<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission File No. 1-10410
HARRAH'S ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 62-1411755
(State of Incorporation) (I.R.S. Employer Identification No.)
5100 W. Sahara Blvd.
Las Vegas, Nevada 89146
(Current address of principal executive offices)
(702) 579-2300
(Registrant's telephone number, including area code)
1023 Cherry Road
Memphis, Tennessee 38117
(Former address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
At September 30, 1999, there were outstanding 128,592,981 shares of the
Company's Common Stock.
Page 1 of 39
Exhibit Index Page 40
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited Consolidated Condensed Financial Statements
of Harrah's Entertainment, Inc., a Delaware corporation, have been prepared in
accordance with the instructions to Form 10-Q, and therefore do not include all
information and notes necessary for complete financial statements in conformity
with generally accepted accounting principles. The results for the periods
indicated are unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) which management considers necessary for a fair
presentation of operating results. Results of operations for interim periods are
not necessarily indicative of a full year of operations. See Note 2 to these
Consolidated Condensed Financial Statements regarding the completion of our
merger with Rio Hotel & Casino, Inc. on January 1, 1999. These Consolidated
Condensed Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in our 1998 Annual
Report to Stockholders.
-2-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except share amounts) Sept. 30, Dec. 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 189,990 $ 158,995
Receivables, less allowance for doubtful
accounts of $42,447 and $14,356 94,643 55,043
Deferred income tax benefits 30,578 22,478
Prepayments and other 44,981 27,521
Inventories 32,257 15,306
----------- -----------
Total current assets 392,449 279,343
----------- -----------
Land, buildings, riverboats and equipment 3,894,844 2,660,004
Less: accumulated depreciation (904,363) (789,847)
----------- -----------
2,990,481 1,870,157
Excess of purchase price over net assets
of business acquired, net of amortization
of $51,040 and $40,051 (Note 2) 532,896 383,450
Investments in and advances to nonconsolidated
affiliates 262,438 273,508
Deferred costs, trademarks, notes receivable and
other assets 574,877 479,874
----------- -----------
$ 4,753,141 $ 3,286,332
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 54,964 $ 57,864
Construction payables 7,172 629
Accrued expenses 303,233 172,021
Current portion of long-term debt 2,939 2,332
----------- -----------
Total current liabilities 368,308 232,846
Long-term debt 2,514,881 1,999,354
Deferred credits and other 111,076 112,362
Deferred income taxes 199,655 75,457
----------- -----------
3,193,920 2,420,019
----------- -----------
Minority interests 15,343 14,906
----------- -----------
Commitments and contingencies (Notes 2, 4, 6, 7 and 8)
Stockholders' equity
Common stock, $0.10 par value, authorized
360,000,000 shares, outstanding 128,592,981
and 102,188,018 shares (net of 3,970,397 and
3,036,562 shares held in treasury) 12,859 10,219
Capital surplus 965,896 407,691
Retained earnings 584,319 451,410
Accumulated other comprehensive income 538 6,567
Deferred compensation related to restricted stock (19,734) (24,480)
----------- -----------
1,543,878 851,407
----------- -----------
$ 4,753,141 $ 3,286,332
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share Third Quarter Ended Nine Months Ended
amounts) Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Casino $ 658,996 $ 489,872 $ 1,824,558 $ 1,220,275
Food and beverage 70,780 67,549 279,320 171,807
Rooms 108,011 44,771 234,449 114,539
Management fees 21,737 16,309 56,732 48,646
Other 33,140 23,632 97,109 60,701
Less: casino promotional allowances (78,610) (55,891) (215,309) (136,645)
----------- ----------- ----------- -----------
Total revenues 814,054 586,242 2,276,859 1,479,323
----------- ----------- ----------- -----------
Operating expenses
Direct
Casino 332,988 255,660 948,911 651,245
Food and beverage 58,922 32,936 171,165 86,829
Rooms 17,182 11,253 50,776 31,673
Depreciation of buildings,
riverboats and equipment 47,381 33,810 141,136 94,883
Development costs 1,890 2,701 4,160 6,621
Write-downs, reserves and
recoveries 208 -- (1,267) 1,847
Project opening costs 183 1,161 580 7,157
Other 169,730 123,289 492,539 317,042
----------- ----------- ----------- -----------
Total operating expenses 628,484 460,810 1,808,000 1,197,297
----------- ----------- ----------- -----------
Operating profit 185,570 125,432 468,859 282,026
Corporate expense (11,894) (9,443) (33,317) (25,029)
Relocation of corporate offices (3,030) -- (7,522) --
Equity in losses of
nonconsolidated affiliates (10,228) (2,404) (23,049) (8,706)
Venture restructuring costs -- (1,062) 397 (3,521)
Amortization of goodwill and
trademarks (4,497) (3,321) (13,460) (5,647)
----------- ----------- ----------- -----------
Income from operations 155,921 109,202 391,908 239,123
Interest expense, net of interest
capitalized (48,162) (36,409) (147,749) (81,358)
Gains on sales of equity interests
in nonconsolidated affiliates 16,300 -- 16,300 13,155
Other (expense) income, net,
including interest income (644) 273 5,926 5,798
----------- ----------- ----------- -----------
Income before income taxes and
minority interests 123,415 73,066 266,385 176,718
Provision for income taxes (44,875) (27,091) (98,255) (65,043)
Minority interests (3,496) (1,773) (7,818) (5,551)
----------- ----------- ----------- -----------
Income before extraordinary losses 75,044 44,202 160,312 106,124
Extraordinary losses on early
extinguishments of debt, net of
income tax benefit of $222,
$5,990 and $9,755 (410) -- (11,033) (18,280)
----------- ----------- ----------- -----------
Net income $ 74,634 $ 44,202 $ 149,279 $ 87,844
=========== =========== =========== ===========
</TABLE>
-4-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share Third Quarter Ended Nine Months Ended
amounts) Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings per share-basic
Income before extraordinary losses $ 0.59 $ 0.44 $ 1.27 $ 1.06
Extraordinary losses, net - - (0.09) (0.18)
--------- --------- ---------- ----------
Net income $ 0.59 $ 0.44 $ 1.18 $ 0.88
========= ========= ========== ==========
Earnings per share-diluted
Income before extraordinary losses $ 0.58 $ 0.44 $ 1.25 $ 1.05
Extraordinary losses, net - - (0.09) (0.18)
--------- --------- ---------- ----------
Net income $ 0.58 $ 0.44 $ 1.16 $ 0.87
========= ========= ========== ==========
Average common shares outstanding 126,338 100,271 126,001 100,204
========= ========= ========== ==========
Average common and common
equivalent shares outstanding 129,355 100,911 128,269 101,278
========= ========= ========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) Nine Months Ended
Sept. 30, Sept. 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 149,279 $ 87,844
Adjustments to reconcile net income to cash
flows from operating activities
Extraordinary losses, before income taxes 17,023 27,311
Depreciation and amortization 172,029 114,595
Other noncash items 34,644 30,766
Minority interests' share of income 7,818 5,551
Equity in losses of nonconsolidated
affiliates 23,049 8,706
Realized gains on sales of equity interests
in nonconsolidated affiliates (16,300) (13,155)
Net (gains) losses from asset sales (1,752) 19
Net change in long-term accounts 24,309 14,314
Net change in working capital accounts (13,472) (30,606)
----------- -----------
Cash flows provided by operating activities 396,627 245,345
----------- -----------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions (256,446) (101,527)
Investments in and advances to nonconsolidated
affiliates (37,231) (51,847)
Purchase of minority interest in subsidiary (26,000) --
Proceeds from sales of equity interests in
nonconsolidated affiliates 31,924 17,000
Cash acquired in acquisitions 50,226 --
Proceeds from asset sales 11,587 229
Decrease in construction payables (6,543) (6,628)
Acquisition of Showboat, Inc., net of cash
acquired -- (477,952)
Purchase of marketable equity securities -- (65,898)
Decrease (Increase) in notes receivable 13,618 (22,908)
Other (4,682) (4,276)
----------- -----------
Cash flows used in investing activities (223,547) (713,807)
----------- -----------
Cash flows from financing activities
Net borrowings under Bank Facility 898,596 1,073,300
Net repayments under retired revolving credit
facility (1,086,000) --
Proceeds from issuance of senior notes, net of
discount and issue costs of $5,980 494,020 --
Early extinguishments of debt (418,114) (560,708)
Scheduled debt retirements (4,457) (2,121)
Premiums paid on early extinguishments of debt (2,379) (24,569)
Purchases of treasury stock (16,370) --
Minority interests' distributions, net of
contributions (7,381) (5,138)
----------- -----------
Cash flows (used in) provided by financing
activities (142,085) 480,764
----------- -----------
Net increase in cash and cash equivalents 30,995 12,302
Cash and cash equivalents, beginning of period 158,995 116,443
----------- -----------
Cash and cash equivalents, end of period $ 189,990 $ 128,745
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
-6-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 74,634 $ 44,202 $ 149,279 $ 87,844
--------- --------- --------- ---------
Other comprehensive income
Foreign currency translation
adjustment, net of tax (benefit)
provision of $(1,344), $(1,700),
$445 and $(2,051) (1,561) (2,202) 727 (2,774)
Unrealized gains (losses) on
available-for-sale securities:
Unrealized holding gains (losses)
arising during period, net of
tax provision (benefit) of $471,
$(167), $1,750 and $(322) 768 (272) 2,855 (515)
Less: reclassification adjustment,
net of tax provision of $5,890,
for realized gain included in
income (9,611) -- (9,611) --
--------- --------- --------- ---------
Other comprehensive income (10,404) (2,474) (6,029) (3,289)
--------- --------- --------- ---------
Comprehensive income $ 64,230 $ 41,728 $ 143,250 $ 84,555
========= ========= ========= =========
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
-7-
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
Note 1 - Basis of Presentation and Organization
- -----------------------------------------------
Harrah's Entertainment, Inc. ("Harrah's Entertainment", the "Company",
"we", "our" or "us", and including our subsidiaries where the context
requires), a Delaware corporation, is one of America's leading casino
companies. Our casino entertainment facilities, operating under the Harrah's,
Rio and Showboat brand names, include casino hotels in Reno, Lake Tahoe, Las
Vegas and Laughlin, Nevada; two casino hotel properties in Atlantic City, New
Jersey; and riverboat and dockside casinos in Joliet, Illinois; East Chicago,
Indiana; Shreveport, Louisiana; Tunica and Vicksburg, Mississippi; and North
Kansas City and St. Louis, Missouri. We also manage casinos on Indian lands
near Phoenix, Arizona; Cherokee, North Carolina; and Topeka, Kansas. We also
manage the Star City casino in Sydney, Australia, and the Harrah's casino in
New Orleans, Louisiana. We discontinued management of a casino in Auckland,
New Zealand, as of the end of second quarter 1998, and an Indian casino near
Seattle, Washington during fourth quarter 1998.
Certain amounts for the prior year third quarter and first nine months have
been reclassified to conform with the current year presentation.
Note 2 - Acquisitions
- ---------------------
We are accounting for each of the transactions described below as a
purchase. Accordingly, the purchase price is allocated to the underlying
assets acquired and liabilities assumed based upon their estimated fair
values determined by a variety of sources, including independent appraisals,
discounted cash flows, quoted market prices and estimates made by management.
For the Showboat transaction, the allocation of the purchase price was
completed in second quarter 1999. For the Rio transaction, the allocation of
the purchase price will be completed within one year from the date of the
acquisition. To the extent that 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 a period of 40 years. For
periods prior to the finalization of the purchase price allocation, our
financial statements include estimated goodwill amortization expense.
-8-
<PAGE>
Showboat, Inc. - On June 1, 1998, we completed our acquisition of Showboat, Inc.
("Showboat") for $520 million in cash and assumption of approximately $635
million of Showboat debt. The operating results for Showboat are included in the
Consolidated Condensed Financial Statements from the date of acquisition.
Subsequent to the closing of the acquisition, we completed tender
offers and consent solicitations for Showboat's 9 1/4% First Mortgage Bonds due
2008 (the "Bonds") and 13% Senior Subordinated Notes due 2009 (the "Notes"). As
a result of these tender offers, $128.6 million face amount of the Bonds and
$117.9 million face amount of the Notes were retired on June 15, 1998.
During first quarter 1999, we consummated an agreement with our
partners owning the other 45% ownership interest in the East Chicago Showboat
property to increase our ownership interest to 99.55%, and partnership
agreements were amended to give us greater flexibility in operating this
property. Consequently, we began consolidating this partnership with the
financial results of our other businesses in first quarter 1999. The
consideration for this increase in ownership was cash and stock. In March
1999, we redeemed all $140 million face amount of 13 1/2% First Mortgage
Notes of this partnership and recorded an extraordinary loss of $2.0 million,
net of tax. Also during first quarter 1999, this property was rebranded as a
"Harrah's" property.
In April 1999, we announced plans to sell certain of our interests
in Star City casino in Sydney, Australia to TABCORP Holdings Limited,
("TABCORP"), an Australia-based company, in connection with that company's
intention to offer to acquire the issued and outstanding shares of Star City
Holdings Ltd., ("SCHL"). At that time we owned 135 million shares of Star
City Holdings Ltd. and 37 million options to purchase additional ordinary
shares. Subsequent to third quarter 1999, we engaged in a series of
transactions to divest our outstanding shares and options of SCHL and
received pretax proceeds of approximately US$141.5 million. A pretax gain on
the sale of these shares and options of approximately $47.0 million will be
recognized in fourth quarter 1999. The sale of our remaining interests,
consisting primarily of our management contract for the Star City casino, is
expected to close in first quarter 2000.
-9-
<PAGE>
At the time of the Showboat acquisition, the Las Vegas Showboat
property was determined to be a non-strategic asset and is being reported as an
asset-held-for-sale in our financial statements. In July 1999 we announced that
we have reached an agreement to sell Showboat Las Vegas. The sale is expected to
close in first quarter 2000, subject to certain conditions, including regulatory
approval. At September 30, 1999, the estimated net realizable value of this
property, net of estimated selling expenses, carrying costs and interest costs
through the assumed date of sale, is included in Deferred costs, trademarks,
notes receivable and other assets in the Consolidated Condensed Balance Sheets.
Rio Hotel & Casino, Inc. - On January 1, 1999, we completed our merger with Rio
Hotel & Casino, Inc. ("Rio"). In connection with the merger, we issued
approximately 25 million shares of our common stock and assumed Rio's
outstanding debt of $435 million face amount.
In connection with the Rio merger, our equity interest in a new airline
based in Las Vegas, Nevada, increased to approximately 47.8%, but our voting
power is limited by contract to 25%. Our initial investment of $15 million in
this new airline was carried at cost. The increase in our ownership interest
requires us to account for the investment by the equity method, whereby we
include our share of this nonconsolidated affiliate's profits or losses in our
financial results. Operation of the airline began in May 1999. Rio's investment
in the new airline is reported as an asset-held-for-sale in our financial
statements.
During second quarter 1999 we completed tender offers and consent
solicitations for Rio's 10 5/8% Senior Subordinated Notes due 2005 and 9 1/2%
Senior Subordinated Notes due 2007 (collectively, the "Rio Notes"). As a result
of these tender offers, we redeemed all $225 million face amount of the Rio
Notes. We recorded liabilities assumed in the Rio merger, including these notes,
at their fair value as of the date of the consummation of the merger. The
difference between the consideration paid to the holders of the Rio Notes
pursuant to the tender offers and the carrying value of the notes on the date of
the redemption was recorded in the second quarter as an extraordinary loss of
$4.5 million, net of tax.
