-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G3RgnHEFwDdf411yY+lFqV5PYIbermDvfs5/vUy4Cqu3DOAd3cKvpueGQUcy44sh PQLCp8bVpQ9hNCO7Svb30A== /in/edgar/work/0000912057-00-048694/0000912057-00-048694.txt : 20001114 0000912057-00-048694.hdr.sgml : 20001114 ACCESSION NUMBER: 0000912057-00-048694 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRAHS ENTERTAINMENT INC CENTRAL INDEX KEY: 0000858339 STANDARD INDUSTRIAL CLASSIFICATION: [7990 ] IRS NUMBER: 621411755 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10410 FILM NUMBER: 758985 BUSINESS ADDRESS: STREET 1: 5100 W SAHARA AVE STREET 2: SUITE 200 CITY: LAS VEGAS STATE: NV ZIP: 89146 BUSINESS PHONE: 9017628600 MAIL ADDRESS: STREET 1: 5100 W SAHARA BLVD CITY: LAS VEGAS STATE: NV ZIP: 89146 FORMER COMPANY: FORMER CONFORMED NAME: PROMUS COMPANIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 a2029570z10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2000 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 AVENUE, SUITE 200 LAS VEGAS, NEVADA 89146 (Current address of principal executive offices) (702) 579-2300 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / At September 30, 2000, there were outstanding 116,731,588 shares of the Company's Common Stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 1 of 32 Exhibit Index Page 33 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) that 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 acquisition of Players International, Inc. on March 22, 2000. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our 1999 Annual Report to Stockholders. 2 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
SEPT. 30, DEC. 31, (IN THOUSANDS, EXCEPT SHARE AMOUNTS) 2000 1999 - ------------------------------------ ---------- ---------- ASSETS Current assets Cash and cash equivalents................................. $ 241,382 $ 233,581 Receivables, less allowance for doubtful accounts of $45,842 and $44,086..................................... 107,694 121,186 Deferred income taxes..................................... 33,196 33,208 Prepayments and other..................................... 86,320 68,028 Inventories............................................... 28,671 30,666 ---------- ---------- Total current assets.................................... 497,263 486,669 ---------- ---------- Land, buildings, riverboats and equipment................... 4,530,803 3,983,754 Less: accumulated depreciation.............................. (1,058,061) (922,524) ---------- ---------- 3,472,742 3,061,230 Goodwill, net of amortization of $67,367 and $54,346 (Note 2)........................................................ 671,119 505,217 Investments in and advances to nonconsolidated affiliates... 293,659 168,511 Deferred costs, trademarks and other........................ 310,374 545,220 ---------- ---------- $5,245,157 $4,766,847 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable.......................................... $ 72,262 $ 81,200 Accrued expenses.......................................... 412,272 287,494 Short-term debt........................................... 185,000 -- Current portion of long-term debt......................... 3,036 2,877 ---------- ---------- Total current liabilities............................... 672,570 371,571 Long-term debt.............................................. 2,750,025 2,540,268 Deferred credits and other.................................. 156,604 120,827 Deferred income taxes....................................... 193,111 228,955 ---------- ---------- 3,772,310 3,261,621 ---------- ---------- Minority interests.......................................... 20,329 18,949 ---------- ---------- Commitments and contingencies (Notes 5 and 7 through 9) Stockholders' equity Common stock, $0.10 par value, authorized-360,000,000 shares, outstanding-116,731,588 and 124,379,760 shares (net of 20,711,298 and 9,286,772 shares held in treasury)............................................... 11,673 12,438 Capital surplus........................................... 1,056,831 987,322 Retained earnings......................................... 418,695 512,539 Accumulated other comprehensive income.................... (10) (493) Deferred compensation related to restricted stock......... (34,671) (25,529) ---------- ---------- 1,452,518 1,486,277 ---------- ---------- $5,245,157 $4,766,847 ========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements. 3 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THIRD QUARTER ENDED NINE MONTHS ENDED --------------------- ----------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 2000 1999 2000 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- ---------- ---------- Revenues Casino.................................................... $789,717 $658,996 $2,144,531 $1,824,558 Food and beverage......................................... 126,942 113,135 358,087 321,675 Rooms..................................................... 72,116 65,656 205,134 192,094 Management fees........................................... 17,988 21,737 51,478 56,732 Other..................................................... 38,730 33,140 109,848 97,109 Less: casino promotional allowances....................... (92,068) (78,610) (252,858) (215,309) -------- -------- ---------- ---------- Total revenues........................................ 953,425 814,054 2,616,220 2,276,859 -------- -------- ---------- ---------- Operating expenses Direct Casino.................................................. 398,288 332,988 1,109,916 948,911 Food and beverage....................................... 59,968 58,922 172,997 171,165 Rooms................................................... 17,534 17,182 51,840 50,776 Depreciation and amortization............................. 62,306 52,371 174,811 148,572 Development costs......................................... 1,072 1,890 4,937 4,160 Write-downs, reserves and recoveries...................... (929) 208 (289) (1,267) Project opening costs..................................... 2,647 183 4,391 580 Other..................................................... 208,731 164,740 584,895 485,103 -------- -------- ---------- ---------- Total operating expenses.............................. 749,617 628,484 2,103,498 1,808,000 -------- -------- ---------- ---------- Operating profit.................................... 203,808 185,570 512,722 468,859 Corporate expense......................................... (11,883) (11,894) (37,476) (33,317) Headquarters relocation and reorganization costs.......... (677) (3,030) (3,390) (7,522) Equity in losses of nonconsolidated affiliates............ (9,567) (10,228) (43,863) (23,049) Venture restructuring costs............................... -- -- -- 397 Amortization of goodwill and trademarks................... (5,578) (4,497) (15,452) (13,460) -------- -------- ---------- ---------- Income from operations...................................... 176,103 155,921 412,541 391,908 Interest expense, net of interest capitalized............... (59,257) (48,162) (167,842) (147,749) Gain on sale of equity interest in nonconsolidated affiliate................................................. -- 16,300 -- 16,300 Other income, including interest income..................... 2,887 (644) 7,681 5,926 -------- -------- ---------- ---------- Income before income taxes and minority interests........... 119,733 123,415 252,380 266,385 Provision for income taxes.................................. (43,651) (44,875) (90,929) (98,255) Minority interests.......................................... (4,102) (3,496) (11,509) (7,818) -------- -------- ---------- ---------- Income before extraordinary losses.......................... 71,980 75,044 149,942 160,312 Extraordinary losses on early extinguishments of debt, net of income tax benefit of $222, $388 and $5,990............ -- (410) (716) (11,033) -------- -------- ---------- ---------- Net income.................................................. $ 71,980 $ 74,634 $ 149,226 $ 149,279 ======== ======== ========== ========== Earnings per share--basic Income before extraordinary losses........................ $ 0.63 $ 0.59 $ 1.27 $ 1.27 Extraordinary losses, net................................. -- -- (0.01) (0.09) -------- -------- ---------- ---------- Net income.............................................. $ 0.63 $ 0.59 $ 1.26 $ 1.18 ======== ======== ========== ========== Earnings per share--diluted Income before extraordinary losses........................ $ 0.61 $ 0.58 $ 1.25 $ 1.25 Extraordinary losses, net................................. -- -- (0.01) (0.09) -------- -------- ---------- ---------- Net income.............................................. $ 0.61 $ 0.58 $ 1.24 $ 1.16 ======== ======== ========== ========== Average common shares outstanding........................... 115,042 126,338 118,276 126,001 ======== ======== ========== ========== Average common and common equivalent shares outstanding..... 117,354 129,355 119,988 128,269 ======== ======== ========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements. 4 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED ----------------------- SEPT. 30, SEPT. 30, 2000 1999 (IN THOUSANDS) --------- ----------- Cash flows from operating activities Net income................................................ $ 149,226 $ 149,279 Adjustments to reconcile net income to cash flows from operating activities Extraordinary losses, before income taxes............... 1,104 17,023 Depreciation and amortization........................... 204,823 172,029 Write-downs, reserves and recoveries.................... 289 1,267 Other noncash items..................................... (1,528) 34,644 Minority interests' share of net income................. 11,509 7,818 Equity in losses of nonconsolidated affiliates.......... 43,863 23,049 Realized gain from sale of equity interest in nonconsolidated affiliate............................. -- (16,300) Net losses (gains) from asset sales..................... 1,169 (1,752) Net change in long-term accounts........................ (14,366) 12,832 Net change in working capital accounts.................. 74,130 (14,739) --------- ----------- Cash flows provided by operating activities........... 470,219 385,150 --------- ----------- Cash flows from investing activities Land, buildings, riverboats and equipment additions....... (267,715) (256,446) Payment for purchase of acquisitions, net of cash acquired................................................ (259,672) 50,226 Investments in and advances to nonconsolidated affiliates.............................................. (243,162) (37,231) Purchase of minority interest in subsidiary............... -- (26,000) Decrease in construction payables......................... (1,698) (6,543) Proceeds from sales of equity interests in subsidiaries... 131,475 31,924 Proceeds from other asset sales........................... 85,948 11,587 Sale of marketable equity securities for defeasance of debt.................................................... 58,091 -- Collection of notes receivable............................ 12,500 13,618 Other..................................................... (4,926) (4,682) --------- ----------- Cash flows used in investing activities............... (489,159) (223,547) --------- ----------- Cash flows from financing activities Net borrowings under lending agreements, net of deferred financing costs of $1,497 and $4,413.................... 281,257 898,596 Net short-term borrowings, net of deferred financing costs of $460................................................. 173,540 -- Net repayments under retired revolving credit facility.... -- (1,086,000) Proceeds from exercise of stock options................... 42,152 11,477 Proceeds from issuance of new debt, net of discount and issue costs of $5,980................................... -- 494,020 Purchases of treasury stock............................... (244,325) (16,370) Early extinguishments of debt............................. (213,063) (418,114) Minority interests' distributions, net of contributions... (9,575) (7,381) Scheduled debt retirements................................ (2,141) (4,457) Premiums paid on early extinguishments of debt............ (1,104) (2,379) --------- ----------- Cash flows provided by (used in) financing activities.......................................... 26,741 (130,608) --------- ----------- Net increase in cash and cash equivalents................... 7,801 30,995 Cash and cash equivalents, beginning of period.............. 233,581 158,995 --------- ----------- Cash and cash equivalents, end of period.................... $ 241,382 $ 189,990 ========= ===========
See accompanying Notes to Consolidated Condensed Financial Statements. 5 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THIRD QUARTER ENDED NINE MONTHS ENDED --------------------- --------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 2000 1999 2000 1999 (IN THOUSANDS) --------- --------- --------- --------- Net income........................................... $71,980 $ 74,634 $149,226 $149,279 ------- -------- -------- -------- Other comprehensive income Foreign currency translation adjustment, net of tax (benefit) provision of $(1,344), $56 and $445.... -- (1,561) 90 727 Realization of foreign currency adjustments, net of tax provision of $148............................ -- -- 191 -- Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during period, net of tax (benefit) provision of $(19), $471, $123 and $1,750................... (31) 768 202 2,855 Less: reclassification adjustment, net of tax provision of $5,890, for realized gain included in income...................................... -- (9,611) -- (9,611) ------- -------- -------- -------- Other comprehensive income......................... (31) (10,404) 483 (6,029) ------- -------- -------- -------- Comprehensive income................................. $71,949 $ 64,230 $149,709 $143,250 ======= ======== ======== ========
See accompanying notes to Consolidated Condensed Financial Statements. 6 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (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, Showboat and Players 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 and Metropolis, Illinois; East Chicago, Indiana; Shreveport and Lake Charles, Louisiana; Tunica and Vicksburg, Mississippi; and North Kansas City and St. Louis, Missouri. We also manage the land-based casino in New Orleans, Louisiana, and casinos on Indian lands near Phoenix, Arizona; Cherokee, North Carolina; and Topeka, Kansas. We discontinued management of the Star City casino in Sydney, Australia, during first quarter 2000. NOTE 2--PLAYERS ACQUISITION On March 22, 2000, we completed our acquisition of Players International, Inc. ("Players"). Players operated 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, a suburb of St. Louis; and a horse racetrack in Paducah, Kentucky. Players and the Company jointly operated a land-side hotel and entertainment facility at the Maryland Heights property. The operations of the Players facility in Maryland Heights were consolidated with the adjacent Harrah's operation in second quarter 2000. The Lake Charles and Metropolis casino operations will be converted to the Harrah's brand name after integration of Harrah's systems and technology, including Total Rewards, which we anticipate will be integrated into Players Lake Charles in fourth quarter 2000 and into Players Metropolis in the second half of 2001. We paid approximately $297 million in cash and assumed $150 million in Players 10 7/8% Senior Notes due 2005 (the "Players Notes"). The acquisition was funded by our Bank Facility (see Note 4) and is being accounted for as a purchase. The purchase price is being allocated to the underlying assets and liabilities based upon their estimated fair values at the date of acquisition. We are determining 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 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 assets acquired, such excess will be allocated to goodwill and amortized over 40 years. Until we complete the purchase price allocation, our financial statements will include estimated goodwill amortization expense. See Note 4 for a discussion of the retirement of the Players Notes. NOTE 3--STOCKHOLDERS' EQUITY In addition to its common stock, Harrah's Entertainment has the following classes of authorized but unissued stock: 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 7 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 3--STOCKHOLDERS' EQUITY (CONTINUED) 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 acquired our shares from time to time at prevailing market prices and had repurchased all 10 million shares authorized under the provisions of this plan prior to the end of second quarter 2000. In April 2000, our Board of Directors authorized the repurchase of an additional 12.5 million shares of our common stock in the open market and other transactions as market conditions warrant. This plan will expire on December 31, 2001. At September 30, 2000, we had repurchased approximately 6.7 million shares under the provisions of this plan. NOTE 4--DEBT BANK FACILITY In second quarter 2000, our revolving credit and letter of credit facilities (collectively, the "Bank Facility") were amended to increase our borrowing capacity from $1.6 billion to $1.9 billion. The five-year $1.3 billion revolving credit and letter of credit facility maturing in 2004 was increased to $1.525 billion, and the $300 million revolving credit facility, which is renewable annually at the borrower's and lenders' options, was increased to $375 million. The amended Bank Facility provides the Company with increased financial flexibility without changing any of the other terms of the agreement. At September 30, 2000, after considering borrowings under our Commercial Paper program, we had $457.8 million of borrowing capacity available to us. 