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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
X FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-10410
HARRAH'S ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE I.R.S. NO. 62-1411755
(State of Incorporation) (I.R.S. Employer Identification No.)
1023 CHERRY ROAD
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 762-8600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Capital Stock, Par Value $0.10 per share* NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE
10 7/8% Senior Subordinated Notes due 2002 of Harrah's NEW YORK STOCK EXCHANGE
Operating Company, Inc.**
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* Common Capital Stock also has special stock purchase rights listed on each of
the same exchanges
** Securities guaranteed by Registrant
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $27.50 for the Common Stock as
reported on the New York Stock Exchange Composite Tape on January 31, 1996, is
$2,760,655,067.50.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1996.
Common Stock........................................... 102,770,552 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders, which will be filed within 120 days after the end of the fiscal
year, are incorporated by reference into Part III hereof and portions of the
Company's Annual Report to Stockholders for the year ended December 31, 1995 are
incorporated by reference into Parts I and II hereof.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Harrah's Entertainment, Inc. (referred to herein, together with its
subsidiaries where the context requires, as the "Company" or "Harrah's") is one
of the leading casino entertainment companies in the United States. It currently
operates casino entertainment facilities in fourteen different markets.
Harrah's, formerly named The Promus Companies Incorporated ("Promus"), was
incorporated on November 2, 1989 under Delaware law. On June 30, 1995, Promus
transferred its hotel business to a new entity, Promus Hotel Corporation
("PHC"), and spun-off PHC as a separate public corporation which is not
affiliated with the Company. Promus retained ownership of its casino
entertainment business and changed its name to Harrah's Entertainment, Inc.
Harrah's conducts its business through its wholly-owned subsidiary, Harrah's
Operating Company, Inc. ("HOC") (formerly named Embassy Suites, Inc.
("Embassy")), and through HOC's subsidiaries. The principal asset of Harrah's is
the stock of HOC, which holds, directly or indirectly through subsidiaries,
substantially all of the assets of the Company's businesses. The principal
executive offices of Harrah's are located at 1023 Cherry Road, Memphis,
Tennessee 38117, telephone (901) 762-8600.
Operating data for the three most recent fiscal years, together with
corporate expense, interest expense and other income, is set forth on page 35
of the Annual Report. Information regarding mortgages on properties of the
Company is set forth on pages 40 through 42 of the Annual Report. The
preceding pages of the Annual Report are incorporated herein by reference.
For information on operating results and a discussion of those results, see
"Management's Discussion and Analysis--Results of Operations" on pages 25
through 28 of the Annual Report, which pages are incorporated herein by
reference.
CASINO ENTERTAINMENT
GENERAL
Harrah's casino business commenced operations more than 58 years ago and is
unique among casino entertainment companies in its broad geographic
diversification. Harrah's operates casino hotels in the five traditional U.S.
gaming markets of Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada and Atlantic
City, New Jersey. It also operates riverboat casinos in Joliet, Illinois;
dockside casinos in Vicksburg and Tunica, Mississippi, Shreveport, Louisiana and
North Kansas City, Missouri; limited stakes casinos in Central City and Black
Hawk, Colorado; and casinos on two Indian reservations, one near Phoenix,
Arizona and the other north of Seattle, Washington. On February 2, 1996, the
Company commenced operations of a land-based casino in Auckland, New Zealand.
As of December 31, 1995, Harrah's operated a total of approximately 547,200
square feet of casino space, 15,335 slot machines, 801 table games, 5,736 hotel
rooms or suites, approximately 79,100 square feet of convention space, 56
restaurants, 5 showrooms and 4 cabarets. Harrah's marketing strategy is designed
to appeal primarily to the broad middle-market gaming customer segment. Harrah's
strategic direction is focused on establishing a well-defined brand identity
that communicates a consistent message of high quality and excellent service.