The following unaudited pro forma consolidated financial information
for the Company has been prepared assuming that the acquisitions and the
Showboat and Rio debt extinguishments discussed above had occurred on the first
day of the period:
-10-
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Sept 30, 1998 Sept 30, 1998
------------- -------------
<S> <C> <C>
(In millions, except
per share amounts)
Revenues $ 693.3 $2,018.1
======== ========
Income from operations $ 126.0 $ 314.8
======== ========
Income before extraordinary
losses $ 50.2 $ 111.6
======== ========
Net income $ 50.2 $ 92.3
======== ========
Earnings per share - diluted
Income before extraordinary losses $ 0.40 $ 0.88
======== ========
Net income $ 0.40 $ 0.74
======== ========
</TABLE>
These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what our actual results
would have been had the acquisitions been completed as of the beginning of the
period, or of future results.
Players International, Inc.- In August 1999, we announced the signing of a
definitive agreement to acquire Players International, Inc. (Players).
Players operates a dockside riverboat casino on the Ohio River in Metropolis,
Illinois; two cruising riverboat casinos in Lake Charles, Louisiana; two
dockside riverboat casinos in Maryland Heights, Missouri, and a horse
racetrack in Paducah, Kentucky. Players and Harrah's jointly operate a
landside hotel and entertainment facility at the Maryland Heights property, a
suburb of St. Louis. Under the terms of the agreement, Players' shareholders
will receive $8.50 in cash for each share outstanding and we will assume
approximately $150 million of Players' debt. We expect to fund the
acquisition through our Bank Facility. The acquisition will be accounted for
as a purchase, and the purchase price will be allocated to the underlying
assets and liabilities based upon their estimated values at the date of
acquisition. Players stockholders approved the proposed merger at a special
stockholders meeting held October 28, 1999, however, the transaction is
subject to various conditions, including regulatory approvals and other third
party approvals.
Prior to entering into the agreement with us, Players terminated a
previously announced merger agreement with another gaming company. As a
result of this termination of that agreement, Players paid a $13.5 million
break-up fee pursuant to that agreement's terms. In connection with our
agreement with Players, we agreed to provide the funds necessary to make this
payment. Players must reimburse us for this advance, plus pay an additional
termination fee, should certain events occur resulting in the termination of
our agreement with Players. The funds we have advanced are a component of
the total purchase price we will pay for Players. Pending the completion of
the transaction, this $13.5 million is included in Deferred costs,
trademarks, notes receivable and other assets in the Consolidated Condensed
Balance Sheets.
-11-
<PAGE>
Note 3 - Stockholders' Equity
- -----------------------------
In addition to its common stock, Harrah's Entertainment has the following
classes of stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, $1.125 par value, 5,000,000 shares authorized -
Series A Special Stock, 2,000,000 shares designated
In July 1999, our Board of Directors authorized the repurchase in open
market and other transactions of up to 10 million shares of the Company's common
stock. We expect to acquire our shares from time to time at prevailing market
prices through the December 31, 2000, expiration of the approved plan. At
September 30, 1999, we had repurchased 0.3 million shares under the provisions
of this plan. These repurchases are in addition to 0.5 million shares
repurchased earlier this year in connection with the increase of our ownership
interest in the East Chicago property.
Note 4 - Long-Term Debt
- -----------------------
Revolving Credit Facilities
- ---------------------------
On April 30, 1999, we consummated new revolving credit and letter of
credit facilities (the "Bank Facility") in the amount of $1.6 billion. This Bank
Facility consists of a five-year $1.3 billion revolving credit and letter of
credit facility maturing in 2004 and a separate $300 million revolving credit
facility which is renewable annually, at the borrower's and lenders' options.
Currently, the Bank Facility bears interest based upon 80 basis points over
LIBOR for current borrowings under the five-year facility and 85 basis points
over LIBOR for the 364-day facility. In addition, there is a facility fee for
borrowed and unborrowed amounts which is currently 20 basis points on the
five-year, $1.3 billion facility and 15 basis points on the 364-day, $300
million facility. The interest rate and facility fee are based on our current
debt ratings and leverage ratio and may change as our debt ratings and leverage
ratio change. Proceeds from the Bank Facility were used to retire our previous
revolving credit facility scheduled to mature in 2000 (the "Previous Facility")
and to retire Rio's revolving credit facility scheduled to mature in 2003 and
Rio's 10 5/8% Senior Subordinated Notes due 2005 and 9 1/2% Senior Subordinated
Notes due 2007.
-12-
<PAGE>
Issuance of Senior Notes
- ------------------------
In keeping with our strategy to refinance a portion of our short-term,
floating-rate borrowings with debt that has fixed rates and longer maturities,
in January 1999 we issued $500 million of 7 1/2% Senior Notes due 2009 and used
the proceeds to reduce amounts outstanding under our Previous Facility. The
corresponding reduction in our available borrowing capacity under the Previous
Facility resulted in the write-off of related unamortized deferred finance
charges, recorded as an extraordinary loss of $1.2 million in first quarter.
Interest Rate Agreements
- ------------------------
To manage the relative mix of our debt between fixed and variable rate
instruments, we have entered into interest rate swap agreements to modify the
interest characteristics of our outstanding debt without an exchange of the
underlying principal amount.
We have six interest rate swap agreements which effectively convert a total
of $300 million in variable rate debt to a fixed rate. Pursuant to the terms of
these swaps, all of which reset quarterly, we receive variable payments tied to
LIBOR in exchange for our payments at a fixed interest rate. The fixed rates to
be paid by us and variable rates to be received by us are summarized in the
following table:
<TABLE>
<CAPTION>
Swap Rate
Swap Rate Received
Paid (Variable) at Swap
Notional Amount (Fixed) Sept. 30, 1999 Maturity
- --------------- --------- -------------- ------------
<S> <C> <C> <C>
$50 million 6.985% 5.513% March 2000
$50 million 6.951% 5.513% March 2000
$50 million 6.945% 5.511% March 2000
$50 million 6.651% 5.370% May 2000
$50 million 5.788% 5.528% June 2000
$50 million 5.785% 5.528% June 2000
</TABLE>
The differences to be paid or received under the terms of the interest rate
swap agreements are accrued as interest rates change and recognized as an
adjustment to interest expense for the related debt. Changes in the variable
interest rates to be paid or received pursuant to the terms of our interest rate
agreements will have a corresponding effect on our future cash flows. These
agreements contain a credit risk that the counterparties may be unable to meet
the terms of the agreements. We minimize that risk by evaluating the
creditworthiness of our counterparties, which are limited to major banks and
financial institutions, and do not anticipate nonperformance by the
counterparties.
-13-
<PAGE>
Note 5 - Supplemental Cash Flow Disclosures
- -------------------------------------------
Cash Paid for Interest and Taxes
- --------------------------------
The following table reconciles our interest expense, net of interest
capitalized, per the Consolidated Condensed Statements of Income, to cash paid
for interest:
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1999 1998
--------- ---------
<S> <C> <C>
Interest expense, net of amount capitalized $ 147,749 $ 81,358
Adjustments to reconcile to cash paid for interest:
Net change in accruals (12,824) (12,368)
Amortization of deferred finance charges (3,537) (3,307)
Net amortization of discounts and premiums (2,757) 1,091
--------- ---------
Cash paid for interest, net of amount capitalized $ 128,631 $ 66,774
========= =========
Cash payments of income taxes, net of refunds $ 13,782 $ 32,952
========= =========
</TABLE>
Note 6 - Commitments and Contingent Liabilities
- -----------------------------------------------
New Orleans Casino Development
- ------------------------------
We have an approximate 43% ownership interest in Jazz Casino Company,
L.L.C. ("JCC"), the company which owns and operates the exclusive land-based
casino (the "Casino") in New Orleans, Louisiana. We manage that Casino pursuant
to a management agreement between JCC and a subsidiary of our Company. We have
(i) guaranteed JCC's initial $100 million annual payment under the Casino
operating contract to the State of Louisiana gaming board (the "State
Guarantee"); (ii) guaranteed $166.5 million of a $236.5 million JCC bank credit
facility; and (iii) made a $22.5 million subordinated loan to JCC to finance
construction of the Casino.
With respect to the State Guarantee, we are obligated to guarantee
JCC's first $100 million annual payment obligation commencing upon the
October 28, 1999, opening of the Casino, and, if certain cash flow tests (for
the renewal periods beginning April 1, 2001) and other conditions are
satisfied each year, to renew the guarantee beginning April 1, 2000, for each
12 month period ending March 31, 2004. Our obligations under the guarantee
for the first year of operations or any succeeding 12 month period is limited
to a guarantee of the $100 million payment obligation of
-14-
<PAGE>
JCC for the 12 month period in which the guarantee is in effect and is secured
by a first priority lien on JCC's assets. JCC's payment obligation (and
therefore the amount we have guaranteed) is $100 million at the commencement of
each 12 month period under the Casino operating contract and declines on a daily
basis by 1/365 of $100 million to the extent payments are made each day by JCC
to Louisiana's gaming board.
Rio
- ---
Rio has entered into an agreement with Clark County, Nevada, to
construct a road across certain of its recently acquired properties that will
provide an additional east/west conduit for Las Vegas residents and tourists and
allow for additional access to the Rio from the Las Vegas Strip. Upon
completion, we will deed the roadway acreage to Clark County in exchange for
deeding other Clark County acreage to the Company and reimbursing us for a
majority of our construction costs.
Contractual Commitments
- -----------------------
We continue to pursue additional casino development opportunities that may
require, individually and in the aggregate, significant commitments of capital,
up-front payments to third parties, guarantees by the Company of third party
debt and development completion guarantees. Excluding guarantees and commitments
for the New Orleans casino project discussed above, as of September 30, 1999, we
had guaranteed third party loans and leases of $107 million, which are secured
by certain assets, and had commitments of $252 million, primarily
construction-related.
During second quarter 1999, we performed under our guarantee of the
Upper Skagit Tribe's development financing and purchased their receivable from
the lender for $11.4 million. Under the terms of our agreement with the Tribe,
they have agreed to fund the retirement of this debt. The Tribe is attempting to
secure new financing; however, there is no assurance that their efforts will be
successful and that the receivable will be retired.
The agreements under which we manage casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund this payment, we must pay the shortfall to the tribe.
Such advances, if any, would be repaid to us in future periods in which
operations generate cash flow in excess
-15-
<PAGE>
of the required minimum payment. These commitments will terminate upon the
occurrence of certain defined events, including termination of the management
contract. As of September 30, 1999, the aggregate monthly commitment pursuant to
these contracts, which extend for periods of up to 39 months from September 30,
1999, was $1.2 million.
Severance Agreements
- --------------------
As of September 30, 1999, we have severance agreements with 44 of our
senior executives, which provide for payments to the executives in the event of
their termination after a change in control, as defined. These agreements
provide, among other things, for a compensation payment of 1.5 to 3.0 times the
executive's average annual compensation, as defined, as well as for accelerated
payment or accelerated vesting of any compensation or awards payable to the
executive under any of our incentive plans. The estimated amount, computed as of
September 30, 1999, that would be payable under the agreements to these
executives based on earnings and stock options aggregated approximately $101.9
million.
Tax Sharing Agreements
- ----------------------
In connection with the 1995 spin-off of certain hotel operations (the "PHC
Spin-off") to Promus Hotel Corporation ("PHC"), we entered into a Tax Sharing
Agreement with PHC wherein each company is obligated for those taxes associated
with their respective businesses. Additionally, we are obligated for all taxes
for periods prior to the PHC Spin-off date which are not specifically related to
PHC operations and/or PHC hotel locations. Our obligations under this agreement
are not expected to have a material adverse effect on our consolidated financial
position or results of operations.
Self-Insurance
- --------------
We are self-insured for various levels of general liability, workers'
compensation and employee medical coverage. We also have stop loss coverage to
protect against unexpected claims. Insurance claims and reserves include
accruals of estimated settlements for known claims, as well as accruals of
actuarial estimates of incurred but not reported claims.
-16-
<PAGE>
Note 7 - Litigation
- --------------------
We are involved in various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, we believe that the final outcome of these matters will not have
a material adverse effect upon our consolidated financial position or our
results of operations.
Note 8 - Nonconsolidated Affiliates
- -----------------------------------
Summarized balance sheet and income statement information of
nonconsolidated affiliates as of September 30, 1999 and December 31, 1998, and
for the third quarters and first nine months ended September 30, 1999 and 1998
is included in the following tables.
<TABLE>
<CAPTION>
(In thousands) Sept. 30, Dec. 31,
1999 1998
---------- ----------
<S> <C> <C>
Combined Summarized Balance Sheet Information
Current assets $ 78,697 $ 111,218
Land, buildings and equipment, net 1,114,416 1,094,195
Other assets 370,807 355,505
---------- ----------
Total assets 1,563,920 1,560,918
---------- ----------
Current liabilities 74,963 96,095
Long-term debt 844,938 808,334
---------- ----------
Total liabilities 919,901 904,429
---------- ----------
Net assets $ 644,019 $ 656,489
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
(In thousands) Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Combined Summarized Statements of
Operations
Revenues $ 131,646 $ 142,581 $ 319,302 $ 161,664
========= ========= ========= =========
Operating loss $ 760 $ (10,295) $ (15,252) $ (26,102)
========= ========= ========= =========
Net loss $ (25,027) $ (20,042) $ (52,314) $ (35,311)
========= ========= ========= =========
</TABLE>
-17-
<PAGE>
Our share of nonconsolidated affiliates' combined net operating results
are reflected in the accompanying Consolidated Condensed Statements of Income as
Equity in losses of nonconsolidated affiliates.
Our investments in and advances to nonconsolidated affiliates are
reflected in the accompanying Consolidated Condensed Balance Sheets as follows:
<TABLE>
<CAPTION>
(In thousands) Sept. 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
Investments in and advances to
nonconsolidated affiliates
Accounted for under the equity method $261,904 $231,366
Accounted for at historical cost -- 15,087
Equity securities available-for-sale and
recorded at market value 534 27,055
-------- --------
$262,438 $273,508
======== ========
</TABLE>
In first quarter 1999, a gaming equipment manufacturing company
announced its plans to acquire all of the outstanding shares of Sodak Gaming,
Inc. ("Sodak") for $10 per share. We owned approximately 3 million shares of
Sodak's common stock. The acquisition of Sodak was completed during third
quarter 1999, generating approximately $32 million in pretax proceeds and a
pretax gain of $16 million for our company.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", we adjust the carrying value of certain marketable equity
securities to include unrealized gains and losses. A corresponding adjustment is
recorded in our stockholders' equity and deferred income tax accounts.
Note 9 - Summarized Financial Information
- ------------------------------------------
Harrah's Operating Company, Inc. ("HOC") is a wholly-owned subsidiary and
the principal asset of Harrah's Entertainment. HOC is the issuer of certain debt
securities which have been guaranteed by Harrah's Entertainment. Due to the
comparability of HOC's consolidated financial information with that of Harrah's
Entertainment, complete separate financial statements and other disclosures
regarding HOC have not been presented. Management has determined that such
information is not material to holders of HOC's debt securities. Summarized
financial information of HOC as of September 30, 1999 and December 31, 1998, and
for the third quarters and first nine months ended September 30, 1999 and 1998,
prepared on the same basis as Harrah's Entertainment, was as follows:
-18-
<PAGE>
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1999 1998
---------- ----------
<S> <C> <C>
(In thousands)
Current assets $ 393,805 $ 271,247
Land, buildings, riverboats and
equipment, net 2,990,481 1,870,157
Other assets 1,370,129 1,136,750
---------- ----------
4,754,415 3,278,154
---------- ----------
Current liabilities 354,872 209,651
Long-term debt 2,514,881 1,999,354
Other liabilities 310,731 187,247
Minority interests 15,343 14,906
---------- ----------
3,195,827 2,411,158
---------- ----------
Net assets $1,558,588 $ 866,996
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 813,921 $ 579,149 $2,276,518 $1,479,261
========== ========== ========== ==========
Income from operations $ 154,934 $ 100,100 $ 391,790 $ 239,229
========== ========== ========== ==========
Income before extraordinary
losses $ 74,401 $ 38,286 $ 160,235 $ 106,193
========== ========== ========== ==========
Net income $ 73,991 $ 38,286 $ 149,202 $ 87,913
========== ========== ========== ==========
</TABLE>
Certain of our debt guarantees contain covenants which, among other
things, place limitations on HOC's ability to pay dividends and make other
restricted payments, as defined, to Harrah's Entertainment. The amount of HOC's
restricted net assets, as defined, computed in accordance with the most
restrictive of these covenants regarding restricted payments, was approximately
$1.5 billion at September 30, 1999.