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 facility and 15 basis points on the 364-day 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. CREDIT AGREEMENT In June 2000, we entered into a 364-day credit agreement (the "Credit Agreement") with a lender whereby we borrowed $150 million to redeem the Players Notes. Interest rates, facility fees and covenants in the Credit Agreement are identical to those provisions contained in our Bank Facility. COMMERCIAL PAPER To provide the Company with cost-effective borrowing flexibility, we established a $200 million Commercial Paper program that will be used to borrow funds for general corporate purposes. Although the debt instruments are short-term in tenor, they are classified in long-term debt because the Commercial Paper is backed by our Bank Facility and we have committed to keep available capacity under our Bank Facility in an amount equal to or greater than amounts borrowed under this program. At September 30, 2000, $87.7 million was outstanding under this program. 8 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 4--DEBT (CONTINUED) LINE OF CREDIT AGREEMENT In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have entered into uncommitted line of credit agreements with two lenders whereby we can borrow up to $50 million for periods of ninety days or less. At September 30, 2000, we had borrowed $35 million under these agreements. These agreements have no impact on and do not decrease our borrowing capacity under our Bank Facility. INTEREST RATE AGREEMENTS Our interest rate swap agreements, which were entered into to manage the relative mix of our debt between fixed and variable rate instruments, have expired and were not renewed. We have no immediate plans to enter into new swap agreements. EARLY EXTINGUISHMENTS OF DEBT Approximately $2.3 million of the Players Notes were retired on April 28, 2000, in connection with a change of control offer. On June 5, 2000, we purchased approximately $13.1 million of the Players Notes in the open market for the face amount plus accrued interest and a premium. The remaining Players Notes were redeemed on June 30, 2000, for the face amount plus accrued interest and a premium. We recorded liabilities assumed in the Players acquisition, including the notes, at their fair value as of the date of consummation of the acquisition. The difference between the consideration paid to the holders of the Players Notes and the carrying value of the Notes on the dates of the redemptions was recorded in the second quarter as an extraordinary loss of $0.7 million, net of tax. We retired the Players Notes using proceeds from our new $150 million Credit Agreement and our Bank Facility. We redeemed the Showboat, Inc. 9 1/4% First Mortgage Bonds on May 1, 2000, the first call date. These bonds were defeased in 1998 by purchasing treasury securities, which were deposited with trustees to pay the scheduled interest payments to the first call date and principal on the securities outstanding on such date. In third quarter 1999, we retired outstanding debt for capital lease obligations of our 99.55% owned subsidiary, Showboat Marina Casino Partnership ("SMCP"). Approximately $9.2 million of debt was retired, and an extraordinary loss of $0.4 million, net of tax, was recorded. In second quarter 1999, we redeemed all $100 million of Rio Hotel & Casino, Inc.'s ("Rio") 10 5/8% Senior Subordinated Notes due 2005 and all $125 million of Rio's 9 1/2% Senior Subordinated Notes due 2007. An extraordinary loss of $4.5 million, net of tax, was recorded. In first quarter 1999, we redeemed all $140 million of SMCP's, 13 1/2% First Mortgage Notes due 2003 and recorded an extraordinary loss of $2.0 million, net of tax. NOTE 5--LEASES In June 2000, we sold and leased back our corporate aircraft. The lease agreement consists of an interim term of six months, a base term of one year and annual renewal options. The aggregate of the 9 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 5--LEASES (CONTINUED) interim term, the base term and the renewal options will not exceed a total of five years. Our future minimum rental commitments under the lease agreement as of September 30, 2000, were $0.8 million and $6.6 million payable in the years ending December 31, 2000, and 2001, respectively. At the end of the base term, or any renewal term, we can, at our option, (a) renew the lease; (b) purchase the equipment subject to the lease; or (c) sell the equipment on behalf of the Lessor under the terms provided for in the lease agreement. NOTE 6--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:
NINE MONTHS ENDED --------------------- SEPT. 30, SEPT. 30, 2000 1999 (IN THOUSANDS) --------- --------- Interest expense, net of amount capitalized................. $167,842 $147,749 Adjustments to reconcile to cash paid for interest: Net change in accruals.................................... (20,253) (12,824) Amortization of deferred finance charges.................. (3,058) (3,537) Net amortization of discounts and premiums................ 119 (2,757) -------- -------- Cash paid for interest, net of amount capitalized........... $144,650 $128,631 ======== ======== Cash payments of income taxes, net of refunds............... $ 14,750 $ 13,782 ======== ========
NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES NEW ORLEANS CASINO The Company has an approximate 43% beneficial ownership interest in JCC Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively, "JCC"). JCC owns and operates an exclusive land-based casino in New Orleans, Louisiana (the "Casino"), which is managed by a subsidiary of the Company. The Company has guaranteed certain obligations, made certain commitments, advanced funds and agreed to defer collection of fees and other receivables relative to JCC, as summarized below. - Guarantee of $100 million annual payment obligation of JCC owed to the State of Louisiana gaming board (the "State Obligation") - Guaranteed $166.5 million of a $236.5 million JCC bank credit facility - Made $29.1 million, as of September 30, 2000, in subordinated loans to JCC to finance construction and completion of the Casino 10 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) - Agreed to certain other contractual commitments and guarantees totaling less than $20 million - Agreed to defer collection of certain fees under certain circumstances - Agreed to forbear from collection of certain payments and reimbursables arising from existing agreements with JCC Initially, the Company guaranteed the State Obligation for the period from October 28, 1999, to October 28, 2000 (the "Initial State Guarantee"). In accordance with an existing agreement, the Initial State Guarantee was replaced with a new guarantee (the "Current State Guarantee"), pursuant to which the Company has guaranteed the State Obligation for the period from April 1, 2000, to March 31, 2001. JCC is required to make daily payments of approximately $273,973 to satisfy the State Obligation. The Current State Guarantee obligation is reduced to the extent JCC makes such daily payments. Payments made to the State by the Company pursuant to the Initial State Guarantee and the Current State Guarantee are secured by a first priority collateral security interest in JCC's assets. Subject to the satisfaction of certain cash flow tests and other conditions each year, the Company is required to provide a new guarantee to the State for each of the 12-month periods ending March 31, 2002, 2003 and 2004. For the period ending March 31, 2002, the requirement to provide a new guarantee is conditioned upon, among other things, JCC producing net cash flow, as defined, of at least $15 million for the 12-month period ending November 30, 2000. Based on results to date, it appears that JCC will not satisfy this cash flow test. The Company is participating with JCC in discussions relating to a restructuring of JCC's obligations. Absent a restructuring which fundamentally changes the economics of the Casino, the Company anticipates that it will not renew the State Guarantee for the 12-month period ending March 31, 2002. In this event and if JCC cannot find a substitute guarantor, JCC's agreements with the State of Louisiana provide for the loss of JCC's State gaming license. The Company must formally advise JCC by December 31, 2000, as to whether or not we intend to renew the State Guarantee. Commencing February 28, 2000, JCC ceased making its daily payment in respect of the State Obligation. On February 29, 2000, the State made a demand to the Company pursuant to the Initial State Guarantee and the Company began making the daily payment to the State on that date. The Company paid $9.6 million to the State pursuant to the Initial State Guarantee. The Company's remaining obligations pursuant to the Initial State Guarantee expired when the Company provided the Current State Guarantee. The Company's obligations pursuant to the Current State Guarantee for the 12-month period ending March 31, 2001, are limited to $100 million. The Company commenced making payments in respect of the State Obligation pursuant to the Current State Guarantee on April 1, 2000, made payments totaling $30.4 million through July 20, 2000, and ceased making payments on July 21, 2000, at which time JCC resumed making the payments. Subject to certain conditions, which are presently being satisfied, JCC's bank credit facility permits the Company to pay up to an aggregate of $50 million pursuant to the Initial State Guarantee and the Current State Guarantee without a default under that facility. The Company has agreed until April 1, 2001, to defer the collection from JCC of amounts paid pursuant to the Initial State Guarantee and Current State Guarantee. 11 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) Following a default by JCC under its bank credit agreement, JCC's banks demanded that the Company perform on its guarantee of JCC's bank credit facility. On September 1, 2000, Harrah's performed under its guarantee of JCC's bank credit facility and purchased $145.5 million of JCC's outstanding debt from the lender. The guaranteed debt purchased by the Company includes a $25 million revolving credit facility and the Company now is obligated, subject to the terms and conditions of the loan agreement, to fund additional revolver draws. Subsequent to the Company's September 1, 2000, performance under the guarantee, we funded an additional $2.5 million of JCC's revolver draws leaving, as of September 30, 2000, $19.5 million available to JCC under its revolving credit facility. In September 2000, the State of Louisiana gaming board declared JCC to be in default of certain financial stability provisions under the Operating Contract. JCC has a six-month cure period, which expires in March 2001. JCC has exercised its right, pursuant to agreements entered into at the time of its emergence from bankruptcy in October 1998, to defer the payment of certain management fees, credit support fees, guarantee obligations, and interest on subordinated debt due to the Company. Such deferred payments totaled approximately $17.6 million as of September 30, 2000. Separately, the Company and certain Company affiliates have agreed, until April 1, 2001, to forbear from the collection of certain fees, lease payments and reimbursable costs arising from existing agreements with JCC that accrue and become due and payable through April 1, 2001. These amounts totaled approximately $14.0 million as of September 30, 2000. As discussed above, given liquidity issues facing JCC, JCC is exploring alternatives to restructure its obligations. Possible alternatives include requesting a reduction of the State Obligation, seeking relaxation of certain operational restrictions, and pursuing adjustments to its debt and capital structures. A reduction of the State Obligation and/or a relaxation of operational restrictions require action by the State of Louisiana. There is no assurance that the State will consider or take such action. Similarly, there is no assurance that JCC will successfully restructure any or all of its obligations in a timely and sufficient manner. Management believes that a failure by JCC to successfully restructure its obligations in a timely and sufficient fashion would have a material adverse effect on JCC and could result in the loss by JCC of its State gaming license. Such failure, whether total or in part, to timely and sufficiently restructure any or all of its obligations, and/or such loss by JCC of its State gaming license, could result in (i) an impairment of the Company's investment in JCC; (ii) the inability of the Company to collect all or any of the advances made to and/or fees, rents, and assessments owed by JCC; and/or (iii) the requirement that the Company perform under one or more of its contractual commitments related to the Company's investment in JCC. Given the actions being undertaken by JCC described above and the many variables involved in bringing these matters to a resolution, management is currently unable to estimate the losses the Company would incur, individually or in the aggregate, if JCC is partially or totally unsuccessful in such efforts. At September 30, 2000, the Company's total investment in JCC was approximately $258 million consisting of its net equity investment and various receivables, and its total potential liability for contingent obligations was approximately $86 million, which includes approximately $50 million of 12 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) unfunded amounts under the Current State Guarantee as of September 30, 2000. This unfunded sum is presently being reduced as described above. 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 discussed above, as of September 30, 2000, we had guaranteed third party loans and leases of $62.2 million, which are secured by certain assets, and had commitments of $197.3 million for construction-related and other obligations. 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. During third quarter 2000, the Tribe secured new financing and retired the debt owed to us. 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 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, 2000, the aggregate monthly commitment pursuant to these contracts, which extend for periods of up to 51 months from September 30, 2000, was $1.1 million. SEVERANCE AGREEMENTS As of September 30, 2000, we have severance agreements with 36 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, 2000, that would be payable under the agreements to these executives based on earnings and stock options aggregated approximately $83.6 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. 13 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) 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. NOTE 8--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 9--NONCONSOLIDATED AFFILIATES Summarized balance sheet and income statement information of nonconsolidated affiliates as of September 30, 2000, and December 31, 1999, and for the third quarters and nine months ended September 30, 2000, and 1999 is included in the following tables.