LAND BASED CASINOS
ATLANTIC CITY
The Harrah's Atlantic City casino hotel ("Harrah's Atlantic City") is
situated on 21.4 acres in the Marina area of Atlantic City and has approximately
65,500 square feet of casino space with 2,012 slot
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machines and 89 table games. It consists of dual 16-story hotel towers with 268
suites and 492 regular rooms and adjoining low rise buildings which house the
casino space and the 26,100 square foot convention center. The facilities
include eight restaurants, an 850-seat showroom, a pool, health club, teen
center with video games, child care facilities and parking for 2,341 cars. The
property also has a 76-slip marina.
In August 1995, the Company announced a major expansion of the property,
with project costs estimated at $80.7 million. The expansion plans include
increasing the casino space by approximately 13,500 square feet, construction of
a new 416-room, 16-story hotel tower, increased parking and enhancement of the
facility's restaurant offerings. Construction on the casino expansion commenced
in October 1995, with completion expected in July 1996. Hotel tower construction
is expected to begin in April 1996 with a targeted completion in July 1997.
In June 1995, the Company acquired approximately 8.45 acres of land adjacent
to Harrah's Atlantic City along with 170 acres of wetlands in the Marina area of
Atlantic City and received cash in exchange for approximately 4.5 acres of
undeveloped property on Atlantic City's Boardwalk.
Most of the casino's customers arrive by car from within a 150-mile radius
which includes Philadelphia, New York and northern New Jersey, Harrah's Atlantic
City's primary feeder markets.
LAS VEGAS
Harrah's Las Vegas is located on approximately 17.8 acres of the Strip in
Las Vegas and consists of a 15-floor hotel tower, a 23-floor hotel tower, a
35-story hotel tower, and adjacent low-rise buildings which house the 15,000
square foot convention center and the casino. The hotel has 1,641 regular rooms
and 56 suites. The Harrah's Las Vegas complex has approximately 73,800 square
feet of casino space, with 1,769 slot machines and 87 table games. Also included
are five restaurants, the 525-seat Commander's Theatre, a health club and a
heated pool. There are 2,863 parking spaces available, including a substantial
portion in a self-park garage.
In August 1995, the Company announced plans for a $150 million expansion of
Harrah's Las Vegas, including a new 35-story hotel tower, with 660 standard
rooms and 28 suites, 17,000 square feet of additional casino space and new
restaurant facilities, as well as a renovation of the facade of the casino
located on the Las Vegas Strip. Construction is expected to begin in first
quarter 1996, with completion of the casino expansion expected in September 1996
and the hotel tower completion targeted for October 1997.
The casino's primary feeder markets are the Midwest, California and Canada.
LAKE TAHOE
Harrah's Lake Tahoe is situated on 22.9 acres near Lake Tahoe and consists
of an 18-story tower and adjoining low-rise building which house a 16,500 square
foot convention center and approximately 63,200 square feet of casino space,
with 1,872 slot machines and 126 table games. The casino hotel, with 79 suites
and 453 luxury rooms, has nine restaurants, the 800-seat South Shore Showroom, a
health club, retail shops, a heated pool and an arcade. The facility has
customer parking for 854 cars in a garage and 1,098 additional spaces in an
adjoining lot.
Harrah's also operates Bill's Lake Tahoe Casino which is located on a 2.1
acre site adjacent to Harrah's Lake Tahoe casino hotel. The casino includes
approximately 18,000 square feet of casino space, with 653 slot machines and 29
table games and two casual on-premise restaurants, Bennigan's and McDonald's,
operated by non-affiliated restaurant companies.
The primary feeder markets for both casinos are California and the Pacific
Northwest.
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RENO
Harrah's Reno, situated on approximately 3.7 acres, consists of a casino
hotel complex with a 24-story structure, a 14,500 square foot convention center
and 58,300 square feet of casino space, with 1,599 slot machines and 75 table
games. The hotel, with eight suites and 557 rooms, has seven restaurants,
including a Planet Hollywood restaurant and lounge operated by a non-affiliated
company, the 420-seat Sammy's Showroom, a pool, a health club and an arcade. The
complex can accommodate guest parking for 1,739 cars, including a valet parking
garage, a self-park garage and off-site valet parking.
