<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT DELIVER THESE SECURITIES UNTIL A FINAL PROSPECTUS SUPPLEMENT
IS DELIVERED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT
OFFERS TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUPPLEMENT ISSUED JANUARY 8, 1999 (SUBJECT TO COMPLETION)
(TO PROSPECTUS DATED DECEMBER 31, 1998)
$250,000,000
[LOGO]
HARRAH'S OPERATING COMPANY, INC.
PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM, IF ANY, GUARANTEED BY
HARRAH'S ENTERTAINMENT, INC.
% SENIOR NOTES DUE 2009
-------------------
INTEREST PAYABLE ON JANUARY AND JULY
-------------------
HARRAH'S OPERATING COMPANY, INC. MAY REDEEM ANY OR ALL OF THE NOTES AT ANY TIME
AT THE REDEMPTION PRICE DESCRIBED HEREIN PLUS ACCRUED INTEREST.
-------------------
THE NOTES WILL RANK EQUALLY WITH THE OTHER UNSECURED SENIOR INDEBTEDNESS OF
HARRAH'S OPERATING.
THE NOTES WILL BE GUARANTEED BY HARRAH'S ENTERTAINMENT, INC.
FOR A MORE DETAILED DESCRIPTION OF THE NOTES, SEE "DESCRIPTION OF
NOTES" BEGINNING ON PAGE S-29.
-------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
S-11.
-----------------
PRICE % AND ACCRUED INTEREST, IF ANY
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO COMPANY
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
PER NOTE..................................... % % %
TOTAL........................................ $ $ $
</TABLE>
-------------------
THE SECURITIES AND EXCHANGE COMMISSION, STATE SECURITIES REGULATORS AND GAMING
REGULATORY AUTHORITIES HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS ARE
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE NOTES TO PURCHASERS ON
JANUARY , 1999.
-------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
JANUARY , 1999
<PAGE>
[MAP OF UNITED STATES (WITH SMALLER MAP
OF AUSTRALIA INSET) DEPICTING GENERAL LOCATION
OF HARRAH'S CASINO PROPERTIES.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
---------
<S> <C>
Summary............................................................................... S-4
Risk Factors.......................................................................... S-11
Use of Proceeds....................................................................... S-13
Recent Developments................................................................... S-14
Capitalization........................................................................ S-16
Selected Financial Data............................................................... S-17
Unaudited Pro Forma Condensed Financial Statements.................................... S-19
Regulation and Licensing.............................................................. S-27
Description of Notes.................................................................. S-29
Underwriters.......................................................................... S-36
Legal Matters......................................................................... S-37
Experts............................................................................... S-37
PROSPECTUS
About This Prospectus................................................................. 2
Where You Can Find More Information................................................... 3
Disclosure Regarding Forward-Looking Statements....................................... 4
The Company........................................................................... 4
Ratio of Earnings to Fixed Charges.................................................... 4
Use of Proceeds....................................................................... 5
Description of the Debt Securities.................................................... 5
Plan of Distribution.................................................................. 15
Legal Matters......................................................................... 16
Experts............................................................................... 16
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus supplement and the accompanying prospectus. We are
offering to sell the notes, and seeking offers to buy the notes, only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus supplement and the accompanying prospectus is accurate only as
of the date of this prospectus supplement and the date of the accompanying
prospectus, regardless of the time of delivery of this prospectus supplement or
any sales of the notes.
S-3
<PAGE>
SUMMARY
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THE WORDS
"COMPANY," "HARRAH'S," "WE," "OUR," "OURS," AND "US" REFER TO HARRAH'S
ENTERTAINMENT, INC., A DELAWARE CORPORATION ("HARRAH'S ENTERTAINMENT"), AND ITS
WHOLLY OWNED SUBSIDIARY, HARRAH'S OPERATING COMPANY, INC., A DELAWARE
CORPORATION ("HARRAH'S OPERATING"), UNLESS OTHERWISE STATED OR THE CONTEXT
OTHERWISE REQUIRES. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS
OFFERING. IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. THE
"DESCRIPTION OF NOTES" SECTION OF THIS PROSPECTUS SUPPLEMENT AND THE
"DESCRIPTION OF THE DEBT SECURITIES" SECTION IN THE ACCOMPANYING PROSPECTUS
CONTAIN MORE DETAILED INFORMATION REGARDING THE TERMS AND CONDITIONS OF THE
NOTES.
THE COMPANY
We are one of the leading casino entertainment companies in the United
States, operating in more markets than any other casino company and offering a
Harrah's casino experience within a three-hour drive of one-third of the U.S.
population. Our U.S. operations currently include nine land-based casinos, seven
riverboat or dockside casinos, and three casinos on Indian reservations. We also
own a partial interest in and manage a land-based casino in Sydney, Australia
and own a non-controlling interest in and will manage the only land-based casino
in New Orleans, Louisiana upon its anticipated completion in late October 1999.
Our recently completed merger with Rio Hotel & Casino, Inc. ("Rio") added a
profitable, premier Las Vegas destination resort with a unique level of service,
strong brand name, and distinct customer base to our national distribution of
casino offerings. See "Recent Transactions--The Rio Merger."
After taking into account our acquisition of Showboat, Inc. ("Showboat") on
June 1, 1998 and our merger with Rio on January 1, 1999, our gaming operations
included (with data regarding number of hotel rooms, slots and gaming tables,
and casino square footage provided as of December 31, 1997):
<TABLE>
<CAPTION>
CASINO
HOTEL SQUARE GAMING
MARKET/PROPERTY TYPE OF CASINO ROOMS FOOTAGE SLOTS TABLES
- ------------------------------------------------------------ -------------- -------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
ATLANTIC CITY, NEW JERSEY
Harrah's Atlantic City.................................... Land-based 1,174 80,800 2,529 97
Atlantic City Showboat.................................... Land-based 800 102,000 3,700 95
LAS VEGAS, NEVADA
Harrah's Las Vegas........................................ Land-based 2,677 86,700 1,963 97
Rio Suite Hotel & Casino.................................. Land-based 2,582 116,000 2,431 103
Las Vegas Showboat........................................ Land-based 451 75,000 1,540 25
LAKE TAHOE, NEVADA
Harrah's Lake Tahoe....................................... Land-based 532 63,200 1,711 107
Bill's Lake Tahoe......................................... Land-based - 18,000 547 20
RENO, NEVADA
Harrah's Reno............................................. Land-based 973 55,450 1,581 65
LAUGHLIN, NEVADA
Harrah's Laughlin......................................... Land-based 1,690 47,000 1,291 42
CHICAGO, ILLINOIS
Harrah's Joliet........................................... Riverboat -(1) 37,000 988 56
East Chicago Showboat..................................... Riverboat - 53,000 1,700 82
TUNICA, MISSISSIPPI
Harrah's Tunica........................................... Dockside 199 50,000 857 44
VICKSBURG, MISSISSIPPI
Harrah's Vicksburg........................................ Dockside 117 18,000 573 31
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
CASINO
HOTEL SQUARE GAMING
MARKET/PROPERTY TYPE OF CASINO ROOMS FOOTAGE SLOTS TABLES
- ------------------------------------------------------------ -------------- -------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
SHREVEPORT, LOUISIANA
Harrah's Shreveport....................................... Dockside -(2) 22,550 1,069 40
NORTH KANSAS CITY, MISSOURI
Harrah's North Kansas City................................ Dockside 200 62,100 2,029 82
ST. LOUIS, MISSOURI
Harrah's St. Louis Riverport.............................. Dockside 291 60,000 1,300 60
PHOENIX, ARIZONA Indian
Harrah's Phoenix Ak-Chin Casino........................... Reservation - 38,000 475 25
CHEROKEE, NORTH CAROLINA Indian
Harrah's Cherokee Smoky Mountains Casino.................. Reservation - 50,000 1,801 -
TOPEKA, KANSAS Indian
Harrah's Prairie Band Casino-Topeka....................... Reservation 100 26,000 500 40
SYDNEY, AUSTRALIA
Star City................................................. Land-based 352 153,000 1,500 200
</TABLE>
- ------------------------
(1) We currently are in the process of constructing a 204-room hotel at Harrah's
Joliet which is expected to be completed in the fourth quarter of 1999.
(2) We recently announced plans to construct a 503-room hotel at Harrah's
Shreveport which is expected to be completed in the year 2000.
BRAND STRATEGY
We seek to differentiate ourselves by building the industry's only national
brand. To accomplish this objective, we have invested significant time and
resources learning who the best customers in our industry are and what they want
from a gaming experience. We are building our brand with a focus on the broad
middle market gaming segment, but because of our strategy, we are uniquely
positioned to appeal to those customers that play in more than one market. These
customers represent 12% of the industry's customers, but generate 55% of the
industry's revenue. Our strategy is comprised of four integrated components
which combine to create a sustainable competitive advantage for Harrah's. These
four elements are national geographic distribution, quality facilities,
proprietary technology and superior customer service.
NATIONAL GEOGRAPHIC DISTRIBUTION
Geographic distribution serves as the foundation of our strategy. We
currently operate 19 casinos in 14 markets in the United States, more than
any other casino operator. As a result, we not only have diversified sources
of revenue and earnings, but this geographic distribution also allows us to
develop relationships with more customers in more markets than any other
casino entertainment company. Since many of our markets have a limited
number of gaming licenses, most of which have already been allocated, we
believe it will be difficult for a competitor to duplicate our nationwide
scope. In addition, through strategic growth opportunities, we will continue
to expand our distribution and build even greater access to our target
customers.
QUALITY FACILITIES
We recently completed a large investment program in our facilities to
ensure consistent quality among our properties as a necessary component in
building a national brand. Our ongoing maintenance capital expenditure
program ensures that our properties maintain a high level of quality and
meet the expectations of our target customer. We recently completed several
important renovations and expansions at our casinos, the most dramatic of
which was the transformation of our Harrah's Las
S-5
<PAGE>
Vegas property after approximately $200.0 million of investment. In 1999,
our capital program includes building hotels at two of our riverboat
properties, upgrading the amenities offered at the East Chicago Showboat
Casino, completing an expansion at the Rio and maintenance capital.
PROPRIETARY TECHNOLOGY
We have invested in proprietary technology and tools that help us better
market to and understand our customers. Our proprietary technology not only
enables us to market effectively and efficiently but also gives us the
ability to operate centralized back office systems to achieve economies of
scale and synergies. This technology includes powerful elements such as our
patented Total Gold program and its underlying Winners Information Network
(WINet) database. Total Gold is the only program in the casino industry that
rewards and recognizes casino customers on a nationwide basis. Total Gold
allows customers to earn points and complimentaries based on play and redeem
these points and complimentaries for cash, merchandise, food, lodging or
show tickets at any Harrah's casino across the country. There are currently
over 15 million records in our WINet database. Total Gold was launched in
September 1997. Our revenues for the nine months ended September 30, 1998
from cross-property tracked play as a percent of total gaming revenue have
increased to over 12% compared to 8% for the same period in 1997. Total Gold
and WINet integrate all of our Harrah's casinos and, as such, serve as a
platform on which we are able to build national brand loyalty.
SUPERIOR CUSTOMER SERVICE
We are committed to ensuring that our employees deliver a recognizable,
differentiated customer experience based on level of play. Our goal is to
increase the number of target customers who visit our casinos and to capture
a greater share of their gaming budget. The key to this strategy is having
highly capable, motivated employees that engender customer loyalty in local
markets, and then capturing the revenues generated by these loyal customers
when they travel to other markets. We are just beginning to implement this
stage of our strategy.
RECENT TRANSACTIONS
Consistent with our goal of establishing a national brand, we have been and
intend to continue to be a key player in the consolidation of the gaming
industry. We believe that we have a strong platform upon which to build value
through acquisitions, first through the creation of synergies inherent in our
technology and centralized services, and second through the expansion of our
nationwide distribution system.
THE SHOWBOAT ACQUISITION
On June 1, 1998, we completed our acquisition of Showboat. We paid
approximately $518.0 million in cash and assumed approximately $635.0
million in Showboat debt. Our acquisition of Showboat gives us a stronger
presence in the two key growth and feeder markets of Atlantic City and
Chicago. In Atlantic City, Showboat provides us with a very strong
additional brand in a strategic Boardwalk location that complements Harrah's
existing location in the Marina district. In the Chicago market, the
combination of Showboat's riverboat casino complex southeast of Chicago in
neighboring Indiana and Harrah's in Joliet, Illinois, southwest of Chicago,
makes it possible for us to seek the loyalty of a broader share of visitors
from the Chicago area. The acquisition also gives us a presence in Sydney,
Australia through Showboat's management and partial ownership of the Star
City casino. A Showboat property in Las Vegas is a non-strategic asset for
us.
THE RIO MERGER
On January 1, 1999, we completed our merger with Rio. In connection with
the merger, we issued approximately 25 million shares of our common stock
and assumed Rio's outstanding debt. Rio is an
S-6
<PAGE>
all-suite hotel-casino with over 2,500 suites and 116,000 square feet of
gaming space featuring approximately 2,400 slot machines and 100 table
games, in addition to an 18-hole, championship golf course. In addition, Rio
owns or has the right to acquire approximately 35 acres of land adjacent to
its existing facilities available for further development. We expect that
our merger with Rio will add more than one million customers to our existing
15 million-customer database. We also believe that the combination of Rio's
customers, more than 50% of whom are from the Las Vegas and Los Angeles
markets, with Harrah's customers, who are predominantly from outside these
markets, will provide significant opportunities to strategically expand
cross-market play through our database management and marketing strength.
The addition of Rio to the family of Harrah's properties provides our
customers who frequent Las Vegas a choice between two distinct, high-quality
experiences, a Las Vegas Strip destination and a high quality resort
experience.
------------------------
The principal executive offices of Harrah's are located at 1023 Cherry Road,
Memphis, Tennessee 38117, telephone (901) 762-8600.
S-7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total Amount of Notes Offered...... $250,000,000 in principal amount of % Senior Notes due 2009.
Maturity........................... January , 2009.
Issue Price........................ % of par plus accrued interest, if any, from the issue date of
the notes.
Interest........................... % per year.
Interest Payment Dates............. January and July , beginning on July , 1999. Interest will
accrue from the issue date of the notes.
Guarantee.......................... Harrah's Entertainment will unconditionally guarantee the notes.
However, because Harrah's Entertainment's sole material asset
is its equity interest in Harrah's Operating, Harrah's
Entertainment is dependent on the receipt of dividends or other
payments from Harrah's Operating to make payments on the
guarantee of the notes.
Ranking............................ The notes are unsecured senior obligations of Harrah's Operating.
At September 30, 1998, giving effect to our merger with Rio,
our issuance of $750.0 million of senior subordinated notes in
December 1998 and the issuance of the notes offered by this
prospectus supplement, the notes would have ranked equal in
right of payment with $818.3 million of other senior
indebtedness of Harrah's Operating, including $814.1 million
under our credit facility.