-19-
<PAGE>
Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
The following discussion and analysis of the financial position and
operating results of Harrah's Entertainment, Inc., (referred to in this
discussion, together with its consolidated subsidiaries where appropriate, as
"Harrah's Entertainment", "Company", "we", "our" and "us") for third quarter
1999 and 1998, updates, and should be read in conjunction with, Management's
Discussion and Analysis of Financial Position and Results of Operations
presented in our 1998 Annual Report.
We are one of the leading casino entertainment companies in the United
States, operating casinos in more markets than any other casino company. We seek
to differentiate ourselves through a unique strategy aimed at building loyalty
to the Company's brands from our guests. Our strategy is comprised of four
integrated components: national geographic distribution, quality facilities,
proprietary technology and superior customer service. We begin our review of our
year-to-date 1999 results with a discussion of two acquisitions, one completed
on January 1, 1999 and the second announced during the third quarter 1999, which
reflect our pursuit of our strategy.
ACQUISITIONS
- ------------
PLAYERS - In August 1999, we announced the signing of a definitive agreement
to acquire Players International, Inc. (Players). Players operates a dockside
riverboat casino on the Ohio River in Metropolis, Illinois; two cruising
riverboat casinos in Lake Charles, Louisiana; two dockside riverboat casinos
in Maryland Heights, Missouri, and a horse racetrack in Paducah, Kentucky.
Players and Harrah's jointly operate a landside hotel and entertainment
facility at the Maryland Heights property, a suburb of St. Louis. Under the
terms of the agreement, Players' shareholders will receive $8.50 in cash for
each share outstanding and we will assume approximately $150 million of
Players' debt. We expect to fund the acquisition through our Bank Facility.
The acquisition will be accounted for as a purchase, and the purchase price
will be allocated to the underlying assets and liabilities based upon their
estimated values at the date of acquisition. Players stockholders approved
the proposed merger at a special stockholders meeting held October 28, 1999,
however, the transaction is subject to various conditions, including
regulatory approvals and other third party approvals.
-20-
<PAGE>
Prior to entering into the agreement with us, Players terminated a
previously announced merger agreement with another gaming company. As a
result of the termination of that agreement, Players paid a $13.5 million
break-up fee pursuant to that agreement's terms. In connection with our
agreement with Players, we agreed to provide the funds necessary to make this
payment. Players must reimburse us for this advance, plus pay an additional
termination fee should certain events occur resulting in the termination of
our agreement with Players. The funds we have advanced are a component of the
total purchase price we will pay for Players. Pending the completion of the
transaction, this $13.5 million is included in Deferred costs, trademarks,
notes receivable and other assets in the Consolidated Condensed Balance Sheet.
RIO - On January 1, 1999, we completed our merger with Rio Hotel & Casino, Inc.
("Rio"). In connection with the merger, we issued approximately 25 million
shares of our common stock and assumed Rio's outstanding debt of $435 million
face amount. The acquisition is being accounted for as a purchase. Accordingly,
the purchase price is being allocated to the underlying assets and liabilities
based upon their estimated fair values at the date of acquisition. We determine
the estimated fair values based on independent appraisals, discounted cash
flows, quoted market prices and estimates made by management. The allocation of
the purchase price will be completed by the end of 1999. To the extent that the
purchase price exceeds the fair value of the net identifiable tangible assets
acquired, such excess will be allocated to goodwill and amortized over 40 years.
For periods prior to the completion of the purchase price allocation, our
financial statements include estimated goodwill amortization expense.
In connection with the Rio merger, our equity interest in a new airline
based in Las Vegas, Nevada, increased to approximately 47.8%, but our voting
power is limited by contract to 25%. Our initial investment of $15 million in
this new airline was carried at cost. The increase in our ownership interest
requires us to account for the investment by the equity method, whereby we
include our share of this nonconsolidated affiliate's profits or losses in our
financial results. Operation of the airline began in May 1999. Rio's investment
in the new airline is reported as an asset-held-for-sale in our financial
statements.
OPERATING RESULTS AND DEVELOPMENT PLANS
- ---------------------------------------
Overall
- -------
Third quarter 1999 results reflect the impact of the addition of Rio
and the consolidation of East Chicago in January 1999, but even without them we
experienced a 9.7% increase in revenue and a 14.8% increase in income from
operations. This growth in our year-over-year comparable results is due to the
continued execution of our customer loyalty and growth strategy and cost-control
management. Our Harrah's brand benefited from both local repeat business and
cross-market customer visits generated through our marketing programs.
-21-
<PAGE>
<TABLE>
<CAPTION>
Third Quarter Nine Months Ended
------------- Percentage ----------------- Percentage
(in millions, except Increase/ Sept. 30, Sept. 30, Increase/
earnings per share) 1999 1998 (Decrease) 1999 1998 (Decrease)
----- ------ ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $814.1 $586.2 38.9% $2,276.9 $1,479.3 53.9%
Operating profit 185.6 125.4 48.0% 468.9 282.0 66.3%
Income from operations 155.9 109.2 42.8% 391.9 239.1 63.9%
Income before extraordinary
losses 75.0 44.2 69.7% 160.3 106.1 51.1%
Net income 74.6 44.2 68.8% 149.3 87.8 70.0%
Earnings per share - diluted
Before extraordinary losses 0.58 0.44 31.8% 1.25 1.05 19.0%
Net income 0.58 0.44 31.8% 1.16 0.87 33.3%
Operating margin 19.1% 18.6% 0.5pts 17.2% 16.2% 1.0pts
</TABLE>
Revenues for third quarter 1999 increased 38.9% over third quarter 1998. This
increase was driven by the addition of revenues from the Rio and East Chicago
properties, record revenues at Harrah's properties in Las Vegas, Laughlin,
Atlantic City, Joliet, St. Louis, North Kansas City and Tunica, and increased
management fees from Harrah's-brand casinos on Indian lands. These factors also
contributed to increased operating income, net income and earnings per share
over prior year.
Revenues for the nine months ended September 30, 1999 were up 53.9%
over revenues for the same period last year. While this increase was driven
primarily by the addition of revenues from the Showboat and Rio properties,
revenues excluding these recently acquired properties were up 9.5%.
<TABLE>
<CAPTION>
Western Region
- --------------
Third Quarter Nine Months Ended
------------- Percentage ----------------- Percentage
(in millions) Increase/ Sept. 30, Sept. 30, Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
----- ------ ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues $195.1 $132.2 47.6% $547.9 $347.9 57.5%
Total revenues 300.4 183.6 63.6% 865.8 489.5 76.9%
Operating profit 57.6 37.7 52.8% 146.4 77.9 87.9%
Operating margin 19.2% 20.5% (1.3)pts 16.9% 15.9% 1.0pts
</TABLE>
The addition of Rio plus increased third quarter revenues at all Harrah's
properties in the Western region, except Harrah's Lake Tahoe, resulted in a
63.6% increase over third quarter 1998 in this region. Despite record volume,
revenues at Harrah's Lake Tahoe were down slightly from last year as a result of
low hold percentage, particularly in high limit table games. Overall, revenues
at Northern Nevada properties were 1.7% lower than in third quarter 1998 and
operating profit was down 13.1%. Third quarter revenues at Southern Nevada
properties, excluding Rio which was acquired January 1, 1999, were up 5.5% over
last year
-22-
<PAGE>
and operating income was 41.6% higher than in the same period last year. These
increases were driven by more effective marketing programs, cross-market
visitation and improved margins.
For the nine months ended September 30, 1999, revenues increased 4.0%
in Northern Nevada and 6.7% in Southern Nevada, excluding Rio, and operating
income increased 29.8% in Southern Nevada and remained flat in Northern Nevada
compared to the same nine month period last year. Rio contributed $349.6 million
in revenue and $59.8 million operating profit for the nine months ended
September 30, 1999.
In first quarter 1999, Rio began construction of a showroom complex as
an addition to Rio's existing entertainment venues. The showroom will include a
1,500 seat, state-of-the-art theater with balcony; a three-level lobby with
hospitality center; and a theater promenade with approximately 10,000 square
feet of retail space. The showroom complex will be located adjacent to the
Pavilion, Rio's new 110,000 square foot entertainment/convention complex which
opened in March 1999. The showroom complex is expected to cost approximately $35
million, of which $19.0 million had been spent through September 30, 1999.
Completion is scheduled for second quarter 2000.
At the time of the Showboat acquisition, the Showboat Las Vegas
property was determined to be a nonstrategic asset for us and is being reported
as an asset held-for-sale in our financial statements. In July 1999, we
announced that we have reached an agreement to sell Showboat Las Vegas. The sale
is expected to close in first quarter 2000, subject to certain conditions,
including regulatory approval. No gain or loss is expected to be recorded on
this sale.
In June 1999, we purchased properties adjacent to our casino in Reno,
Nevada. We are in the process of demolishing the buildings on the site and plan
to develop a plaza area. Long-term plans for the site are being developed.
<TABLE>
<CAPTION>
Eastern Region
- --------------
THIRD QUARTER Percentage NINE MONTHS ENDED Percentage
Increase/ Sept. 30, Sept. 30, Increase/
(in millions) 1999 1998 (DECREASE) 1999 1998 (DECREASE)
------ ------ ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues $203.7 $186.6 9.2% $554.7 $378.7 46.5%
Total revenues 219.0 204.3 7.2% 594.7 414.5 43.5%
Operating profit 57.5 51.6 11.4% 139.0 96.4 44.2%
Operating margin 26.3% 25.3% 1.0pts 23.4% 23.3% 0.1pts
</TABLE>
-23-
<PAGE>
Harrah's Atlantic City's revenues increased 10.3% in third quarter 1999 and
operating profit increased 24.2% over the same period last year. Revenues
increased 9.0% and operating income increased 17.5% over the same nine month
period last year at Harrah's Atlantic City. Showboat Atlantic City's revenue
increased 4.0% in third quarter over the same period last year while operating
income remained flat compared to the same period. The Eastern region's results
for first nine months of 1998 include Showboat Atlantic City for the four months
subsequent to our June 1, 1998 acquisition.
<TABLE>
<CAPTION>
Central Region
- --------------
Third QUARTER Percentage NINE MONTHS ENDED Percentage
Increase/ Sept 30, Sept 30, Increase/
(in millions) 1999 1998 (DECREASE) 1999 1998 (DECREASE)
------ ------ ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues $260.1 $171.1 52.0% $722.0 $493.7 46.2%
Total revenues 272.5 181.3 50.3% 758.1 523.9 44.7%
Operating profit 58.2 29.8 95.3 150.2 98.8 52.0%
Operating margin 21.4% 16.4% 5.0pts 19.8% 18.9% 0.9pts
</TABLE>
Chicagoland - Revenues increased 44.8% at Harrah's Joliet compared to the third
quarter of 1998, and operating profit increased 120.9% compared to the same
period last year. For the nine months ended September 30, 1999, revenues were
28.4% above the comparable period last year, while operating income increased
30.6% over the prior year. In late June 1999, cruise scheduling and ticketing
were eliminated at Harrah's Joliet, and business levels have increased
noticeably since going dockside. On November 8, 1999, we opened our new
11-story 204-room hotel at this property. Estimated cost of this project is
$29.1 million, and $18.1 million had been spent through September 30, 1999.
In first quarter 1999, we consummated our agreement with our partners
owning the other 45% ownership interest in the East Chicago Showboat property to
increase our ownership interest to 99.55%, and partnership agreements were
amended to give us greater flexibility in operating this property. Consequently,
we began consolidating this partnership with the financial results of our other
businesses in first quarter. The consideration for this increase in ownership
was cash and stock. Also during first quarter 1999, this property was rebranded
as a "Harrah's" property, and results subsequent to rebranding have been strong.
Louisiana - Harrah's Shreveport's revenues and operating profit for third
quarter and first nine months decreased from the same period last year due to
competitive conditions in the market.
-24-
<PAGE>
Construction began in May 1999 on a 514-room hotel with almost 13,500 square
feet of convention center space. The new hotel and amenity expansion is expected
to cost $146.6 million, of which $10.3 million has been spent through
September 30, 1999, and is scheduled to open in fourth quarter of 2000.
Mississippi - Combined second quarter revenues by Harrah's Mississippi
properties increased 6.8% over third quarter 1998 and 5.0% for the first nine
months of 1999. Results from Harrah's Tunica improved significantly over third
quarter 1998, while operating profit at Harrah's Vicksburg declined from 1998.
In March 1999, we consummated the sale of our original Tunica property to
another casino company for cash and a note receivable. The note was collected in
full in April 1999, and a gain was recognized in second quarter. Our gain from
this disposition is not material.
Missouri - Harrah's North Kansas City's revenues for third quarter 1999
increased 11.3% over the same period in 1998, and operating profit increased
15.9% from third quarter last year. For the first nine months, revenues were
11.1% higher than in 1998, while operating income increased 6.2%.
Third quarter revenues at Harrah's St. Louis-Riverport casino increased
34.0% over third quarter 1998. Operating profit increased 58.9% over the same
period last year. Revenues for the first nine months of 1999 increased 36.9%,
and operating income increased 93.1% over the same period last year. Our
pro-rata share of the operating losses of the related shoreside facilities,
which are owned jointly with Players, was $2.7 million for the quarter and $8.2
million for the first nine months of 1999. These losses are included in Equity
in losses of nonconsolidated affiliates in the Consolidated Condensed Statements
of Income (see Other Factors Affecting Net Income).
Both Harrah's St. Louis and Harrah's North Kansas City were
market-share leaders in their respective markets for the third quarter and first
nine months of 1999.
Managed and Other Casinos
- -------------------------
Increases in our managed and other results were led by increases in
management fees from the Star City casino in Sydney, Australia, for which we
assumed management with the Showboat acquisition on June 1, 1998, and from our
management of tribal-owned casino properties.
-25-
<PAGE>
See DEBT and LIQUIDITY section for further discussion of Harrah's
guarantees of debt related to Indian projects.
<TABLE>
<CAPTION>
Other Factors Affecting Net Income
- ----------------------------------
THIRD QUARTER Percentage NINE MONTHS ENDED Percentage
(Income)/Expense Increase/ Sept. 30, Sept. 30, Increase/
(in millions) 1999 1998 (DECREASE) 1999 1998 (DECREASE)
------ ------ ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Development costs $ 1.9 $ 2.7 (29.6)% $ 4.2 $ 6.6 (36.4)%
Project opening costs 0.2 1.2 (83.3)% 0.6 7.2 (91.7)%
Corporate expense 11.9 9.4 26.6 % 33.3 25.0 33.2 %
Headquarters relocation expense 3.0 - N/M 7.5 - N/M
Equity in losses of
nonconsolidated affiliates 10.2 2.4 N/M 23.0 8.7 N/M
Write-downs, reserves and
recoveries 0.2 - N/M (1.3) 1.8 N/M
Venture restructuring costs - 1.1 N/M (0.4) 3.5 N/M
Amortization of goodwill 4.5 3.3 36.4 % 13.5 5.6 141.1 %
Interest expense, net 48.2 36.4 32.4 % 147.7 81.4 81.4 %
Gains on sales of equity
interests in subsidiaries (16.3) - N/M (16.3) (13.1) 24.4 %
Other (income)/expense 0.6 (0.3) N/M (5.9) (5.8) 1.7 %
Effective tax rate 36.4% 37.1% (0.7)pts 36.9% 36.8% 0.1pts
Minority interests $ 3.5 $ 1.8 94.4 % $ 7.8 $ 5.6 39.3 %
Extraordinary losses, net
of income taxes 0.4 - N/M 11.0 18.3 (39.9)%
Average common and common
equivalent shares outstanding 129.4 100.9 28.2 % 128.3 101.3 26.7 %
</TABLE>
Development costs for third quarter 1999 decreased 29.6% from the same
period last year, reflecting the continuing decline in development activity due
to the limited number of new markets opening for development.