SEPT. 30, DEC. 31, 2000 1999 (IN THOUSANDS) --------- -------- Combined Summarized Balance Sheet Information Current assets............................................ $ 85,870 $ 73,560 Land, buildings and equipment, net........................ 395,112 570,204 Other assets.............................................. 127,420 130,889 -------- -------- Total assets............................................ 608,402 774,653 -------- -------- Current liabilities....................................... 149,897 100,336 Long-term debt............................................ 511,423 437,756 -------- -------- Total liabilities....................................... 661,320 538,092 -------- -------- Net assets............................................ $(52,918) $236,561 ======== ========
THIRD QUARTER ENDED NINE MONTHS ENDED --------------------- --------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 2000 1999 2000 1999 (IN THOUSANDS) --------- --------- --------- --------- Combined Summarized Statements of Operations Revenues......................................... $148,458 $131,646 $ 394,844 $319,302 ======== ======== ========= ======== Operating income (loss).......................... $(13,745) $ 760 $ (72,549) $(15,252) ======== ======== ========= ======== Net loss......................................... $(30,668) $(25,027) $(114,509) $(52,314) ======== ======== ========= ========
14 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 9--NONCONSOLIDATED AFFILIATES (CONTINUED) 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:
SEPT. 30, DEC. 31, 2000 1999 (IN THOUSANDS) --------- -------- Investments in and advances to nonconsolidated affiliates Accounted for under the equity method..................... $282,484 $167,828 Accounted for at historical cost.......................... 10,167 -- Equity securities available-for-sale and recorded at market value............................................ 1,008 683 -------- -------- $293,659 $168,511 ======== ========
With the acquisition of Players in March 2000, we increased our ownership interest in the St. Louis shore-side facilities joint venture to 100% and began consolidating that operation with our St. Louis operations upon the closing of the acquisition. 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 10--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 that 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. Harrah's Entertainment has no independent assets or operations, its guarantee of HOC's debt securities is full and unconditional and its only other subsidiary is minor. 15 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2000 (UNAUDITED) NOTE 10--SUMMARIZED FINANCIAL INFORMATION (CONTINUED) Summarized financial information of HOC as of September 30, 2000, and December 31, 1999, and for the third quarters ended September 30, 2000 and 1999, prepared on the same basis as Harrah's Entertainment, was as follows:
SEPT. 30, DEC. 31, 2000 1999 (IN THOUSANDS) ---------- ---------- Current assets.............................................. $ 497,315 $ 481,437 Land, buildings, riverboats and equipment, net.............. 3,472,742 3,061,230 Goodwill.................................................... 671,119 505,217 Other assets................................................ 603,951 713,649 ---------- ---------- 5,245,127 4,761,533 ---------- ---------- Current liabilities......................................... 656,314 353,534 Long-term debt.............................................. 2,750,025 2,540,268 Other liabilities........................................... 354,001 349,782 Minority interests.......................................... 20,329 18,949 ---------- ---------- 3,780,669 3,262,533 ---------- ---------- Net assets................................................ $1,464,458 $1,499,000 ========== ==========
THIRD QUARTER ENDED NINE MONTHS ENDED --------------------- ----------------------- SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 2000 1999 2000 1999 (IN THOUSANDS) --------- --------- ---------- ---------- Revenues......................................... $953,307 $813,921 $2,615,902 $2,276,518 ======== ======== ========== ========== Income from operations........................... $176,102 $154,934 $ 411,018 $ 391,790 ======== ======== ========== ========== Income before extraordinary losses............... $ 71,979 $ 74,401 $ 148,952 $ 160,235 ======== ======== ========== ========== Net income....................................... $ 71,979 $ 73,991 $ 148,236 $ 149,202 ======== ======== ========== ==========
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 $1.4 billion at September 30, 2000. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial position and operating results of Harrah's Entertainment, Inc., (referred to in this discussion, together with its consolidated subsidiaries where appropriate, as "Harrah's Entertainment," "Company," "we," "our" and "us") for the third quarter and first nine months of 2000 and 1999, updates, and should be read in conjunction with, Management's Discussion and Analysis of Financial Condition and Results of Operations presented in our 1999 Annual Report. We are the leading consumer marketing company in the gaming industry, operating casinos in more markets than any other casino company. We seek to differentiate ourselves through a unique strategy aimed at building loyalty to our brands from our guests. To accomplish this objective, we focus on continued investment and emphasis on marketing, technology and database programs, a commitment to service and a broadened national appeal. We begin our review with a discussion of an acquisition that positions our Company to continue its progress toward achieving our strategic objectives. PLAYERS ACQUISITION On March 22, 2000, we completed our acquisition of Players International, Inc. ("Players"). Players operated 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, a suburb of St. Louis; and a horse racetrack in Paducah, Kentucky. Players and the Company jointly operated a land-side hotel and entertainment facility at the Maryland Heights property. The operations of the Players facility in Maryland Heights were consolidated with the adjacent Harrah's operation in second quarter 2000. The Lake Charles and Metropolis casino operations will be converted to the Harrah's brand name after integration of Harrah's systems and technology, including Total Rewards, which we anticipate will be integrated into Players Lake Charles in fourth quarter 2000 and into Players Metropolis in the second half of 2001. We paid approximately $297 million in cash and assumed $150 million in Players' 10 7/8% Senior Notes due 2005 (the "Players Notes"). The acquisition was funded by our Bank Facility (see DEBT AND LIQUIDITY) and is being accounted for as a purchase. The purchase price is being allocated to the underlying assets and liabilities based upon their estimated fair values at the date of acquisition. We are determining 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 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 assets acquired, such excess will be allocated to goodwill and amortized over 40 years. Until we complete the purchase price allocation, our financial statements will include estimated goodwill amortization expense. See DEBT AND LIQUIDITY for discussion of the retirement of the Players Notes. 17 OPERATING RESULTS AND DEVELOPMENT PLANS OVERALL
THIRD QUARTER PERCENTAGE FIRST NINE MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS, EXCEPT EARNINGS PER SHARE) -------- -------- ---------- -------- -------- ---------- Net revenues.......................... $953.4 $814.1 17.1% $2,616.2 $2,276.9 14.9% Operating Profit...................... 203.8 185.6 9.8% 512.7 468.9 9.3% Income from Operations................ 176.1 155.9 13.0% 412.5 391.9 5.3% Income before extraordinary losses.... 72.0 75.0 (4.0)% 149.9 160.3 (6.5)% Net Income............................ 72.0 74.6 (3.5)% 149.2 149.3 -- Earnings per share--diluted Before extraordinary losses......... 0.61 0.58 5.2% 1.25 1.25 -- Net income.......................... 0.61 0.58 5.2% 1.24 1.16 6.9% Operating margin...................... 18.5% 19.1% (0.6)pts 15.8% 17.2% (1.4)pts
Third quarter 2000 revenues increased 17.1% over third quarter 1999, while net income decreased 3.5% from the same period last year when a gain of $16.3 million on the sale of an equity investment was realized. Excluding this nonrecurring pretax gain in 1999, third quarter net income increased 11.7% in 2000. The primary factors contributing to the increase in revenues and net income were inclusion of the Players properties in 2000 and improved performances at most of our Harrah's brand properties. Partially offsetting these increases was the impact of a low table games hold percentage at the Rio Hotel & Casino ("Rio") in Las Vegas, Nevada. Third quarter gaming revenues at owned and managed properties, which were in our system during third quarter 2000 and third quarter 1999, grew 7.1% over the same period last year. Excluding properties acquired or opened since June 1998, company-owned and managed properties generated same-store gaming revenue growth of 11.1% over third quarter 1999. Revenues for the nine months ended September 30, 2000, were up 14.9% over revenues for the same period last year and net income was level compared to the first nine months of 1999. These results reflect the impact of the March 2000 Players acquisition, the low table-games hold percentage experienced by Rio during the first nine months of 2000 and the one-time gain on the sale of an equity investment in 1999. WESTERN REGION
THIRD QUARTER PERCENTAGE FIRST NINE MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- Casino revenues......................... $200.7 $195.1 2.9% $540.6 $547.9 (1.3)% Net revenues............................ 308.3 300.4 2.6% 857.2 865.8 (1.0)% Operating profit........................ 48.9 57.6 (15.1)% 97.6 146.4 (33.3)% Operating margin........................ 15.9% 19.2% (3.3)pts 11.4% 16.9% (5.5)pts
The increase in third quarter revenues in our Western Region reflects record revenues in Northern Nevada and at our Southern Nevada Harrah's properties partially offset by declines in Rio's third quarter 2000 revenues from the same quarter last year. Third quarter operating profit increased at all Western Region properties, except Rio, where operating profit declined $19.5 million from the same quarter last year. Harrah's Southern Nevada properties increased third quarter revenues 13.9% and increased operating profit 46.7% over the same quarter last year. These increases were driven by growth in cross- 18 market play, more effective marketing programs and improved margins. Northern Nevada revenues were up 11.1% over the same quarter last year and operating profit increased 18.9% due to property enhancements in Reno and Lake Tahoe and execution of our consumer-marketing strategy. Although Rio's table games hold percentage improved during third quarter as compared to the first two quarters of 2000, it is still well below historical average and is the primary contributor to Rio's 13.5% decline in revenues. In addition to the revenue shortfalls, Rio's operating margin declined due to increased entertainment costs. In second quarter 2000, Rio opened its new $32 million showroom complex, which includes 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 is located adjacent to the Pavilion, Rio's 110,000 square foot entertainment/convention complex, which opened in March 1999. The new theater at Rio has not yet attracted a significant increase in entertainment revenues. For the nine months ended September 30, 2000, revenues increased 7.5% in Northern Nevada and 9.3% at Harrah's Southern Nevada properties, but declined 15.0% at the Rio. The impact of the low table-games hold percentage and increased costs at the Rio during the first nine months of 2000 more than offset improved operating profit at the Harrah's properties, causing Western Region operating profit to decline 33.3% from the same nine month period last year. During first quarter 2000, we completed the sale for cash of the Showboat Las Vegas property, which was acquired in our June 1998 acquisition of Showboat, Inc. No gain or loss resulted from the sale of this nonstrategic asset. EASTERN REGION
THIRD QUARTER PERCENTAGE FIRST NINE MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- Casino revenues......................... $211.3 $203.7 3.7% $575.9 $554.7 3.8% Net revenues............................ 225.9 219.0 3.2% 613.7 594.7 3.2% Operating profit........................ 62.8 57.5 9.2% 150.3 139.0 8.1% Operating margin........................ 27.8% 26.3% 1.5pts 24.5% 23.4% 1.1pts
Eastern Region results were driven by Harrah's Atlantic City's record revenues and operating profit for the quarter, up 6.3% and 14.5%, respectively, over third quarter 1999. Showboat Atlantic City's revenues and operating profit were basically level compared to third quarter 1999. We believe that the above-market growth achieved by Harrah's Atlantic City is due to the successful execution by the property of strategic marketing programs utilizing the available technological tools offered by our WINet customer database and Total Rewards program. Showboat Atlantic City was integrated into the Total Rewards customer-loyalty program in late June 2000. For the first nine months of 2000, the Eastern Region's increases in revenues and operating profits were due to the strength of Harrah's Atlantic City's operations, where revenues increased 6.5% and operating profit increased 20.1%. In April 2000, we announced plans for a 450-room expansion at Harrah's Atlantic City, increasing the hotel's capacity to more than 1,600 rooms. The expansion is expected to cost approximately $110 million and is scheduled to be completed in first quarter 2002. The expansion is subject to regulatory approvals. 19 CENTRAL REGION
THIRD QUARTER PERCENTAGE FIRST NINE MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- Casino revenues........................ $377.6 $260.1 45.2% $1,027.8 $722.0 42.4% Net revenues........................... 397.0 272.5 45.7% 1,080.5 758.1 42.5% Operating profit....................... 83.2 58.2 43.0% 235.1 150.2 56.5% Operating margin....................... 21.0% 21.4% (0.4)pts 21.8% 19.8% 2.0pts
Chicagoland/Illinois--Third quarter revenues increased 23.5% at Harrah's Joliet and operating profit increased 12.8% compared to the same period last year. These results are attributable to the mid-1999 elimination of cruise scheduling and ticketing and the fourth quarter 1999 opening of the new hotel at this property. Subject to regulatory approvals, we plan to convert the casino in Joliet from cruising riverboats to barges. It is anticipated that the two cruising riverboats will be removed from service in third quarter 2001; therefore, depreciation has been accelerated by $2.4 million per quarter, beginning in third quarter 2000, to reflect the revised estimates of the boats' useful lives. Excluding this accelerated depreciation, Harrah's Joliet's operating profit increased 26.0%. Harrah's East Chicago revenues increased 16.2% over third quarter 1999 and operating profit increased 13.3%. We believe that these results were driven by the March 1999 re-branding of this property to the Harrah's brand and the successful execution of the Company's loyalty strategy in East Chicago. On August 1, 2000, we announced plans to construct a 292-room hotel at the East Chicago property. This project is expected to cost approximately $47.0 million and is estimated to be completed in fourth quarter 2001. For the nine months ended September 30, 2000, Harrah's Joliet's revenues increased 40.4% and operating profit increased 56.4%. Revenues at Harrah's East Chicago increased 23.9% over the comparable nine-month period last year and operating profit increased 46.7% compared to the first nine months of 1999. Players Metropolis contributed $29.7 million in revenues and $9.0 million in operating profit for third quarter 2000. Operations of this property have also benefited from the mid-1999 change in regulations to allow dockside gaming in Illinois. Metropolis is expected to be converted to the Harrah's brand in the second half of 2001. 