Optional Redemption................ We may redeem some or all of the notes at any time at the
redemption price described in the "Description of Notes"
section under the heading "Optional Redemption," plus accrued
interest to the date of redemption.
Covenants.......................... The indenture governing the notes will contain covenants that
limit our ability and our subsidiaries' ability to:
- enter into certain sale and lease-back transactions;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer or sell substantially all of our assets.
For more details, see the "Additional Covenants of Harrah's
Operating" section under the heading "Description of Notes" in
this prospectus supplement and the "Merger, Consolidation or
Sale of Assets" section under the heading "Description of the
Debt Securities" in the accompanying prospectus.
Use of Proceeds.................... We will use the proceeds of the notes to reduce outstanding
indebtedness under our credit facility.
</TABLE>
S-8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial data below is derived from our
audited consolidated financial statements, except for the financial data for the
nine months ended September 30 which is derived from our unaudited consolidated
financial statements. The selected unaudited pro forma financial data below
under the heading "Pro Forma" gives effect to our acquisition of Showboat, our
merger with Rio and our issuance on December 9, 1998 of $750.0 million of 7 7/8%
Senior Subordinated Notes due 2005 (the "December Notes Offering") and is
derived from our unaudited pro forma condensed financial statements included
herein. The balance sheet data below under the heading "Pro Forma As Adjusted"
gives effect to our merger with Rio, the December Notes Offering and the
offering of the notes hereby. See "Capitalization." You should read the
financial data presented below in conjunction with the respective consolidated
financial statements and accompanying notes of Harrah's Entertainment, Rio and
Showboat, as well as the respective management's discussion and analysis of
results of operations and financial condition of Harrah's Entertainment and Rio,
all of which are incorporated by reference into the accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------------- --------------------------------------------
PRO FORMA PRO FORMA
1998(1) 1998(1)(2) 1997(3) 1997(3) 1997(3) 1996(4) 1995(5)
----------- ----------- --------- ----------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $ 1,940.6 $ 1,479.3 $ 1,221.2 $ 2,389.2 $ 1,619.2 $ 1,586.0 $ 1,578.8
Income from operations................. 309.0 239.1 174.2 298.3 213.5 236.9 209.4
Income before income taxes and minority
interests............................ 185.9 176.7 162.1 176.7 183.6 172.1 151.6
Income from continuing operations...... 102.8 106.1 95.4 90.6 107.5 98.9 78.8
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(6).............................. $ 472.7 $ 364.9 $ 301.7 $ 532.7 $ 374.7 $ 335.3 $ 305.1
Adjusted EBITDA(6)..................... 472.1 364.3 293.1 546.7 377.6 408.0 387.1
Cash flows from operating activities... 289.7 245.3 219.0 346.6 255.1 285.7 213.7
Interest expense....................... 140.6 81.4 57.9 174.9 79.1 70.0 73.9
Ratio of earnings to fixed
charges(7)........................... 2.1x 2.8x 3.1x 1.6x 2.8x 2.8x 1.3x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------
PRO FORMA AT DECEMBER 31,
AS ADJUSTED PRO FORMA -------------------------------
1998 1998 1998 1997 1996 1995
----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets............................................ $ 4,279.7 $ 4,278.5 $ 3,191.9 $ 2,005.5 $ 1,974.1 $ 1,636.7
Current portion of long-term debt....................... 52.4 52.4 49.8 1.8 1.8 2.0
Long-term debt.......................................... 2,307.2 2,304.7 1,914.0 924.4 889.5 753.7
Stockholders' equity.................................... 1,350.3 1,351.1 827.4 735.5 719.7 585.5
</TABLE>
- ------------------------
(1) 1998 includes a $13.2 million gain from the sale of our equity investment in
a restaurant subsidiary.
(2) Includes financial results of Showboat only from June 1, 1998, the date of
its acquisition.
(3) 1997 includes $13.8 million in pre-tax charges for write-downs and reserves
relating to debtor-in-possession financing provided to Harrah's Jazz Company
and a $37.4 million gain on the sale of equity in our New Zealand
subsidiary.
S-9
<PAGE>
(4) 1996 includes $52.2 million in pre-tax charges for write-downs of the value
of certain riverboat casino facilities and reserves relating to liability
arising from our guarantee of third party debt.
(5) 1995 includes $93.3 million in pre-tax charges for write-downs primarily
relating to our New Orleans casino development project.
(6) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs and
reserves, project opening costs, venture restructuring costs, gains on sales
of subsidiary equity interests and provision for settlement of litigation
and related costs. EBITDA and Adjusted EBITDA are supplemental financial
measurements used by management, as well as by industry analysts, to
evaluate Harrah's operations. However, EBITDA and Adjusted EBITDA should not
be construed as an alternative to Income from operations (as an indicator of
Harrah's operating performance) or to Cash flows from operating activities
(as a measure of liquidity) as determined in accordance with generally
accepted accounting principles and presented in our consolidated financial
statements. All companies do not calculate EBITDA in the same manner. As a
result, EBITDA as presented by Harrah's may not be comparable to similarly
titled measures presented by other companies.
(7) For purposes of computing this ratio, "earnings" consist of income before
income taxes plus fixed charges (excluding capitalized interest) and
minority interests (relating to subsidiaries whose fixed charges are
included in the computation), excluding equity in undistributed earnings of
less than 50% owned investments. "Fixed charges" include interest whether
expensed or capitalized, amortization of debt expense, discount or premium
related to indebtedness and such portion of rental expense that we deem to
be representative of interest. As required by the rules which govern the
computation of this ratio, both earnings and fixed charges are adjusted
where appropriate to include the financial results for the Company's
nonconsolidated majority-owned subsidiaries. Accordingly, the 1995 period
has been adjusted to include the financial results and fixed charges for
Harrah's Jazz Company. For the nine months ended September 30, 1998 and for
the pro forma 1997 and 1998 periods, the computation of the ratio has been
adjusted to include the financial results and fixed charges of Showboat
Marina Casino Partnership.
FORWARD-LOOKING STATEMENTS
This prospectus supplement includes forward-looking statements, including,
in particular, the statements about our plans, strategies and properties under
the heading "Summary." Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we can give no assurance that such plans, intentions or expectations
will be achieved. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including those discussed elsewhere in
the documents which are incorporated by reference into this prospectus
supplement and the accompanying prospectus and the following, any of which could
affect our future results and could cause results to differ materially from
those expressed in such forward-looking statements:
- the effect of economic, credit and capital market conditions;
- our construction, development and acquisition activities;
- the ability of Harrah's and Rio to successfully integrate their
operations;
- the impact of competition;
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies; and
- changes in customer demand.
S-10
<PAGE>
RISK FACTORS
YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS BEFORE INVESTING IN THE
NOTES. AMONG THE FACTORS THAT MAY ADVERSELY AFFECT AN INVESTMENT IN THE NOTES
ARE THE FOLLOWING:
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We currently have a significant amount of indebtedness. At September 30,
1998, after giving effect to our merger with Rio, the December Notes Offering
and this offering, our total consolidated indebtedness would have been
approximately $2,359.6 million. See "Capitalization."
The notes will not restrict our ability to borrow substantial additional
indebtedness in the future. For example, our credit facility would permit
additional borrowing of senior indebtedness of up to $423.9 million after
completion of this offering. If new indebtedness is added to our current debt
levels, the related risks that we now face could increase.
Our indebtedness could have important consequences for the holders of the
notes, including:
- limiting our ability to satisfy our obligations with respect to the notes;
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing to fund future working
capital, capital expenditures and other general corporate requirements;
- requiring a substantial portion of our cash flow from operations for the
payment of principal of, and interest on, our indebtedness and reducing
our ability to use our cash flow to fund working capital, capital
expenditures and general corporate requirements;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- disadvantaging us compared to competitors with less indebtedness.
SERVICING OUR INDEBTEDNESS WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including these notes, and
to fund planned capital expenditures will depend on our ability to generate cash
in the future. Harrah's Entertainment is a holding company and Harrah's
Operating conducts substantially all of its operations through its subsidiaries.
As a result, our ability to meet our debt service obligations substantially
depends upon our subsidiaries' cash flow and payments of funds to us by our
subsidiaries. This ability, to some extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
Based on our current level of operations and recent acquisitions, we believe
our cash flow from operations, available cash and available borrowings under our
credit facility will be adequate to meet our liquidity needs for the next few
years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our credit facility in an amount sufficient to enable us to pay our
indebtedness, including these notes, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness, including these
notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness on commercially reasonable terms or at all.
S-11
<PAGE>
ALTHOUGH THESE NOTES ARE REFERRED TO AS "SENIOR NOTES," THEY WILL BE EFFECTIVELY
SUBORDINATED TO OUR SECURED INDEBTEDNESS AND THE INDEBTEDNESS OF OUR
SUBSIDIARIES.
The notes are unsecured and therefore will be effectively subordinated to
any secured indebtedness we may incur to the extent of the value of the assets
securing such indebtedness. In the event of a bankruptcy or similar proceeding
involving us, our assets which serve as collateral will be available to satisfy
the obligations under any secured indebtedness before any payments are made on
the notes. In addition, our subsidiaries will not guarantee the notes. In the
event of a bankruptcy, liquidation or reorganization of any of our subsidiaries,
creditors of our subsidiaries will generally be entitled to payment of their
claims from the assets of those subsidiaries before any assets are made
available for distribution to us, except to the extent we may also have a claim
as a creditor. Assuming we had completed this offering on September 30, 1998,
these notes would have been effectively junior to approximately $941.3 million
of indebtedness of subsidiaries of Harrah's Operating.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.
Prior to this offering, there was no public market for these notes. We have
been informed by the underwriters that they intend to make a market in these
notes after this offering is completed. However, the underwriters may cease
their market-making at any time. In addition, the liquidity of the trading
market in these notes, and the market price quoted for these notes, may be
adversely affected by changes in the overall market for these types of
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, you cannot be
sure that an active trading market will develop for these notes.
S-12
<PAGE>
USE OF PROCEEDS
We anticipate our net proceeds from the sale of the notes will be $247.5
million after deducting underwriting discounts and commissions and estimated
offering expenses of $2.5 million. We intend to use the net proceeds to reduce
outstanding indebtedness under our credit facility.
Our credit facility currently consists of an approximately $1.40 billion
unsecured line of credit and an approximately $111.0 million unsecured line of
credit with maturities of July 31, 2000 and May 11, 1999, respectively. As of
September 30, 1998, the weighted average interest rate under the credit facility
was 6.43% per annum, and the amount outstanding under our credit facility, after
giving pro forma effect to the December Notes Offering, was $1,061.6 million.
Since January 1, 1998, we have made borrowings under our credit facility
(other than short-term borrowings for working capital) of (i) $204.0 million to
redeem Harrah's Operating's 8 3/4% Senior Subordinated Notes due 2000, (ii)
approximately $500.0 million to pay a portion of the consideration paid to
Showboat's stockholders in our acquisition of Showboat, and (iii) $388.7 million
to complete our tender offer and consent solicitation for Showboat's 9 1/4%
First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due 2009.
S-13
<PAGE>
RECENT DEVELOPMENTS
EAST CHICAGO
A subsidiary of Showboat, Showboat Indiana Investment, Inc., holds a 55%
partnership interest in both Showboat Marina Partnership ("SMP") and Showboat
Marina Investment Partnership ("SMIP"). Waterfront Entertainment and
Development, Inc. ("Waterfront") is the minority partner, holding 45% of both
SMP and SMIP. SMP and SMIP hold 99% and 1%, respectively, of the partnership
interests in Showboat Marina Casino Partnership, the owner of the East Chicago
Showboat Casino.
We have entered into an agreement with the shareholders of Waterfront to
increase our ownership of the equity in both SMP and SMIP to approximately
99.5%. Upon consummating such agreement, we also will amend the partnership
agreements relating to SMP, SMIP and Showboat Marina Casino Partnership to give
us greater flexibility in operating the East Chicago Showboat Casino. This
transaction is subject to receipt of necessary regulatory approvals and is
expected to close during the first quarter of 1999. Harrah's also plans to
rebrand the East Chicago Showboat Casino as a "Harrah's" property during the
first quarter of 1999.
We presently account for the operating results of SMP and SMIP on an equity
method basis. When we complete the acquisition of the additional equity in such
entities and amend the partnership agreements as described above, we will
consolidate the financial results of SMP and SMIP with the financial results of
our other businesses.
NEW ORLEANS CASINO
On October 30, 1998, Harrah's Jazz Company ("Jazz"), a partnership in which
one of our former subsidiaries was a partner, consummated a plan of
reorganization. Jazz originally was formed to develop, own and operate the only
land-based casino entertainment facility in New Orleans, Louisiana. Jazz filed
for bankruptcy protection on November 22, 1995 before completing construction of
a permanent casino facility. As a result of consummating its reorganization,
Jazz ended its bankruptcy, all litigation relating to the bankruptcy filing has
been dismissed and a newly formed limited liability company, Jazz Casino
Company, L.L.C. ("JCC"), has recommenced construction of the casino.
A subsidiary of Harrah's Operating owns approximately 43% of the equity of
JCC's publicly-held parent company (which may be reduced to approximately 40%
due to certain option exercises), and a subsidiary of Harrah's Operating will
manage the casino under a management agreement. Harrah's Operating has
guaranteed (i) JCC's initial $100.0 million annual tax payment to the State of
Louisiana (and, subject to certain conditions, agreed to provide the guarantee
for four additional years), (ii) $166.5 million of JCC bank debt, and (iii)
completion and opening of the casino on or before October 30, 1999 (subject to
force majeure). Harrah's Operating also is obligated to make a $22.5 million
subordinated loan to JCC as a part of the financing of construction of the
casino. Harrah's Operating and its subsidiaries will receive certain fees in
connection with the management of the casino and for providing the bank and
state guarantees, subject to deferral in certain circumstances. The casino is
currently expected to open by late October 1999.
MODIFICATION OF CREDIT FACILITY
In connection with obtaining the consent of the lenders under our credit
facility to our merger with Rio, we agreed to modify certain terms of the credit
facility relating to mandatory principal reductions, financial covenants and the
interest rates charged under such facility. As amended, our credit facility
provides for us to either (i) repay at least $250.0 million of amounts available
under the credit facility by each of December 31, 1998, March 31, 1999 and June
30, 1999 (a total of $750.0 million) from the
S-14
<PAGE>
proceeds of an equity offering of Harrah's Entertainment or an offering of
senior unsecured or subordinated debt of Harrah's Operating, or (ii) permanently
increase the interest rate margin applicable to all amounts outstanding under
the credit facility by 0.50% for each $250.0 million not refinanced by such
dates (a total increase of 1.50%). The completion of the December Notes Offering
and application of the net proceeds to reduce amounts outstanding under the
credit facility substantially satisfied our repayment requirements under the
amended credit facility. Those repayment requirements will be completely
satisfied by the application of net proceeds from this offering of notes to
further reduce amounts outstanding under the amended credit facility.