Project opening costs for the first nine months of 1999 include costs
incurred in connection with expansions, remodeling and conversions at existing
properties. 1998 project opening costs included costs incurred in connection
with an initiative to develop and implement strategies and employee training
programs designed to better focus the Company on serving our targeted customers.
Corporate expense increased 26.6% in third quarter 1999 from the prior
year level due to increased expense related to employee incentive plans.
Increased corporate expense for the nine months ended September 30, 1999,
included approximately $2.0 million in consultant costs for a complete review of
-26-
<PAGE>
corporate services and expenses. The review generated ideas from employees to
cut costs through internal department efficiencies, automation, capturing
synergies, outsourcing and streamlining or eliminating select, underutilized
internal products or services. These cost saving measures will be phased in
over the next 12 to 18 months. $3.0 million of costs related to the
relocation of the Company's headquarters to Las Vegas, Nevada, were expensed
in third quarter, bringing the total for 1999 to $7.5 million.
Equity in losses of nonconsolidated affiliates consists of losses from the
St. Louis shoreside facilities joint venture and our investments in Jazz Casino
Company L.L.C. in New Orleans, Star City casino in Australia, an airline company
in Las Vegas, Nevada, a golf course in Tunica, Mississippi and a thoroughbred
racetrack in Florence, Kentucky.
1999 write-downs, reserves and recoveries include the gain from the
sale of our idle property in Tunica, Mississippi, and write-offs of obsolete
assets. 1998 represents charges accrued in connection with the termination of a
development contract.
Amortization of goodwill increased in third quarter 1999 over the same
period last year due to the acquisition of Rio, which was accounted for as a
purchase.
Interest expense increased in 1999 over 1998, primarily as a result of
increases in debt arising from the Showboat and Rio transactions.
The 1999 gain from the sale of an equity interest in a subsidiary
reflects the completion during third quarter 1999 of the acquisition of Sodak
Gaming, Inc., by a gaming equipment manufacturing company. The 1998 gain is
the result of our sale of the equity interest we held in a restaurant company.
Other income/expense in third quarter 1999 includes the write-off of
nonoperating assets and income earned on the cash surrender value of company
owned life insurance policies.
The effective tax rates for all periods are higher than the federal
statutory rate primarily due to state income taxes.
Minority interests reflects joint venture partners' share of income and
increased in 1999 from the prior year as a result of higher earnings from those
ventures.
The extraordinary losses in 1999 and 1998 are due to the early
extinguishments of debt and include premiums paid to the holders of the debt
retired and the write-off of related unamortized deferred finance charges. (See
Debt and Liquidity - Extinguishment of Debt.)
The increase in common and common equivalent shares outstanding over
last year is primarily the result of shares issued in the consummation of the
Rio merger.
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<PAGE>
CAPITAL SPENDING AND DEVELOPMENT
- --------------------------------
Year 2000 Update
- ----------------
We are wrapping up our efforts to address the potential impact of the
Year 2000 ("Y2K") on the systems and equipment that are essential to our
operations. Please see the discussion in our 1998 Form 10-K for a complete
description of our approach to the Y2K issue and the processes underway to
address its potential impact. We have prioritized our efforts according to the
potential impact to our business if a system is not Y2K ready. Priorities, in
order, are: Business Critical-required to operate the business; High
Priority-significant impact to revenues, operating costs, or customer services;
and Other-used by the business but not considered Business Critical or High
Priority.
The following table provides an overview of Business Critical items for
Harrah's, Showboat, and Rio branded properties and corporate facilities and our
Y2K progress as of September 1999.
<TABLE>
<CAPTION>
Y2K Y2K Readiness Internally Vendor
BUSINESS CRITICAL ITEMS STRATEGY STATUS(1) TESTED CERTIFIED
<S> <C> <C> <C> <C>
Casino Management System........................................ Replace/Test Y2K Ready Complete N/A
Financial Systems............................................... Renovate/Test Y2K Ready Complete Complete
Fire Alarm/Sprinkler Systems.................................... Renovate/Test Y2K Ready Complete Complete
GPS/Navigational Systems........................................ Test Y2K Ready Complete Complete
HVAC............................................................ Test/Renovate Y2K Ready Complete Complete
Key Lock System................................................. Renovate/Test Y2K Ready Complete Complete
IBM AS400/OS400................................................. Renovate/Test Y2K Ready Complete Complete
Kiosks.......................................................... Test Y2K Ready Complete Complete
Lodging Management System....................................... Test Y2K Ready Complete Complete
Payroll......................................................... Renovate/Test Y2K Ready Complete Complete
Phone System-PBX................................................ Renovate/Test Y2K Ready Complete Complete
Point-of-Sale System (Micros)................................... Renovate/Test Y2K Ready Complete Complete
Procurement and Payables........................................ Replace/Test Y2K Ready Complete Complete
Slot Data System................................................ Replace/Test Y2K Ready Complete Complete
Slot Devices.................................................... Test Y2K Ready Complete Complete
Surveillance/Security........................................... Test Y2K Ready Complete Complete
Time & Attendance............................................... Replace/Test 4Qtr99(2) Complete Complete
UPS/Generator................................................... Test Y2K Ready Complete Complete
WINet (Customer Database)....................................... Renovate/Test Y2K Ready Complete Complete
</TABLE>
(1) For purposes of this document, "Y2K Ready" means it is anticipated that the
product, process, or mechanism will operate during and after the Year 2000 in a
manner that will not create a material and adverse impact on our operations.
-28-
<PAGE>
(2) One property remains to be converted to a Y2K Ready Time and Attendance
system and is scheduled to be completed in November 1999. A contingency plan
has been developed in the event of any delays in the implementation of this
system.
As noted in the table, the majority of Business Critical items have
been internally tested to verify vendor Y2K compliance claims. Such testing
generally entails creating a test environment to roll the date forward to
simulate the transition from December 31, 1999, to January 1, 2000, test that
the year 2000 is recognized as a Leap year, and perform other tests such as end
of month, quarter, and year-end processing.
We currently estimate the total costs of system replacements and
upgrades to address potential Y2K problems, as well as enhancing business and
operational functionality in some areas, to be approximately $12 million. Of
this $12 million, approximately $10 million represents capitalizable costs. The
total amount expended through September 30, 1999, was $10 million, of which
approximately 80% is related to the cost to repair, replace, and improve
software and related hardware and equipment, approximately 20% related to the
cost to repair, replace, and improve embedded technology, and approximately
$50,000 related to the costs of identifying and communicating with significant
suppliers. These costs, along with internal resource hours, are being separately
tracked. We continue to evaluate the estimated costs associated with Y2K issues,
and if significant issues are identified in the future, such costs could
increase. Although we are devoting considerable resources to resolve Y2K issues,
we continue to support and implement other systems, operations and initiatives.
Based upon our efforts to date and the status of the plans to address
identified issues, we believe that our Business Critical and High Priority
systems are compliant or will be made compliant by December 1999. One of the
greatest challenges of the Y2K issue is the potential impact of items outside of
our control, such as those of utility companies, phone and network systems, and
financial institutions. We are assessing the Y2K status of such items on an
ongoing basis and have developed contingency plans in the event of failures.
However, should we and/or our significant suppliers fail to timely correct
material Y2K issues, such failure could have a significant impact on our ability
to operate as we did before Y2K. In such an event, we have developed contingency
plans designed to minimize any impact to the extent possible. The impact on our
operating results of such failures and of any contingency plans to be designed
to address such events cannot be determined at this time. We believe the "most
likely reasonable worst case scenario" is one
-29-
<PAGE>
in which there are power outages. Although we have backup power supplies and
generators and contingency plans to address this type scenario, an extended
power outage could impact our operating results. Like all other businesses, our
ability to predict the impact of the Y2K Problem and the efficacy of our
solutions with respect thereto is limited by the unprecedented nature of the
problem.
Summary
- -------
In addition to the specific development and expansion projects
discussed in the Operating Results and Development Plans section, we perform
on-going refurbishment and maintenance at our casino entertainment facilities in
order to maintain our quality standards. We also continue to pursue development
and acquisition opportunities for additional casino entertainment facilities
that meet our strategic and return on investment criteria. Prior to the receipt
of necessary regulatory approvals, the costs of pursuing development projects
are expensed as incurred. Construction-related costs incurred after the receipt
of necessary approvals are capitalized and depreciated over the estimated useful
life of the resulting asset. Project opening costs are expensed as incurred.
Our planned development projects, if they go forward, will require,
individually and in the aggregate, significant capital commitments and, if
completed, may result in significant additional revenues. The commitment of
capital, the timing of completion and the commencement of operations of casino
entertainment development projects are contingent upon, among other things,
negotiation of final agreements and receipt of approvals from the appropriate
political and regulatory bodies. Cash needed to finance projects currently under
development as well as additional projects pursued is expected to be made
available from operating cash flows, the Bank Facility (see Debt and Liquidity
section), joint venture partners, specific project financing, guarantees of
third party debt and, if necessary, additional debt and/or equity offerings. Our
capital spending for the first nine months of 1999 totaled approximately $315.5
million. Estimated total capital expenditures for 1999 are expected to be
between $350 million and $390 million.
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<PAGE>
DEBT AND LIQUIDITY
- ------------------
Bank Facility
- -------------
On April 30, 1999, we consummated new revolving credit and letter of
credit facilities (the "Bank Facility") in the amount of $1.6 billion. This Bank
Facility consists of a five-year $1.3 billion revolving credit and letter of
credit facility maturing in 2004 and a separate $300 million revolving credit
facility which is renewable annually, at the borrower's and lenders' options.
Initially, the Bank Facility bears interest based upon 80 basis points over
LIBOR for current borrowings under the five-year facility and 85 basis points
over LIBOR for the 364-day facility. In addition, there is a facility fee for
borrowed and unborrowed amounts which is currently 20 basis points on the
five-year, $1.3 billion facility and 15 basis points on the 364-day, $300
million facility. The interest rate and facility fee are based on our current
debt ratings and leverage ratio and may change as our debt ratings and leverage
ratio change. Proceeds from the Bank Facility were used to retire our previous
revolving credit facility scheduled to mature in 2000 (the "Previous Facility")
and to retire Rio's revolving credit facility scheduled to mature in 2003 and
Rio's 10 5/8% Senior Subordinated Notes due 2005 and 9 1/2% Senior Subordinated
Notes due 2007.
Issuance of Senior Notes
- ------------------------
In keeping with our strategy to refinance a portion of our short-term,
floating-rate borrowings under our Previous Facility with debt that has fixed
rates and longer maturities, in January 1999, we issued $500 million of 7 1/2%
Senior Notes due 2009 and used the net proceeds to further reduce amounts
outstanding under our Previous Facility.
Extinguishments of Debt
- -----------------------
On March 15, 1999, we redeemed all $140 million face amount of our
99.55% owned subsidiary, Showboat Marina Casino Partnership's, 13 1/2% First
Mortgage Notes due 2003 (the "SMCP Notes"). We retired the SMCP Notes using
proceeds from our Previous Facility. We recorded liabilities assumed in the
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Showboat acquisition, including the SMCP Notes, at their fair value as of the
consummation date of the transaction. The difference between the consideration
of $159.8 million paid to the holders of the SMCP Notes pursuant to this tender
offer and the carrying value of the SMCP notes on the consummation date was
recorded in the first quarter as an extraordinary loss of $2.0 million, net of
tax.
On May 17, 1999, we redeemed all $100 million face amount of Rio's 10
5/8% Senior Subordinated Notes due 2005 and all $125 million of Rio's 9 1/2%
Senior Subordinated Notes due 2007. We recorded liabilities assumed in the Rio
merger, including these notes, at their fair value as of the date of
consummation of the merger. The difference between the consideration of $251.8
million paid to the holders of the Rio notes pursuant to the tender offer and
the carrying value of the notes on the date of the redemption was recorded in
the second quarter as an extraordinary loss of $4.5 million, net of tax.
In July 1999, we retired outstanding debt for capital lease obligations
of our 99.55% owned subsidiary, Showboat Marina Casino Partnership.
Approximately $9.2 million of debt was retired, and an extraordinary loss of
$0.4 million, net of tax, was recorded in third quarter.
Interest Rate Agreements
- ------------------------
To manage the relative mix of our debt between fixed and variable rate
instruments, we have entered into interest rate swap agreements to modify the
interest characteristics of our outstanding debt without an exchange of the
underlying principal amount. The differences to be paid or received under the
terms of our interest rate swap agreements are accrued as interest rates change
and recognized as an adjustment to interest expense for the related debt.
Changes in the variable interest rates to be paid or received pursuant to the
terms of our interest rate swap agreements will have a corresponding effect on
our future cash flows.
These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. We minimize that risk by evaluating
the creditworthiness of our counterparties, which are limited to major banks and
financial institutions, and do not anticipate nonperformance by the
counterparties.
For more information regarding the Company's interest rate swap agreements
as of September 30, 1999, please see Note 4 to the accompanying Consolidated
Condensed Financial Statements.
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<PAGE>
Indian Contract Commitments and Guarantees
- ------------------------------------------
The agreements under which we manage casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled repayments of
borrowings for development costs. In the event that insufficient cash flow is
generated by the operations to fund this payment, we must pay the shortfall to
the tribe. Such advances, if any, would be repaid to us in future periods in
which operations generate cash flow in excess of the required minimum payment.
These commitments will terminate upon the occurrence of certain defined events,
including termination of the management contract. Our aggregate monthly
commitment pursuant to the contracts for the three Indian-owned facilities we
now manage, which extend for periods of up to 39 months from September 30, 1999,
is $1.2 million.
We may guarantee all or part of the debt incurred by Indian tribes with
which we have entered into a management contract to fund development of casinos
on the Indian lands. For all existing guarantees of Indian debt, we have
obtained a first lien on certain personal property (tangible and intangible) of
the casino enterprise. There can be no assurance, however, the value of such
property would satisfy our obligations in the event these guarantees were
enforced. Additionally, we have received limited waivers from the Indian tribes
of their sovereign immunity to allow us to pursue our rights under the contracts
between the parties and to enforce collection efforts as to any assets in which
a security interest is taken. The aggregate outstanding balance of such debt as
of September 30, 1999, was $86.2 million, excluding the guarantee related to the
Upper Skagit Tribe's debt.
During second quarter 1999, we performed under our guarantee of the
Upper Skagit Tribe's development financing and purchased the outstanding
development debt from the lender for $11.4 million. Under the terms of our
agreement with the Tribe, they have agreed to fund the retirement of this debt.
The Tribe is attempting to secure new financing; however, there is no assurance
that their efforts will be successful and that the receivable will be retired.
In third quarter we signed a contract with the Ak-Chin Indian Community
to continue management of its casino for another five years. The five year
agreement, which is subject to various regulatory approvals, contemplates an
extension of the Tribe's compact with the State of Arizona which currently
expires in 2003. In addition, the Tribe announced a planned expansion of the
casino to include a new 150-room hotel, an additional restaurant, meeting and
banquet room facilities, a resort pool and a landscaped courtyard.
