Showboat and any plans or future impact with respect to
the Showboat acquisition. 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 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, licensing and other government approvals, third party consents
and approvals, and relations with partners, owners and other third parties;
conditions of credit markets and other business and economic conditions;
litigation, judicial actions and political uncertainties, including gaming
legislative action 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.
-34-
<PAGE>
PART II -OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
--------------------------
New Orleans
- -----------
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.
-35-
<PAGE>
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 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, which
settlement is contingent upon the consummation of a Plan of Reorganization
for HJC. A final fairness hearing was held on June 26, 1997. On July 31,
1997, the Court ruled that the settlement was fair to class members.
-36-
<PAGE>
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. A motion for remand is pending. 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.
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.
-37-
<PAGE>
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. A motion for remand is pending. The Company and the other defendants
have filed an answer denying all of plaintiffs' allegations and intend to
vigorously defend the action.
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.
-38-
<PAGE>
On November 21, 1997 in the In Re Harrah's Jazz Company bankruptcy
proceeding, HJC filed an adversary proceeding styled Harrah's Jazz Company v.
A&D Maintenance Services, et al., 97-1174, which names the Company and various
of its subsidiaries as defendants. As HJC noted at the time of the filing, the
action was filed "against numerous defendants, including the principal parties
in interest in the bankruptcy case, to preserve various causes of action." HJC
has not effected service on any defendant therein. This adversary proceeding
purports to state claims against the Company and its subsidiaries for
preferential transfers, insider preferential transfers, avoidance transfers,
violations of La. Civil Code Arts. 1978 et seq., violations of La. Civil Code
Arts. 2315, 1953 as well as Arts. 1983, 1989, 1994, 1995, 1996, 1997 and 2000,
violations of La. Civil Code Arts. 1953, 1997, 2315, damage to its creditors as
a result of the projections in the 1994 offering of HJC bonds, and breach of
fiduciary duty and fair dealing.
If the action is ever served on the Company, the Company intends to defend
vigorously. However, should the currently pending Plan of Reorganization for HJC
be confirmed and consummated, it is anticipated that this matter will be
resolved in connection therewith.
On November 21, 1997 In Re New Orleans Louisiana Development Corporation
matter, NOLDC filed an adversary proceeding styled New Orleans Louisiana
Development Corporation v. Bankers Trust Company, 97-1176 et al., which names
the Company and several of its subsidiaries as defendants. NOLDC has not
effected service on any defendant therein. This adversary proceeding purported
to state claims for breach of fiduciary duty, negligent and fraudulent
misrepresentation, Stipulation Pour Autrui and violations of La. Civil Code Art.
1953 et seq. If the action is ever served on the Company, the Company intends to
defend the action vigorously.
On November 21, 1997, Eddie Sapir and Eddie Sapir Inter Vivos Trust No. 1
filed suit against certain individuals and entities, including the Company. The
action is styled Eddie Sapir v. Banker's Trust Company, et al. and was filed in
the Civil District Court for the Parish of Orleans, No. 97-20643. The complaint
has not yet been served on the Company. Nonetheless, the Company removed the
action and asked that it be transferred to the Bankruptcy Court for the Eastern
District of Louisiana for consolidation with the In Re Harrah's Jazz Company
bankruptcy proceeding. The complaint purports to state claims for detrimental
reliance, civil law equity, negotiorum guestro, unjust enrichment, breach of
covenant, quantum meruit, anticipatory breach of contract, abuse of right,
intentional interference with contract and negligent misrepresentation. If the
action is ever served on the Company, the Company intends to defend the action
vigorously.
-39-
<PAGE>
Missouri
- --------
On November 25, 1997, the Missouri Supreme Court issued a ruling in Akin
v. Missouri Gaming Commission that defined the state constitutional
requirements for floating casino facilities in artificial basins.
Subsequently, the Missouri Gaming Commission attempted to issue disciplinary
resolutions that effectively would have amended the gaming licenses of the
Company's Missouri casinos, and numerous other floating casino facilities in
the Commission's jurisdiction, to preclude games of chance, subject to
evidentiary hearings that were to be held if the licensees filed appeals to
prove compliance with the Supreme Court's ruling. Prior to the Commission's
action, Harrah's and other licensees filed petitions in the Circuit Court of
Cole County, Missouri, and succeeded in having the Court issue an order
restraining the Commission from taking any such disciplinary action. The
Commission has appealed to the Missouri Supreme Court to permit it to proceed
with its intended actions. The Supreme Court will hear the appeal in May
1998, but the Circuit Court order restraining the Commission remains in
effect pending the Supreme Court's decision on the appeal. Harrah's has also
filed suit seeking declaratory judgment that its gaming facilities meet the
state constitutional mandates as established by the Missouri Supreme Court.
-40-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits
*EX-10.1 Amendment to Harrah's Entertainment, Inc. 1990 Stock Option Plan.
*EX-10.2 Amendment to Harrah's Entertainment, Inc. 1990 Restricted Stock
Plan.
*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, 1998.
-41-
<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 14, 1998 BY: /s/ JUDY T. WORMSER
------------------------------------------
Judy T. Wormser
Vice President and Controller
(Chief Accounting Officer)
-42-
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page No.
- --------------- -------------------------------------- ---------------
<S> <C> <C>
EX-10.1 Amendment to Harrah's Entertainment,
Inc. 1990 Stock Option Plan. 41
EX-10.2 Amendment to Harrah's Entertainment,
Inc. 1990 Restricted Stock Plan. 43
EX-11 Computation of per share earnings. 44
EX-27 Financial Data Schedule
</TABLE>
-43-
<PAGE>
EX-10.1
Amendment to The
Harrah's Entertainment, Inc.