The proceeds of the December Notes Offering were used to repay amounts
outstanding under the credit facility and permanently reduced our borrowing
availability under the credit facility. However, we are permitted to reborrow an
amount sufficient to refinance the outstanding long-term indebtedness related to
the East Chicago Showboat Casino for a period of up to 120 days from the
completion of the December Notes Offering. Likewise, our intended application of
proceeds of this offering to repay amounts outstanding under the credit facility
will similarly permanently reduce our borrowing availability, except that,
following this offering, we will be permitted at any time to reborrow for
general corporate purposes, including the East Chicago Showboat Casino
refinancing, up to $200.0 million of the amounts we repaid under our credit
facility in connection with the December Notes Offering.
Our borrowings under the credit facility bear interest at either a base rate
or a Eurodollar rate, each adjusted for an applicable margin (which is further
defined in the related credit agreement). The base rate is equal to the higher
of the following: (i) a certificate of deposit rate plus 0.50%, (ii) the prime
interest rate or (iii) the overnight federal funds rate plus 0.50%. The
applicable margins on our approximately $1.40 billion unsecured line of credit
maturing in July 2000 (the "$1.40 Billion Line") and our approximately $111.0
million unsecured line of credit (the "$111.0 Million Line") are based on a
maximum of 1.25% and 0.875%, respectively, minus predetermined percentage
discounts based on our interest coverage ratios or credit ratings received from
specified rating agencies (the "Reduction Discounts"). As of September 30, 1998,
the Reduction Discounts applicable to the $1.40 Billion Line and $111.0 Million
Line were 0.50% and 0.25%, respectively. The $1.40 Billion Line requires that we
pay an annual fee of up to 0.25% on the unused portion of the line of credit,
and the $111.0 Million Line requires that we pay an annual fee of up to 0.15% on
the full commitment. Both of these fees are further adjusted by the applicable
Reduction Discount. After adjusting these fees for the applicable Reduction
Discount, as of September 30, 1998, the annual fee on the $1.40 Billion Line was
0.20% and 0.11% on the $111.0 Million Line.
S-15
<PAGE>
CAPITALIZATION
The following table sets forth our debt and equity capitalization as of
September 30, 1998 (i) on a historical basis, (ii) after giving pro forma effect
to our merger with Rio and the December Notes Offering, and (iii) as further
adjusted to give effect to this offering of notes and the application of our
estimated net proceeds as described under "Use of Proceeds." You should read
this table in conjunction with our selected financial data presented elsewhere
in this prospectus supplement along with the consolidated financial statements
and related notes of Harrah's Entertainment, Rio and Showboat incorporated by
reference into the accompanying prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
CURRENT PORTION OF LONG-TERM DEBT:
Total current portion of long-term debt................................... $ 49.8 $ 52.4 $ 52.4
--------- ----------- -----------
--------- ----------- -----------
LONG-TERM DEBT:
Revolving Credit Facilities
Harrah's Operating...................................................... $ 1,797.5 $ 1,061.6 $ 814.1
Rio..................................................................... 136.5 136.5
Unsecured Notes Payable................................................... 3.9 15.6 15.6
Capitalized Lease Obligations............................................. 2.2 2.2 2.2
9 1/4% First Mortgage Bonds due 2008...................................... 58.3 58.3 58.3
13% Senior Subordinated Notes due 2009.................................... 2.4 2.4 2.4
Atlantic City Mortgage Debt............................................... 99.5 99.5 99.5
7 7/8% Senior Subordinated Notes due 2005................................. 750.0 750.0
10 5/8% Senior Subordinated Notes due 2005................................ 105.5 105.5
9 1/2% Senior Subordinated Notes due 2007................................. 125.5 125.5
Notes offered hereby...................................................... 250.0
Less current portion of long-term debt.................................. (49.8) (52.4) (52.4)
--------- ----------- -----------
Total long-term debt, net of current portion............................ 1,914.0 2,304.7 2,307.2
STOCKHOLDERS' EQUITY:
Total stockholders' equity................................................ 827.4 1,351.1 1,350.3
--------- ----------- -----------
Total capitalization.................................................... $ 2,741.4 $ 3,655.8 $ 3,657.5
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
S-16
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data below is derived from our audited
consolidated financial statements, except for the financial data for the nine
months ended September 30 which is derived from our unaudited consolidated
financial statements. You should read the financial data presented below in
conjunction with the consolidated financial statements, accompanying notes and
management's discussion and analysis of results of operations and financial
condition of Harrah's Entertainment, which are incorporated by reference into
the accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998(1) 1997(2) 1997(2) 1996(3) 1995(4) 1994(5) 1993
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................... $ 1,479.3 $ 1,221.2 $ 1,619.2 $ 1,586.0 $ 1,578.8 $ 1,349.9 $ 1,020.6
Income from operations...................... 239.1 174.2 213.5 236.9 209.4 267.2 210.0
Income before income taxes and minority
interests................................. 176.7 162.1 183.6 172.1 151.6 139.3 139.0
Income from continuing operations........... 106.1 95.4 107.5 98.9 78.8 50.0 74.9
Net income(6)............................... 87.8 87.2 99.4 98.9 78.8 78.4 86.3
Net income per share-diluted(6)............. 0.87 0.86 0.98 0.95 0.76 0.76 0.84
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)................................... $ 364.9 $ 301.7 $ 374.7 $ 335.3 $ 305.1 $ 285.4 $ 274.1
Adjusted EBITDA(7).......................... 364.3 293.1 377.6 408.0 387.1 354.1 274.5
Cash flows from operating activities........ 245.3 219.0 255.1 285.7 213.7 227.3 198.2
Interest expense............................ 81.4 57.9 79.1 70.0 73.9 76.4 73.1
Ratio of earnings to fixed charges(8)....... 2.8x 3.1x 2.8x 2.8x 1.3x 2.0x 2.6x
</TABLE>
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets(6)......................................... $ 3,191.9 $ 2,005.5 $ 1,974.1 $ 1,636.7 $ 1,738.0 $ 1,528.0
Current portion of long-term debt....................... 49.8 1.8 1.8 2.0 1.0 1.0
Long-term debt.......................................... 1,914.0 924.4 889.5 753.7 727.5 665.2
Stockholders' equity(6)................................. 827.4 735.5 719.7 585.5 623.4 536.0
</TABLE>
- ------------------------
(1) 1998 includes a $13.2 million gain from the sale of our equity investment in
a restaurant subsidiary. Includes financial results of Showboat only from
June 1, 1998, the date of its acquisition.
(2) 1997 includes $13.8 million in pre-tax charges for write-downs and reserves
relating to debtor-in-possession financing provided to Harrah's Jazz Company
and a $37.4 million gain on the sale of equity in our New Zealand
subsidiary.
(3) 1996 includes $52.2 million in pre-tax charges for write-downs of the value
of certain riverboat casino facilities and reserves relating to liability
arising from our guarantee of third party debt.
(4) 1995 includes $93.3 million in pre-tax charges for write-downs primarily
relating to our New Orleans casino development project.
(5) 1994 includes a $53.4 million provision for settlement of all claims and
related costs related to the Merger Agreement and Tax Sharing Agreement
arising from the 1990 spin-off of Harrah's Entertainment and acquisition of
the Holiday Inn business by Bass PLC.
S-17
<PAGE>
(6) Amounts for periods prior to the June 30, 1995 dividend of Promus Hotel
Corporation common stock to our stockholders reflect the impact of the
financial position and results of operations for the discontinued hotel
business in those periods.
(7) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs and
reserves, project opening costs, venture restructuring costs, gains on sales
of subsidiary equity interests and provision for settlement of litigation
and related costs. EBITDA and Adjusted EBITDA are supplemental financial
measurements used by management, as well as by industry analysts, to
evaluate Harrah's operations. However, EBITDA and Adjusted EBITDA should not
be construed as an alternative to Income from operations (as an indicator of
Harrah's operating performance) or to Cash flows from operating activities
(as a measure of liquidity) as determined in accordance with generally
accepted accounting principles and presented in our consolidated financial
statements. All companies do not calculate EBITDA in the same manner. As a
result, EBITDA as presented by Harrah's may not be comparable to similarly
titled measures presented by other companies.
(8) For purposes of computing this ratio, "earnings" consist of income before
income taxes plus fixed charges (excluding capitalized interest) and
minority interests (relating to subsidiaries whose fixed charges are
included in the computation), excluding equity in undistributed earnings of
less than 50% owned investments. "Fixed charges" include interest whether
expensed or capitalized, amortization of debt expense, discount or premium
related to indebtedness and such portion of rental expense that we deem to
be representative of interest. As required by the rules which govern the
computation of this ratio, both earnings and fixed charges are adjusted
where appropriate to include the financial results for the Company's
nonconsolidated majority-owned subsidiaries. Accordingly, the 1994 and 1995
periods have been adjusted to include the financial results and fixed
charges for Harrah's Jazz Company. For the nine months ended September 30,
1998, the computation of the ratio has been adjusted to include the
financial results and fixed charges of Showboat Marina Casino Partnership.
S-18
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
upon and should be read in conjunction with the historical consolidated
financial statements of Harrah's Entertainment, Rio and Showboat which are
incorporated by reference into the accompanying prospectus.
The unaudited pro forma condensed statements of income for the nine months
ended September 30, 1998 and the year ended December 31, 1997 give effect to (i)
our acquisition of both Showboat and Rio applying the purchase method of
accounting; (ii) our refinancing of certain amounts of Showboat's existing
indebtedness (on June 15, 1998, we completed tender offers and consent
solicitations and retired a portion of the debt assumed in our acquisition of
Showboat); (iii) certain adjustments that are directly attributable to our
acquisition of Showboat and Rio and anticipated to have continuing impact,
including certain estimated operational benefits arising from the elimination of
duplicative corporate office and operational support functions; (iv) the
December Notes Offering; (v) de-consolidation of the Showboat East Chicago
property, in which we hold a 55% non-controlling interest; and (vi) the
presentation of the Showboat Las Vegas property as an asset held for sale. The
pro forma condensed statements of income assume that these transactions were
consummated on the first day of each of the periods presented.
The unaudited pro forma condensed balance sheet presents the combined
financial position of Harrah's Entertainment (including Showboat) and Rio as of
September 30, 1998. The unaudited pro forma condensed balance sheet gives effect
to (i) our merger with Rio applying the purchase method of accounting as if the
merger was consummated on September 30, 1998; (ii) certain adjustments that are
directly attributable to our merger with Rio; and (iii) the December Notes
Offering.
The unaudited pro forma condensed financial statements have been prepared
based upon currently available information and assumptions that we have deemed
appropriate. This pro forma information may not be indicative of what actual
results would have been, nor does such data purport to represent the combined
financial results of Harrah's Entertainment, Showboat and Rio for future
periods.