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 an on-going construction program and costs of promotions mounted to sustain business during construction activities. Construction began in May 1999 on a 514-room hotel with almost 18,000 square feet of convention center space. The new hotel and amenity expansion is expected to cost $146.6 million, of which $93.8 million had been spent through September 30, 2000. Weather related delays have pushed the expected completion date on the expansion to first quarter 2001. Players Lake Charles contributed $41.2 million in revenues and $7.4 million in operating profit during third quarter 2000. We are currently investing approximately $40 million to upgrade the slot product and infrastructure of the Lake Charles property. This capital expenditure includes the cost of replacing one of the existing Players boats with a renovated riverboat that we purchased in 1998. We plan to rebrand this property to the Harrah's brand in fourth quarter 2000. Mississippi--Combined third quarter revenues by our Mississippi properties decreased 2.8% from third quarter 1999 and operating profit decreased 35.7% from $2.3 million in third quarter 1999 to $1.5 million in third quarter 2000. For the first nine months of 2000, revenues increased 3.2% and operating profit decreased 2.7% compared with the comparable period last year. 20 Missouri--Third quarter revenues at our Missouri properties increased 37.5% and operating profit increased 39.0% over the comparable period in 1999. Revenue increases are primarily attributable to Harrah's St. Louis, where revenues were 83.4% higher than in third quarter last year due principally to the integration of Players St. Louis and the Harrah's/Players jointly-owned shore-side facilities into the Harrah's St. Louis operations. Harrah's North Kansas City posted record third quarter revenues and increased operating profit by 30.8% over the same quarter last year. Missouri properties' revenues increased 30.4% and operating profit increased 39.4% for the first nine months of 2000 compared to the same period last year. The Missouri properties' revenues have benefited from the elimination in the second half of 1999 of restricted boarding schedules, but operating profit was affected by higher admission taxes. The St. Louis shore-side facilities were owned jointly with Players prior to our March 22, 2000, acquisition of that company. Our pro rata share of the 2000 operating losses of the joint venture through the date of the Players acquisition was $2.4 million. These losses are included in Equity in losses of nonconsolidated affiliates in the Consolidated Condensed Statements of Income (see Other Factors Affecting Net Income). Subsequent to the Players acquisition, results of the shore-side facilities, as well as for Players St. Louis operations, are combined with Harrah's St. Louis' operating results. In May 2000, we announced plans for facilities enhancements to Harrah's North Kansas City, including approximately 28,000 square feet of additional gaming space. The enhancements are expected to cost approximately $44.8 million and are expected to be completed in second quarter 2001. Upon completion of this project, the North Star riverboat may be deployed to another property. MANAGED AND OTHER CASINOS Our managed and other casinos results reflect the addition of fees from Harrah's New Orleans, which opened in fourth quarter 1999, and the impact on our management fee percentages of recent renewal and extension agreements for two of the Indian-owned facilities that we manage. See DEBT AND LIQUIDITY--Guarantees of Third Party Debt and Other Commitments, for discussion of our agreements to defer collection of fees from New Orleans. In late third quarter, the Eastern Band of Cherokee broke ground on a new $63 million hotel and conference at Harrah's Cherokee Casino in Cherokee, North Carolina. Construction of the 250-room hotel and 30,000 square foot conference center is slated for completion by the end of 2001. In November 1998, we ceased management of a casino owned by the Upper Skagit Tribe, located on Indian lands near Seattle, Washington. We had guaranteed the Skagit Tribe's development financing and during second quarter 1999 we performed under our guarantee and purchased the Tribe's debt from the lender for $11.4 million. The Tribe secured new financing and paid the debt owed to us in third quarter 2000. During first quarter 2000, we signed a definitive agreement with the Rincon San Luiseno Band of Mission Indians to act as developer and manager for the Tribe's $125 million casino and hotel on Rincon tribal land less than 50 miles north of San Diego. This location provides convenient access to metropolitan San Diego, La Jolla, Del Mar, Escondido and Orange County, California. The Tribe is constructing a temporary casino facility, which is expected to begin operations in first quarter 2001. We provided $14.6 million to finance this development and are providing the Tribe technical service related to the development and operation of the temporary casino, but we will not manage the temporary facility. The permanent facility, the cost of which is to be funded by a third-party loan that we expect to guarantee, is expected to open in first quarter 2002. We expect to manage the permanent facility for a fee. The operation of the permanent casino project is subject to various approvals, including approvals of the National Indian Gaming Commission. 21 See DEBT AND LIQUIDITY for further discussion of Harrah's guarantees of debt related to Indian projects. We ceased management of the Star City casino in Sydney, Australia, in January 2000 upon the completion of the buy-out of our management contract by another company. No material gain or loss was recognized on the sale of this management contract. OTHER FACTORS AFFECTING NET INCOME
THIRD QUARTER PERCENTAGE FIRST NINE MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ (IN MILLIONS) 2000 1999 (DECREASE) 2000 1999 (DECREASE) (INCOME)/EXPENSE -------- -------- ---------- -------- -------- ---------- Development costs......................... $ 1.1 $ 1.9 (42.1)% $ 4.9 $ 4.2 16.7% Write-downs, reserves and recoveries...... (0.9) 0.2 N/M (0.3) (1.3) (76.9)% Project opening costs..................... 2.6 0.2 N/M 4.4 0.6 N/M Corporate expense......................... 11.9 11.9 --% 37.5 33.3 12.6% Headquarters relocation and reorganization expense................................. 0.7 3.0 (76.7)% 3.4 7.5 (54.7)% Equity in losses of nonconsolidated affiliates.............................. 9.6 10.2 (5.9)% 43.9 23.0 90.9% Venture restructuring costs............... -- -- -- -- (0.4) N/M Amortization of goodwill and trademarks... 5.6 4.5 24.4% 15.5 13.5 14.8% Interest expense, net..................... 59.3 48.2 23.0% 167.8 147.7 13.6% Other income, including interest income... (2.9) 0.6 N/M (7.7) (5.9) 30.5% Gains on sales of equity interests in subsidiaries............................ -- (16.3) N/M -- (16.3) N/M Effective tax rate........................ 36.5% 36.4% 0.1pts 36.0% 36.9% (0.9)pts Minority interests........................ $ 4.1 $ 3.5 17.1% $ 11.5 $ 7.8 47.4% Extraordinary loss, net of income taxes... -- 0.4 N/M 0.7 11.0 (93.6)%
Development costs for third quarter 2000 decreased from the same period last year. However, development activities were limited in both periods due to the limited number of new markets opening for development. Corporate expense was basically the same in third quarter 2000 as in third quarter 1999, but was only 1.2% of revenues in third quarter 2000 compared to 1.5% for the same quarter last year. For the first nine months of 2000, corporate expense increased 12.6% over the same period last year, but was only 1.4% of revenues compared to 1.5% for the same period last year. Costs related to the relocation of the Company's headquarters to Las Vegas, Nevada, declined in 2000 as relocation activity nears completion. Equity in losses of nonconsolidated affiliates for third quarter 1999 reflected losses from our share of National Airlines, Inc. ("NAI"), our share of Harrah's New Orleans project opening costs and our pro rata share of the losses from the St. Louis shore-side facilities. In third quarter 2000, NAI reported net income, of which our pro rata share was $0.8 million. With the acquisition of Players in March 2000, the St. Louis shore-side facilities are included in our St. Louis operations. Our share of Harrah's New Orleans losses was $9.7 million in third quarter 2000. For the nine months ended September 30, 2000, the increase in Equity in losses of nonconsolidated affiliates reflects the increase in losses from Harrah's New Orleans and NAI and our pro rata share of the losses from the St. Louis shore-side facilities through the date of the Players acquisition. Amortization of goodwill and trademarks increased for the third quarter and nine months from the same periods last year due to the Players acquisition in March 2000. Until such time as the Players 22 purchase price allocation is finalized, amortization expense includes estimates for amortization related to the Players acquisition. Interest expense increased for the third quarter and the first nine months of 2000 due to increased borrowings for the Players acquisition and our stock repurchase program. Other income increased in third quarter and the first nine months of 2000 due to higher interest income and a 1999 write-off of non-operating assets. The effective tax rates for both periods are higher than the federal statutory rate primarily due to state income taxes and that portion of our goodwill amortization that is not deductible for tax purposes. Minority interests reflects joint venture partners' share of income, which increased in 2000 from the prior year as a result of higher earnings from those ventures. The extraordinary losses reported in both years were 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--Extinguishments of Debt.) CAPITAL SPENDING AND DEVELOPMENT In addition to the specific development and expansion projects discussed in OPERATING RESULTS AND DEVELOPMENT PLANS, we perform on-going refurbishment and maintenance at our casino entertainment facilities in order to maintain the Company's 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, bank borrowings (see DEBT AND LIQUIDITY), 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 2000 totaled approximately $370.3 million, excluding the purchase of JCC debt. Estimated total capital expenditures for 2000 are expected to be between $430 million and $500 million, excluding the acquisition of Players, and estimated capital expenditures for 2001 are expected to be between $475 million and $525 million. DEBT AND LIQUIDITY FINANCING ACTIVITIES Bank Facility--In second quarter 2000, our revolving credit and letter of credit facilities (collectively, the "Bank Facility") were amended to increase our borrowing capacity from $1.6 billion to $1.9 billion. The five-year $1.3 billion revolving credit and letter of credit facility maturing in 2004 was increased to $1.525 billion, and the $300 million revolving credit facility, which is renewable annually at the borrower's and lenders' options, was increased to $375 million. The amended Bank Facility provides the Company with increased financial flexibility without changing any of the other terms of the agreement. At September 30, 2000, after considering borrowings under our Commercial Paper program, we had $457.8 million of borrowing capacity available to us. 23 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 facility and 15 basis points on the 364-day 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. Credit Agreement--On June 25, 2000, we entered into a 364-day credit agreement with a lender whereby we borrowed $150 million to redeem the Players Notes. Interest rates, facility fees and covenants in the Credit Agreement are identical to those provisions contained in our Bank Facility. Commercial Paper--To provide the Company with cost-effective borrowing flexibility, we established a $200 million Commercial Paper program that will be used to borrow funds for general corporate purposes. Although the debt instruments are short-term in tenor, they are classified in long-term debt because the Commercial Paper is backed by our Bank Facility and we have committed to keep available capacity under our Bank Facility in an amount equal to or greater than amounts borrowed under this program. At September 30, 2000, we had borrowed $87.7 million under this program. Line of Credit Agreement--In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have entered into uncommitted line of credit agreements with two lenders whereby we can borrow up to $50 million for periods of ninety days or less. At September 30, 2000, we had borrowed $35 million under these agreements. These agreements have no impact on and do not decrease our borrowing capacity under our Bank Facility. LEASE AGREEMENTS In June 2000, we sold and leased back our corporate aircraft. The agreement consists of an interim term of six months, a base term of one year and annual renewal options. The aggregate of the interim term, the base term and the renewal options will not exceed a total of five years. At the end of the base term, or any renewal term, we can, at our option, (a) renew the lease; (b) purchase the equipment subject to the lease; or (c) sell the equipment on behalf of the Lessor under the terms provided for in the lease agreement. EQUITY REPURCHASE PROGRAM Under plans authorized by our Board of Directors in July 1999 and April 2000, we have repurchased 11.2 million shares of the Company's stock in the open market this year. Spending for these repurchases has totaled approximately $244.3 million for the nine months ended September 30, 2000. The repurchases were funded through available operating cash flows and borrowings from our Bank Facility. Shares purchased during second quarter 2000 completed the plan approved by our Board of Directors in July 1999 for the repurchase of 10 million shares. Another 5.8 million shares may be purchased under the April 2000 plan, which will expire December 31, 2001. INTEREST RATE AGREEMENTS Our interest rate swap agreements, which were entered into to manage the relative mix of our debt between fixed and variable rate instruments, have expired and were not renewed. We have no immediate plans to enter into new swap agreements. RETIREMENT OF DEBT Approximately $2.3 million of the Players Notes were retired on April 28, 2000, in connection with a change of control offer. On June 5, 2000, we purchased approximately $13.1 million of the Players Notes in the open market for the face amount plus accrued interest and a premium. The remaining 24 Players Notes were redeemed on June 30, 2000, for the face amount plus accrued interest and a premium. We recorded liabilities assumed in the Players acquisition, including the notes, at their fair value as of the date of consummation of the acquisition. The difference between the consideration paid to the holders of the Players Notes and the carrying value of the Notes on the dates of the redemptions was recorded in the second quarter as an extraordinary loss of $0.7 million, net of tax. We retired the Players Notes using proceeds from our new $150 million credit agreement and our Bank Facility. We redeemed Showboat's 9 1/4% First Mortgage Bonds on May 1, 2000, the first call date. These bonds were defeased in 1998 by purchasing treasury securities which were deposited with trustees to pay the scheduled interest payments to the first call date and principal on the securities outstanding on such date. In third quarter 1999, we retired outstanding debt for capital lease obligations of our 99.55% owned subsidiary, Showboat Marina Casino Partnership ("SMCP"). Approximately $9.2 million of debt was retired, and an extraordinary loss of $0.4 million, net of tax, was recorded. In second quarter 1999, we redeemed all $100 million 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. An extraordinary loss of $4.5 million, net of tax, was recorded. In first quarter 1999, we redeemed all $140 million of SMCP's 13 1/2% First Mortgage Notes due 2003 and recorded an extraordinary loss of $2.0 million, net of tax. GUARANTEES OF THIRD PARTY DEBT AND OTHER COMMITMENTS JCC Holding Company--The Company has an approximate 43% beneficial ownership interest in JCC Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively, "JCC"). JCC owns and operates an exclusive land-based casino in New Orleans, Louisiana (the "Casino"), which is managed by a subsidiary of the Company. The Company has guaranteed certain obligations, made certain commitments, advanced funds and agreed to defer collection of fees and other receivables relative to JCC, as summarized below. - Guarantee of $100 million annual payment obligation of JCC owed to the State of Louisiana gaming board (the "State Obligation") - Guaranteed $166.5 million of a $236.5 million JCC bank credit facility - Made $29.1 million, as of September 30, 2000, in subordinated loans to JCC to finance construction and completion of the Casino - Agreed to certain other contractual commitments and guarantees totaling less than $20 million - Agreed to defer collection of certain fees under certain circumstances - Agreed to forbear from collection of certain payments and reimbursables arising from existing agreements with JCC Initially, the Company guaranteed the State Obligation for the period from October 28, 1999, to October 28, 2000 (the "Initial State Guarantee"). In accordance with an existing agreement, the Initial State Guarantee was replaced with a new guarantee (the "Current State Guarantee"), pursuant to which the Company has guaranteed the State Obligation for the period from April 1, 2000, to March 31, 2001. JCC is required to make daily payments of approximately $273,973 to satisfy the State Obligation. The Current State Guarantee obligation is reduced to the extent JCC makes such daily payments. Payments made to the State by the Company pursuant to the Initial State Guarantee and the Current State Guarantee are secured by a first priority collateral security interest in JCC's assets. Subject to the satisfaction of certain cash flow tests and other conditions each year, the Company is required to provide a new guarantee to the State for each of the 12-month periods ending March 31, 2002, 2003 and 2004. For the period ending March 31, 2002, the requirement to provide a 25 new guarantee is conditioned upon, among other things, JCC producing net cash flow, as defined, of at least $15 million for the 12-month period ending November 30, 2000. Based on results to date, it appears that JCC will not satisfy this cash flow test. The Company is participating with JCC in discussions relating to a restructuring of JCC's obligations. Absent a restructuring which fundamentally changes the economics of the Casino, the Company anticipates that it will not renew the State Guarantee for the 12-month period ending March 31, 2002. In this event and if JCC cannot find a substitute guarantor, JCC's agreements with the State of Louisiana provide for the loss of JCC's State gaming license. The Company must formally advise JCC by December 31, 2000, as to whether or not we intend to renew the State Guarantee. Commencing February 28, 2000, JCC ceased making its daily payment in respect of the State Obligation. On February 29, 2000, the State made a demand to the Company pursuant to the Initial State Guarantee and the Company began making the daily payment to the State on that date. The Company paid $9.6 million to the State pursuant to the Initial State Guarantee. The Company's remaining obligations pursuant to the Initial State Guarantee expired when the Company provided the