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<PAGE>
Announced Dispositions
- ----------------------
In April 1999, we announced plans to sell certain of our interests
in Star City casino in Sydney, Australia to TABCORP Holdings Limited,
("TABCORP"), an Australia-based company, in connection with that company's
intention to offer to acquire the issued and outstanding shares of Star City
Holdings Ltd., ("SCHL"). At that time we owned 135 million shares of Star
City Holdings Ltd. and 37 million options to purchase additional ordinary
shares. Subsequent to third quarter 1999, we engaged in a series of
transactions to divest our outstanding shares and options of SCHL and
received pretax proceeds of approximately US$141.5 million. A pretax gain on
the sale of these shares and options of approximately $47.0 million will be
recognized in fourth quarter 1999. The sale of our remaining interests,
consisting primarily of our management contract for the Star City casino, is
expected to close in first quarter 2000.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
Competitive Pressures
- ---------------------
Due to the limited number of new markets opening for development, the
focus of many casino operators has shifted to investing in existing markets in
an effort to attract new customers, thereby increasing competition in those
markets. Our properties in the long-established gaming markets of Nevada and New
Jersey have generally reacted less significantly to the changing competitive
conditions. With the exception of the additional supply being added in Las
Vegas, the amount of supply change within these markets has represented a
smaller percentage
-34-
<PAGE>
change than that experienced in some riverboat markets. In riverboat markets,
the additions to supply had a more noticeable impact, due to the fact that
competition was limited in the early stages of many of these markets. As
companies have completed expansion projects, supply has typically grown at a
faster pace than demand in some markets and competition has increased
significantly. Furthermore, several operators, including Harrah's, have
announced plans for additional developments or expansions in some markets. In
the Las Vegas market, four new "mega" facilities have opened since October
1998, and others are planned and under development. The impact that the
additional supply will have on our operations cannot be determined at this time.
Over the last decade, there has also been a significant increase in the
number of casinos on Indian lands, made possible by the Indian Gaming Regulatory
Act of 1988. We manage three such facilities. The future growth potential from
Indian casinos is also uncertain, however. See "Political Uncertainties" below
for information concerning a California referendum.
Although the short-term effect of these competitive developments on the
Company has been negative, we are not able to determine the long-term impact,
whether favorable or unfavorable, that these trends and events will have on our
current or future markets. We believe that the geographic diversity of our
operations; our focus on multi-market customer relationships; our service
training, measurements and rewards programs; and our continuing efforts to
establish our brands as premier brands have well-positioned us to face the
challenges present within the industry. We have introduced WINet, a
sophisticated nationwide customer database, and our Total Gold Card, a
nationwide reward and recognition card, both of which we believe provide
competitive advantages, particularly with players who visit more than one
market. We are now embarking on the next stage of our strategy with the launch
of the tiered customer loyalty card program - Total Diamond, Total Platinum and
Total Gold - to reward customers for choosing Harrah's Entertainment casinos.
Industry Consolidation
- ----------------------
As evidenced by a number of recent public announcements by casino
entertainment companies of plans to acquire or be acquired by other companies,
including our acquisitions of Showboat and Rio and our planned acquisition of
Players, consolidation in the gaming industry is now underway. We believe we are
well-positioned to, and may from time to time, pursue additional strategic
acquisitions to further enhance our distribution, strengthen our access to
target customers and leverage our technological and centralized services
infrastructure.
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<PAGE>
Political Uncertainties
- -----------------------
The casino entertainment industry is subject to political and
regulatory uncertainty. In 1996, the U.S. government formed the National
Gambling Impact Study Commission to study gambling in the United States,
including the casino gaming industry. The commission issued its report in
June 1999. In September 1999, the state of California and approximately 60
Indian tribes executed Class III Gaming Compacts, which other California
tribes can join. The Compacts, which allow each tribe to operate, on tribal
trust lands, two casinos with up to 2,000 slot machines per tribe and
unlimited house-banked card games, are subject to the passage of an amendment
to the state's constitution by statewide referendum on March 7, 2000. At this
time, the ultimate impacts that the National Gambling Impact Study Commission
report and the approval of the California referendum, should it pass, will
have on the industry or on our company are uncertain. From time to time,
individual jurisdictions have also considered legislation or referendums
which could adversely impact Harrah's Entertainment's operations, and the
likelihood or outcome of similar legislation and referendums in the future is
difficult to predict.
The casino entertainment industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate and hires large
numbers of employees for the casinos. From time to time, various state and
federal legislators and officials have proposed changes in tax laws, or in the
administration of such laws, which would affect the industry. It is not possible
to determine with certainty the scope or likelihood of possible future changes
in tax laws or in the administration of such laws. If adopted, such changes
could have a material adverse effect on our financial results.
INTERCOMPANY DIVIDEND RESTRICTION
- ---------------------------------
Certain of our debt guarantees require us to abide by covenants which,
among other things, limit HOC's ability to pay dividends and make other
restricted payments, as defined, to Harrah's Entertainment. The amount of HOC's
restricted net assets, as defined, computed in accordance with these covenants
regarding restricted payments was approximately $1.5 billion at September 30,
1999. Harrah's Entertainment's principal asset is the stock of HOC, a
wholly-owned subsidiary which holds, directly and through subsidiaries, the
principal assets of our businesses. Given this ownership structure, these
restrictions should not impair our ability to conduct our business through our
subsidiaries or to pursue our development plans.
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<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT
- ----------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission ("SEC") (as well as information included in
oral statements or other written statements made or to be made by the Company)
contain statements that are forward looking. These include statements relating
to the following activities, among others: (A) operations and expansions of
existing properties, including future performance, anticipated scope and opening
dates of expansions; (B) planned development of casinos and hotels that would be
owned or managed by the Company and the pursuit of strategic acquisitions; (C)
the sale of our interests in Star City casino; (D) planned capital expenditures
for 1999 and beyond; (E) the planned acquisition of Players; (F) the impact of
the WINet and Total Gold Card Programs; (G) any future impact of the Showboat
and Rio acquisitions; and (H) Year 2000 compliance plans. These activities
involve important factors that could cause actual results to differ materially
from those expressed in any forward looking statements made by or on behalf of
the Company. These include, but are not limited to, the following factors as
well as other factors described from time to time in the Company's reports filed
with the SEC: construction factors, including zoning issues, environmental
restrictions, soil conditions, weather and other hazards, site access matters
and building permit issues; access to available and feasible financing;
regulatory, licensing and other government approvals, third party consents and
approvals, and relations with partners, owners and other third parties;
conditions of credit markets and other business and economic conditions,
including international and national economic problems; litigation, judicial
actions and political uncertainties, including gaming legislative action,
referenda, and taxation; actions or inactions of suppliers and vendors regarding
Year 2000; and the effects of competition including locations of competitors and
operating and marketing competition. Any forward looking statements are made
pursuant to the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made.
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<PAGE>
PART II -OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibits
EX-2.1 Agreement and Plan of Merger, dated as of August 19, 1999,
by and among Harrah's Entertainment, Inc., HEI Acquisition
Corp. II and Players International, Inc. (including form of
Stockholder Support Agreement entered into by stockholders
of Players as of the same date). (Incorporated by reference
from the Company's Current Report on Form 8-K filed August
23, 1999, File No. 001-10410.)
*EX-10.1 TARSAP Deferral Plan dated July 28, 1999.
*EX-10.2 Employment Agreement dated July 30, 1999, between Harrah's
Entertainment, Inc. and Stephen H. Brammell.
*EX-10.3 Severance Agreement dated July 30, 1999, between Harrah's
Entertainment, Inc. and Stephen H. Brammell.
*EX-11 Computation of per share earnings.
*EX-27 Financial Data Schedule.
*Filed herewith.
(b) A Form 8-K was filed by the Company on August 23, 1999, reporting the
agreement to acquire Players International, Inc.
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<PAGE>
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRAH'S ENTERTAINMENT, INC.
November 12, 1999 BY: /s/ JUDY T. WORMSER
-----------------------
Judy T. Wormser
Vice President and Controller
(Chief Accounting Officer)
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<PAGE>
Exhibit Index
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------------------------- ----------
EX-2.1 Agreement and Plan of Merger, dated as of August 19, 1999,
by and among Harrah's Entertainment, Inc., HEI Acquisition
Corp. II and Players International, Inc. (including form
of Stockholder Support Agreement entered into by
stockholders of Players as of the same date).
(Incorporated by reference from the Company's Current
Report on Form 8-K filed August 23, 1999, File No.
001-10410.)
EX-10.1 TARSAP Deferral Plan dated July 28, 1999.
EX-10.2 Employment Agreement dated July 30, 1999, between Harrah's
Entertainment, Inc. and Stephen H. Brammell.
EX-10.3 Severance Agreement dated July 30, 1999, between Harrah's
Entertainment, Inc. and Stephen H. Brammell.
EX-11 Computation of per share earnings.
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<PAGE>
Exhibit 10.1
HARRAH'S ENTERTAINMENT, INC. ("COMPANY")
TARSAP DEFERRAL PLAN (THE "PLAN")
1. PURPOSE. The purpose of the Plan is to give participants ("Participants")
in the Company's TARSAP Program an opportunity to defer the receipt of
restricted stock that vests under the TARSAP Program. This will benefit
the Company and its stockholders by motivating Participants to remain
employees.
2. DEFERRALS. Each Participant will have the right to elect ("Election") to
exchange all or a part of the restricted shares that may vest on the next
TARSAP vesting date for an equivalent number of restricted stock units
("RSU's) which will be subject to the same vesting provisions. The
restricted shares will be cancelled and the RSU's will be granted on the
date the Election form is received by Corporate Compensation.
(a) An RSU is a right to receive shares of the Company's common stock
pursuant to the TARSAP program. Prior to vesting, RSU's are subject
to all the restrictions that the TARSAP shares they replaced are
subject to, including forfeiture provisions. Subject to the
provisions of the Plan, after vesting, the shares represented by
RSU's will not be issued during the period of time (the "Deferral
Period") that will last until the deferred issue date or dates
elected by the Participant (the "Deferred Issue Date") pursuant to
2(c) below, at which time the Company agrees to issue the shares to
the Participant. The Participant will have no rights as a
stockholder with respect to RSU's, whether vested or unvested, and
the rights to receive the shares will be unsecured and unfunded.
Fractional RSU's will be rounded to a whole share as determined by
Corporate Compensation.
(b) Each Election must be received by the Company at least six months
before the annual March 1 or January 1 vesting date for TARSAP
shares and shall be irrevocable except as provided in Sections 4 and
7 below.
(c) The Participant will have the right, using an Election form provided
by the Company, to defer commencement of the receipt of a specified
amount of the maximum shares of the Participant's next TARSAP
vesting to a future date as selected by the Participant or
termination of employment, whichever date occurs first
("Commencement Date"). The shares will be issued as follows as may
be elected by the Participant on the Election form: (1) in a lump
sum on the Commencement Date; (2) in a lump sum on the one year
anniversary of the Commencement Date; or (3) in approximately equal
installments over two to ten years with the first installment
starting on the one year anniversary date of the Commencement Date
and each installment thereafter on subsequent anniversaries of the
Commencement Date. The date or dates of issuance are referred to as
the Deferred Issue Date.
1
<PAGE>
Provided, however, these deferrals are subject to the provisions of
Section 4 below which accelerates deferrals in certain situations.
If annual TARSAP shares that have been deferred do not vest, then
the deferral Election for those shares will carry over to the next
annual vesting.
3. DIVIDENDS. If any dividends or other rights or distributions of any kind
("Distribution") are distributed to holders of the Company's common stock,
then an amount equal to the cash value per share of such Distribution will
be paid to the Participant in cash for each RSU of the Participant
representing an unforfeited share of the Company's common stock within ten
days of such Distribution, PROVIDED, HOWEVER, this will not apply to a
stock split, stock dividend or other distribution of Company equity.
In the event of a stock split, stock dividend or other distribution of
Company equity, the Distribution will be added to the Participant's
account in the form of a right to receive such Distribution which will
then be issued after the RSU vests on the Deferred Issue Date originally
elected by the Participant for the unforfeited RSU's to which the
Distribution applies. The above cash payment of the value of dividends and
other Distributions will also not apply to a tender offer of cash or other
consideration paid by another person or company. (See Section 4)
4. CHANGE IN CONTROL
(a) TERMINATION OF DEFERRAL. Unless the continuation of a Participant's
deferral is approved under 4(b), upon a Change in Control (as defined in
the TARSAP Program), all unforfeited RSU's of all Participants, whether
vested or unvested, will be automatically converted, on a one for one
basis, to shares of the Company's common stock at or immediately before
the closing or completion of the Change in Control. Upon the closing or
completion of the Change in Control, each Participant will then receive
the same consideration for his or her shares as other stockholders at the
time they receive it and the Participant's deferral account and the Plan
as to such Participant will be terminated.
If a Participant's Election to defer had previously been submitted and the
Change in Control closes or is completed before the annual vesting date
applicable to that Election, then for purposes of this 4(a) the deferred
account will also be deemed to include the unforfeited shares so elected
to be deferred.
(b) CONTINUATION OF DEFERRAL. If, within a reasonable time prior to the
approval of a Change in Control, a Participant requests continuance of his
deferral account, the Committee will have the sole and absolute
discretion, subject to the approval of the counterpart committee of the
acquiring company (consisting of Non-Employee Directors) or the board of
directors of the acquiring company, to approve the conversion of the RSU's
of the Participant to rights to receive, on the Deferred Issue Date,
securities of the acquiring company. This conversion, if approved, will
occur simultaneously with or immediately prior to the closing of the
Change in Control transaction. The securities of the acquiring company, at
the time of such
2
<PAGE>
conversion, will be equivalent in market value to the Company securities
to which his or her RSU's pertain at that time. No obligation whatsoever
is hereby created or will exist to consider or approve a request for
continuance of a deferral.
The foregoing approvals, if given, must occur at the same time as, or
immediately following, the approvals of the agreement for the merger or
acquisition. If such conversion as to a Participant does not occur, then
the transaction will be treated for that Participant as under 4(a) above,
in which case such Participant will receive for all unforfeited RSU's the
same consideration as received by other stockholders at the time they
receive it and the Participant's deferral account and the Plan as to such
Participant will terminate.
If a Participant's Election to defer had previously been submitted and the
acquisition transaction closes or is completed before the annual vesting
date applicable to that Election, then for purposes of this 4(b) the
deferred account will also be deemed to include the unforfeited shares so
elected to be deferred.
5. ADJUSTMENTS. If any transaction or event occurs that affects the Company's
common stock (including, without limitation, a recapitalization,
reclassification, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of
equity, or other similar corporate transaction or event) such that an
adjustment is necessary to prevent dilution or enlargement of benefits
under the Plan, then the Committee shall, in such manner as it deems
equitable, adjust the deferral accounts of Participants as to the number
and/or type of equity, property or cash which may be issued to the
Participant, as well as adjust the timing of such distributions if
appropriate, subject to the provisions of paragraph 4 above.
6. ADMINISTRATION
(a) The Plan will be administered by the Company's senior officer
responsible for benefits (or his or her designee) ("Benefits
Officer") and the staff in the Corporate Compensation Department or
any successor department ("Corporate Compensation"). The Benefits
Officer will have full authority to interpret the Plan and make
decisions necessary or advisable for Plan administration. The
Benefits Officer may also approve amendments that are administrative
in nature including amendments that do not materially increase the
Company's liabilities under the Plan. Corporate Compensation will
have full authority to administer the Plan on a day-to-day basis
under the supervision of the Benefits Officer.
The Human Resources Committee of the Company's Board of Directors or
any successor committee qualified as a Non-Employee committee
pursuant to rules under Section 16 of the Securities and Exchange
Act (the "Committee") will have authority to approve termination of
the right to make further deferral elections, certain matters under
Section 4 upon a Change in Control, adjustments under Section 5,
hardship withdrawals under Section 7 and Plan amendments that
materially increase the Company's liabilities under the Plan.
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(b) Except for the uniformity of hardship standards under Section 7,
decisions under the Plan are not required to be uniform, and
different requirements and amendments may be approved for different
Participants. Amendments that materially decrease the benefits of
any Participant will require the written consent of the Participant.
(c) The Committee, the Benefits Officer and any officer or employee
involved in Plan administration may rely on the opinion of Company
legal advisors and Company certified public accountants in the
performance of their duties. The final decisions of the Corporate
Compensation Department, the Benefits Officer, and the Committee as
to their respective responsibilities shall be binding on anyone
having an interest in the Plan.