S-19
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HARRAH'S
AS RIO PRO FORMA
HARRAH'S SHOWBOAT PRO FORMA ADJUSTED HISTORICAL ADJUSTMENTS FOR HARRAH'S AS
HISTORICAL HISTORICAL ADJUSTMENTS FOR (NOTE RIO ADJUSTED
(NOTE 1) (NOTE 2) (NOTE 3) SHOWBOAT 4) (NOTE 5) FOR RIO
----------- -------- ------------ --------- ------- --------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Casino........................... $ 1,220.3 $ 237.6 $ (92.7) (a) $1,365.2 $149.0 $ $1,514.2
Food and beverage................ 171.8 25.9 (10.4) (a) 187.3 99.6 286.9
Rooms............................ 114.5 9.7 (2.5) (a) 121.7 59.9 181.6
Management fees.................. 48.6 4.4 (0.5) (a) 52.5 - 52.5
Other............................ 60.7 4.1 (1.8) (a) 63.0 21.8 84.8
Less: casino promotional
allowances..................... (136.6) (17.4) 3.0(a) (151.0) (28.4) (179.4)
----------- -------- ------------ --------- ------- ------ ------------
Total revenues............... 1,479.3 264.3 (104.9) 1,638.7 301.9 1,940.6
----------- -------- ------------ --------- ------- ------ ------------
Operating expenses
Direct
Casino......................... 651.2 100.6 (42.4) (a) 709.4 83.8 793.2
Food and beverage.............. 86.8 27.6 (11.7) (a) 102.7 71.5 174.2
Rooms.......................... 31.7 6.1 (1.6) (a) 36.2 18.9 55.1
Depreciation--buildings,
riverboats and equipment....... 94.9 19.0 (7.7) (a) 106.2 20.7 (1.0) (h) 125.9
Equity in (income) losses of
nonconsolidated subsidiaries... 8.7 1.2 2.9(a) 12.8 - 12.8
Project opening costs............ 7.2 - - 7.2 - 7.2
Other............................ 359.7 108.1 (38.8) (a) 409.2 56.5 2.8(i) 463.2
6.2(b) (5.3) (j)
(26.0) (c)
----------- -------- ------------ --------- ------- ------ ------------
Total operating expenses..... 1,240.2 262.6 (119.1) 1,383.7 251.4 (3.5) 1,631.6
----------- -------- ------------ --------- ------- ------ ------------
Income from operations............. 239.1 1.7 14.2 255.0 50.5 3.5 309.0
Interest expense, net of interest
capitalized...................... (81.4) (29.7) 9.1(a) (111.6) (18.2) (0.6) (k) (140.6)
5.0(d) (10.2) (l)
(14.6) (e)
Other income, including interest
income........................... 19.0 1.8 (0.1) (a) 20.7 (3.2) 17.5
----------- -------- ------------ --------- ------- ------ ------------
Income before income taxes and
minority interests............... 176.7 (26.2) 13.6 164.1 29.1 (7.3) 185.9
Provision for income taxes......... (65.0) 4.0 (7.5) (g) (68.5) (10.6) 1.6(m) (77.5)
Minority interests................. (5.6) - - (5.6) (5.6)
----------- -------- ------------ --------- ------- ------ ------------
Income from continuing
operations....................... $ 106.1 $ (22.2) $ 6.1 $ 90.0 $ 18.5 $ (5.7) $ 102.8
----------- -------- ------------ --------- ------- ------ ------------
----------- -------- ------------ --------- ------- ------ ------------
Income from continuing operations
per share
Basic.......................... $ 1.06 $ 0.91 $ 0.82(n)
Diluted........................ $ 1.05 $ 0.90 $ 0.81(n)
Average common shares
outstanding...................... 100.2 100.2 125.0(n)
Average common and common
equivalent shares outstanding.... 101.3 101.3 126.7(n)
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
S-20
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HARRAH'S
AS PRO FORMA
HARRAH'S SHOWBOAT PRO FORMA ADJUSTED RIO ADJUSTMENTS FOR HARRAH'S AS
HISTORICAL HISTORICAL ADJUSTMENTS FOR HISTORICAL RIO ADJUSTED
(NOTE 1) (NOTE 2) (NOTE 3) SHOWBOAT (NOTE 4) (NOTE 5) FOR RIO
--------- --------- ------------ --------- --------- --------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Casino.......................... $1,338.0 $ 497.1 $ (152.8) (a) $1,682.3 $ 214.0 $ $1,896.3
Food and beverage............... 196.8 62.7 (20.9) (a) 238.6 114.8 353.4
Rooms........................... 128.4 25.4 (6.1) (a) 147.7 70.4 218.1
Management fees................. 24.6 5.7 30.3 - 30.3
Other........................... 78.9 10.7 (5.5) (a) 84.1 25.6 109.7
Less: casino promotional
allowances.................... (147.5) (44.8) 6.4(a) (185.9) (32.7) (218.6)
--------- --------- ------------ --------- --------- ------ ------------
Total revenues.............. 1,619.2 556.8 (178.9) 1,997.1 392.1 2,389.2
--------- --------- ------------ --------- --------- ------ ------------
Operating expenses
Direct
Casino........................ 685.9 252.8 (79.0) (a) 859.7 117.6 977.3
Food and beverage............. 103.6 37.4 (18.4) (a) 122.6 89.0 211.6
Rooms......................... 39.7 6.6 (3.7) (a) 42.6 20.6 63.2
Depreciation--buildings,
riverboats and equipment...... 103.7 40.8 (14.3) (a) 130.2 23.2 (1.3) (h) 152.1
Equity in (income) losses of
nonconsolidated
subsidiaries.................. 11.1 3.5 23.9(a) 38.5 - 38.5
Project opening costs........... 17.6 9.6 (9.6) (a) 17.6 11.2 28.8
Other........................... 444.1 180.0 (65.2) (a) 552.2 70.4 3.8(i) 619.4
15.3(b) (7.0) (j)
(22.0) (c)
--------- --------- ------------ --------- --------- ------ ------------
Total operating expenses.... 1,405.7 530.7 (173.0) 1,763.4 332.0 (4.5) 2,090.9
--------- --------- ------------ --------- --------- ------ ------------
Income from operations............ 213.5 26.1 (5.9) 233.7 60.1 4.5 298.3
Interest expense, net of interest
capitalized..................... (79.1) (49.4) 16.6(a) (134.5) (26.3) (0.8) (k) (174.9)
10.9(d) (13.3) (l)
(33.5) (e)
Other income, including interest
income.......................... 49.2 5.1 (1.0) (a) 53.3 - 53.3
--------- --------- ------------ --------- --------- ------ ------------
Income before income taxes and
minority interests.............. 183.6 (18.2) (12.9) 152.5 33.8 (9.6) 176.7
Provision for income taxes........ (68.7) 2.3 (1.9) (g) (68.3) (12.4) 2.0(m) (78.7)
Minority interests................ (7.4) (2.6) 2.6(a) (7.4) - (7.4)
--------- --------- ------------ --------- --------- ------ ------------
Income from continuing
operations...................... $ 107.5 $ (18.5) $ (12.2) $ 76.8 $ 21.4 $ (7.6) $ 90.6
--------- --------- ------------ --------- --------- ------ ------------
--------- --------- ------------ --------- --------- ------ ------------
Income from continuing operations
per share
Basic......................... $ 1.07 $ 0.76 $ 0.74(n)
Diluted....................... $ 1.06 $ 0.76 $ 0.73(n)
Average common shares
outstanding..................... 100.6 100.6 122.2(n)
Average common and common
equivalent shares outstanding... 101.3 101.3 123.5(n)
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
S-21
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HARRAH'S
HARRAH'S RIO PRO FORMA AS
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTED
(NOTE 1) (NOTE 4) (NOTE 6) FOR RIO
--------- --------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................. $ 128.7 $ 21.3 $ $ 150.0
Receivables, less allowance for doubtful
accounts................................ 46.7 37.7 84.4
Deferred income tax benefits.............. 16.1 - 16.1
Inventories............................... 15.6 13.8 29.4
Prepayments and other..................... 29.0 8.4 37.4
--------- --------- ------------ ---------
Total current assets.................... 236.1 81.2 317.3
--------- --------- ------------ ---------
Land, buildings, riverboats and equipment... 2,641.6 738.5 186.2(o) 3,465.1
(101.2) (o)
Less: accumulated depreciation.............. (765.5) (101.2) 101.2(o) (765.5)
--------- --------- ------------ ---------
1,876.1 637.3 186.2 2,699.6
Excess of purchase price over net assets
acquired in Showboat acquisition.......... 521.8 - 521.8
Goodwill arising from Rio acquisition....... - - 150.0(p) 150.0
Investments in and advances to
nonconsolidated subsidiaries.............. 284.7 - 284.7
Other assets................................ 273.2 24.7 (4.3) (q) 305.1
14.1(r)
(2.6) (s)
--------- --------- ------------ ---------
$3,191.9 $ 743.2 $ 343.4 $4,278.5
--------- --------- ------------ ---------
--------- --------- ------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................... $ 39.2 $ 27.6 $ $ 66.8
Accrued expenses.......................... 203.1 36.0 (0.9) (s) 265.1
26.9(t)
Current portion of long-term debt......... 49.8 2.6 52.4
--------- --------- ------------ ---------
Total current liabilities............... 292.1 66.2 26.0 384.3
Long-term debt.............................. 1,914.0 367.7 750.0(r) 2,304.7
(735.9) (r)
8.9(u)
Deferred credits and other.................. 99.8 - 99.8
Deferred income taxes....................... 44.1 17.9 62.1(v) 124.1
--------- --------- ------------ ---------
2,350.0 451.8 111.1 2,912.9
--------- --------- ------------ ---------
Minority interests.......................... 14.5 - 14.5
--------- --------- ------------ ---------
Commitments and contingencies
Stockholders' equity........................
Common stock.............................. 10.1 0.2 2.3(w) 12.6
Capital surplus........................... 398.0 182.7 340.2(w) 920.9
Retained earnings......................... 437.3 108.5 (1.7) (s) 435.6
(108.5) (w)
Accumulated other comprehensive income.... (0.4) - (0.4)
Deferred compensation related to
restricted stock........................ (17.6) - (17.6)
--------- --------- ------------ ---------
827.4 291.4 232.3 1,351.1
--------- --------- ------------ ---------
$3,191.9 $ 743.2 $ 343.4 $4,278.5
--------- --------- ------------ ---------
--------- --------- ------------ ---------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
S-22
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
Note 1--Historical financial information for Harrah's for the nine months
ended September 30, 1998 and the year ended December 31, 1997 has been derived
from the Harrah's historical financial statements. Harrah's financial statements
for the nine month period ended September 30, 1998 include Showboat's operations
after its June 1, 1998 acquisition by Harrah's.
Note 2--The Showboat historical financial information for the year ended
December 31, 1997 has been derived from Showboat's historical financial
information. Showboat's historical financial results reflected in the Unaudited
Pro Forma Condensed Statement of Income for the Nine Months Ended September 30,
1998 include only the five months of Showboat's operations prior to its June 1,
1998 acquisition by Harrah's.
Note 3--Following are brief descriptions of the pro forma adjustments to
reflect Harrah's acquisition of Showboat.
(a) Adjusts the historical statements of income to reflect the operating
results of Showboat East Chicago as being accounted for under the equity method
(rather than consolidated) and to remove the operating results of Showboat Las
Vegas. Harrah's owns a 55% non-controlling interest in the partnership which
owns and operates Showboat East Chicago. The agreements which govern the
management of this partnership stipulate that certain actions require unanimous
approval of all partners, or the consent of the minority partner, before such
action can be taken. These actions include, among others, the approval of the
annual operating budget, approval of the annual capital budget, decisions to buy
or sell assets totaling more than $500,000 in any one calendar year and the
incurrence of more than $500,000 of debt in any one calendar year. Given the
significance of the issues requiring the concurrence of the minority partner,
Harrah's has concluded that it does not have control of the partnership for
accounting purposes and, as a result, accounts for this investment under the
equity method of accounting. Under the terms of a transaction announced in
December 1998 and expected to close in first quarter 1999, Harrah's has reached
an agreement to increase its ownership in the partnership to nearly 100%. Upon
closing of this transaction, Harrah's will have accounting control of the
partnership and will commence consolidation of the partnership. Showboat Las
Vegas is being carried by Harrah's as an asset held for sale and, as such, is
carried on Harrah's balance sheet at its estimated realizable value, net of
estimated selling expenses and carrying costs through the expected date of sale.
The net impact on income from continuing operations of the pro forma adjustments
related to Showboat East Chicago is zero. The net impact of the adjustments
related to Showboat Las Vegas is to increase income from continuing operations
by $2.1 million for the nine months ended September 30, 1998 and $3.5 million
for the year ended December 31, 1997.
(b) Reflects estimated expense for the amortization of the excess of the
purchase price paid over the net book value of the assets acquired. Harrah's is
currently in the process of allocating the purchase price among the tangible and
intangible assets acquired and the liabilities assumed based on fair market
values, as determined by appraisals, discounted cash flows, quoted market prices
and estimates made by management. The purchase price allocation process is
expected to be completed by the end of 1998. For purposes of these pro forma
statements, it is assumed that the excess purchase price will be amortized over
an average 30 year life for all tangible and intangible assets acquired. Upon
completion of the purchase price allocation process, to the extent the purchase
price exceeds the fair value of the net identifiable tangible and intangible
assets acquired, such excess will be allocated to goodwill and amortized over 40
years.
(c) Reflects adjustments for transaction costs expensed by Showboat in
pre-transaction periods and estimated administrative costs savings to be
realized as a result of merger efficiencies.
S-23
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(d) Reflects reduction in interest expense for the impact of Harrah's
retirement of $218.6 million face amount of Showboat's 9 1/4% First Mortgage
Bonds due 2008 and $117.9 million face amount of Showboat's 13% Senior
Subordinated Notes due 2009 using funds drawn under Harrah's credit facility.
See Note (f).
(e) Reflects additional interest expense, including amortization of related
deferred finance charges, arising from the incremental borrowings incurred by
Harrah's to fund the purchase of Showboat's outstanding common stock. See Note
(f).
(f) The funds required to fund the retirement of a portion of Showboat's
outstanding debt (see Note (d)) and the purchase of Showboat's outstanding
common stock (see Note (e)) were borrowed under Harrah's credit facility, and
the pro forma effects of such borrowing on interest expense have been computed
at a historical average floating rate of 6.26% for the nine months ended
September 30, 1998, and 6.29% for the year ended December 31, 1997. Each 1/8 of
a percent change in the floating rate on these borrowings would result in a
change in interest expense of $0.8 million for the nine months ended September
30, 1998, and $1.1 million for the year ended December 31, 1997.
(g) Records the estimated tax effect of the pro forma adjustments, with the
exception of the amortization of the unallocated purchase price, which is
assumed to be nondeductible for tax purposes.
Note 4--The Rio historical financial information for the nine months ended
September 30, 1998 and the year ended December 31, 1997 has been derived from
Rio's historical financial information.
Note 5--The following table sets forth the determination and preliminary
allocation of the purchase price based on a market value of $19.83 per share of
Harrah's common stock, which is the average of the quoted market price of
Harrah's common stock for the period beginning three trading days before and
ending three trading days after our merger with Rio was announced.
<TABLE>
<CAPTION>
(IN
MILLIONS)
-----------
<S> <C>
Merger exchange of shares (24.8 million shares of Rio common stock converted to
Harrah's common stock on a one for one exchange basis, and fair market value
assigned to outstanding Rio stock options to be converted to Harrah's
options)....................................................................... $ 525.4
Estimated fair market value of Rio debt assumed by Harrah's...................... 379.2
Transaction costs and expenses................................................... 26.9
-----------
Pro forma purchase price......................................................... $ 931.5
-----------
-----------
</TABLE>
The preliminary allocation of the pro forma purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Land............................................................................ $ 185.7
Building, and furniture, fixtures and equipment................................. 637.8
Goodwill........................................................................ 150.0
Other, net...................................................................... (42.0)
------------
$ 931.5
------------
------------
</TABLE>
The final purchase price and its allocation will be based on independent
appraisals, discounted cash flows, quoted market prices and estimates by
management and is expected to be completed by June 30, 1999.
S-24
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Following are brief descriptions of the pro forma adjustments to the
statements of income to reflect our merger with Rio.
(h) Adjusts depreciation expense due to the revaluation of acquired
buildings and equipment resulting from the allocation of the purchase price of
Rio. Depreciation expense is reduced $1.0 million for the nine months ended
September 30, 1998 and $1.3 million for the year ended December 31, 1997.
(i) Reflects an increase in expense due to amortization of goodwill arising
from Harrah's purchase of Rio. Amortization expense is increased $2.8 million
for the nine months ended September 30, 1998 and $3.8 million for the year ended
December 31, 1997. Goodwill is assumed to be amortized over a life of 40 years.
(j) Records the impact on expenses of certain estimated operational
efficiencies for functions which are expected to be eliminated or reduced as a
result of our merger with Rio. The elimination of duplicative corporate office
and operational support functions is estimated to reduce other costs and
expenses and corporate expense by $5.3 million for the nine months ended
September 30, 1998 and to reduce other costs and expenses and corporate expense
by $7.0 million for the year ended December 31, 1997.
(k) Reflects net increase in interest expense comprised of incremental
borrowings incurred by Harrah's to fund transaction costs, which is partially
offset by the amortization of the estimated premium to be recognized to adjust
Rio's outstanding debt to its fair value as of the date of acquisition. The pro
forma interest expense arising from the additional borrowings has been computed
using Harrah's historical average floating rate on its credit facility of 6.26%
for the nine months ended September 30, 1998, and 6.29% for the year ended
December 31, 1997. Each 1/8 percent change in the floating rate on these
borrowings would result in a change in interest expense of $25,000 for the nine
months ended September 30, 1998, and $34,000 for the year ended December 31,
1997.
(l) In connection with obtaining the consent of the lenders under our credit
facility to our merger with Rio, we agreed to modify certain terms of the credit
facility relating to mandatory principal reductions and the interest rates
charged under such facility. As amended, the credit facility provides for
Harrah's to either (i) refinance at least $250.0 million of amounts available
under the credit facility by each of December 31, 1998, March 31, 1999 and June
30, 1999 (a total of $750.0 million), or (ii) permanently increase the interest
rate margin applicable to all amounts outstanding under the credit facility by
0.50% for each $250.0 million not refinanced by such dates (a total increase of
1.50%). Proceeds from the December Notes Offering substantially satisfied our
refinancing requirements under the amended credit facility. This adjustment
reflects the estimated incremental interest expense, including amortization of
deferred finance charges, due to this refinancing.
(m) Records the estimated tax effect of these pro forma adjustments, with
the exception of the amortization of goodwill, which is assumed to be
nondeductible for tax purposes.
(n) Pro forma income from continuing operations per share is computed on the
basis of the combined weighted average number of shares of Harrah's common stock
and Harrah's common stock equivalents after giving effect to the issuance of
shares to consummate our merger with Rio.