Current State Guarantee. The Company's obligations pursuant to the Current State Guarantee for the 12-month period ending March 31, 2001, are limited to $100 million. The Company commenced making payments in respect of the State Obligation pursuant to the Current State Guarantee on April 1, 2000, made payments totaling $30.4 million through July 20, 2000, and ceased making payments on July 21, 2000, at which time JCC resumed making the payments. Subject to certain conditions, which are presently being satisfied, JCC's bank credit facility permits the Company to pay up to an aggregate of $50 million pursuant to the Initial State Guarantee and the Current State Guarantee without a default under that facility. The Company has agreed until April 1, 2001, to defer the collection from JCC of amounts paid pursuant to the Initial State Guarantee and Current State Guarantee. Following a default by JCC under its bank credit agreement, JCC's banks demanded that the Company perform on its guarantee of JCC's bank credit facility. On September 1, 2000, Harrah's performed under its guarantee of JCC's bank credit facility and purchased $145.5 million of JCC's outstanding debt from the lender. The guaranteed debt purchased by the Company includes a $25 million revolving credit facility and the Company now is obligated, subject to the terms and conditions of the loan agreement, to fund additional revolver draws. Subsequent to the Company's September 1, 2000, performance under the guarantee, we funded an additional $2.5 million of JCC's revolver draws, leaving, as of September 30, 2000, $19.5 million available to JCC under its revolving credit facility. In September 2000, the State of Louisiana gaming board declared JCC to be in default of certain financial stability provisions under the Operating Contract. JCC has a six-month cure period, which expires in March 2001. JCC has exercised its right, pursuant to agreements entered into at the time of its emergence from bankruptcy in October 1998, to defer the payment of certain management fees, credit support fees, guarantee obligations, and interest on subordinated debt due to the Company. Such deferred payments totaled approximately $17.6 million as of September 30, 2000. Separately, the Company and certain Company affiliates have agreed, until April 1, 2001, to forbear from the collection of certain fees, lease payments and reimbursable costs arising from existing agreements with JCC that accrue and become due and payable through April 1, 2001. These amounts totaled approximately $14.0 million as of September 30, 2000. As discussed above, given liquidity issues facing JCC, JCC is exploring alternatives to restructure its obligations. Possible alternatives include requesting a reduction of the State Obligation, seeking relaxation of certain operational restrictions, and pursuing adjustments to its debt and capital structures. A reduction of the State Obligation and/or a relaxation of operational restrictions require 26 action by the State of Louisiana. There is no assurance that the State will consider or take such action. Similarly, there is no assurance that JCC will successfully restructure any or all of its obligations in a timely and sufficient manner. Management believes that a failure by JCC to successfully restructure its obligations in a timely and sufficient fashion would have a material adverse effect on JCC and could result in the loss by JCC of its State gaming license. Such failure, whether total or in part, to timely and sufficiently restructure any or all of its obligations, and/or such loss by JCC of its State gaming license, could result in (i) an impairment of the Company's investment in JCC; (ii) the inability of the Company to collect all or any of the advances made to and/or fees, rents, and assessments owed by JCC; and/or (iii) the requirement that the Company perform under one or more of its contractual commitments related to the Company's investment in JCC. Given the actions being undertaken by JCC described above and the many variables involved in bringing these matters to a resolution, management is currently unable to estimate the losses the Company would incur, individually or in the aggregate, if JCC is partially or totally unsuccessful in such efforts. At September 30, 2000, the Company's total investment in JCC was approximately $258 million consisting of its net equity investment and various receivables, and its total potential liability for contingent obligations was approximately $86 million, which includes approximately $50 million of unfunded amounts under the Current State Guarantee as of September 30, 2000. This unfunded sum is presently being reduced as described above. Indian Agreements--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 now open, which extend for periods of up to 51 months from September 30, 2000, is $1.1 million. We may guarantee all or part of the debt incurred by Indian tribes with which we have entered 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, 2000, was $57.7 million. NAI--Including amounts provided subsequent to September 30, 2000, we have provided $17 million in loans to NAI and letters of credit on behalf of NAI totaling $24.6 million dollars. $16.0 million in letters of credit serve as collateral to credit card processors in order to enable NAI to receive proceeds from the credit card processors for advance ticket sales. The remaining $8.6 million serves as collateral to enable NAI to secure space in airport terminals. We entered into an agreement with another investor of NAI whereby that investor is obligated to reimburse us for approximately fifty-six percent of any amount that we might pay in response to demands on the letters of credit. EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS COMPETITIVE PRESSURES Due to the limited number of new markets opening for development, many casino operators are investing in existing markets in an effort to attract new customers, thereby increasing competition in those markets. With the exception of the additional supply being added in Las Vegas, the amount of supply change in the long-established gaming markets of Nevada and New Jersey has represented a 27 smaller percentage 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, five 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. 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. In 1997, we 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. During 1999, we implemented 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. During second quarter 2000, we launched our new customer loyalty program--Total Rewards--which offers significant enhancements to Total Gold and provides our customers with a simpler understanding of exactly how to earn the cash, comps and other benefits they want. The Rio and Players Lake Charles properties are expected to be integrated into the Total Rewards program during 2000. INDUSTRY CONSOLIDATION As evidenced by the number of recent public announcements by casino entertainment companies of plans to acquire or be acquired by other companies, including our acquisitions of Showboat, Rio and Players, consolidation in the gaming industry continues. 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. POLITICAL UNCERTAINTIES The casino entertainment industry is subject to political and regulatory uncertainty. In 1996, the U.S. government formed a federal commission to study gambling in the United States, including the casino gaming industry. 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, when effective, will 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. At this time, the ultimate impacts that the National Gaming Impact Study Commission report and the California Compacts may have on the industry or on our Company are uncertain. From time to time, individual jurisdictions have also considered legislation or referenda which could adversely impact our operations, and the likelihood or outcome of similar legislation and referenda in the future is difficult to predict. The casino entertainment industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. From time to time, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of such laws, which would affect the industry. It is not possible to determine with certainty the scope or likelihood of possible future 28 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 Harrah's Operating Company, Inc.'s (HOC) 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 $1.4 billion at September 30, 2000. 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. 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 or on behalf of the Company) includes statements that are forward-looking. These forward-looking statements generally can be identified by phrases such as the Company "believes," "expects," "anticipates," "foresees," "forecasts," "estimates," "intends," "plans," "seeks," or other words or phrases of similar import. 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) planned capital expenditures for 2000 and beyond; (D) the impact of the WINet, Total Gold Card, and Total Rewards Programs; and (E) any future impact of the Showboat or Players acquisitions, the Rio merger or the Rincon development. Similarly, such statements herein that describe, generally or specifically, the Company's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties 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; abnormal gaming holds; 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, speak only as of the date made, and are qualified in their entirety by this and other cautionary statements herein, in our Annual Report on Form 10-K, and in our other filings with the Securities and Exchange Commission. 29 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our debt. We attempt to limit our exposure to interest rate risk by managing the mix of our debt between fixed rate and variable rate obligations. We do not currently utilize derivative transactions to hedge our exposure to interest rate changes. We do not hold or issue derivative financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. We sold our management contract for a casino in a foreign country in January 2000. As a result, we no longer have any ownership interest in businesses in foreign countries and, therefore, are not subject to material foreign currency exchange rate risk. We hold investments in various available-for-sale equity securities, however, our exposure to price risk arising from the ownership of these investments is not material to our consolidated financial position, results of operations or cash flows. 30 PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits *EX-10.1 Description of amendment to Time Accelerated Restricted Stock Award Program (TARSAP II) approved by the Human Resources Committee of the Board of Directors on July 26, 2000. *EX-10.2 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and John M. Boushy. *EX-10.3 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and Stephen H. Brammell. *EX-10.4 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and Janis L. Jones. *EX-10.5 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and Marilyn G. Winn. *EX-10.6 Employment Agreement, dated August 25, 2000, between Harrah's Operating Company, Inc. and Richard E. Mirman. *EX-10.7 Letter Agreement with Wells Fargo Bank Minnesota, N.A., dated August 31, 2000, concerning appointment as Escrow Agent under Escrow Agreement for deferred compensation plans. *EX-10.8 Amendment to Escrow Agreement, dated April 26, 2000, between Harrah's Entertainment, Inc. and Wells Fargo Bank Minnesota, N.A., Successor to Bank of America, N.A. *EX-11 Computation of per share earnings. *EX-27 Financial Data Schedule.
- ------------------------ * Filed herewith. (b) No reports on Form 8-K were filed by the Company during third quarter 2000. 31 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. By: /s/ JUDY T. WORMSER ----------------------------------------- Judy T. Wormser VICE PRESIDENT AND CONTROLLER November 13, 2000 (CHIEF ACCOUNTING OFFICER)
32 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NO. - --------------------- ----------- ---------- EX-10.1 Description of amendment to Time Accelerated Restricted Stock Award Program (TARSAP II) approved by the Human Resources Committee of the Board of Directors on July 26, 2000. EX-10.2 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and John M. Boushy. EX-10.3 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and Stephen H. Brammell. EX-10.4 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and Janis L. Jones. EX-10.5 Amendment to Employment Agreement, dated August 2, 2000, between Harrah's Operating Company, Inc. and Marilyn G. Winn. EX-10.6 Employment Agreement, dated August 25, 2000 between Harrah's Operating Company, Inc. and Richard E. Mirman. EX-10.7 Letter Agreement with Wells Fargo Bank Minnesota, N.A., dated August 31, 2000, concerning appointment as Escrow Agent under Escrow Agreement for deferred compensation plans. EX-10.8 Amendment to Escrow Agreement, dated April 26, 2000, between Harrah's Entertainment, Inc. and Wells Fargo Bank Minnesota, N.A., Successor to Bank of America, N.A. EX-11 Computation of per share earnings. EX-27 Financial Data Schedule.
33 EX-10.1 2 a2029570zex-10_1.txt EX-10.1 Exhibit 10.1 Description of Amendment to TARSAP II July 26, 2000 This exhibit describes the amendment to the Company's Time Accelerated Restricted Stock Award Program (TARSAP II) approved July 26, 2000: 1. The Program was changed to a six year program with final longevity vesting on January 2, 2007, based on continued active employment. 2. The Program's accelerated vesting schedule was modified to remove the potential performance vesting for the year 2006. 3. The Program was clarified to provide that if a change in control occurred while a participant was on salary continuation, the participant would only receive the next vesting installment not otherwise earned. EX-10.2 3 a2029570zex-10_2.txt EX-10.2 Exhibit 10.2 Amendment to Employment Agreement With John M. Boushy August 2, 2000 This Amendment amends the Employment Agreement dated April 1, 1998, between the undersigned Executive and Harrah's Operating Company, Inc. In consideration of the mutual agreements herein, it is agreed as follows: 1. The parties understand and agree that the provisions in Section 6 of the Employment Agreement which relate to TARSAP vesting during Salary Continuation were intended to only apply to TARSAP I. 2. The parties agree that the following provision applies regarding vesting of TARSAP II during a period of Salary Continuation: The next potential vesting installment of TARSAP II for Executive after the Separation Date if the installment is earned will vest for Executive (all, part or none) at the CEO's and HRC's discretion. If a Change in Control as defined in Executive's Severance Agreement occurs during Salary Continuation, Executive will only be entitled to the next potential vesting installment of TARSAP II not otherwise earned. Unvested shares at the end of Salary Continuation are forfeited. IN WITNESS WHEREOF, the parties have executed this Amendment as of this 2nd day of August, 2000. Executive: Harrah's Operating Company, Inc. /s/ JOHN M. BOUSHY By: /s/ MARILYN G. WINN - --------------------------- ------------------------------ Title: Senior Vice President HR EX-10.3 4 a2029570zex-10_3.txt EX-10.3 Exhibit 10.3 Amendment to Employment Agreement With Stephen H. Brammell August 2, 2000 This Amendment amends the Employment Agreement dated July 30, 1999, between the undersigned Executive and Harrah's Operating Company, Inc. In consideration of the mutual agreements herein, it is agreed as follows: 1. The parties understand and agree that the provisions in Section 6 of the Employment Agreement which relate to TARSAP vesting during Salary Continuation were intended to only apply to TARSAP I. 2. The parties agree that the following provision applies regarding vesting of TARSAP II during a period of Salary Continuation: The next potential vesting installment of TARSAP II for Executive after the Separation Date if the installment is earned will vest for Executive (all, part or none) at the CEO's and HRC's discretion. If a Change in Control as defined in Executive's Severance Agreement occurs during Salary Continuation, Executive will only be entitled to the next potential vesting installment of TARSAP II not otherwise earned. Unvested shares at the end of Salary Continuation are forfeited. IN WITNESS WHEREOF, the parties have executed this Amendment as of this 2nd day of August, 2000. Executive: Harrah's Operating Company, Inc. /s/ STEPHEN H. BRAMMELL By: /s/ MARILYN G. WINN - --------------------------- ----------------------------- Title: Senior Vice President HR EX-10.4 5 a2029570zex-10_4.txt EX-10.4 Exhibit 10.4 Amendment to Employment Agreement With Janis L. Jones August 2, 2000 This Amendment amends the Employment Agreement dated November 1, 1999, between the undersigned Executive and Harrah's Operating Company, Inc. In consideration of the mutual agreements herein, it is agreed as follows: 1. The parties understand and agree that the provisions in Section 6 of the Employment Agreement which relate to TARSAP vesting during Salary Continuation were intended to only apply to TARSAP I. 2. The parties agree that the following provision applies regarding vesting of TARSAP II during a period of Salary Continuation: The next potential vesting installment of TARSAP II for Executive after the Separation Date if the installment is earned will vest for Executive (all, part or none) at the CEO's and HRC's discretion. If a Change in Control as defined in Executive's Severance Agreement occurs during Salary Continuation, Executive will only be entitled to the next potential vesting installment of TARSAP II not otherwise earned. Unvested shares at the end of Salary Continuation are forfeited. IN WITNESS WHEREOF, the parties have executed this Amendment as of this 2nd day of August, 