(d) Each member of the Committee, the Benefits Officer and any other
employee or person involved in Plan administration will be
indemnified and held harmless by the Company from and against any
loss, cost, liability or expense (including reasonable attorneys
fees) in connection with or resulting from any action or failure to
act under the Plan. This includes any settlement, as approved by the
Company, and any judgment in any action or proceeding, PROVIDED the
Company shall be given written notice and opportunity to defend any
action or proceeding at Company expense before the indemnified
person undertakes defending against any such action or proceeding.
This right of indemnification shall not limit any other right of
indemnification.
7. HARDSHIP. The Committee may approve the acceleration of the distribution
of all or part of a deferral account containing vested RSU's based on
Hardship, subject to the following:
(a) Hardship shall mean a severe financial hardship, as determined by
the Committee, resulting to the Participant or a dependent due to
casualty, illness, loss of property, serious adverse change in a
Participant's financial circumstances or any other unexpected event
beyond the Participant's reasonable control,
(b) The Committee will make its decision based on uniform standards
consistently applied,
(c) The Participant must submit a letter to the Committee (in care of
the Benefits Officer) specifying the factors causing the Hardship,
(d) The distribution will not exceed the amount necessary to meet the
Hardship, and
(e) Not more than one Hardship request may be submitted every 12 months.
8. NON-ASSIGNABILITY. An RSU may not be sold, assigned, transferred,
exchanged, pledged or encumbered during the Deferral Period, except that
upon death, vested RSU's shall be transferred to the Participant's
designated beneficiary, or if none, to the Participant's estate as
beneficiary. Distribution to a designated beneficiary or to an estate as
beneficiary will be at the time of the Deferred Issue Date elected by the
Participant
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subject to the acceleration provisions of Section 4 and the hardship
provisions of Section 7. A beneficiary will be considered a Participant
with respect to the deferral account.
9. DURATION OF PLAN; EXPENSES. The Plan will remain in effect until the
issuance of the final shares under any RSU, provided that the Committee
may at any time terminate the right to make further TARSAP deferrals.
Expenses of the Plan will be paid by the Company.
10. WITHHOLDING TAXES. The Company may require Participants or beneficiaries
to pay required withholding taxes before releasing stock certificates.
11. AMENDMENT TO RESTRICTED STOCK PLAN. This Plan shall be deemed an amendment
to the Company's 1990 Restricted Stock Plan. The final date for issuing
shares under the Restricted Stock Plan is extended as necessary to
accommodate the issuance of shares deferred hereunder. RSU's will be
counted as issued shares under the 1990 Restricted Stock Plan in lieu of
the corresponding cancelled TARSAP shares for purposes of determining the
maximum number of shares that can be issued under the 1990 Restricted
Stock Plan. The subsequent issuance of shares pursuant to the Plan will
not be counted again.
This TARSAP Deferral Plan was duly approved by the Human Resources
Committee of the Board of Directors on July 28, 1999 .
/s/ Rebecca W. Ballou
-------------------------------
Rebecca W. Ballou
Secretary
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Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of July 30,
1999, by and between Harrah's Operating Company, Inc. ("Company") and Stephen H.
Brammell ("Executive").
The Company and the Executive agree as follows:
1. EMPLOYMENT. Subject to appropriate regulatory approvals, the Company
hereby employs the Executive as Senior Vice President and General Counsel or in
such other capacity as the Company reasonably shall designate. The Executive may
be an employee of the Company or one of its subsidiaries.
2. DUTIES. During the term of this Agreement ("Active Employment"), the
Executive shall devote substantially all of his working time, energies, and
skills to the benefit of the Company's business. The Executive agrees to serve
the Company diligently and to the best of his ability, and to follow the
policies and directions of the Company.
3. COMPENSATION. The Executive's compensation and benefits during his
Active Employment shall be as follows:
(a) BASE SALARY. The Company shall pay the Executive a base salary
("Base Salary") of $250,000 per year, which will be reviewed annually by the
Company during the term of this Agreement in accordance with its compensation
practices regarding senior executives. The Executive's Base Salary shall be paid
biweekly in accordance with the Company's normal payroll schedule. All payments
shall be subject to the Executive's chosen benefit deductions and the deduction
of payroll taxes and similar assessments as required by law.
(b) BONUS. In addition to the Base Salary, the Executive shall be
eligible for an annual bonus in accordance with the Company's bonus plan.
4. INSURANCE AND BENEFITS. The Executive will be eligible to
participate in each employee benefit plan and receive each executive benefit
that the Company provides for its senior executives, in accordance with the
applicable plan rules.
5. TERM. The term of this Agreement shall be for four (4) years,
beginning July 30, 1999, and ending July 29, 2003.
6. NO CAUSE TERMINATION/NON-RENEWAL OF AGREEMENT. The Company may
terminate the Executive's Active Employment at any time without cause upon
thirty (30) days' prior written notice ("no cause termination"). The Company
also, in its sole discretion, may elect not to renew this Agreement upon its
expiration ("non-renewal of Agreement"). In the event of such no cause
termination or non-renewal of Agreement, the Executive shall remain an employee
of the Company during the subsequent salary continuation period and shall be
entitled only to the salary and benefits set forth below, unless otherwise
specified in this Agreement.
<PAGE>
Benefit Termination Date
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Base Salary (rate as of Separation Date) 18 months (78 weeks) ("Salary
Continuation Period") Period") from
last day worked ("Separation from
last day of Active Employment
("Separation Date"). Date").
PTO and Service Credit Separation Date (accrued PTO will
be paid within 30 days of
Separation Date).
Use of Credit Cards Separation Date.
Bonus--Payment and Eligibility (i) Eligible for prior year bonus
if Separation Date occurs during
payment year but prior to payment;
(ii) eligible for prorated bonus
for the then current year if in job
for more than 6 months and
Separation Date occurs after June
30; (iii) not eligible for bonus
for year following Separation Date.
Group Health and Life Insurance End of Salary Continuation Period.
18-month COBRA rights period for
health insurance will commence on
Separation Date. (See also
Paragraph 10.)
Retaining Existing Stock Options for (i) Options from grants made prior
Vesting and Other Rights to 7/30/99 that have vested prior
to Separation Date can be exercised
through end of Salary Continuation
Period, but unvested options from
such grants will be forfeited as of
Separation Date; (ii) options from
grants made on or after 7/30/99
retained for exercise and vesting
through end of Salary Continuation
Period. Exercise of vested options
after Salary Continuation Period
per plan rules.
Accelerated vesting of all options
not forfeited on Separation Date if
Change of Control occurs during
Salary Continuation Period.
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Retaining Existing Restricted Stock for All regular restricted stock that
Vesting and Other Rights is unvested as of the Separation
Date will be forfeited on that
date. Forfeited restricted stock
will not vest upon a Change in
Control during Salary Continuation.
See below for TARSAP.
Eligibility for New Restricted Stock Separation Date.
or New Stock Options
TARSAP Next potential vesting, based on
Performance targets, after
Separation Date, at CEO's and HRC's
discretion. Accelerated vesting of
all shares if Change of Control
occurs during Salary Continuation.
Use of Financial Counseling per End of Salary Continuation Period.
Plan Provisions The maximum remaining benefit shall
be annual benefit remaining as of
Separation Date.
Savings and Retirement Plan End of year of Separation Date.
Deductions (Active Participation) Employment termination date will be
termination date under S&RP.
Executive Deferred Compensation End of year of Separation Date.
Plan/Deferred Compensation Plan Distribution will commence after
(Active Participation) Salary Continuation Period, in
accordance with previously made
elections, and at the termination
rate unless the Executive qualifies
for the retirement rate. (See also
Paragraph 11.) 3X death benefit
provision waived for death after
Separation Date. EDCP and other
deferred compensation balances will
continue to be protected by then
existing Escrow Agreement subject
to all terms and conditions thereof
including its termination
provisions.
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<PAGE>
7. DEATH OF EXECUTIVE. Upon the death of the Executive during his
Active Employment, his salary and all rights and benefits hereunder will
terminate, and his estate and beneficiary(ies) will receive the benefits to
which they are entitled under the terms of the Company's benefit plans and
programs by reason of a participant's death during employment, including the 3X
death benefit provided by the EDCP (3 X death benefit applies only if death
occurs during Active Employment) and the applicable rights and benefits under
the Company's stock plans. If the Executive dies during the Salary Continuation
Period, all of the provisions of the previous sentence apply except that the
remaining salary continuation will be paid in a lump sum to the Executive's
estate.
8. TERMINATION BY COMPANY FOR CAUSE. The Company shall have the right
to terminate the Executive's Active Employment for cause. Employment status and
all salary and benefits shall thereupon cease, except COBRA rights and as
otherwise provided in applicable benefit plans. Termination for cause shall be
effective immediately upon notice sent or given to the Executive and this
effective date will be both his Separation Date and date of termination of
employment. For purposes of this Agreement, the term "cause" shall mean and be
strictly limited to: (i) conviction of any crime that materially discredits the
Company or is materially detrimental to the reputation or goodwill of the
Company; (ii) commission of any material act of fraud or dishonesty against the
Company, or commission of an immoral or unethical act that materially reflects
negatively on the Company, or engaging in willful misconduct; provided that the
Executive shall first be provided with written notice of the claim against him
under this provision (ii) and with an opportunity to contest said claim before
the Board of Directors; or (iii) material breach of the Executive's obligations
under Paragraph 2. of this Agreement, as so determined by the Board of
Directors.
9. VOLUNTARY TERMINATION/NOTICE PERIOD. The Executive may terminate
this Agreement voluntarily at any time and for any or no reason during its term
upon thirty (30) days' prior written notice to the Company, except as specified
in this paragraph. If the Executive is going to work or act in competition with
the Company as described in Paragraph 14. of this Agreement, the Executive must
give the Company six (6) months' prior written notice of his intention to do so.
The written notice provided by the Executive shall specify the last day to be
worked by the Executive ("Separation Date"), which Separation Date under this
Paragraph 9. shall also be his termination of employment date and must be at
least thirty (30) days or six (6) months (as appropriate) after the date the
notice is received by the Company. Unless otherwise specified herein, or in a
writing executed by both parties, the Executive shall not receive any of the
benefits provided in this Agreement after the Separation Date set forth in his
written notice except for applicable rights and benefits that apply to employees
generally upon termination of employment.
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<PAGE>
10. CERTAIN HEALTH INSURANCE BENEFITS. If (i) the Executive reaches the
age of 50 and, when added to his number of years of continuous service with the
Company including any period of salary continuation, the sum of his age and
years of service equals or exceeds 65, and at any time after the occurrence of
both such events the Executive's employment is terminated pursuant to Paragraph
6., above; or (ii) the Executive reaches the age of 55 and has attained 10 years
of continuous service with the Company including any period of salary
continuation, and at any time after the occurrence of both such events the
Executive's employment terminates for any reason other than by the Company for
"cause" as described in paragraph 8., above, the Executive and his then-eligible
dependents shall be entitled to participate in the Company's group health
insurance plan, as amended from time to time by the Company, after the
Executive's Separation Date or the end of the Salary Continuation Period, as
applicable, for the remainder of the Executive's life ("Life Coverage Period").
During the Life Coverage Period, the Executive shall pay 20% of the current
premium (revised annually) on an after-tax basis each quarter, and the Company
shall pay 80% of said premium on an after-tax basis, which contribution will be
imputed income to the Executive. As soon after the Separation Date as the
Executive becomes eligible for Medicare coverage, the Company's group health
insurance plan shall become secondary to Medicare.
If the Executive engages in any of the activities described in
Paragraph 14.(a), below, during the Life Coverage Period, the entitlement of the
Executive and his then-eligible dependents to participate in the Company's group
health insurance plan shall terminate automatically, without any further action
or notice by either party, subject to applicable COBRA rights, which shall
commence on the Separation Date. If the Executive engages in any of the
activities described in said Paragraph 14.(a)(i) in a business which does NOT
compete with the Company or any of its subsidiaries during the Life Coverage
Period, the Company's group health insurance plan shall become secondary to any
primary health insurance plan or coverage made available to the Executive by
that business.
The Executive shall also receive the benefits and be bound by the
provisions of this Paragraph 10 if a Change in Control, as defined in the
Executive's Severance Agreement, occurs following the effective date of this
Agreement.
11. EDCP RETIREMENT RATE. If the Executive reaches the age of 50 and,
when added to his number of years of continuous service with the Company, the
sum of his age and years of service equals or exceeds 65, and at any time after
the occurrence of both such events the Executive's employment is terminated
pursuant to Paragraph 6., above, the Executive shall be entitled to receive his
distributions from EDCP at the retirement rate. For EDCP retirement rate
purposes, the Executive will receive service credit for the Salary Continuation
Period.
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<PAGE>
12. CHANGE IN CONTROL. If a Change in Control, as defined in the
Executive's Severance Agreement, occurs during the Executive's Active
Employment, and if the Severance Agreement is in force when the Change in
Control occurs, then the Severance Agreement supersedes and replaces this
Agreement except as provided in Paragraph 10. If, prior to a Change in Control
(as defined above), the Executive's Active Employment has been terminated for
any reason by either party or this Agreement is not renewed by the Company, then
the Executive's Severance Agreement terminates automatically.
13. DISABILITY. If the Executive becomes disabled prior to the
termination of his Active Employment or the non-renewal of this Agreement, he
will be entitled to apply at his option for the Company's long-term disability
benefits. If he is accepted for such benefits, then the terms and provisions of
the Company's benefit plans and the programs (including the EDCP and the
Company's Stock Option and Restricted Stock Plans) that are applicable in the
event of such disability of an employee shall apply in lieu of the salary and
benefits under this Agreement, except that (i) the Escrow Agreement (if then in
force) and his indemnification agreement will continue in force (the Escrow
Agreement will be subject to amendment or termination in accordance with its
terms), and (ii) he will be entitled to the lifetime group insurance benefits
described in Paragraph 10. If the Executive is disabled so that he cannot
perform his duties (as determined by the Human Resources Committee (HRC), and if
he does not apply for long-term disability benefits or is not accepted for such
benefits, then the Company may terminate his duties under this Agreement. In
such event, he will receive eighteen months salary continuation, together with
all other benefits, and during such period of salary continuation any stock
options and restricted stock grants then in existence will continue in force for
vesting purposes. However, during such period of salary continuation for
disability, Executive will not be eligible to participate in the annual bonus
plan, nor will he be eligible to receive stock option or restricted stock grants
or any other long-term incentive awards except to the extent approved by the
HRC.
If the Executive becomes disabled during the Salary Continuation
Period, he will be entitled only to the salary and benefits described in
Paragraphs 6. and 10., above, for the periods set forth in those respective
paragraphs.
14. NON-COMPETITION.
(a) NON-COMPETITION. During the Executive's Active Employment,
and during the Salary Continuation Period described in Paragraph 6., above, the
Executive:
(i) shall not engage in any activity, including development
activity, whether as employer, proprietor, partner, stockholder (other than the
holder of less than 5% of the stock of a corporation the securities of which are
traded on a national securities exchange or in the over-the-counter market),
director, officer, employee, consultant or otherwise, in competition with (x)
the casino, casino/hotel and/or casino/resort businesses conducted at the date
hereof by the Company, or any subsidiary or affiliate ("Company" for purposes of
this paragraph 14) or (y) any casino, casino/hotel and/or casino/resort business
in which the Company is substantially engaged at any time during the Active
Employment period;
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<PAGE>
(ii) shall not solicit, in competition with the Company, any
person who is a customer of the businesses conducted by the Company at the date
hereof or of any business in which the Company is substantially engaged at any
time during the term of this Agreement.