Note 6--Following are brief descriptions of the pro forma adjustments to the
balance sheet to reflect our merger with Rio.
(o) Reflects the net increase in the carrying value of Rio's land, buildings
and equipment to adjust those assets to their estimated fair market value.
S-25
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(p) Reflects as goodwill the excess purchase price over fair value of net
tangible and intangible assets acquired and liabilities assumed.
(q) Reduces other assets to reflect deferred financing costs of Rio not
valued due to the adjustment of debt to estimated fair market value.
(r) Records the December Notes Offering, incurrence of the related deferred
finance charges and retirement of a portion of our credit facility to obtain the
consent of our lenders to our merger with Rio.
(s) Records the write-off of the unamortized deferred finance charges
related to the early retirement of a portion of our credit facility as a result
of the December Notes Offering.
(t) Records as current liabilities the accrual of severance and direct
merger costs of Harrah's and Rio.
(u) Reflects the net adjustment to long-term debt to reflect the Rio debt at
its estimated fair market value and incremental borrowings to fund payment of
additional deferred finance charges.
(v) Records the deferred tax effect of the pro forma balance sheet
adjustments, primarily related to land, buildings and equipment.
(w) The net increase in stockholders' equity reflects: (i) the issuance of
one share of Harrah's common stock for each share of Rio common stock
outstanding and (ii) the elimination of Rio's historical retained earnings.
S-26
<PAGE>
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities are subject to
extensive governmental regulation. Each of the jurisdictions in which we operate
gaming facilities requires us to hold various licenses, findings of suitability,
registrations, permits, and approvals (collectively, "Gaming Licenses"). Under
the gaming laws of Nevada, New Jersey, Mississippi, Missouri, Louisiana,
Illinois, Indiana, and other jurisdictions, and our corporate charter, holders
of our securities may be required, under certain circumstances, to dispose of
the securities. If the holder refuses to do so, we may be required to repurchase
the security.
Consequently, each holder of notes, by accepting any notes, will be deemed
to have agreed to be bound by the requirements imposed by the gaming authority
in any jurisdiction we, or any of our subsidiaries, conduct or propose to
conduct gaming activities. See "Description of the Debt Securities-- Mandatory
Disposition Pursuant to Gaming Laws," in the accompanying prospectus. In
addition, under the indenture governing the notes, each holder and beneficial
owner of notes, by accepting or otherwise acquiring an interest in any notes,
will be deemed to have agreed to apply for a license, qualification, or finding
of suitability as required by the gaming authorities in any jurisdiction in
which we, or any of our subsidiaries, conduct or propose to conduct gaming
activities. If a holder of notes fails to apply or become licensed or qualified
or is found unsuitable, we shall have the right, at our option:
- to require the holder to dispose of its notes or beneficial interest
therein within 30 days of receiving notice of our election or such earlier
date as may be requested or prescribed by a gaming authority; or
- to redeem the bonds at a redemption price equal to the lesser of (i) the
holder's cost or (ii) 100% of the principal amount thereof, plus accrued
and unpaid interest to the earlier of the redemption date and the date of
the finding of unsuitability, which may be less than 30 days following the
notice of redemption if so requested or prescribed by the gaming
authority.
We will not be responsible for any costs or expenses incurred by any such
holder or beneficial owner in connection with its application for a license,
qualification or finding of suitability. Harrah's Operating's charter also
expressly provides that debt securities issued by Harrah's Operating may be
redeemed if a holder of such securities is found unsuitable by any governmental
agency.
The Nevada Gaming Commission, the New Jersey Casino Control Commission, the
Mississippi Gaming Commission, the Missouri Gaming Commission, the Louisiana
Gaming Control Board, the Illinois Gaming Board, the Indiana Gaming Commission
and the New South Wales Casino Control Authority, may also, among other things,
limit, condition, suspend or revoke a Gaming License or approval to own the
stock or joint venture interests of any of our operations in such licensing
authority's jurisdiction, for any cause deemed reasonable by such licensing
authority. Substantial fines or forfeiture of assets for violations of gaming
laws or regulations may be levied against us, such subsidiaries and joint
ventures and the persons involved. The suspension or revocation of any of our
Gaming Licenses or the levy on us of substantial fines or forfeiture of assets
could have a material adverse effect on our business.
Under Nevada and Mississippi law, we may not make a public offering of our
securities without the prior approval of the applicable gaming commission if we
intend to use the offering proceeds to construct, acquire or finance a gaming
facility, or retire or extend existing obligations incurred for such purposes.
On November 19, 1998, the Nevada Gaming Commission granted Harrah's
Entertainment and Harrah's Operating prior approval to make offerings for a
period of two years, subject to certain conditions. The Chairman of the Nevada
State Gaming Control Board may rescind its approval for good cause without prior
notice upon the issuance of an interlocutory stop order. These prior approvals
do not constitute a finding, recommendation or approval by the Nevada Gaming
Commission or the Nevada State Gaming Control Board as to the accuracy or
adequacy of the accompanying prospectus or the prospectus supplement, or the
investment merits of the securities offered. Any representation to the contrary
is
S-27
<PAGE>
unlawful. The Company received a similar one-year waiver of approval
requirements from the Mississippi Gaming Commission on August 20, 1998.
To date, we have obtained all Gaming Licenses necessary for the operation of
our gaming activities. Gaming Licenses and related approvals, however, are
deemed to be privileges under the laws of the jurisdictions in which we conduct
gaming activities, and no assurances can be given that any new Gaming Licenses
that may be required in the future will be granted or that existing Gaming
Licenses will not be revoked or suspended.
The foregoing is only a summary of the applicable regulatory requirements.
For a more detailed description of the applicable regulatory requirements,
including requirements under gaming laws and our corporate charter, see
"Governmental Regulation" in Harrah's Entertainment's Annual Report on Form 10-K
for the year ended December 31, 1997, incorporated by reference herein.
S-28
<PAGE>
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY (REFERRED TO IN THE ACCOMPANYING PROSPECTUS AS THE "DEBT SECURITIES")
SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION
OF THE GENERAL TERMS AND PROVISIONS OF THE DEBT SECURITIES SET FORTH IN THE
ACCOMPANYING PROSPECTUS. THE FOLLOWING SUMMARY OF THE NOTES IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE INDENTURE REFERRED TO IN THE ACCOMPANYING
PROSPECTUS. CERTAIN CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED IN THE
FOLLOWING DISCUSSION ARE DEFINED BELOW UNDER "CERTAIN DEFINITIONS" OR UNDER
"DESCRIPTION OF THE DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS.
GENERAL
The notes will constitute a separate series of debt securities under the
indenture, limited to $250.0 million aggregate principal amount. The notes will
mature on January , 2009, referred to as the "Maturity Date." Harrah's
Operating will issue the notes in fully registered book-entry form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Each note
will bear interest at the rate of % from January , 1999 or from the most
recent interest payment date to which interest has been paid or provided for,
payable semiannually on January and July of each year (each, an "Interest
Payment Date"), commencing July , 1999, to the persons in whose names such
notes are registered at the close of business on the date fifteen days prior to
such Interest Payment Date.
If any Interest Payment Date, date of redemption (the "Redemption Date") or
Maturity Date of any of the notes is not a business day, then payment of
principal, premium, if any, and interest will be made on the next succeeding
business day. No interest will accrue on the amount so payable for the period
from such Interest Payment Date, Redemption Date or Maturity Date, as the case
may be, to the date payment is made. Interest on the notes will be computed on
the basis of a 360-day year of twelve 30-day months.
The notes will not be entitled to the benefit of any sinking fund.
The notes will be unsecured senior Obligations of Harrah's Operating that
will rank on a parity with all other unsecured senior Indebtedness of Harrah's
Operating from time to time outstanding.
OPTIONAL REDEMPTION
The notes are redeemable, in whole or in part, at any time, and at our
option, at a redemption price equal to the greater of:
- 100% of the principal amount of notes then outstanding, or
- the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments
of interest accrued as of the Redemption Date) discounted to the
Redemption Date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus basis
points, as calculated by an Independent Investment Banker.
plus, in either of the above cases, accrued and unpaid interest thereon to the
Redemption Date.
"Adjusted Treasury Rate" means, with respect to any Redemption Date:
- the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal Reserve
System and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption
"Treasury Constant Maturities," for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months before or
after the
S-29
<PAGE>
Remaining Life, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined and the
Adjusted Treasury Rate shall be interpolated or extrapolated from such
yields on a straight line basis, rounding to the nearest month); or
- if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the
rate per annum equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such Redemption Date.
The Adjusted Treasury Rate shall be calculated on the third business day
preceding the Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such securities ("Remaining Life").
"Comparable Treasury Price" means (1) the average of five Reference Treasury
Dealer Quotations for such Redemption Date, after excluding the highest and
lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by us.
"Reference Treasury Dealer" means:
- each of Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens
Inc., Bear, Stearns & Co. Inc., Credit Suisse First Boston Corporation,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Prudential
Securities Incorporated, and their respective successors; provided that,
if any of the foregoing ceases to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), we will substitute
another Primary Treasury Dealer; and
- any other Primary Treasury Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Independent Investment Banker, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Independent Investment Banker at 5:00 p.m., New York
City time, on the third business day preceding such Redemption Date.
We will mail a notice of redemption at least 30 days but not more than 60
days before the Redemption Date to each holder of notes to be redeemed. If we
elect to partially redeem the notes, the trustee will select in a fair and
appropriate manner the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
Redemption Date, interest will cease to accrue on the notes or portions thereof
called for redemption.
ADDITIONAL COVENANTS OF HARRAH'S OPERATING
The covenant provisions of the indenture described under the caption
"Description of the Debt Securities--Merger, Consolidation or Sale of Assets" in
the accompanying prospectus will apply to the notes. Further, the provisions of
the indenture described under the caption "Description of the Debt
Securities--Events of Default" and "--Modification and Waiver" in the
accompanying prospectus will
S-30
<PAGE>
apply to the notes. In addition to the foregoing, the following covenants of
Harrah's Operating will apply to the notes.
LIMITATION ON LIENS. Neither Harrah's Operating nor any of its Subsidiaries
may issue, assume or guarantee any Indebtedness secured by a Lien upon any
Consolidated Property or on any Indebtedness or shares of capital stock of, or
other ownership interests in, any Subsidiaries (regardless of whether the
Consolidated Property, Indebtedness, capital stock or ownership interests were
acquired before or after the date of the Indenture) without effectively
providing that the notes shall be secured equally and ratably with (or prior to)
such Indebtedness so long as such Indebtedness shall be so secured, except that
this restriction will not apply to:
(a) Liens existing on the date of original issuance of the notes;
(b) Liens affecting property of a corporation or other entity existing
at the time it becomes a Subsidiary of Harrah's Operating or at the time it
is merged into or consolidated with Harrah's Operating or a Subsidiary of
Harrah's Operating;
(c) Liens on property existing at the time of acquisition thereof or to
secure Indebtedness incurred prior to, at the time of, or within 24 months
after the acquisition for the purpose of financing all or part of the
purchase price thereof;
(d) Liens on any property to secure all or part of the cost of
improvements or construction thereon or Indebtedness incurred to provide
funds for such purpose in a principal amount not exceeding the cost of such
improvements or construction;
(e) Liens which secure Indebtedness owing by a Subsidiary of Harrah's
Operating to Harrah's Operating or to a Subsidiary of Harrah's Operating;
(f) Liens securing Indebtedness of Harrah's Operating the proceeds of
which are used substantially simultaneously with the incurrence of such
Indebtedness to retire Funded Debt;
(g) purchase money security Liens on personal property;
(h) Liens securing Indebtedness of Harrah's Operating or any of its
Subsidiaries the proceeds of which are used within 24 months of the
incurrence of such Indebtedness for the cost of the construction and
development or improvement of property of Harrah's Operating or any of its
Subsidiaries;
(i) Liens on the stock, partnership or other equity interest of Harrah's
Operating or any of its Subsidiaries in any Joint Venture or any such
Subsidiary which owns an equity interest in such Joint Venture to secure
Indebtedness, provided the amount of such Indebtedness is contributed and/or
advanced solely to such Joint Venture;
(j) certain Liens to government entities, including pollution control or
industrial revenue bond financing;
(k) Liens required by any contract or statute in order to permit
Harrah's Operating or a Subsidiary of Harrah's Operating to perform any
contract or subcontract made by it with or at the request of a governmental
entity;
(l) mechanic's, materialman's, carrier's or other like Liens, arising in
the ordinary course of business;
(m) certain Liens for taxes or assessments and similar charges;
(n) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property and certain other minor
irregularities of title; and
S-31
<PAGE>
(o) any extension, renewal, replacement or refinancing of any
Indebtedness secured by a Lien permitted by any of the foregoing clauses (a)
through (j).
Notwithstanding the foregoing, Harrah's Operating and any one or more of its
Subsidiaries may, without securing the notes, issue, assume or guarantee
Indebtedness which would otherwise be subject to the foregoing restrictions in
an aggregate principal amount which, together with all other such Indebtedness
of Harrah's Operating and its Subsidiaries which would otherwise be subject to
the foregoing restrictions (not including Indebtedness permitted by the
preceding paragraph) and the aggregate Value of Sale and Lease-Back Transactions
(other than those in connection with which Harrah's Operating has voluntarily
retired Funded Debt) does not at any one time exceed 15% of Consolidated Net
Tangible Assets of Harrah's Operating and its consolidated Subsidiaries.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. Neither Harrah's Operating
nor any of its Subsidiaries will enter into any Sale and Lease-Back Transaction
unless either (a) Harrah's Operating or such Subsidiary would be entitled,
pursuant to the above provisions, to incur Indebtedness in a principal amount
equal to or exceeding the Value of such Sale and Lease-Back Transaction, secured
by a Lien on the property to be leased, without equally and ratably securing the
notes or (b) Harrah's Operating within 120 days after the effective date of such
Sale and Lease-Back Transaction applies to the voluntary retirement of its
Funded Debt an amount equal to the Value of the Sale and Lease-Back Transaction
(subject to credits for certain voluntary retirements of Funded Debt).
The defeasance and covenant defeasance provisions of the indenture described
under the caption "Description of the Debt Securities--Defeasance of Debt
Securities and Certain Covenants in Certain Circumstances" in the accompanying
prospectus will apply to the notes.
GUARANTEE OF NOTES
Harrah's Entertainment will irrevocably and unconditionally guarantee, on an
unsecured senior basis, the payment of all obligations of Harrah's Operating
under the notes. If Harrah's Operating defaults in the payment of the principal
of, premium, if any, or interest on such notes when and as the same shall become
due, whether upon maturity, acceleration, call for redemption or otherwise,
without the necessity of action by the trustee or any holder of such notes,
Harrah's Entertainment shall be required promptly and fully to make such
payment. The indenture provides for the release of Harrah's Entertainment as
guarantor of the notes in certain circumstances discussed under the caption
"Description of the Debt Securities--Guarantee of the Debt Securities" in the
accompanying prospectus.