2000. Executive: Harrah's Operating Company, Inc. /s/ JANIS L. JONES By: /s/ MARILYN G. WINN - --------------------------- ------------------------------ Title: Senior Vice President HR EX-10.5 6 a2029570zex-10_5.txt EX-10.5 Exhibit 10.5 Amendment to Employment Agreement With Marilyn G. Winn August 2, 2000 This Amendment amends the Employment Agreement dated May 7, 1999, between the undersigned Executive and Harrah's Operating Company, Inc. In consideration of the mutual agreements herein, it is agreed as follows: 1. The parties understand and agree that the provisions in Section 6 of the Employment Agreement which relate to TARSAP vesting during Salary Continuation were intended to only apply to TARSAP I. 2. The parties agree that the following provision applies regarding vesting of TARSAP II during a period of Salary Continuation: The next potential vesting installment of TARSAP II for Executive after the Separation Date if the installment is earned will vest for Executive (all, part or none) at the CEO's and HRC's discretion. If a Change in Control as defined in Executive's Severance Agreement occurs during Salary Continuation, Executive will only be entitled to the next potential vesting installment of TARSAP II not otherwise earned. Unvested shares at the end of Salary Continuation are forfeited. IN WITNESS WHEREOF, the parties have executed this Amendment as of this 2nd day of August, 2000. Executive: Harrah's Operating Company, Inc. /s/ MARILYN G. WINN By: /s/ STEPHEN H. BRAMMELL - --------------------------- ------------------------------ Title: Senior Vice President EX-10.6 7 a2029570zex-10_6.txt EX-10.6 Exhibit 10.6 EMPLOYMENT AGREEMENT ------------------------ THIS AGREEMENT is made and entered into as of the 25th day of August, 2000, by and between HARRAH'S OPERATING COMPANY, INC., (hereinafter referred to as the "Company") and RICH MIRMAN, (hereinafter referred to as the "Executive"). I. RECITALS A. The Company desires to employ (or continue to employ) Executive, and Executive desires to serve as an employee of the Company, on the terms and conditions set forth in this Agreement. B. Executive understands that he will be employed in a sensitive position with access to, and requiring knowledge of confidential and commercially valuable information of the Company, including but not limited to the current and future marketing plans for the Company and all of its wholly owned subsidiaries and affiliates, the unauthorized use or disclosure of which, during and following his separation of employment, could cause the Company and its subsidiaries serious and irreparable injury. C. Executive also acknowledges that, by virtue of his position with the Company, Executive will have dealings with customers who have close and ongoing relationships with the Company, and that Executive's competition for or solicitation of such customers following Executive's separation of employment would cause the Company serious and irreparable injury. D. Executive acknowledges that the Company would not have entered into this Agreement without Executive's express understanding of and agreement with the confidentiality, non-competition and non-solicitation provisions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties agree as follows: 1. Employment of Executive. The Company agrees to employ Executive, and Executive accepts such employment and agrees to serve as an employee of the Company on the terms and conditions set forth herein. 2. Term. Subject to Section 6 hereof, the term of Executive's employment hereunder ("Employment Term") shall commence on the date set forth above ("the Effective Date") and shall continue for a period of four years; provided that this Agreement will automatically renew for successive one-year periods thereafter unless (1) otherwise terminated under Section 6, or (2) either party notifies the other party, in writing, at least thirty (30) days prior to the otherwise scheduled expiration of the Employment Term that such Term of Employment shall not so renew. 3. Position and Duties. During the Employment Term, Executive shall serve the Company in the capacity of Senior Vice President of Marketing performing such services as may be assigned or required by the Executive's supervisor or other higher executives. Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such office or position, and such other services and duties and responsibilities as may be reasonably requested by the Company, which may include services for one or more subsidiaries of the Company. Said services shall be performed exclusively for the Company and its subsidiaries, except for (1) service on civic or charitable boards or committees, approved by the Company, involving no conflict of interest with the interests of the Company and not interfering with the regular performance of his duties hereunder, and (2) sick leave, leave of absences, and periods of paid time off (PTO), all in accordance with the Company's policies. 4. Place of Performance. The services to be provided by Executive hereunder shall be performed at the Company's subsidiary in Las Vegas, Nevada, or at such other location as the Company, in its sole discretion, may designate. Executive understands and agrees that an essential function of the services provided by Executive requires that he will be able to travel to the Company's subsidiaries and other locations and may be required to relocate. 5. Compensation and Related Matters. During the Term, Executive shall be entitled to receive the following compensation and benefits: (a) Base Salary. Executive shall receive a Base Salary ("Base Salary") at an annual rate of $275,000. Executive's Base Salary shall be subject to review on April 1st of each year in accordance with Company's regular administrative practices of salary review applicable for executives of the Company. Salary increases shall be in the discretion of the Company. Base Salary shall be paid in substantially equal periodic installments, but not less frequently than monthly, in accordance with the Company's customary salary payment policies applicable to employees of the Company. (b) Performance Bonus. Executive shall be eligible for participation in an annual bonus plan, subject to the terms and conditions of the bonus plan, as may be amended from time to time, for Executive's salary and grade level. The amount of the bonus, if any, shall be in the discretion of the Company. To be eligible for a bonus for a calendar year, Executive must be actively employed (actually performing work) on March 15th of the following year and/or the date set forth in Company's Bonus Plan subject to the terms of the bonus plan. (c) Stock Options and Restricted Stock. Executive shall be eligible for participation in the Company's Stock Option and Restricted Stock Plan pursuant to the terms of the Stock Option and Restricted Stock Plans, as modified from time to time. The Company's management will recommend to the Company's Human Resources Committee (HRC) that Executive be granted options and restricted stock when such awards are normally made to employees in general. Company management will recommend that HRC determine the number and frequency of options and restricted stock awards to be granted Executive. Generally the number of options and restricted stock will be based on the same criteria as are generally used for other employees at Executive's grade level, subject to Stock Options and Restricted Stock Plans, as may be modified from time to time. However, awards for employees in a particular level can vary in amount depending on subject factors and there is no guarantee of uniform treatment. HRC will set the exercise price of the options. HRC has the sole right to determine the amount and mix of options and restricted stock, if any, to be granted to Executive and the grants are not subject to change. All awards are subject to the terms of the Company's plans, and their administrative regulations as these may be amended from time to time, and the award certificates. Executive understands that there is no guarantee of the projected value of the grants, and grants are subject to approval each year by the HRC. Executive also understands that the ability to exercise stock options and receive vested restricted stock are also subject to the terms of the Company's plans. (d) TARSAP II Grant. Executive will also be eligible to receive up to 50,000 shares of TARSAP II, as further consideration for Executive's covenants of confidentiality, non-competition and non-solicitations as set forth in Sections 8 and 9 of this Agreement. Executive's eligibility for such shares and the time and manner of their vesting will be according to the Plan's rules and procedures, which are subject to change, modification or termination. (e) Other Benefits - During Term of Employment. Executive shall be entitled to participate in any life, health, and long-term disability insurance plans, retirement programs, deferred compensation, financial counseling, other incentive compensation programs, PTO, and other fringe benefits made available to other executive employees of the Company in similar grade levels to that of the Executive at his location, subject to the benefits provisions and eligibility rules thereof. The Company has the exclusive right to modify, add and eliminate any of these benefits. (f) 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, the sum of his age and years of service equals or exceeds 65, and at anytime after the occurrence of such events the Executive's employment is terminated pursuant to Section 6(d) or 6(e) or a non-renewal of this Agreement; or (ii) the Executive reaches the age of 55 and has attained 10 years of continuous service with the Company, and at any time after the occurrence of both such events the Executive is separated from employment for any reason other than for "cause" as described in Section 6(a), 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, as of the Executive's Separation Date or the end of the Salary Continuation Period (as defined in Section 7(c)), 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 each quarter, which contribution shall be imputed income to the Executive. As soon after the Separation Date as the Executive becomes eligible for Medicare coverage, the Company's group heal insurance plan shall become secondary to Medicare. If Executive breaches the provisions of Section 8 and/or 9 during the Life Coverage Period, the entitlement of Executive and his then dependents to participate in the Company's group health plan shall terminate automatically without further action or notice by either party, subject to applicable COBRA rights, which shall commence on the Separation Date. (g) EDCP Retirement Rate. If Executive reaches the age of 50 and, when added to his number of years of service equals or exceeds 65, and at any time after the occurrence of both events, the Executive's employment is terminated pursuant to Section 6(d) or 6(e), 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, if applicable. (h) 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 supercedes and replaces this Agreement, except that notwithstanding anything to the contrary in the Severance Agreement, the provisions of Section 8 and 9 of this Agreement will remain in full force and effect. If, prior to the 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 automatically terminates. 6. Separation of Employment. (a) Death. The death of Executive shall automatically terminate the Company's obligations hereunder, except as set forth in 7(a) below. (b) Total Disability. If Executive is disabled so that in the Company's opinion he would qualify for disability under the Company's Long Term Disability Plan if he applied for it, the Company shall be entitled to separate Executive's employment with the Executive reserving his rights to apply for disability benefits based on becoming disabled during active employment. This separation will terminate the Employer's obligations to Executive, except as set forth in Section 7(b). All the provisions and obligations of Executive under Sections 8 and 9 will survive his Separation for Disability. (c) Separation For Cause. At any time during the term of this Agreement, the Company may separate Executive's employment for cause, in which event Executive's employment will immediately terminate. For the purpose of this Agreement, the Company shall have "Cause" to separate Executive's employment for any of the following reasons: (1) dishonesty or fraud, (2) disclosure of confidential information (Section 8) regarding the Company or other material breach of Section 8, (3) aiding a competitor (as defined in Section 8) of the Company or other material breach of Section 8, (4) the use by Executive of controlled substances (not legally prescribed by a physician) or the use of alcohol that interferes, in the sole discretion of the Company, with the performance of the Executive duties, or (5) willful misconduct, insubordination, acts of moral turpitude or gross negligence in the performance of his duties hereunder which are injurious to the Company or any of it subsidiaries as determined in good faith by management. Separation for Cause shall be approved by the Chief Executive Officer or his designee but only after reasonable notice to Executive and a reasonable opportunity to explain the conduct. The failure of the Executive to meet financial projections, budgets or target performance objectives alone shall not be deemed willful misconduct or gross negligence for the purposes of this Agreement. All the provisions and obligations of Executive under Sections 8 and 9 will survive his Separation for Cause. (d) Separation Without Cause. Notwithstanding anything to the contrary contained in this Agreement, the Company may in its sole discretion, at any time, separate Executive from employment with the Company Without Cause. All the provisions and obligations of Executive under Sections 8 and 9 will survive Separation Without Cause. (e) Separation by Executive Without Good Reason. Executive may terminate his employment at any time Without Good Reason upon 30 days prior written notice. All the provisions and obligations of Executive under Sections 8 and 9 will survive his Separation Without Good Reason. (f) Notice of Separation. Any purported separation of Executive's employment hereunder by the Company or Executive (other than separation by reason of the death of Executive) shall be effective when communicated to the other party by a Notice of Separation. For the purposes of this Agreement, a "Notice of Separation" shall be a written notice indicating the specific separation provision in this Agreement relied upon and the Separation Date. If Executive vacates or abandons his job and does not give Notice of Separation, the Separation Date will be the last day worked or such other date as the Company may select. (g) Separation For Any Reason. Separation of Executive's employment for any reason shall not constitute a waiver of Executive's obligations under Sections 8 and 9 hereof. 7. Payments Upon Separation. (a) Payments Upon Death. If Executive's employment hereunder is separated by reason of Death during his Active Employment, the Company shall pay to Executive's estate his Base Salary and accrued PTO through the Separation Date at the rate in effect on the Separation Date. His estate and beneficiary(ies) will receive the benefits to which they are entitled under the terms of the applicable benefit plans and programs by reason of a participant's death during active employment. If Executive dies during the Salary Continuation Period, the remaining Salary Continuation will be paid in a lump sum to the Executive's estate and his estate and/or beneficiary(ies) will receive the benefits applicable to an employee who dies during salary continuation. (b) Payments Upon Total Disability. If Executive qualifies for disability under the Company's Long Term Disability Plan, then the terms and provisions of the Company benefit plans and the programs (including EDCP, if he is a participant at the time of acceptance of his disability, 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. If the Executive becomes disabled during the Salary Continuation Period, he will not be eligible for benefits under the Company's Long Term Disability Plan and will be entitled only to the salary and benefits described in Paragraph 7(c) below for the periods set forth in those respective paragraphs. (c) Payments Upon Separation for Cause or By Executive Without Good Reason. If Executive's employment hereunder is separated by the Company for Cause pursuant to Section 6(c) or by Executive Without Good Reason pursuant to Section 6(e), then the Company shall pay Executive his Base Salary and accrued PTO through the Separation Date at the rate in effect at the time notice of separation is given and the Company shall have no further obligation to the Executive other than COBRA rights, if any, and other normal rights offered to terminated employees under benefit programs, if any. However, the covenants contained in Sections 8 and 9 and all the Executive's obligations shall survive the separation of Executive's employment with the Company. In addition, if the separation is by the Executive without Good Cause, the special non-compete clause in Executive's Stock Option Plan will also survive. (d) Payments Upon Separation Without Cause. If Executive's employment is separated by the Company Without Cause pursuant to Section 6(d), then the Company shall, as severance pay, provide to Executive the payment and benefits set forth in this section; provided, however, that Executive's entitlement to any such payments or benefits shall be expressly subject to, conditional upon, in consideration of the Company receiving a release prepared by the Company and executed by Executive, waiving and releasing the Company, its parent company, their subsidiaries and affiliates, and their officers, directors, agents, benefit plan trustees and employees 