(b) SCOPE OF COVENANTS; REMEDIES. The following provisions shall
apply to the covenants of the Executive contained in this Paragraph 14:
(i) the covenants contained in paragraphs (i) and (ii) of
Paragraph 14.(a) shall apply within the United States, Canada and Mexico, plus
any territories in which Company is actively engaged in the conduct of business
while the Executive is employed under this Agreement, including, without
limitation, the territories in which customers are then being solicited;
(ii) without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the Executive of
the covenants contained in this Paragraph 14., it is expressly agreed by the
Executive and the Company that such other remedies cannot fully compensate the
Company for any such violation and that the Company shall be entitled to
injunctive relief to prevent any such violation or any continuing violation
thereof;
(iii) each party intends and agrees that if, in any action
before any court or agency legally empowered to enforce the covenants contained
in this Paragraph 14., any term, restriction, covenant or promise contained
therein is found to be unreasonable and accordingly unenforceable, then such
term, restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency; and
15. Any confidentiality/non-solicitation agreement that Executive has
signed with the Company shall remain in full force and effect according to its
terms.
16. POST ACTIVE-EMPLOYMENT COOPERATION. Upon the termination of his
Active Employment, the Executive will cooperate with, and provide information
to, the Company in assuring an orderly transition of all matters being handled
by him. Upon the Company providing reasonable notice to him, he will also appear
as a witness at the Company's request and/or assist the Company in any
litigation, bankruptcy or similar matter in which the Company or any affiliate
thereof is a party; PROVIDED that the Company will defray any approved
out-of-pocket expenses incurred by him in connection with any such appearance
and that, if the Executive is no longer receiving salary compensation from the
Company, the Company will compensate him for all time spent, at either his then
current compensation rate or his salary rate as of the Separation Date,
whichever is higher. The Company agrees further to indemnify him as prescribed
in his Indemnification Agreement and Article TENTH of the Certificate of
Incorporation of Harrah's Entertainment, Inc., as amended, filed on November 2,
1989, in the Office of the Secretary of State of the State of Delaware and
recorded in Book 935, Page 780, ET SEQ.
17. RELEASE. Upon the termination of the Executive's Active Employment,
and in consideration of the receipt of the salary and benefits described in this
Agreement, except for claims arising from the covenants, agreements, and
undertakings of the Company as set forth herein and except as prohibited by
statutory language, the Executive forever and unconditionally waives, and
releases Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., their
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<PAGE>
subsidiaries and affiliates, and their officers, directors, agents, benefit plan
trustees, and employees ("Released Parties") from any and all claims, whether
known or unknown, and regardless of type, cause or nature, including but not
limited to claims arising under all salary, vacation, insurance, bonus, stock,
and all other benefit plans, and all state and federal anti-discrimination,
civil rights and human rights laws, ordinances and statutes, including Title VII
of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act,
concerning his employment with Harrah's Operating Company, Inc., its
subsidiaries and affiliates, and the cessation of that employment
18. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given hereunder by either party to
the other may be effected by personal delivery, in writing, or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses set forth below, but
each party may change his or its address by written notice in accordance with
this Paragraph 18.(a). Notices shall be deemed communicated as of the actual
receipt or refusal of receipt.
If to Executive: Stephen H. Brammell
9505 Grenville
Las Vegas, NV 89134
If to Company: Harrah's Operating Company, Inc.
1023 Cherry Rd.
Memphis, TN 38117
Attn: Secretary
(b) PARTIAL INVALIDITY. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provision shall, nevertheless, continue in full force and without
being impaired or invalidated in any way.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee, without regard
to its conflict of laws provisions.
(d) NO CONFLICTING AGREEMENT. By signing this Agreement,
Executive warrants that he is not a party to any restrictive covenant, agreement
or contract which limits the performance of his duties and responsibilities
under this Agreement or under which such performance would constitute a breach.
(e) HEADINGS. The Section, paragraph, and subparagraph headings
are for convenience or reference only and shall not define or limit the
provisions hereof.
(f) AMENDMENTS. Any amendments to this Agreement must be in
writing and signed by both parties.
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(g) BINDING AGREEMENT. This Agreement is binding on the parties
and their heirs, successors and assigns.
(h) SURVIVAL OF PROVISIONS. The provisions of this Agreement
shall survive any termination thereof if so provided herein and if necessary or
desirable fully to accomplish the purposes of such provisions, including without
limitation the rights and obligations of the Executive under Paragraphs 6, 14,
15, 16 and 17 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Harrah's Operating Company, Inc.
By: /s/ Philip G. Satre
---------------------------
Philip G. Satre
Chairman of the Board and
Chief Executive Officer
/s/ Stephen H. Brammell
---------------------------
Stephen H. Brammell
Executive
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Exhibit 10.3
HARRAH'S ENTERTAINMENT, INC
July 30, 1999
Mr. Stephen H. Brammell
c/o Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: SEVERANCE AGREEMENT
Dear Mr. Brammell:
Harrah's Entertainment, Inc. (the "Company") considers it essential to
the best interest of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company, although no such change is
now contemplated.
In order to induce you to remain in the employ of the Company or its
subsidiaries and in consideration of your agreements set forth in Subsection
2(b) hereof, the Company agrees that you shall receive the severance benefits
set forth in this letter agreement ("this Agreement") in the event your
employment with the Company or its subsidiaries terminates subsequent to a
"Change in Control of the Company" (as defined in Section 2 hereof) under the
circumstances described below.
1. TERM OF AGREEMENT. This Agreement shall commence on July 30, 1999
and shall continue in effect through December 31, 1999; PROVIDED, HOWEVER, that
commencing on January 1, 2000 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 2
than January 1 of the preceding year, the Company with the approval of the Board
of Directors shall have given you written notice that it does not wish to extend
this Agreement; PROVIDED, FURTHER, if a Change in Control of the Company shall
have occurred during the original or extended term of this Agreement, this
Agreement shall automatically continue in effect for a period of twenty-four
months beyond the month in which such Change in Control occurred.
2. CHANGE IN CONTROL.
(a) No benefit shall be payable to you hereunder unless there shall
have been a Change in Control of the Company, as set forth below. For purposes
of this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than an employee benefit plan of the Company, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25%
or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board, regardless of
comparative voting power of such voting securities, and regardless of
whether or not the Board shall have approved the acquisition of such
securities by the acquiring person; or
(ii) During any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board together
with any new director(s) (other than a director designated by a person
who shall have entered into an agreement with the Company to effect a
transaction described in clauses (i) or (iii) of this Subsection) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute
a majority thereof; or
(iii) The holders of securities of the Company entitled to
vote thereon approve the following:
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 3
(A) A merger or consolidation of the Company with any
other corporation regardless of which entity is the surviving
company, other than a merger or consolidation which would
result in the voting securities of the Company carrying the
right to vote in elections of persons to the Board outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of (a) the
Company's then outstanding voting securities carrying the
right to vote in elections of persons to the Board, or (b) the
voting securities of such surviving entity outstanding
immediately after such merger or consolidation, or
(B) A plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(iv) Notwithstanding the definition of a "Change in Control"
of the Company as set forth in this Section 2(a), the Human Resources
Committee of the Board (the "Committee") shall have full and final
authority, which shall be exercised in its discretion, to determine
conclusively whether a Change in Control of the Company has occurred,
and the date of the occurrence of such Change in Control and any
incidental matters relating thereto, with respect to a transaction or
series of transactions which have resulted or will result in a
substantial portion of the assets or business of the Company (as
determined, prior to the transaction or series of transactions, by the
Committee in its sole discretion which determination as to whether a
substantial portion is involved shall be final and conclusive) being
held by a corporation at least 80% of whose voting securities are held,
immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (as determined by the
Committee in its sole discretion prior to such transaction or series of
transactions which determination as to whether the 80% amount will be
satisfied shall be final and conclusive). The Committee may exercise
any such discretionary authority without regard to whether one or more
of the transactions in such series of transactions would otherwise
constitute a Change in Control of the Company under the definition set
forth in this Section 2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of
the Company" shall be deemed to have occurred if the following occur:
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Mr. Stephen H. Brammell
July 30, 1999
Page 4
(i) The Company enters into a written agreement or letter of
intent, the consummation of which would result in the occurrence of a
Change in Control of the Company;
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control of the Company;
(iii) Any person (other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the Company's then outstanding voting
securities carrying the right to vote in elections of persons to the
Board increases such beneficial ownership of such securities by an
additional five percentage points or more thereby beneficially owning
14.5% or more of such securities; or
(iv) The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the
Company has occurred.
You agree that, subject to the terms and conditions of this Agreement,
in the event of a Potential Change in Control of the Company, you will remain in
the employ of the Company (or the subsidiary thereof by which you are employed
at the date such Potential Change in Control occurs) until the earliest of (x) a
date which is six months from the occurrence of such Potential Change in Control
of the Company, (y) the termination by you of your employment by reasons of
Disability or Retirement (at your normal retirement age), as defined in
Subsection 3(a), or (z) the occurrence of a Change in Control of the Company.
(c) GOOD REASON. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Company, of any of the following circumstances unless, in the
case of paragraphs (i), (v), (vi), (vii) or (viii), such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination, as such terms are defined in Subsections 3(e) and 3(d),
respectively, given in respect thereof:
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Mr. Stephen H. Brammell
July 30, 1999
Page 5
(i) The assignment to you of any duties inconsistent with your
status as an executive officer of the Company (or your status in the
position held by you immediately prior to the Change in Control) or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the Change
in Control of the Company;
(ii) A reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time except for an across-the-board salary reduction of a specific
percentage applied to all individuals at grade levels 26 and above and
all individuals in similar grade levels of any person in control of the
Company;
(iii) The relocation of the Company's principal executive
offices where you are working immediately prior to the Change in
Control of the Company to a location more than 50 miles from the
location of such offices immediately prior to the Change in Control of
the Company or the Company's requiring you to be based anywhere other
than the location of the Company's principal executive offices where
you were working immediately prior to the Change in Control of the
Company except for required travel on the Company's business to an
extent substantially consistent with your business travel obligations
during the year prior to the Change in Control;
(iv) The failure by the Company, without your consent, to pay
to you any portion of your current compensation except pursuant to an
across-the-board compensation deferral of a specific percentage applied
to all individuals in grade levels 26 or above and all individuals in
similar grades of any person in control of the Company, or to pay to
you any portion of an installment of deferred compensation under any
deferred compensation program of the Company, within thirty days of the
date such compensation is due;
(v) The failure by the Company to continue in effect any
compensation plan in which you are participating immediately prior to
the Change in Control of the Company which is material to your total
compensation, including but not limited to, the Company's Bonus Plan,
Executive Deferred Compensation Plan, Deferred Compensation Plan,
Restricted Stock Plan, Stock Option Plan, or any substitute plans
adopted prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to such plan, or the failure by the Company to continue
your
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 6
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed immediately prior to the Change in Control of
the Company;
(vi) The failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under any
of the Company's pension, savings and retirement plan, life insurance,
medical, health and accident, or disability plans in which you were
participating at the time of the Change in Control of the Company, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control of
the Company, or the failure by the Company to provide you with the
number of paid vacation or PTO days to which you are entitled on the
basis of years of service with the Company in accordance with the
Company's normal vacation policy and/or PTO policy in effect at the
time of the Change in Control of the Company;
(vii) The failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(viii) Any purported termination of your employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection 3(d) hereof and the
requirements of Subsection 3(b) below; for purposes of this Agreement,
no such purported termination shall be effective.
Your right to terminate your employment pursuant to this Agreement for
Good Reason shall not be affected by your incapacity due to physical or mental
illness. Your continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason hereunder.
3. TERMINATION FOLLOWING CHANGE IN CONTROL (OR PRIOR TO A CHANGE IN
CONTROL IN SPECIFIC Circumstances). If any of the events described in Subsection
2(a) hereof constituting a Change in Control of the Company shall have occurred,
then following such Change in Control, you shall be entitled to the benefits
provided in Subsection 4(c) hereof: (1) if your employment was terminated within
six months prior to the Change of Control under the circumstances described in
Section 4.(2) below, or (2) if
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 7
your employment is terminated during the term of this Agreement after such
Change in Control if such termination is (y) by the Company, other than for
Cause or (z) by you for Good Reason as provided in Subsection 3(c)(i) hereof or
by your Voluntary Termination as provided in Subsection 3(c)(ii) hereof.
(a) DISABILITY; RETIREMENT. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
(b) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties with
the Company (other than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental to the business and
operations of the Company, PROVIDED that you shall have received written notice
of such failure or misconduct and shall have continued to engage in such failure
or misconduct after 30 days following receipt of such notice from the Board,
which notice specifically identifies the manner in which the Board believes that
you have engaged in such failure or misconduct. For purposes of this Subsection,
no act, or failure to act, on your part shall be deemed "willful" unless done,
or omitted to be done, by you not in good faith and without your reasonable
belief that your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding that in the
good faith opinion of the Board you were guilty of failure to substantially
perform your duties or of misconduct in accordance with the first sentence of
this Subsection, and of continuing such failure to substantially perform your
duties or misconduct as aforesaid after notice from the Board, and specifying
the particulars thereof in detail.
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 8
(c) VOLUNTARY RESIGNATION. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given at
any time during the two years following the occurrence of a Change in Control of
the Company hereunder, PROVIDED such resignation is (i) by you for Good Reason
or (ii) by you voluntarily without the necessity of asserting or establishing
Good Reason and regardless of your age or any disability and regardless of any
grounds that may exist for the termination of your employment if such voluntary
termination occurs by written notice given by you to the Company during the
thirty days immediately following the one year anniversary of the Change in
Control (your "Voluntary Termination"), provided, however, for purposes of this
Subsection 3(c)(ii) only, the language "25% or more" in Subsection 2(a)(i)
hereof is changed to "a majority". Such resignation shall not be deemed a breach
of any employment contract between you and the Company.
(d) NOTICE OF TERMINATION. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(e) DATE OF TERMINATION, ETC. "Date of Termination" shall mean:
(i) If your employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that you shall not
have returned to the full-time performance of your duties during such
thirty day period), and
(ii) If your employment is terminated pursuant to Subsection
(b) or (c) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (b) above shall not be less than
thirty days, and in the case of a termination pursuant to Subsection
(c) above shall not be less than fifteen nor more than sixty days
(thirty days in case of your Voluntary Termination), respectively, from
the date such Notice of Termination is given);
PROVIDED that if within fifteen days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard to
this provision), the party receiving such Notice of Termination notifies the
other party that a dispute exists
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 9
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); PROVIDED FURTHER that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, base salary) and
continue you as a participant in all compensation, bonus, benefit and insurance
plans in which you were participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL (OR IF
TERMINATION OCCURS PRIOR TO A CHANGE IN CONTROL IN SPECIFIC CIRCUMSTANCES).
Following a Change in Control of the Company as defined in Subsection 2(a),
then: (1) upon termination of your employment after such Change in Control, or
(2) notwithstanding anything in this Agreement to the contrary, if termination
of your employment occurred within six months prior to the Change in Control if
such termination was by the Company without Cause by reason of the request of
the person or persons (or their representatives) who subsequently acquire
control of the Company in the Change of Control transaction, you shall be
entitled to the following benefits:
(a) Deleted.
(b) If your employment shall be terminated by the Company for Cause,
the Company shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus the
Company shall pay all other amounts and honor all rights to which you are
entitled under any compensation plan of the Company at the time such payments
are due, and the Company shall have no other obligations to you under this
Agreement.