Harrah's Entertainment conducts substantially all of its business through
Harrah's Operating and its subsidiaries and does not own any material assets
other than the common stock of Harrah's Operating. As such, Harrah's
Entertainment is dependent on the receipt of dividends or other payments from
Harrah's Operating to make payments on the guarantee of the notes. Our credit
facility imposes significant restrictions on Harrah's Operating's ability to pay
dividends to Harrah's Entertainment.
CERTAIN DEFINITIONS
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"Consolidated Property" means any property of Harrah's Operating or any of
its Subsidiaries.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
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<PAGE>
"Funded Debt" means all Indebtedness of Harrah's Operating which (i) matures
by its terms on, or is renewable at the option of any obligor thereon to, a date
more than one year after the date of original issuance of such Indebtedness and
(ii) ranks at least pari passu with the notes.
"Indebtedness" of any person means (a) any indebtedness of such person,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof), or evidenced by notes, bonds, debentures or similar
instruments or letters of credit, or representing the balance deferred and
unpaid of the purchase price of any property, including any such indebtedness
incurred in connection with the acquisition by such person or any of its
Subsidiaries of any other business or entity, if and to the extent such
indebtedness would appear as a liability upon a balance sheet of such person
prepared in accordance with generally accepted accounting principles, including
for such purpose obligations under capitalized leases, and (b) any guarantee,
endorsement (other than for collection or deposit in the ordinary course of
business), discount with recourse, agreement (contingent or otherwise) to
purchase, repurchase or otherwise acquire or to supply or advance funds with
respect to, or to become liable with respect to (directly or indirectly) any
indebtedness, obligation, liability or dividend of any person, but shall not
include indebtedness or amounts owed for compensation to employees, or for goods
or materials purchased, or services utilized, in the ordinary course of business
of such person. Notwithstanding anything to the contrary in the foregoing,
"Indebtedness" shall not include (i) any contracts providing for the completion
of construction or other payment or performance with respect to the
construction, maintenance or improvement of, or payment of taxes, revenue share
payments or other fees to governmental entities with respect to, property or
equipment of Harrah's Operating or its Affiliates or (ii) any contracts
providing for the obligation to advance funds, property or services on behalf of
an Affiliate of Harrah's Operating in order to maintain the financial condition
of such Affiliate. For purposes of this definition of Indebtedness, a
"capitalized lease" shall be deemed to mean a lease of real or personal property
which, in accordance with generally accepted accounting principles, is required
to be capitalized, and an Affiliate shall be deemed to include Jazz Holding
Company, a Delaware corporation in which Harrah's Operating indirectly owns a
minority interest, and each of its Affiliates.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Joint Venture" means any partnership, corporation or other entity, in which
up to and including 50% of the partnership interests, outstanding voting stock
or other equity interests is owned, directly or indirectly, by Harrah's
Operating and/or one or more of its Subsidiaries.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit,
arrangement, encumbrance, security interest, lien (statutory or otherwise), or
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Obligations" means any principal, interest, premium, if any, penalties,
fees, indemnifications, reimbursements, damages or other liabilities or amounts
payable under the documentation governing or otherwise in respect of any
Indebtedness.
"Sale and Lease-Back Transaction" means any arrangement with a person (other
than Harrah's Operating or any of its Subsidiaries), or to which any such person
is a party, providing for the leasing to Harrah's Operating or any of its
Subsidiaries for a period of more than three years of any Consolidated Property
which has been or is to be sold or transferred by Harrah's Operating or any of
its Subsidiaries to such person or to any other person (other than Harrah's
Operating of any of its Subsidiaries), to which funds have been or are to be
advanced by such person on the security of the leased property.
S-33
<PAGE>
"Stated Maturity" means, when used with respect to any security or any
installment of principal thereof or interest thereon, the date specified in such
security as the fixed date on which the principal of such security or such
installment of principal or interest is due and payable.
"Subsidiary" of any specified person means any corporation of which at least
a majority of the outstanding stock having by the terms thereof ordinary voting
power for the election of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned by such person, or by one or more
other Subsidiaries, or by such person and one or more other Subsidiaries.
"Value" means, with respect to a Sale and Lease-Back Transaction, as of any
particular time, the amount equal to the greater of (i) the net proceeds of the
sale or transfer of property leased pursuant to such Sale and Lease-Back
Transaction or (ii) the fair value, in the opinion of Harrah's Operating's Board
of Directors as evidenced by a board resolution, of such property at the time of
entering into such Sale and Lease-Back Transaction.
BOOK-ENTRY SYSTEM, FORM AND DELIVERY
The notes will be represented by one or more global securities registered in
the name of Cede & Co., the nominee of the Depository Trust Company, as
"Depositary," and the provisions set forth under "Description of the Debt
Securities--Transfer and Exchange" in the accompanying prospectus will apply to
the notes.
The Depositary is a limited-purpose trust company organized under New York
banking law, a "banking organization" within the meaning of New York banking
law, a member of the United States Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. The Depositary holds securities
that its participants deposit with the Depositary. The Depositary also
facilitates the settlement among its participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned by a
number of its direct participants and by The New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary's system is also available to indirect
participants in the Depositary such as securities brokers and dealers, banks and
trust companies that clear through, or maintain a custodial relationship with, a
direct participant, either directly or indirectly. The rules applicable to the
Depositary and its participants are on file with the Securities and Exchange
Commission.
Purchases of the notes under the Depositary's system must be made by or
through direct participants, which will receive a credit for the notes on the
Depositary's records. The beneficial ownership interest of each actual purchaser
of each note is in turn to be recorded on the direct and indirect participants'
respective records. Beneficial owners will not receive written confirmation from
the Depositary of their purchase, but beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interest in the notes are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interest in notes except in
the event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited with the Depositary
by participants in the Depositary will be registered in the name of Cede & Co.
The deposit of the notes with the Depositary and their registration in the name
of Cede & Co. effect no change in beneficial ownership. The Depositary has
S-34
<PAGE>
no knowledge of the actual beneficial owners of the notes; the Depositary's
records reflect only the identity of the direct participants to whose accounts
such notes are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the Depositary to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the notes. Under its usual procedures, the Depositary mails an omnibus proxy to
Harrah's Operating as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the notes are credited on the record date (identified in a
listing attached to the omnibus proxy).
Payments of principal, interest and premium, if any, on the notes will be
made to Cede & Co. The Depositary's practice is to credit direct participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payment on such payment date. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities for the accounts of
customers in bearer form or registered in "street-name," and will be the
responsibility of each participant and not of the Depositary, the underwriters,
or Harrah's Operating, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, interest and premium,
if any, to Cede & Co. is the responsibility of Harrah's Operating or the
respective trustees. Disbursement of such payments to direct participants is the
responsibility of the Depositary, and disbursement of such payments to the
beneficial owners of the notes is the responsibility of direct and indirect
participants in the Depositary.
The Depositary may discontinue providing its services as securities
depository with respect to the notes at any time by giving reasonable notice to
Harrah's Operating. Under such circumstances and in the event that a successor
securities depository is not obtained, certificates for the notes are required
to be printed and delivered. In addition, Harrah's Operating may decide to
discontinue use of the system of book-entry transfers through the Depositary (or
a successor securities depository). In that event, certificates will be printed
and delivered.
Harrah's Operating will not have any responsibility or obligation to
participants in the Depositary or the persons for whom they act as nominees with
respect to the accuracy of the records of the Depositary, its nominee or any
direct or indirect participant with respect to any ownership interest in the
notes, or with respect to payments to or providing of notice for the direct
participants, the indirect participants or the beneficial owners of the notes.
The information contained herein under the caption "Description of
Notes--Book-Entry System, Form and Delivery" concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Harrah's
Operating believes to be reliable. Neither Harrah's Operating, the trustee nor
the underwriters, dealers or agents take responsibility for the accuracy or
completeness thereof.
THE TRUSTEE
The trustee under the indenture is IBJ Whitehall Bank & Trust Company.
S-35
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement, dated January , 1999 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters") have severally agreed to purchase,
and we have agreed to sell to them, severally, the respective principal amount
of the notes set forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated..................................................... $
BancBoston Robertson Stephens Inc.....................................................
Bear, Stearns & Co. Inc...............................................................
Credit Suisse First Boston Corporation................................................
Donaldson, Lufkin & Jenrette Securities Corporation...................................
Lehman Brothers Inc...................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................................
Prudential Securities Incorporated....................................................
----------------
Total............................................................................. $ 250,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the notes is subject to, among
other things, the approval of certain legal matters by their counsel and certain
other conditions. The Underwriters are obligated to take and pay for all of the
notes if any are taken.
The Underwriters initially propose to offer part of the notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
% of the principal amount of the notes. Any Underwriter may allow, and any
such dealers may reallow, a concession to certain other dealers not to exceed
% of the principal amount of the notes. After the initial offering of the
notes, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The total price to the public for the offering of the notes will be $
million, the total underwriters' discounts and commissions will be $ million,
and the total proceeds to the Company (after deducting the estimated offering
expenses of $ million) will be $ million.
Harrah's Operating and Harrah's Entertainment have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
We do not intend to apply for listing of the notes on a national securities
exchange, but have been advised by the Underwriters that they intend to make a
market in the notes. The Underwriters are not obligated, however, to do so and
may discontinue their market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the notes.
In order to facilitate the offering of the notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the prices
of the notes. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the notes for their own account. In
addition, to cover overallotments or to stabilize the price of the notes, the
Underwriters may bid for, and purchase, the notes in the open market. Finally,
the Underwriters may reclaim selling concessions allowed to an Underwriter or a
dealer for distributing the notes in the offering, if they repurchase previously
distributed notes in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price for the notes above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
S-36
<PAGE>
Certain of the Underwriters and their respective affiliates have, from time
to time, performed various investment or commercial banking and financial
advisory services for Harrah's Entertainment and Harrah's Operating in the
ordinary course of business.
LEGAL MATTERS
Latham & Watkins of Los Angeles, California, and E. O. Robinson, Jr., our
Senior Vice President and General Counsel, will issue opinions about certain
legal matters with respect to the notes for Harrah's. Gibson, Dunn & Crutcher
LLP of San Francisco, California, will issue an opinion about certain legal
matters with respect to the notes for the Underwriters.
EXPERTS
The audited financial statements of Harrah's Entertainment appearing in
Harrah's Entertainment's Annual Report on Form 10-K for the year ended December
31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of such firm as
experts in giving said reports.
The audited financial statements of Rio appearing in Rio's Annual Report on
Form 10-K for the year ended December 31, 1997 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of such firm as experts in giving said reports.
The consolidated financial statements of Showboat, Inc. and subsidiaries as
of December 31, 1997, and for each of the years in the three-year period ended
December 31, 1997, appearing in the Showboat, Inc. Form 10-K for the year ended
December 31, 1997, incorporated herein by reference, has been incorporated
herein by reference in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
S-37
<PAGE>
HARRAH'S OPERATING COMPANY, INC.
DEBT SECURITIES
PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM, IF ANY, GUARANTEED BY
HARRAH'S ENTERTAINMENT, INC.
Harrah's Operating Company, Inc. may from time to time sell up to
$750,000,000 aggregate initial offering price of debt securities, consisting of
debentures, notes or other types of debt. Harrah's Entertainment, Inc. will
guarantee the payment of all obligations of Harrah's Operating Company, Inc.
under any of these debt securities. Harrah's Operating and Harrah's
Entertainment will provide specific terms of the debt securities and related
guarantees in supplements to this prospectus. You should read this prospectus
and any supplement carefully before you invest.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION, STATE SECURITIES REGULATORS AND
GAMING REGULATORY AUTHORITIES HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES,
OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this prospectus is December 31, 1998
<PAGE>
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE
DATE ON THE FRONT OF THOSE DOCUMENTS REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT OR A SALE OF THE DEBT
SECURITIES. YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT. WE HAVE
NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE
OFFERING THE DEBT SECURITIES AND SEEKING OFFERS TO BUY THE DEBT SECURITIES ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
About This Prospectus.................................................................. 2
Where You Can Find More Information.................................................... 3
Disclosure Regarding Forward-Looking Statements........................................ 4
The Company............................................................................ 4
Ratio of Earnings to Fixed Charges..................................................... 4
Use of Proceeds........................................................................ 5
Description of the Debt Securities..................................................... 5
Plan of Distribution................................................................... 15
Legal Matters.......................................................................... 16
Experts................................................................................ 16
</TABLE>
ABOUT THIS PROSPECTUS
IN THIS PROSPECTUS, THE WORDS "COMPANY," "HARRAH'S," "WE," "OUR," "OURS,"
AND "US" REFER TO HARRAH'S ENTERTAINMENT, INC., A DELAWARE CORPORATION
("HARRAH'S ENTERTAINMENT"), AND ITS WHOLLY OWNED SUBSIDIARY, HARRAH'S OPERATING
COMPANY, INC., A DELAWARE CORPORATION ("HARRAH'S OPERATING"), UNLESS OTHERWISE
STATED OR THE CONTEXT OTHERWISE REQUIRES.
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission (the "Commission") utilizing a "shelf"
registration process. Under this shelf registration process, we may sell any
combination of the debt securities (and related guarantees) described in this
prospectus in one or more offerings up to a total dollar amount of $750,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the next heading
"Where You Can Find More Information."
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the Commission's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330
(1-800-732-0330) for further information on the public reference rooms. You can
also obtain copies of these materials from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission (http://www.sec.gov). You also may read and
copy reports and other information we file at the office of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement and related exhibits with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
The registration statement contains additional information about us and the debt
securities. You may inspect the registration statement and its exhibits without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and you may obtain copies from the Commission at prescribed rates.
The Commission allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"):
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998;
- Proxy Statement on Schedule 14A dated October 15, 1998; and
- Current Reports on Form 8-K dated June 1, 1998, August 9, 1998, September
4, 1998, October 21, 1998 and December 4, 1998 and on Form 8-K/A dated
June 1, 1998.
You may request a free copy of these filings by writing or telephoning us at
the following address:
Attention: Corporate Secretary
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
(901) 762-8600
3
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Although we believe
that our plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we can give no assurance that such
plans, intentions or expectations will be achieved. These forward-looking
statements are subject to risks, uncertainties and assumptions about us,
including those discussed elsewhere in the documents that are incorporated by
reference into this prospectus and the following, any of which could affect our
future results and could cause results to differ materially from those expressed
in such forward-looking statements:
- the effect of economic, credit and capital market conditions;
- our construction and development activities;
- the ability of Harrah's and Rio Hotel & Casino, Inc. to complete their
merger and successfully integrate their operations;
- the impact of competition;
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies; and
- changes in customer demand.
THE COMPANY
We are one of the leading casino entertainment companies in the United
States, operating in more markets than any other casino company and offering a
Harrah's casino experience within a three-hour drive of one-third of the U.S.
population. Our U.S. operations currently include eight land-based casinos,
seven riverboat or dockside casinos, and three casinos on Indian reservations.