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, bonus, stock, vacation (PTO), insurance and 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 1991, the Age Discrimination in Employment Act, as amended by the Older Worker's Benefit Protection Act of 1990, and the American's with Disabilities Act covering Executive's employment with the Company, its subsidiaries and affiliates, and the cessation of that employment. Pursuant to this Section 7(d), Executive will receive the following benefits: (i) Company shall pay Executive 52 weeks of Salary Continuation, plus PTO earned and unused through the Separation Date (PTO paid in a lump sum), plus all normal, applicable benefits (E.G., health, dental and life insurance, savings and retirement plan participation but not eligibility for the Company's Long Term Disability Plan and no further PTO will accrue) with the Company beginning the day following the Separation Date (the "Salary Continuation Period"). Salary Continuation will be paid on a bi-weekly basis. If Executive dies during the Salary Continuation Period, the Company, within ten (10) days of becoming aware of such event, will pay, by check, to his estate the lump sum amount equal to the salary he would have earned during the remainder of the Salary Continuation Period (The date of the check for the lump sum is herein referred to as the "Termination Date"). However, if during the Salary Continuation Period, the Executive violates Paragraphs 8 and 9 hereof, all salary continuation and benefits (except COBRA rights) will cease and Executive will immediately be obligated to return all salary continuation payments previously received during the Salary Continuation Period. The Company will also have the right to enforce those covenants as set forth in Sections 8 and 9. During the Salary Continuation Period, Executive shall remain an employee of the Company and, solely for stock option exerciseability, group health and life insurance and EDCP or DCP retirement purposes, shall receive service credit during that period. Executive will be responsible for the employee portion of the cost of such insurance during the Salary Continuation Period similar to other employees. All Salary Continuation will end if Executive obtains a position within the Company or one of its subsidiaries. (ii) Executive will be entitled, at the Company's expense, to Executive outplacement services being provided at that time to terminated executives at his grade level (iii) The Company may, as a further condition to the separation payment, require that Executive provide transition consulting services to the Company regarding knowledge of matters on which he worked, on a reasonable basis and at times mutually convenient to the Company and Executive during the Salary Continuation Period. (iv) Regarding salary, benefits and related matters (Benefits), the following schedule summarizes Executive's participation in each of the applicable salary and benefit plans and the respective dates on which such participation, or eligibility to participate, terminates: Benefit Date Benefits Terminate -------- ------------------------- Base Salary See subparagraph 7(d)(i). Use of credit cards Separation Date. Bonus Payment Eligible for prior plan year bonus if separated in the next year prior to payment. Not eligible for bonus for current year. Insurance, including End of Salary Continuation Health Period or Termination Date, Dental whichever occurs first. The 18 month COBRA rights period Vision for health insurance will Life commence on the Separation Date. If Executive obtains employment and if the employer provides insurance, whether at the Executive's cost or partial cost, Executive must enroll in such coverage, and the Company's group health insurance plan shall become secondary to any primary health coverage made available to the Executive by that business. Eligibility for New Restricted Separation Date Stock or New Stock Options Retaining existing Restricted See Paragraph 7(d)(v) Stock for vesting and other rights Retaining existing stock See Paragraph 7(d)(v) options for vesting and other rights Use of financial counseling End of Salary Continuation Period or Termination Date. Executive will only be eligible for the financial counseling for any amount remaining in the calendar year in which he is separated. Savings and Retirement Plan Active contribution will end December 31st of the year of Separation Date, death, or the end of the Salary Continuation Period, whichever comes first. Separation of employment for distribution purposes will be end of Salary Continuation Period or death. TARSAP II Executive will be eligible, at sole discretion of CEO and also subject to HRC approval if CEO recommends any vesting, for all or part of the next vesting (based on achieving performance targets) after Separation Date. Executive will not be eligible for any other payments (other than any previous TARSAP II deferral) or vestings and CEO has no obligation to recommend any vesting. TARSAP II shares that are not so vested will be forfeited. If a Change in Control occurs during the Salary Continuation Period, participant would only be entitled to the next vesting installment not otherwise earned (I.E., all TARSAP II shares will not automatically accelerate). Executive Deferred Active contribution will end Compensation Plan (EDCP) December 31st of the year of Separation Date, death, or the end of the Salary Continuation Period, whichever comes first. Separation of employment for distribution purposes will be end of Salary Continuation Period or death. (v) Regarding Executive's unvested shares of restricted stock, except for TARSAP II, if any, and unvested stock options, they will be automatically forfeited and returned to Harrah's Entertainment, Inc. (HET) as of the Separation Date, and Executive shall have no further rights thereto. All vested stock options can be exercised during the Salary Continuation Period and may be exercisable thereafter for a limited period if Executive meets the required age and service requirements under the plan. (vi) With respect to the EDCP, if Executive is a participant, Executive understands and agrees that the date for the purposes of determining the commencement of Executive's distribution entitlement with respect to his deferrals into the EDCP will be the earlier of the date on which Salary Continuation Period ends or death. The payment of such benefits will be made in accordance with the plan and as elected by Executive in the EDCP participation agreement(s) in effect at the Separation Date between Executive and Harrah's Entertainment, Inc. Effective the first day of the Salary Continuation Period, Executive understands and agrees that the death provision of the EDCP which provides a lump sum payment of three times deferrals upon death will no longer be applicable. All other death benefit provisions remain in effect. Balances, if any, in the EDCP will continue to be protected by, and subject to the terms and conditions (including those relating to amendment and termination) of the Escrow Agreement, dated February 1990, as amended, among (HET), the Company and Bank of America. (vii) With respect to the DCP, if Executive is a participant, Executive understands and agrees that the date for purposes of determining the commencement of Executive's benefit distribution with respect to his deferrals into the DCP will be the earlier of the date on which the Salary Continuation Period ends or death. The payment of such benefits will be made in accordance with the plan as elected by Executive in his participation agreements in effect on the Separation Date between Executive and HET. (viii) Notwithstanding anything to the contrary in this Section 7(d), the Company's obligations under this Section 7(d) shall cease (except for obligations pursuant to the terms of any benefit plan) if Executive breaches in any material respect any of the covenants set forth in Section 8 of this Agreement or breaches, other than an inadvertent non-material breach, any of the covenants of Executive set forth in Section 9 of this Agreement and such breach is not explained to the Company's satisfaction within ten days from the date written notice thereof is given to Executive by the Company. Executive understands that the Company has a right to seek enforcement of Executive's obligations under Sections 8 and 9. 8. Confidentiality. (a) Executive's position with the Company will or has resulted in his exposure and access to confidential and proprietary information which he did not have access to prior to holding the position, which information is of great value to the Company and the disclosure of which by him, directly or indirectly, would be irreparably injurious and detrimental to the Company. During his term of employment and without limitation thereafter, Executive agrees to use his best efforts and to observe the utmost diligence to guard and protect all confidential or proprietary information relating to the Company from disclosure to third parties. Executive shall not at any time during and after his Separation Date, make available, either directly or indirectly, to any competitor or potential competitor of the Company or any of its subsidiaries, or their affiliates or divulge, disclose, communicate to any firm corporation or other business entity in any manner whatsoever, any confidential or proprietary information covered or contemplated by this Agreement, unless expressly authorized to do so by the Company in writing. (b) For the purpose of this Agreement, "Confidential Information" shall mean all information of the Company, its subsidiaries and affiliates , relating to or useful in connection with the business of the Company, its subsidiaries, affiliates, and National Airlines, whether or not a "trade secret" within the meaning of applicable law, which at the time of Executive's initial employment is not generally known to the general public and which has been or is from time to time disclosed to or developed by Executive as a result of his employment with the Company. Confidential Information includes, but is not limited to (1) the Company's product development and marketing programs, data, future plans, formula, food and beverage procedures, recipes, finances, financial management systems, player identification systems (Gold Card), pricing systems, client and customer lists, organizational charts, salary and benefit programs, training programs, computer software, business records, files, drawings, prints, prototyping models, letters, notes, notebooks, reports, and copies thereof, whether prepared by him or others, and any other information or documents which Executive is told or reasonably ought to know that the Company regards as confidential. (c) Executive agrees that upon separation of employment for any reason whatsoever, he shall promptly deliver to the Company all confidential information, including but not limited to, documents, reports, correspondences, computer printouts, work papers, files, computer lists, telephone and address books, rolodex cards, computer tapes, disks, and any and all records in his possession (and all copies thereof) containing any such confidential information created in whole or in part by Executive within the scope of his employment, even if the items do not contain confidential information. (d) Executive shall also be required to sign a non-disclosure or confidentiality agreement. Such an agreement shall also remain in full force and effect, provided that, in the event of any conflict between any such agreement(s) and this Agreement, this Agreement shall control. (e) This paragraph and any of its provisions will survive Executive's separation of employment for any reason. 9. Non-competition Upon Separation of Employment. (a) As an inducement for the Company to enter into this Agreement, and in consideration of the Employment of Executive, as well as TARSAP II shares set forth in Paragraph 5(d) and the separation pay and benefits set forth in Section 7(d), Executive agrees that, commencing on the Executive's Separation Date with the Company, if Separated Without Cause, and continuing for the 52 week salary continuation period set forth in Section 7(d), Executive shall not, except with the prior written consent of the Company, engage in directly or indirectly in any activity, in any manner or capacity, whether as an employee, consultant, employer, partner, stockholder (other than as 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, or otherwise (including but not limited to solicitation of customers or employees of the Company, its subsidiaries, affiliates) which is competitive with or in competition with the Company, its subsidiaries, affiliates, in the casino, casino/hotel, or casino/resort business within 150 miles of any location that the Company, its subsidiaries, or their affiliates shall at the Separation Date or during the Salary Continuation Period then be doing business, or has announced the building of, or agreement to build and/or manage a casino, casino/hotel and/or casino/resort. This provision shall apply to the United States, Canada, and Mexico, and any islands located off the coast of the United States and/or Caribbean where the Company has a property. Executive acknowledges and agrees that the provisions of this paragraph are reasonable both as to time and geographic limitation in light of the fact the Company, and its subsidiaries, solicit customers for each of its subsidiaries throughout these geographic areas. (b) Executive will not, at any time prior to two years from the Separation Date, either directly or indirectly, induce, persuade or attempt to induce or persuade, any salary grade 20 or higher employee of the Company, its subsidiaries or National Airlines to leave or abandon employment with the Company, its subsidiaries or affiliates for any reason whatsoever. (c) Executive will not, beginning on his Separation Date, communicate with employees, customers, or suppliers of the Company, or its subsidiaries or affiliates of the Company or any principals or employee thereof, or any person or organization in any manner whatsoever that is detrimental to the interest of the Company, its subsidiaries or affiliates. Executive further agrees from his Separation Date not to make statements to the press or general public with respect to the Company or its subsidiaries or affiliates that is detrimental to the Company, its subsidiaries, affiliates or employees without the express written prior authorization of the Company. Notwithstanding the foregoing, Executive shall not be prohibited at the expiration of the non-competition period from pursuing his own business interests which may conflict with the interests of the Company. (d) Executive and Company each intends and agrees that if, in any action before any court, agency or arbitration tribunal, legally empowered to enforce the covenants in this Paragraph 9, any term, restriction, covenant or promise contained therein is found to be unreasonable and, accordingly, unenforceable, then such terms, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. (e) Should any court, agency or arbitral tribunal legally empowered to enforce the covenants contained in this Paragraph 9 fail or refuse to enforce the terms, restrictions, covenants or promises herein (except if it has been modified to make it enforceable): (i) Executive understands that all eligibility for TARSAP II will cease; (ii) Executive will return all TARSAP II stock received and/or the net amount after tax received for selling said stock; (iii) the Company, if applicable, will not be obligated to pay Executive the severance payments contained in the Agreement (except for required benefits under benefit plans); and (iv) Executive will also reimburse the Company any severance payments received, as well as any reasonable costs, and attorney fees to secure such repayments. (f) As further inducement for the Company to enter into the Agreement, and in consideration of the employment of Executive, as well as the TARSAP II set forth in Paragraph 5(d), the provisions of Section 9 will also apply to Executive's Separation for Cause and Executive's Separation Without Good Reason except in these circumstances, the non-competition period will be 26 weeks rather than the 52 weeks. 10. Injunctive Relief. Executive acknowledges and agrees that the terms provided in Sections 8 and 9 are the minimum necessary to protect the Company, its affiliates and subsidiaries, its successors and assigns in the use and enjoyment of the confidential information and the good will of the business of the Company. Executive further agrees that damages cannot fully and adequately compensate the Company in the event of a breach or violation of the restrictive covenants (confidential information and non-competition) and that without limiting the right of the Company to pursue all other legal and equitable remedies available to it, that the Company shall be entitled to injunctive relief, including but not limited to a temporary restraining order, temporary injunction and permanent injunction, to prevent any such violations or any continuation of such violations for the protection of the Company. The granting of injunctive relief will not act as a waiver by the Company to pursue any and all additional remedies. 11. Post Employment Cooperation. Executive agrees that upon separation for any reason from the Company, Executive will cooperate 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 or otherwise involved. The Company will defray any reasonable out-of-pocket expenses incurred by Executive in connection with any such appearance. In connection thereof, the Company agrees to indemnify Executive as prescribed in Article Tenth of the Certificate of Incorporation, as amended, of HET filed on November 2, 1989, in the Office of the Secretary of State of the State of Delaware and recorded at Book 935, Page 780, ET. SEQ. 12. Waiver of Breaches. The failure, delay or forbearance of any of the parties to insist on strict performance of any term, provision or condition of this Agreement or, in the case of the Company, of any comparable agreement with any other company, or to exercise any right or remedy, shall not be construed as a waiver. Express waiver by any party in one or more instances shall not waive subsequent strict performance of such term, provision or condition by any other party. 