(c) If your employment shall be terminated (y) after a Change of
Control, by the Company other than for Cause or (z) after a Change of Control,
by you for Good Reason or by your Voluntary Termination as provided in
Subsection 3(c)(ii), or (yy)
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 10
within six months prior to a Change of Control, by the Company under the
circumstances described in Section 4.(2) above, then you shall be entitled to
the benefits provided below:
(i) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given, plus all other amounts to which you are entitled under any
compensation or benefit plan of the Company, at the time such payments are due;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (the "Severance
Payment") equal to 3.0 times the average of the Annual Compensation (as
defined below) payable to you by the Company or any corporation
affiliated with the Company within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code"). Annual
Compensation is defined to consist of two components: (a) Your annual
salary in effect immediately prior to the Change in Control or in
effect as of the Date of Termination, whichever annual salary is
higher. Your annual salary for this purpose will be determined without
any reduction for deferrals of such salary under any deferred
compensation plan (qualified or unqualified) and without any reduction
for any salary reductions used for making contributions to any group
insurance plan of the Company or its affiliates and also without
reduction for any other deductions from salary for any reason; PLUS (b)
The average of your annual bonuses under the Company's Annual
Management Bonus Plan, or any substitute or successor plan including
the Key Executive Officer Annual Incentive Plan, for the three highest
calendar years, in terms of annual bonus paid to you in such years,
during the five calendar years preceding the calendar year in which the
Change in Control occurred. Your annual bonuses for this purpose will
be determined without any reduction for deferrals under any deferred
compensation plan (qualified or unqualified) and without any reduction
for salary reductions used for making contributions to any group
insurance plan of the Company or its affiliates and also without
reduction for any other deductions from bonus for any reason. If you
were not employed by the Company or its affiliates for a sufficient
period of time to receive annual bonuses during each of the five
calendar years before the Change in Control occurred, then the average
bonus will be measured using the three highest calendar years, in terms
of annual bonus paid to you, in all the consecutive
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 11
calendar years immediately preceding the date the Change in Control
occurred. If you were not eligible for three years of bonuses paid
during the calendar years immediately preceding the date the Change in
Control occurred, then the average bonus will be the average of the
annual bonuses that were paid to you during such time under such Plan.
If you were not eligible for any bonus during such time because of not
being employed by the Company for a sufficient period of time to
qualify for a previous bonus payment, then Annual Compensation will
only consist of the salary component as provided above and will not
include a bonus component.
(iii) The Company shall also pay to you a pro rata amount of
your target bonus (the bonus amount for your grade level assuming 100
bonus points are earned) as shown on the matrix for the Annual
Management Bonus Plan (or any substitute or successor plan)
attributable to the bonus plan year which contains your Date of
Termination, regardless of whether or not any bonus is determined to be
actually earned for such year, provided that the target bonus for
calculating this pro rata payment will not be less than the target
bonus under such Plan for the Plan year that contains the day
immediately prior to the Change in Control (which target bonus will be
the one that applies to your grade level at that time) regardless of
whether or not any bonus was payable for such year. The pro-rata amount
will be based on the percentage of days of your employment in the
calendar year of the Date of Termination. For example, if the Date of
Termination is October 1 in a year with 365 days, with October 1
counted as the last day of employment for a total of 274 days of
employment that year, then the pro-rata amount will be 75.06849% of
target bonus (274 days / 365 days). In addition, the Company shall
pay to you the amounts of any compensation or awards payable to you or
due to you under any incentive compensation plan of the Company
including, without limitation, the Company's Restricted Stock Plan,
Stock Option Plan (the "Option Plan") and Annual Management Bonus Plan
(or any substitute or successor plan including the Key Executive
Officer Annual Incentive Plan) and under any agreements with you in
connection therewith, and shall make any other payments and take any
other actions and honor such rights you may have accrued under such
plans and agreements including any rights you may have to payments
after the Date of Termination, which will include the payment to you of
any bonus earned during the bonus year fully completed prior to the
Date of Termination if such Date of Termination occurs prior to the
payment date for such bonus, it being understood, however, that the
pro-rata payment provided for in the first sentence of this paragraph
4(c)(iii) is in lieu of any bonus earned for the bonus plan year during
which occurred the Date of Termination.
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 12
(iv) In lieu of shares of common stock of the Company or any
securities of a successor company which shall have replaced such common
stock ("Company Shares") issuable upon exercise of outstanding and
unexercised options (whether or not they are fully exerciseable or
"vested"), if any, granted to you under the Option Plan including
options granted under the plan of any successor company that replaced
or assumed the options under said Option Plan ("Options") (which
Options shall be cancelled upon the making of the payment referred to
below), you shall receive an amount in cash equal to the product of (y)
the excess of the higher of the closing price of Company Shares as
reported on the New York Stock Exchange on or nearest the Date of
Termination (or, if not listed on such exchange, on a nationally
recognized exchange or quotation system on which trading volume in
Company Shares is highest) or the highest per share price (including
cash, securities and any other consideration) for Company Shares
actually paid in connection with any change in control of the Company,
over the per share exercise price of each Option held by you (whether
or not then fully exercisable or "vested"), times (z) the number of
Company Shares covered by each such option.
(v) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of Section
4999 of the Code to any payment or benefit provided hereunder).
(vi) In the event that you become entitled to the payments
(the "Severance Payments") provided under paragraphs (ii), (iii), and
(iv), above (and Subsections (d) and (e), below), and if any of the
Severance Payments will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code, the Company shall pay to you at
the time specified in paragraph (vii), below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by you (such net
amount to be the amount remaining after deducting any Excise Tax on the
Severance Payments and any federal, state and local income tax and
Excise Tax payable on the payment provided for by this paragraph),
shall be equal to the amount of the Severance Payments after deducting
normal and ordinary taxes but not deducting (a) the Excise Tax and (b)
any federal, state and local income tax and Excise tax payable on the
payment provided for by this
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 13
paragraph. For example, if the Severance Payments are $1,000,000 and if
you are subject to the Excise Tax, then the Gross-Up Payment will be
such that you will retain an amount of $1,000,000 less only any normal
and ordinary taxes on such amount. (The Excise Tax and federal, state
and local taxes and any Excise Tax on the payment provided by this
paragraph will not be deemed normal and ordinary taxes). For purposes
of determining whether any of the Severance Payments will be subject to
the Excise Tax and the amount of such Excise Tax, the following will
apply:
(A) Any other payments or benefits received or to be
received by you in connection with a Change in Control of the
Company or your termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in
a Change in Control of the Company or any person affiliated
with the Company or such person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to
the Excise Tax, unless in the opinion of tax counsel selected
by the Company's independent auditors and acceptable to you
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(B) The amount of the Severance Payments which shall
be treated as subject to the Excise Tax shall be equal to the
lesser of (y) the total amount of the Severance Payments or
(z) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) (after applying clause (A), above); and
(C) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with proposed,
temporary or final regulations under Sections 280G(d)(3) and
(4) of the Code or, in the absence of such regulations, in
accordance with the principles of Section 280G(d)(3) and (4)
of the Code.
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 14
For purposes of determining the amount of the Gross-Up
Payment, you shall be deemed to pay Federal income taxes at
the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of
taxation in the state and locality of your residence on the
Date of Termination, net of the maximum reduction in Federal
income taxes which could be obtained from deduction of such
state and local taxes. In the event that the amount of Excise
Tax attributable to Severance Payments is subsequently
determined to be less than the amount taken into account
hereunder at the time of termination of your employment, you
shall repay to the Company, at the time that the amount of
such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction
(plus the portion of the Gross-Up Payment attributable to the
Excise Tax and Federal (and state and local) income tax
imposed on the Gross-Up Payment being repaid by you if such
repayment results in a reduction in Excise Tax and/or a
Federal (and state and local) income tax deduction) plus
interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax attributable to Severance Payments is determined to
exceed the amount taken into account hereunder at the time of
the termination of your employment (including by reason of any
payment the existence or amount of which cannot be determined
at the time of the Gross-Up Payment), the Company shall make
an additional gross-up payment to you in respect of such
excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally
determined.
(vii) The payments provided for in paragraphs (ii), (iii),
(iv) and (vi) above, shall be made not later than the fifth day
following the Date of Termination (or following the date of the Change
in Control if your employment is terminated under the circumstances
described in Section 4.(2) above), PROVIDED, HOWEVER, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination (or following the date
of the Change in Control if your
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 15
employment is terminated under the circumstances described in Section
4.(2) above). In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to you payable on the
fifth day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(d) If your employment shall be terminated (y) by the Company other
than for Cause, or (z) by you voluntarily for Good Reason or by your Voluntary
Termination, or by the Company within six months prior to a Change in Control
under the circumstances described in Section 4.(2) hereof, then for a
twenty-four month period after such termination, the Company shall arrange to
provide you with life, disability, accident and health insurance benefits
substantially similar to those which you are receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by you pursuant to this
Subsection 4(d) shall be reduced to the extent comparable benefits are actually
received by you during the twenty-four month period following your termination,
and any such benefits actually received by you shall be reported to the Company.
(e) In the event a Change in Control of the Company occurs while you
are employed with the Company or its affiliates but after you and the Company
have executed an agreement that expressly provides for your subsequent
retirement including an agreement that expressly provides for your early
retirement, then the present value, computed using a discount rate of 8% per
annum, of (i) the total amount of all unpaid deferred payments as payable to you
in accordance with the payment schedule that you elected when the deferral was
agreed to and using the plan interest rate applicable to your situation,
including, without limitation, any unpaid deferred payments to be paid to you
under the Company's Executive Deferred Compensation Plan and the Company's other
deferred compensation plans, and (ii) the total amount of all other payments
payable or to become payable to you or your estate or beneficiary under such
retirement agreement (other than payments payable pursuant to a plan qualified
under Section 401(a) of the Internal Revenue Code) shall be accelerated and paid
to you (or your estate or beneficiary if applicable) in a lump sum cash payment
within five business days after the occurrence of the Change in Control of the
Company. In addition, if you and the Company or its affiliates have executed
such a retirement agreement and if the Change in Control of the Company occurs
before the effective date of your retirement, then you shall receive the
Severance Payment payable under Subsection 4(c)(ii) herein in addition to the
lump sum cash payment of
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 16
the present value of your total unpaid deferred payments and other payments
under the retirement agreement as aforesaid. All benefits (other than the
payments accelerated and paid out to you in a lump sum as provided above) to
which you or your estate or any beneficiary are entitled under such retirement
agreement shall continue in effect notwithstanding the Change in Control of the
Company. This Subsection 4(e) shall survive your retirement.
(f) Notwithstanding that a Change in Control shall not have yet
occurred, if you so elect, by written notice to the Company given at any time
after the date hereof and prior to the time such amounts are otherwise payable
to you:
(i) The Company shall deposit with an escrow agent, pursuant
to an escrow agreement between the Company and such escrow agent, a sum
of money, or other property permitted by such escrow agreement, which
are substantially sufficient in the opinion of the Company's management
to fund payment of the following amounts to you, as such amounts become
payable (provided such deposit will not be necessary to the extent the
escrow already contains funds or other assets which are substantially
sufficient in the opinion of the Company's management to fund such
payments) :
(A) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under the Company's
Executive Deferred Compensation Plan and under any agreements
related thereto in existence at the time of your election to
make the deposit into escrow.
(B) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate by reason of your
deferral of payments payable to you prior to the date of your
election to make the deposit into escrow under any other
deferred compensation agreements between you and the Company
in existence at the time of your election to make the deposit
into escrow, including but not limited to deferred
compensation agreements relating to the deferral of salary or
bonuses.
(C) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under any executed
agreement that expressly provides for your retirement from the
Company (including payments described under Subsection 4(e)
above) which agreement is in existence at the time of your
election to make the deposit into escrow, other than amounts
payable by a plan qualified under Section 401(a) of the Code.
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 17
(D) Subject to the approval of the Committee, amounts
then due and payable to you, but not yet paid, under any other
benefit plan or incentive compensation plan of the Company
(whether such amounts are stock or cash) other than amounts
payable to you under a plan qualified under Section 401(a) of
the Code.
(ii) Within 5 days after the occurrence of a Potential Change
of Control, the Company shall deposit with an escrow agent (which shall
be the same escrow agent, if one exists, acting pursuant to clause (i)
of this Subsection 4(f)), pursuant to an escrow agreement between the
Company and such escrow agent, a sum of money, or other property
permitted by such escrow agreement, substantially sufficient in the
opinion of Company management to fund the payment to you of the amounts
specified in Subsection 4(c) of this Agreement.
(iii) It is intended that any amounts deposited in escrow
pursuant to the provisions of clause (i) or (ii) of this Subsection
4(f), shall be subject to the claims of the Company's creditors, as set
forth in the form of such escrow agreement.
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise (except as specifically provided in
this Section 4).
(h) In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you under any
benefit plan of the Company in which you participate to the extent such benefits
are not paid under this Agreement.
5. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 18
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled to hereunder if you terminate your employment voluntarily for
Good Reason following a Change in Control of the Company, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
6. NOTICES. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid, by FAX
if available, or by overnight courier service, addressed as follows:
To the Company:
Secretary
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117
FAX: 901-762-8735
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 19
To you:
Addressed to your name at your office address (or FAX
number) with the Company or its affiliates (or any
successor thereto) at the time the notice is sent and
your home address at that time; and if you are not
employed by the Company at the time of the notice,
your home address as shown on the records of the
Company or its affiliates (or any successor thereto)
on the date of the notice.
To such other address as either party may have furnished to the other
in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
7. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
Mr. Stephen H. Brammell
July 30, 1999
Page 20
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
11. SIMILAR PROVISIONS IN OTHER AGREEMENT. The Severance Payment under
this Agreement supersedes and replaces any previous severance agreement and any
other severance payment to which you may be entitled under any previous
agreement between you and the Company or its affiliates.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
HARRAH'S ENTERTAINMENT, INC.
By: /s/ Philip G. Satre
-----------------------------
Philip G. Satre
Chairman of the Board and
Chief Executive Officer
Agreed:
/s/ Stephen H. Brammell
- ----------------------------
Stephen H. Brammell
<PAGE>
Exhibit 11
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30 Sept. 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income before extraordinary
losses $ 75,044,000 $ 44,202,000 $160,312,000 $106,124,000
Extraordinary losses, net (410,000) - (11,033,000) (18,280,000)
------------ ------------ ------------ ------------
Net income $ 74,634,000 $ 44,202,000 $149,279,000 $ 87,844,000
============ ============ ============ ============
BASIC EARNINGS PER SHARE
Weighted average number of common
shares outstanding 126,338,401 100,271,071 126,000,852 100,203,599
============ ============ ============ ============
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary
losses $ 0.59 $ 0.44 $ 1.27 $ 1.06
Extraordinary losses, net - - (0.09) (0.18)
------------ ------------ ------------ ------------
Net income $ 0.59 $ 0.44 $ 1.18 $ 0.88
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Weighted average number of common
shares outstanding 126,338,401 100,271,071 126,000,852 100,203,599
Additional shares based on
average market price for
period applicable to:
Restricted stock 837,506 206,668 677,093 259,674
Stock options 2,179,568 433,187 1,591,365 815,086
------------ ------------ ------------ ------------
Average number of common and
common equivalent shares
outstanding 129,355,475 100,910,926 128,269,310 101,278,359
============ ============ ============ ============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARES
Income before extraordinary
losses $ 0.58 $ 0.44 $ 1.25 $ 1.05
Extraordinary losses, net - - (0.09) (0.18)
------------ ------------ ------------ ------------
Net income $ 0.58 $ 0.44 $ 1.16 $ 0.87
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 189,990
<SECURITIES> 0
<RECEIVABLES> 137,090
<ALLOWANCES> 42,447
<INVENTORY> 32,257
<CURRENT-ASSETS> 392,449
<PP&E> 3,894,444
<DEPRECIATION> 904,363
<TOTAL-ASSETS> 4,753,141
<CURRENT-LIABILITIES> 368,308
<BONDS> 2,514,881
0
0
<COMMON> 12,859
<OTHER-SE> 1,531,019
<TOTAL-LIABILITY-AND-EQUITY> 4,753,141
<SALES> 0
<TOTAL-REVENUES> 2,276,859
<CGS> 0
<TOTAL-COSTS> 1,808,000
<OTHER-EXPENSES> 76,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,749
<INCOME-PRETAX> 266,385
<INCOME-TAX> 98,255
<INCOME-CONTINUING> 160,312
<DISCONTINUED> 0
<EXTRAORDINARY> 11,033
<CHANGES> 0
<NET-INCOME> 149,279
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.16
</TABLE>