We also own a partial interest in and manage a land-based casino in Sydney,
Australia and own a non-controlling interest in and will manage the only
land-based casino in New Orleans, Louisiana upon its anticipated completion in
late October 1999. In addition, completion of our pending merger with Rio Hotel
& Casino, Inc. (expected to close on January 1, 1999) will add a profitable,
premier Las Vegas destination resort with a unique level of service, strong
brand name, and distinct customer base to our existing national distribution of
casino offerings. Harrah's Entertainment is a holding company, the principal
asset of which is the capital stock of Harrah's Operating. Harrah's Operating
directly owns certain of the assets and directly and indirectly owns the stock
of certain subsidiaries which operate our business.
Our principal executive offices are located at 1023 Cherry Road, Memphis,
Tennessee 38117, and our telephone number is (901) 762-8600.
RATIO OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed charges for the periods
indicated were as follows (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------------
SEPTEMBER 30, 1998 1997 1996 1995 1994 1993
- ----------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2.8x 2.8x 2.8x 1.3x 2.0x 2.6x
</TABLE>
For purposes of computing this ratio, "earnings" consist of:
- income before income taxes, plus
- fixed charges (excluding capitalized interest) and
4
<PAGE>
- minority interests (relating to subsidiaries whose fixed charges are
included in the computation), less
- equity in undistributed earnings of less than 50% owned investments.
"Fixed charges" include:
- interest (whether expensed or capitalized),
- amortization of debt expense,
- discount or premium related to indebtedness, and
- the portion of rental expense that we deem to be representative of
interest.
As required by the rules which govern the computation of this ratio, both
earnings and fixed charges are adjusted where appropriate to include the
financial results for the Company's nonconsolidated majority-owned subsidiaries.
Accordingly, the 1994 and 1995 periods have been adjusted to include the
financial results and fixed charges of Harrah's Jazz Company. For the nine
months ended September 30, 1998, the computation of the ratio has been adjusted
to include the financial results and fixed charges of Showboat Marina Casino
Partnership.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of any series of the debt
securities for general corporate purposes or other purposes specified in the
applicable prospectus supplement. Such general corporate purposes may include
acquisitions, capital expenditures and working capital requirements, as well as
the repayment, redemption or repurchase of outstanding indebtedness. We will
describe in the prospectus supplement any indebtedness we intend to refinance
with the net proceeds received from the sale of any series of debt securities.
DESCRIPTION OF THE DEBT SECURITIES
This prospectus describes the general terms and provisions of our debt
securities. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a supplement to this
prospectus. We also will indicate in the supplement whether the general terms
and provisions described in this prospectus apply to a particular series of debt
securities.
The debt securities will be issued under an indenture between Harrah's
Operating, as obligor, Harrah's Entertainment, as guarantor, and IBJ Whitehall
Bank & Trust Company, as trustee. We have summarized select portions of the
indenture below. The summary is not complete. The indenture is attached as an
exhibit to the registration statement and is incorporated by reference into this
prospectus. You should read the indenture for provisions that may be important
to you. The indenture is subject to and also includes terms incorporated from
the Trust Indenture Act of 1939, as amended. Capitalized terms used and not
otherwise defined in this summary have the meaning specified in the indenture.
GENERAL
The terms of each series of debt securities will be established from time to
time by or pursuant to a resolution of the Board of Directors of Harrah's
Operating or by a supplemental indenture. The particular terms of each series of
debt securities will be described in a prospectus supplement relating to such
series (including any pricing supplement). Unless otherwise provided in a
supplemental indenture, Harrah's Operating will be able to issue additional debt
securities of a particular series from time to time without obtaining the
consent of holders of previously issued debt securities of the same series.
5
<PAGE>
There may be more than one trustee with respect to one or more series of
debt securities. Any trustee under the indenture may resign or be removed with
respect to one or more series of debt securities, and a successor trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as trustees with respect to different series of debt
securities, each such trustee shall be a trustee of a trust under the indenture
separate and apart from the trust administered by any other trustee thereunder,
and, except as otherwise indicated herein, any action described herein to be
taken by the trustee may be taken by each such trustee with respect to, and only
with respect to, the one or more series of debt securities for which it is
trustee under the indenture.
Harrah's Operating can issue an unlimited amount of debt securities under
the indenture that may be in one or more series with the same or various
maturities, at par, at a premium, or at a discount. We will set forth in a
prospectus supplement (including any pricing supplement) relating to any series
of debt securities being offered, the aggregate principal amount and the
following terms of the debt securities:
- the title of the debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the price or prices (expressed as a percentage of the aggregate principal
amount) at which we will sell the debt securities;
- the date or dates on which Harrah's Operating will pay the principal on
the debt securities (or the method by which such date or dates will be
determined);
- the rate or rates (which may be fixed or variable) per annum or the method
used to determine the rate or rates (including any commodity, commodity
index, stock exchange index or financial index) at which the debt
securities will bear interest, the date or dates from which the interest
will accrue, and the circumstances, if any, in which Harrah's Operating
may defer interest payments, the dates on which the interest shall be
payable and the record date for the interest payable on any interest
payment date;
- the place or places where principal, premium and interest on the debt
securities will be payable (or the method of such payment) and the debt
securities may be surrendered for transfer or exchange;
- any obligation of Harrah's Operating to redeem or purchase the debt
securities pursuant to any sinking fund or analogous provisions or at the
option of a holder of debt securities;
- the terms and conditions upon which Harrah's Operating may redeem the debt
securities;
- the denominations in which the debt securities will be issued, if other
than denominations of $1,000 and any integral multiple thereof;
- whether the debt securities will be issued at a discount;
- the portion of principal amount of the debt securities payable upon
declaration of acceleration of the maturity date, if other than the
principal amount;
- any provisions for the defeasance or discharge of certain obligations with
respect to the debt securities, which may add to, substitute for or modify
(or any combination of the foregoing) the provisions of the indenture;
- whether the debt securities will be in registered or bearer form;
- the designation of the currency, currencies or currency units in which
payments of principal, premium and interest on the debt securities will be
made;
- the currency of denomination of the debt securities;
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- if payments of principal, premium or interest on the debt securities will
be made in one or more currencies or currency units other than that or
those in which the debt securities are denominated, the manner in which
the exchange rate with respect to these payments will be determined;
- the manner in which the amounts of payment of principal, premium or
interest on the debt securities will be determined, if these amounts may
be determined by reference to an index based on a currency or currencies
other than that in which the debt securities are denominated or designated
to be payable or by reference to a commodity, commodity index, stock
exchange index or financial index;
- any addition to or change in the Events of Default described in this
prospectus or in the indenture with respect to the debt securities and any
change in the acceleration provisions described in this prospectus or in
the indenture with respect to the debt securities;
- any depositaries, interest rate calculation agents, exchange rate
calculation agents or other agents with respect to the debt securities;
- whether the debt securities will be issued in the form of certificated
debt securities or global debt securities and whether such global debt
securities will be issuable in temporary or permanent global form;
- any terms on which the debt securities (and related guarantees) will be
subordinate to other debt of Harrah's Operating or Harrah's Entertainment,
as the case may be;
- any provisions relating to any security provided for the debt securities;
- any listing of the debt securities on a securities exchange;
- any addition to or change in the covenants described in this prospectus or
in the indenture with respect to the debt securities; and
- any other terms of the debt securities, which may modify or delete any
provision of the indenture as it applies to that series.
Harrah's Operating may issue debt securities that provide for an amount less
than their stated principal amount to be due and payable upon declaration of
acceleration of their maturity pursuant to the terms of the indenture. We will
provide you with information on the federal income tax considerations and other
special considerations applicable to any of these debt securities in the
applicable prospectus supplement.
If we denominate the purchase price of any of the debt securities in a
foreign currency or currencies or a foreign currency unit or units, or if the
principal of and any premium and interest on any series of debt securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
we will provide you with information on the restrictions, elections, general tax
considerations, specific terms and other information with respect to that issue
of debt securities and such foreign currency or currencies or foreign currency
unit or units in the applicable prospectus supplement. In addition, special
United States federal tax considerations or other restrictions or terms
applicable to any debt securities issuable in bearer form or offered exclusively
to foreigners will be set forth in the applicable prospectus supplement.
GUARANTEE OF THE DEBT SECURITIES
Harrah's Entertainment irrevocably and unconditionally will guarantee the
payment of all obligations of Harrah's Operating under the debt securities. If
Harrah's Operating defaults in the payment of the principal of, premium, if any,
or interest on the debt securities when and as the same shall become due,
whether upon maturity, acceleration, call for redemption or otherwise, without
the necessity of
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action by the trustee or any holder of the debt securities, Harrah's
Entertainment shall be required promptly and fully to make such payment. The
indenture releases Harrah's Entertainment as guarantor of the debt securities in
certain circumstances, including circumstances in which:
- Harrah's Operating ceases to be a wholly owned subsidiary of Harrah's
Entertainment, or
- Harrah's Operating transfers all or substantially all of its assets to, or
merges with, another entity in a transaction governed by the "Merger,
Consolidation or Sale of Assets" covenant in the indenture, and (x) such
transferee entity assumes Harrah's Operating's obligations under the
indenture and (y) such transfer or merger otherwise complies with the
requirements of such covenant.
Harrah's Entertainment conducts substantially all of its business through
Harrah's Operating and subsidiaries of Harrah's Operating and does not own any
material assets other than all of the capital stock of Harrah's Operating. As
such, Harrah's Entertainment is dependent on the receipt of dividends or other
payments from Harrah's Operating to make payments on the guarantee of the debt
securities. Harrah's Entertainment's obligations under the guarantee with
respect to any particular series of debt securities are as a secondary obligor,
and such obligations will be subordinated to all present and future senior
indebtedness of Harrah's Entertainment on the same basis as debt securities of
that series are subordinated to senior indebtedness of Harrah's Operating.
TRANSFER AND EXCHANGE
Each debt security will be represented by one or more global securities
registered in the name of The Depository Trust Company, as Depositary (the
"Depositary"), or a nominee (we will refer to any debt security represented by a
global debt security as a "book-entry debt security"), or a certificate issued
in definitive registered form (we will refer to any debt security represented by
a certificated security as a "certificated debt security") as set forth in the
applicable prospectus supplement. Except as set forth under the heading "Global
Debt Securities and Book-Entry System" below, book-entry debt securities will
not be issuable in certificated form.
CERTIFICATED DEBT SECURITIES. You may transfer or exchange certificated
debt securities at any office we maintain for this purpose in accordance with
the terms of the indenture. No service charge will be made for any transfer or
exchange of certificated debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
with a transfer or exchange.
You may effect the transfer of certificated debt securities and the right to
receive the principal of, premium and interest on certificated debt securities
only by surrendering the certificate representing those certificated debt
securities and either reissuance by Harrah's Operating or the trustee of the
certificate to the new holder or the issuance by Harrah's Operating or the
trustee of a new certificate to the new holder.
GLOBAL DEBT SECURITIES AND BOOK-ENTRY SYSTEM. Each global debt security
representing book-entry debt securities will be deposited with, or on behalf of,
the Depositary, and registered in the name of the Depositary or a nominee of the
Depositary.
The Depositary has indicated it intends to follow the following procedures
with respect to book-entry debt securities.
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Ownership of beneficial interests in book-entry debt securities will be
limited to persons that have accounts with the Depositary for the related global
debt security ("participants") or persons that may hold interests through
participants. Upon the issuance of a global debt security, the Depositary will
credit, on its book-entry registration and transfer system, the participants'
accounts with the respective principal amounts of the book-entry debt securities
represented by such global debt security beneficially owned by such
participants. The accounts to be credited will be designated by any dealers,
underwriters or agents participating in the distribution of the book-entry debt
securities. Ownership of book-entry debt securities will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by the Depositary for the related global debt security (with respect
to interests of participants) and on the records of participants (with respect
to interests of persons holding through participants). The laws of some states
may require that certain purchasers of securities take physical delivery of such
securities in definitive form. These laws may impair the ability to own,
transfer or pledge beneficial interests in book-entry debt securities.
So long as the Depositary for a global debt security, or its nominee, is the
registered owner of that global debt security, the Depositary or its nominee, as
the case may be, will be considered the sole owner or holder of the book-entry
debt securities represented by such global debt security for all purposes under
the indenture. Except as described below, beneficial owners of book-entry debt
securities will not be entitled to have securities registered in their names,
will not receive or be entitled to receive physical delivery of a certificate in
definitive form representing securities and will not be considered the owners or
holders of those securities under the indenture. Accordingly, each person
beneficially owning book-entry debt securities must rely on the procedures of
the Depositary for the related global debt security and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder under the indenture.
We understand, however, that under existing industry practice, the
Depositary will authorize the persons on whose behalf it holds a global debt
security to exercise certain rights of holders of debt securities, and the
indenture provides that Harrah's Operating, the trustee and our respective
agents will treat as the holder of a debt security the persons specified in a
written statement of the Depositary with respect to that global debt security
for purposes of obtaining any consents or directions required to be given by
holders of the debt securities pursuant to the indenture.
Harrah's Operating will make payments of principal of, and premium and
interest on book-entry debt securities to the Depositary or its nominee, as the
case may be, as the registered holder of the related global debt security. None
of Harrah's Operating, Harrah's Entertainment, the trustee or any other agent of
ours or agent of the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in a global debt security or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests.
We expect that the Depositary, upon receipt of any payment of principal of,
premium or interest on a global debt security, will immediately credit
participants' accounts with payments in amounts proportionate to the respective
amounts of book-entry debt securities held by each participant as shown on the
records of such Depositary. We also expect that payments by participants to
owners of beneficial interests in book-entry debt securities held through those
participants will be governed by standing customer instructions and customary
practices, as is now the case with the securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of those participants.
Harrah's Operating will issue certificated debt securities in exchange for
each global debt security if the Depositary is at any time unwilling or unable
to continue as Depositary or ceases to be a clearing agency registered under the
Exchange Act, and a successor Depositary registered as a clearing agency under
the Exchange Act is not appointed by us within 90 days. In addition, Harrah's
Operating may at any time and in its sole discretion determine not to have the
book-entry debt securities of any series
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represented by one or more global debt securities and, in that event, will issue
certificated debt securities in exchange for the global debt securities of that
series. Global debt securities will also be exchangeable by the holders for
certificated debt securities if an Event of Default with respect to the
book-entry debt securities represented by those global debt securities has
occurred and is continuing. Any certificated debt securities issued in exchange
for a global debt security will be registered in such name or names as the
Depositary shall instruct the trustee. We expect that such instructions will be
based upon directions received by the Depositary from participants with respect
to ownership of book-entry debt securities relating to such global debt
security.
We have obtained the foregoing information concerning the Depositary and the
Depositary's book-entry system from sources we believe to be reliable, but we
take no responsibility for the accuracy of this information.