13. Notices. Any notice to be given hereunder by either party to the other pay 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 parties at the addresses set forth below, but each party may change his or its address by written notice. Notices shall be deemed communicated as the actual receipt or refusal of receipt by Executive. If to Executive: Rich Mirman ------------------ ------------------ If to Company: Harrah's Operating Company, Inc. 14. Assignment. This Agreement and the rights, interests and benefits hereunder are personal to the Executive and shall not be assigned, transferred or pledged in any manner by Executive or any personal representatives, heirs, administrators, distributees or any other person claiming under Executive by virtue of this Agreement. This Agreement and all of the Company's rights and obligations hereunder may be assigned, without Executive's consent, to any entity which acquires substantially all of the assets of the Company or which merges with the Company and which agrees to be bound hereby. 15. Attorneys Fees. If any legal action or other proceeding is brought for the enforcement of this Agreement of an alleged dispute, breach or default in connection with any provision of this Agreement, the Company, if successful shall be entitled to recover reasonable attorney fees and other costs incurred in such action or proceeding in addition to any other relief to which it may be entitled. 16. Partial Invalidity. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall, nevertheless, continue in full force and without being impaired or invalidated in any way, except as indicated otherwise. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to principles of conflict law applicable to contracts made and to be performed with such state. The Agreement shall be liberally construed to maximize protection of the Company's rights in confidential information and customer relations. If any provision of this Agreement is held to be overly broad, invalid or otherwise unenforceable under the applicable law and circumstances by the reviewing court, Executive agrees to reduction of the scope (including time and geographic area) of such provision as such court deems necessary and appropriate to permits its enforcement as modified. The invalidity or unenforceability in whole or part, of any provision of this Agreement shall not affect the validity or enforceability of any provision unless otherwise indicated in this Agreement. 18. 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. 19. Jurisdiction. Any judicial proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement or any agreement identified herein may be brought only in state or federal courts of the State of Nevada, and by the execution and delivery of this Agreement, each of the parties hereto accepts for itself the exclusive jurisdiction of the aforesaid courts and irrevocably consents to the jurisdiction of such courts (and the appropriate appellate courts) in any such proceedings, waives any objection to venue laid therein and agrees to be bound by the judgment rendered thereby in connection with this Agreement or any agreement identified herein 20. Survival of Provisions. The provisions of this Agreement shall survive any separation of Executive if so provided herein and if necessary or desirable fully to accomplish the purpose of such provisions, including without limitation the rights and obligations of the Executive under Paragraphs 6, 8 and 14 hereof. 21. Miscellaneous. The Section headings herein are for convenience only and shall not affect the meaning or interpretation of the contents hereof. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supercedes all prior agreements and understandings between the parties with respect to the subject matter hereof. No supplement or modification of this Agreement shall be binding unless in writing and signed by both parties. This Agreement may be executed in multiple counterparts; each of which shall be deemed an original and all of which together shall constitute one instrument. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representative, successors and permitted assigns. EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD SUFFICIENT OPPORTUNITY TO REVIEW THIS AGREEMENT WITH HIS ATTORNEY. IF HE DID NOT DO SO, IT IS BECAUSE HE READ AND UNDERSTOOD THE ENTIRE AGREEMENT AND DID NOT BELIEVE HE NEEDED LEGAL ADVICE. EXECUTIVE AGREES THAT THE RESTRICTIONS CONTAINED IN THIS AGREEMENT ARE FAIR AND APPROPRIATE UNDER THE CIRCUMSTANCES. IN WITNESS WHEREOF, the parties hereto have knowingly and voluntarily executed the Agreement as of the day and year first written above. RICH MIRMAN HARRAH'S OPERATING COMPANY, INC. /s/ RICH MIRMAN /s/ MARILYN G. WINN - ----------------------- ------------------------ EX-10.7 8 a2029570zex-10_7.txt EX-10.7 Exhibit 10.7 LETTER AGREEMENT August 31, 2000 Harrah's Entertainment, Inc. 5100 West Sahara, Avenue, Suite 200 Las Vegas, Nevada 89146 RE: Escrow Agreement Dated as of February 6, 1990, as Amended October 29, 1993, June 7, 1995, July 18, 1997, October 30, 1997, and April 26, 1997 As you know Harrah's Entertainment, Inc.(the "Company") has recently appointed Wells Fargo Bank Minnesota, N.A,. ("Escrow Agent") to act as Escrow Agent of the above-referenced Escrow Agreement established by the Company in connection with nonqualified deferred compensation plans established for the benefit of persons currently and/or formerly employed by the Company or its affiliates (the "Escrow Agreement"). Escrow Agent hereby accepts such appointment, effective as of the date of this letter and hereby authorizes the transfer of all assets of the Escrow Fund from the prior escrow agent as soon as administratively feasible. In consideration for Escrow Agent acting in its capacity and notwithstanding anything in the Escrow Agreement to the contrary, both parties acknowledge and agree as follows: Income, ICA, FUTA and other Taxes. 1. The Escrow Agent shall, if directed by Company or if required by the Escrow Agreement, make distribution payments from the Escrow Fund directly to beneficiaries. 2. (a) Payments Directed by Company. As an inducement to Escrow Agent to make such distributions, Company will be responsible for satisfying all federal, state or local tax reporting obligations that may be required with respect to the payment of benefits, the performance of services to which the benefits relate, and the vesting of benefits pursuant to the terms of the Plans or Escrow Agreement. The amount withheld and time at which such taxes are considered to be due and payable shall be determined by the Company. Company will provide the Escrow Agent with instructions regarding the appropriate amount of withholding and the Escrow Agent will not be liable for damages for withholding in accordance with such instructions. Escrow Agent will pay amounts withheld to Company for remittance by Company to the appropriate taxing authorities. If the Escrow Agent does not receive such instructions the Escrow Agent will make a written request to Company to provide the instructions. If the instructions are not received by the Escrow Agent with ten business days after the date on which the Escrow Agent makes such written request, the Escrow Agent is not required to withhold any amount from the payment. (b) Payments Required by Escrow Agreement. For these distributions, the Escrow Agent will promptly make a written request to the Company for withholding instructions. If the Company does not give withholding instructions to Escrow Agent within five business days after receiving this request, then Escrow Agent will withhold and remit to appropriate authorities such withholding taxes as Escrow Agent deems are necessary. The Company, not the Escrow Agent, will be responsible for FICA or FUTA taxes that apply unless the Escrow Agent is advised by its counsel or required by court order to apply these taxes. The Escrow Agent will promptly report any payments and withholdings to the Company. The Company will then be responsible for all reporting obligations to governmental authorities and will hold the Escrow Agent harmless from such reporting obligations and from any withholding decisions made by Escrow Agent under this subparagraph (b). 3. The Escrow Agent has no responsibility to advise the Company as to the taxability or deductibility of contributions to or distributions from the Escrow Fund, or gains or losses thereon, whether with regard to income, FICA, FUTA, or other taxes, and Company acknowledges that it has not and will not rely on Escrow Agent for such purposes. Escrow Agent's Protection. 1. The Escrow Agent does not warrant and shall not be liable for any tax consequences associated with the Escrow Fun or the Plans. 2. The Escrow Agent shall have no duty to determine or inquire whether any contributions to this Escrow Fund are in compliance with the Plans or the Escrow Agreement, or to compute any amount to be paid to the Escrow Agent; nor shall the Escrow Agent be responsible for the collection or adequacy of any contributions to the Escrow Fund or for the adequacy of the Escrow Fund to meet and discharge liabilities to Participants and their Beneficiaries under the Plan or to other creditors of the Company. 3. Company acknowledges its responsibility to report annual income of the Escrow Fund on its corporate returns, notwithstanding whether it has made arrangements to receive annual Forms 1041 from the Escrow Agent. 4. In any judicial proceeding between the Company and the Escrow Agent with respect to the Escrow Agent or the Escrow Fund, the Escrow Agent and the Company shall be the only necessary parties; and no participant or beneficiary shall be entitled to any notice of process. A final judgment in any such proceeding shall be binding upon the parties to the proceeding and al Participants and beneficiaries. 5. If all or any part of the Escrow Fund is at any time attached, garnished, or levied upon by a court order which is in full force and effect and has not been stayed, or in case the payment assignment transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order which is in full force and effect and has not been stayed or in case an order, judgment or decree that is in full force and effect and has not been stayed shall be made or entered by a court affecting such property or any part thereof, then and in any of such events the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, judgment or decree while it is in full force and has not been stayed, and it shall not be liable to the Company or any Participant by reason of such compliance even though such order, judgment or decree shall subsequently may be reversed, modified, annulled set aside or vacated. This agreement shall continue throughout the Escrow Agent's term as Escrow Agent of the Escrow Agreement unless otherwise mutually agreed upon by the parties. In the event this agreement is breached resulting in litigation between the parties, a party who is not in breach of this agreement or the Escrow Agreement shall be entitled to reimbursement from the breaching party that prevails in such litigation for all reasonable costs incurred in enforcing this agreement, including but not limited to reasonable attorney fees. Sincerely, WELLS FARGO BANK MINNESOTA, N. A., Escrow Agent /s/ KRISTY PEREZ - -------------------------------- Kristy Perez, Vice President Received and agreed to this 8th day of September, 2000. HARRAH'S ENTERTAINMENT, INC. By: /s/ ELAINE LO ---------------------------- Elaine Lo Its Vice President EX-10.8 9 a2029570zex-10_8.txt EXHIBIT 10.8 Exhibit 10.8 Amendment Dated as of April 26, 2000 to Escrow Agreement Dated February 6, 1990, As Amended, Between Harrah's Entertainment, Inc. And Bank of America, N.A. The next to last sentence of Section 2.01(e) of the Escrow Agreement is amended to read as follows: "Notwithstanding the foregoing, any actuary or certified public accountant or MCG Northwest, LLC or a successor thereto that provides an opinion or advice in connection with the funding requirements of this Escrow Agreement shall assume, for purposes of calculating EDCP benefits, that all EDCP Participants (other than those who have already terminated and are receiving the Termination Rate) will be entitled to their Retirement Account balances as of the date of the calculation. Notwithstanding anything in this Escrow Agreement to the contrary, for the purpose of funding EDCP accounts, this Escrow Agreement shall be deemed sufficiently funded at any point in time if the Escrow Fund has sufficient assets at that time to pay the total amount of all EDCP account balances (the Retirement Rate balances) plus the Termination Rate balances of terminated employees who are receiving the Termination Rate; provided, however, that immediately prior to a Change in Control (as this term is defined in the Severance Agreements of Corporate Senior Vice Presidents) of Harrah's Entertainment, Inc., the Company shall calculate and increase the funding of the Escrow Fund, if necessary, so that the present value of all EDCP accounts will, prior to the Change in Control, be fully funded based on the following required assumptions: (1) All EDCP Participants will receive the applicable Retirement Rate for their EDCP accounts (except for those who have terminated employment and are receiving the Termination Rate in which case it will be assumed that they continue to receive this rate). (2) Distribution of Participants' accounts (in addition to those already in distribution) will commence three years after the Change in Control or age 55 if earlier based on the assumption Participants will terminate employment at that time. (3) Distributions will occur according to the payment schedules elected by Participants in their deferral participation agreements. (4) The discount rate used at the time this funding is calculated to determine any increase in funding will be the Ten Year Treasury Note Rate on the business day before the funding amount is calculated minus 1%. The Ten Year Treasury Note Rate will be the rate shown in the Credit Markets Column of The Wall Street Journal under "Treasury 10+ yr" or if no longer so published, in another publication or report that provides this rate. The Company may rely on the opinion of any actuary, a certified public accountant, an investment adviser, or MCG Northwest, LLC or a successor thereto in making this calculation. If there is any disagreement concerning these calculations including the Ten Year Treasury Note Rate, MCG Northwest, LLC or a successor thereto or another consultant as identified by the Company's Chief Executive Officer will make the final decision. Nothing herein will prevent the Company from providing additional funding if the Company decides additional funding at any time is appropriate to fully fund the Escrow and nothing herein will negate the requirement for funding DCP accounts of EDCP Participants at their account balances or funding other obligations required to be funded pursuant to this Escrow Agreement." This amendment is subject to the consent of Participants under the Escrow Agreement having at least 50% of the total amount of all accounts which are accounted for under the Escrow Agreement with respect to benefits allocable to them. AGREED: Harrah's Entertainment, Inc. By: /s/ ELAINE LO --------------- Title: VP, Compensation and Benefits Executed and Agreed to By Wells Fargo Bank Minnesota, N.A., Successor to Bank of America, N.A. as Escrow Agent: By: /s/ KRISTY PEREZ ----------------- Title: Vice President EX-11 10 a2029570zex-11.txt EX-11 Exhibit 11 HARRAH'S ENTERTAINMENT, INC. COMPUTATIONS OF PER SHARE EARNINGS
Third Quarter Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Income before extraordinary losses $ 71,980,000 $ 75,044,000 $ 149,942,000 $ 160,312,000 Extraordinary losses, net -- (410,000) (716,000) (11,033,000) ------------- ------------- ------------- ------------- Net income $ 71,980,000 $ 74,634,000 $ 149,226,000 $ 149,279,000 ============= ============= ============= ============= BASIC EARNINGS PER SHARE Weighted average number of common shares outstanding 115,041,882 126,338,401 118,276,132 126,000,852 ============= ============= ============= ============= BASIC EARNINGS PER COMMON SHARE Income before extraordinary losses $ 0.63 $ 0.59 $ 1.27 $ 1.27 Extraordinary losses, net -- -- (0.01) (0.09) ------------- ------------- ------------- ------------- Net income $ 0.63 $ 0.59 $ 1.26 $ 1.18 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE Weighted average number of common shares outstanding 115,041,882 126,338,401 118,276,132 126,000,852 Additional shares based on average market price for period applicable to: Restricted stock 509,132 837,506 424,024 677,093 Stock options 1,802,627 2,179,568 1,287,920 1,591,365 ------------- ------------- ------------- ------------- Average number of common and common equivalent shares outstanding 117,353,641 129,355,475 119,988,076 128,269,310 ============= ============= ============= ============= DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES Income before extraordinary losses $ 0.61 $ 0.58 $ 1.25 $ 1.25 Extraordinary losses, net -- -- (0.01) (0.09) ------------- ------------- ------------- ------------- Net income $ 0.61 $ 0.58 $ 1.24 $ 1.16 ============= ============= ============= =============
EX-27 11 a2029570zex-27.txt EX-27
5 1000 9-MOS DEC-31-2000 SEP-30-2000 241,382 0 153,536 45,842 28,671 497,263 4,530,803 1,058,061 5,245,157 672,570 2,750,025 0 0 11,673 1,440,845 5,245,157 0 2,616,220 0 2,103,498 100,181 0 167,842 252,380 90,929 149,942 0 716 0 149,226 1.26 1.24
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