1990 Stock Option Plan
Harrah's Entertainment, Inc. (the "Company") hereby adopts this Amendment
to The Harrah's Entertainment, Inc. 1990 Stock Option Plan (the "Plan"),
subject to stockholder approval of paragraphs 2 and 3 of this Amendment which
approval is expected to occur on May 1, 1998.
1. Subject to Section N(6), the first sentence of Section B.3. of the
Plan is amended to read as follows:
"The Committee shall have further discretion at any time and from
time to time to accelerate the date or dates when outstanding
options become exercisable and to decrease the option price of
outstanding options, provided, however, with respect to the
3,500,000 shares authorized under the Plan pursuant to the Plan
amendment adopted by the Board on February 26, 1998, the Committee
shall not, without the further approval of the stockholders of the
Company by a majority of votes cast: (a) authorize the amendment of
any outstanding option to reduce its exercise price or (b)
authorize the cancellation of options and the replacement thereof
with option grants having a lower exercise price; it being
understood that nothing herein shall restrict or prohibit
adjustments in options (including a price adjustment) pursuant to
the provisions of Section N of the Plan which deals with
adjustments in the event of certain corporate events as
described in Section N.
2. Section D.2. of the Plan is amended by adding the following
sentence after the second sentence: "Effective May 1, 1998, the
number of authorized shares which may be issued pursuant to the
options and stock appreciation rights granted by the Committee
under the Plan is increased by an additional 3,500,000 shares."
3. Section U of the Plan is amended by adding the following proviso at
the end thereof:
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<PAGE>
"Provided, however, that with respect to the grant of non-qualified
options utilizing any authorized shares under this Plan and with
respect to the additional 3,500,000 shares authorized under the Plan
pursuant to the Plan amendment adopted by the Board on February 26,
1998, in no event may any option or stock appreciation rights be
granted under this Plan with respect to any such shares after
February 25, 2008."
This Amendment was duly adopted by the Board of Directors of the Company
on February 26, 1998.
/s/ Rebecca W. Ballou
---------------------
Rebecca W. Ballou
Secretary
-45-
<PAGE>
EX-10.2
Amendment to
Harrah's Entertainment, Inc.
1990 Restricted Stock Plan
---------------------------
Harrah's Entertainment, Inc. (the "Company") hereby adopts this Amendment
to the 1990 Restricted Stock Plan (the "Plan"), subject to stockholder
approval of this Amendment which approval is expected to occur on May 1, 1998.
1. The last sentence of Section 3 of the Plan is amended by changing
the period at the end of the sentence to a comma and adding the
following language after such comma: "and effective May 1, 1998,
the number of shares which may be issued under the Plan is
increased by an additional 3,100,000 shares."
2. Section 13 of the Plan is amended to read as follows:
"The Plan shall remain in effect until all shares awarded under the
Plan are free of restrictions imposed by the Plan and by Agreements
or Participation Certificates, but no award shall be made after
February 25, 2008."
This Amendment was duly adopted by the Board of Directors of the Company
on February 26, 1998.
/s/ Rebecca W. Ballou
-----------------------
Rebecca W. Ballou
SECRETARY
-46-
<PAGE>
Exhibit 11
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
MARCH 31, MARCH 31,
1998 1997
------------- -------------
<S> <C> <C>
Income before extraordinary loss $ 24,903,000 $ 17,111,000
Extraordinary loss, net (1,667,000) --
------------- -------------
Net income $ 23,236,000 $ 17,111,000
------------- -------------
------------- -------------
BASIC EARNINGS PER SHARE
Weighted average number of common shares outstanding 100,133,297 101,624,159
------------- -------------
------------- -------------
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary loss $ 0.25 $ 0.25
Extraordinary loss, net (0.02) --
------------- -------------
Net Income $ 0.23 $ 0.25
------------- -------------
------------- -------------
DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding 100,133,297 101,624,159
Additional shares based on average market price for period applicable to:
Restricted stock 212,146 --
Stock options 854,222 544,937
------------- -------------
Average number of common and common equivalent shares outstanding 101,199,665 102,169,096
------------- -------------
------------- -------------
DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
Income before extraordinary loss $ 0.25 $ 0.17
Extraordinary loss, net (0.02) --
------------- -------------
Net income $ 0.23 $ 0.17
------------- -------------
------------- -------------
</TABLE>
-47-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 115,588
<SECURITIES> 0
<RECEIVABLES> 55,286
<ALLOWANCES> 12,110
<INVENTORY> 12,122
<CURRENT-ASSETS> 212,714
<PP&E> 2,184,213
<DEPRECIATION> 705,161
<TOTAL-ASSETS> 2,039,476
<CURRENT-LIABILITIES> 201,975
<BONDS> 938,546
0
0
<COMMON> 10,110
<OTHER-SE> 752,362
<TOTAL-LIABILITY-AND-EQUITY> 2,039,476
<SALES> 0
<TOTAL-REVENUES> 414,447
<CGS> 0
<TOTAL-COSTS> 346,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,326
<INCOME-PRETAX> 42,870
<INCOME-TAX> 15,921
<INCOME-CONTINUING> 24,903
<DISCONTINUED> 0
<EXTRAORDINARY> 1,667
<CHANGES> 0
<NET-INCOME> 23,236
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