NO PROTECTION IN THE EVENT OF A CHANGE OF CONTROL
Unless we state otherwise in the applicable prospectus supplement, the debt
securities will not contain any provisions which may afford holders of the debt
securities protection in the event either Harrah's Operating or Harrah's
Entertainment has a change of control or in the event of a highly leveraged
transaction (whether or not such transaction results in a change in control)
which could adversely affect holders of debt securities.
COVENANTS
We will set forth in the applicable prospectus supplement any restrictive
covenants applicable to any issue of debt securities.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither Harrah's Operating nor Harrah's Entertainment may consolidate with
or merge with or into, or convey, transfer or lease all or substantially all of
its properties and assets to another corporation, person or entity unless:
- (i) in the case of a merger or consolidation, Harrah's Operating or
Harrah's Entertainment, as the case may be, is the surviving person, or
(ii) the successor or transferee is a corporation organized under the laws
of any U.S. domestic jurisdiction and expressly assumes, by supplemental
indenture, our obligations under the debt securities and the indenture;
and
- immediately after giving effect to the transaction, no default or Event of
Default shall exist under the indenture.
EVENTS OF DEFAULT
"Event of Default" means with respect to any series of debt securities, any
of the following:
- failure to pay principal of any debt security of that series when due and
payable at maturity, upon redemption or otherwise or failure to deposit a
sinking fund payment when and as due in respect of any debt security of
that series;
- failure to pay any interest on any debt security of that series when due,
and such default continues for 30 days;
- default in the performance or breach of any other covenant or warranty of
Harrah's Operating or Harrah's Entertainment in the indenture (other than
a covenant or warranty that has been included in the indenture solely for
the benefit of a series of debt securities other than that series), which
default continues uncured for a period of 60 days after Harrah's Operating
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receives written notice from the trustee or Harrah's Operating and the
trustee receive written notice from the holders of at least 25% in
principal amount of the outstanding debt securities of that series as
provided in the indenture;
- certain events of bankruptcy, insolvency or reorganization;
- the acceleration of the maturity of any indebtedness of Harrah's Operating
(other than Non-recourse Indebtedness), at any one time, in an amount in
excess of the greater of (i) $25 million and (ii) 5% of the Consolidated
Net Tangible Assets, if such acceleration is not annulled within 30 days
after Harrah's Operating receives written notice from the trustee and the
holders of at least 25% in principal amount of the outstanding debt
securities of the affected series; and
- any other Event of Default provided with respect to debt securities of the
series that is described in the applicable prospectus supplement.
"Non-recourse Indebtedness" means indebtedness with terms providing that the
lender's claim for repayment of that indebtedness is limited solely to a claim
against the property that secures the indebtedness.
"Consolidated Net Tangible Assets" means the total amount of assets
(including investments in joint ventures) of Harrah's Operating and its
subsidiaries (less applicable depreciation, amortization and other valuation
reserves) after deducting therefrom:
- all of Harrah's Operating's and its subsidiaries' current liabilities
(excluding (i) the current portion of long-term indebtedness, (ii)
intercompany liabilities and (iii) any liabilities which are by their
terms renewable or extendable at the option of the obligor to a time more
than 12 months from the time as of which the amount thereof is being
computed); and
- all goodwill, trade names, trademarks, patents, unamortized debt discount
and any other like intangibles, all as set forth on the consolidated
balance sheet of Harrah's Operating for the most recently completed fiscal
quarter for which financial statements are available and computed in
accordance with generally accepted accounting principles.
If an Event of Default with respect to debt securities of any series (other
than an Event or Default relating to certain events of bankruptcy, insolvency or
reorganization) occurs and is continuing, either the trustee or the holders of
at least 25% in principal amount of the outstanding debt securities of that
series may, by a notice as provided in the indenture, declare the unpaid
principal amount (or, if the debt securities of that series are discount
securities, such lesser amount as may be specified in the terms of that series)
of, and any accrued and unpaid interest on, all debt securities of that series
to be due and payable immediately. However, at any time after a declaration of
acceleration with respect to debt securities of any series has been made, but
before the trustee obtains a judgment or decree based on that acceleration, the
holders of a majority in principal amount of the outstanding debt securities of
that series may, under certain circumstances, rescind and annul that
acceleration. For information regarding waiver of defaults, see "Modification
and Waiver" below.
The indenture will provide that, subject to the trustee's duty to act with
the required standard of care during an Event of Default, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any of the holders, unless such holders offer the trustee
reasonable security or indemnity. Subject to certain provisions of the
indenture, including those entitling the trustee to receive security and
indemnification, the holders of a majority in principal amount of the
outstanding debt securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee with
respect to the debt securities of that series.
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The indenture requires that we furnish annually to the trustee a statement
as to our performance of our obligations under the indenture and as to any
default in such performance.
MODIFICATION AND WAIVER
We generally may amend the indenture or the debt securities with the written
consent of the holders of a majority in principal amount of the outstanding debt
securities of each series affected by the amendment, with each series voting as
a separate class. The holders of a majority in principal amount of the
outstanding debt securities of any series may also waive our compliance in a
particular instance with any provision of the indenture with respect to the debt
securities of that series. We must obtain the consent of each holder of debt
securities affected by a particular amendment or waiver, however, if such
amendment or waiver:
- reduces the percentage of the principal amount of debt securities whose
holders must consent to an amendment or waiver;
- reduces the rate of or changes the time for payment of interest (including
default interest) on any debt security;
- reduces the principal of or premium on, or changes the fixed maturity of,
any debt security or reduces the amount of, or postpones the date fixed
for, redemption or the payment of any sinking fund or analogous obligation
with respect to any series of debt securities;
- reduces the principal amount of discount securities payable upon
acceleration of maturity;
- makes the principal of or premium or interest on any debt security payable
in currency other than that stated in the debt security;
- makes any change to provisions of the indenture concerning waivers of
defaults or Events of Default by holders or the rights of holders of debt
securities to recover the principal of, premium or interest on those debt
securities; or
- waives a default in the payment of the principal of or interest on any
debt security, except as otherwise provided in the indenture.
We may amend the indenture or the debt securities without notice to or the
consent of any holder of a debt security:
- to cure any ambiguity, defect or inconsistency;
- to comply with the indenture's provisions with respect to successor
corporations;
- to comply with any requirements of the Commission in connection with the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended;
- to provide for certificated or unregistered debt securities and to make
all appropriate changes for such purpose;
- to add to, change or eliminate any of the provisions of the indenture in
respect of one of more series of debt securities, provided, however, that
any such addition, change or elimination (A) (1) does not apply to any
debt security of any series created prior to the execution of such
amendment and entitled to the benefit of such provision, and (2) does not
modify the rights of a holder of any such debt security with respect to
such provision, or (B) becomes effective only
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when there is no outstanding debt security of any series created prior to
such amendment and entitled to the benefit of such provision;
- to make any change that does not adversely affect in any material respect
the interest of any holder of a debt security; or
- to establish additional series of debt securities as permitted by the
indenture.
The holders of a majority in principal amount of the outstanding debt
securities of any series, by notice to the trustee, may waive any existing
default or Event of Default and its consequences with respect to the debt
securities of that series other than a default or Event of Default in the
payment of the principal of or any interest on any debt security; PROVIDED,
HOWEVER, that the holders of a majority in principal amount of the outstanding
debt securities of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from the acceleration.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
DEFEASANCE AND DISCHARGE. The indenture provides that we may be discharged
from any and all obligations in respect of the debt securities of any series
(except for certain obligations to pay additional amounts, if any, upon the
occurrence of certain tax, assessment or governmental charge events with respect
to payments on such debt securities, to register the transfer or exchange of
debt securities of such series, to replace stolen, lost or mutilated debt
securities of such series, to maintain paying agencies and to hold money for
payment in trust). We will be so discharged when we:
- deposit with the trustee money and/or government obligations that, through
the payment of interest and principal in accordance with their terms, will
provide money in an amount sufficient in the opinion of a nationally
recognized firm of independent public accountants to pay each installment
of principal, premium and interest on, and any mandatory sinking fund
payments in respect of, the debt securities of that series on the dates
such payments are due; and
- deliver to the trustee an opinion of counsel or a ruling from the United
States Internal Revenue Service (an "IRS Ruling"), in either case to the
effect that holders of the debt securities of that series will not
recognize income, gain or loss for United States federal income tax
purposes as a result of the deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS. The indenture provides that, unless
otherwise provided by the terms of the applicable series of debt securities,
upon compliance with certain conditions:
- we may omit to comply with certain restrictive covenants contained in the
indenture (or, if provided for in the applicable prospectus supplement,
any other restrictive covenant relating to any series of debt securities
provided for in a resolution of the Board of Directors of Harrah's
Operating or a supplemental indenture which, by its terms may be defeased
pursuant to the terms of that series of debt securities), and
- any omission to comply with such obligations will not constitute a default
or Event of Default with respect to any debt securities of that series
("covenant defeasance").
The conditions require, among others, that we:
- deposit with the trustee money and/or government obligations that, through
the payment of interest and principal in respect thereof in accordance
with their terms, will provide money in an amount sufficient in the
opinion of a nationally recognized firm of independent public accountants
to pay each installment of principal, premium and interest on, and any
mandatory sinking
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fund payments in respect of, the debt securities of that series on the
dates such payments are due; and
- deliver to the trustee an opinion of counsel or an IRS Ruling, in either
case to the effect that holders of the debt securities of that series will
not recognize income, gain or loss for United States federal income tax
purposes as a result of the deposit, defeasance and discharge.
LIMITED LIABILITY OF CERTAIN PERSONS
None of the past, present or future stockholders, incorporators, employee
officers or directors, as such, of Harrah's Operating, Harrah's Entertainment or
any of our affiliates or successor corporations shall have any personal
liability in respect of our obligations under the indenture or the debt
securities by reason of his, her or its status as such stockholder,
incorporator, employee officer or director.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
Federal, state and local authorities in several jurisdictions regulate
extensively our casino entertainment operations. The nature of such regulation
is described in detail in "Business and Properties-- Governmental Regulation" in
the 1997 Form 10-K of Harrah's Entertainment, which we have incorporated by
reference herein. The gaming authority of any jurisdiction in which we or any of
our subsidiaries conduct or propose to conduct gaming may require that a holder
of the debt securities or the beneficial owner of the debt securities of a
holder be licensed, qualified or found suitable under applicable gaming laws.
Under the indenture, each person that holds or acquires beneficial ownership of
any of the debt securities subject to the indenture shall be deemed to have
agreed, by accepting such debt securities, that if any such gaming authority
requires such person to be licensed, qualified or found suitable under
applicable gaming laws, such holder or beneficial owner, as the case may be,
shall apply for a license, qualification or a finding of suitability within the
required time period.
If a person required to apply or become licensed or qualified or be found
suitable fails to do so, we shall have the right, at our election, (i) to
require such person to dispose of its debt securities or beneficial interest
therein within 30 days of receipt of notice of such election or such earlier
date as may be requested or prescribed by such gaming authority or (ii) to
redeem such debt securities at a redemption price equal to the lesser of (A)
such person's cost or (B) 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the earlier of (x) the redemption date or (y) the
date of the finding of unsuitability, which may be less than 30 days following
the notice of redemption if so requested or prescribed by the applicable gaming
authority. We will notify the trustee in writing of any such redemption as soon
as practicable. We will not be responsible for any costs or expenses any such
holder may incur in connection with its application for a license, qualification
or a finding of suitability. Under the indenture, the trustee must report the
names of the record holders of the debt securities to any gaming authority when
required by law.
GOVERNING LAW
The indenture and the debt securities will be governed by, and construed in
accordance with, the internal laws of the state of New York.
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PLAN OF DISTRIBUTION
We may sell the debt securities to one or more underwriters for public
offering and sale by them and also may sell the debt securities to investors
directly or through agents. We will name any underwriter or agent involved in
the offer and sale of debt securities in the applicable prospectus supplement.
We have reserved the right to sell or exchange the debt securities directly to
investors on our own behalf in those jurisdictions where and in such manner as
we are authorized to do so. We may also exchange debt securities for outstanding
securities of Harrah's Operating.
We may distribute the debt securities from time to time in one or more
transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices; or
- at negotiated prices.
We also may, from time to time, authorize dealers, acting as our agents, to
offer and sell the debt securities upon the terms and conditions as are set
forth in the applicable prospectus supplement. In connection with the sale of
the debt securities, we, or the purchasers of debt securities for whom the
underwriters may act as agents, may compensate underwriters in the form of
discounts or commissions. Underwriters may sell the debt securities to or
through dealers, and those dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent. Unless otherwise indicated
in a prospectus supplement, an agent will be acting on a best efforts basis and
a dealer will purchase the debt securities as a principal, and may then resell
the debt securities at varying prices to be determined by the dealer.
We will describe in the applicable prospectus supplement any compensation we
pay to underwriters or agents in connection with the offering of debt
securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers. Dealers and agents participating in the
distribution of debt securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the debt securities may be deemed to be underwriting discounts and
commissions. We may enter into agreements to indemnify underwriters, dealers and
agents against certain civil liabilities, including liabilities under the
Securities Act, and to reimburse these persons for certain expenses.
To facilitate the offering of debt securities, certain persons participating
in the offering may engage in transactions that stabilize, maintain, or
otherwise affect the price of the debt securities. This may include
over-allotments or short sales of the debt securities, which involves the sale
by persons participating in the offering of more debt securities than we sold to
them. In these circumstances, these persons would cover such over-allotments or
short positions by making purchases in the open market or by exercising their
over-allotment option. In addition, these persons may stabilize or maintain the
price of the debt securities by bidding for or purchasing debt securities in the
open market or by imposing penalty bids, whereby selling concessions allowed to
dealers participating in the offering may be reclaimed if debt securities sold
by them are repurchased in connection with stabilization transactions. The
effect of these transactions may be to stabilize or maintain the market price of
the debt securities at a level above that which might otherwise prevail in the
open market. These transactions may be discontinued at any time.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with and perform services for us in the ordinary course
of business.
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LEGAL MATTERS
Latham & Watkins of Los Angeles, California, and E. O. Robinson, Jr., our
Senior Vice President and General Counsel, will issue opinions about certain
legal matters with respect to the debt securities for Harrah's.
EXPERTS
The audited financial statements of Harrah's Entertainment appearing in
Harrah's Entertainment's Annual Report on Form 10-K for the year ended December
31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of such firm as
experts in giving said reports.
The audited financial statements of Rio appearing in Rio's Annual Report on
Form 10-K for the year ended December 31, 1997 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of such firm as experts in giving said reports.
The consolidated financial statements of Showboat, Inc. and subsidiaries as
of December 31, 1997, and for each of the years in the three-year period ended
December 31, 1997, appearing in the Showboat, Inc. Form 10-K for the year ended
December 31, 1997, incorporated herein by reference, have been incorporated
herein by reference in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated herein by reference, and upon the
authority of such firm as experts in accounting and auditing.
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