In October 1995, the Company opened a new 408-room 26-story Hampton Inn
hotel adjacent to Harrah's Reno. The hotel, which is operated by Harrah's
pursuant to a license agreement from Promus Hotels, Inc. (a subsidiary of PHC),
provides an additional supply of high-quality, moderately-priced guest rooms.
The primary feeder markets for Harrah's Reno are northern California, the
Pacific Northwest and Canada.
LAUGHLIN
Harrah's Laughlin is located in Laughlin, Nevada on a 44.9 acre site in a
natural cove on the Colorado River and features a hotel with 1,635 standard
rooms and 22 suites, a 90-seat cabaret and seven restaurants, including a
McDonald's and a Baskin Robbins which are operated by non-affiliated companies.
It is the only property in Laughlin with a developed beachfront on the river.
Harrah's Laughlin has approximately 47,000 square feet of casino space, with
1,396 slot machines and 44 table games, and approximately 7,000 square feet of
convention center space. The facility has customer parking for 2,789 cars,
including a covered parking garage, and a park for recreational vehicles.
The casino's primary feeder markets are the Los Angeles and Phoenix
metropolitan areas where a combined total of more than 17 million people reside.
CENTRAL CITY AND BLACK HAWK
The Company owns an approximate 21.7 percent interest in Eagle Gaming, L.P.
and its related entities ("Eagle"). Eagle owns casinos in Central City and Black
Hawk, Colorado that Harrah's manages for a fee. Both of the casinos are
approximately 45 minutes from downtown Denver.
Harrah's Central City is located in four historic buildings decorated in
authentic 1800's Victorian furnishings. The casino, with approximately 8,000
square feet of casino space, 465 slot machines and 9 table games, features the
100 year old Glory Hole Bar and the Gilded Garter Cabaret, with live
entertainment, two restaurants and a gift shop.
Harrah's Black Hawk is located in the historic mining town of Black Hawk and
is on three levels in buildings decorated in Victorian design reminiscent of the
gold rush days in the late 1800's. At year end, the casino had approximately
18,100 square feet of casino space, 659 slot machines, 14 table games, a
restaurant and a gift shop.
In July 1995, Eagle purchased the Blazing Saddles Casino adjacent to
Harrah's Black Hawk and the remaining 50% interest in a remote parking lot. The
acquisition added approximately 2,000 square feet of casino space to Harrah's
Black Hawk. Eagle is constructing a valet parking staging area behind its Black
Hawk facility.
Both of these casinos offer limited stakes gaming pursuant to Colorado law.
Complimentary shuttle service is available between Harrah's Black Hawk and
Harrah's Central City, a distance of approximately one mile. The primary feeder
market for both casinos is the Denver/Boulder metropolitan area.
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The Company has guaranteed repayment of $5 million of partnership bank
financing in connection with the Black Hawk and Central City facilities. The
Company has also committed to loan additional funds to Eagle in the approximate
amount of $2.1 million, to be funded on an as needed basis. Approximately
$900,000 of this commitment has been funded during 1996. The Company has fully
reserved its investments in Eagle except for the guarantee and commitments
described above.
NEW ZEALAND
Harrah's Sky City, a casino entertainment facility in Auckland, New Zealand,
opened in February 1996, with approximately 45,000 square feet of casino space,
1,042 slot machines and 97 table games. The facility also features four
restaurants, several lounges, retail shopping outlets and underground garage
visitor parking for 1,950 cars as well as additional surface parking. Scheduled
to open later in 1996 will be a 344-room hotel, a 770-seat theater and
conference and meeting rooms. A special attraction of the facility is a
1,076-foot Sky Tower, which is scheduled to open by mid-1997.
The project is owned and being developed by a New Zealand corporation in
which Harrah's ownership is 12.5%. Harrah's manages the facility for a fee under
a long-term management contract. Construction of the US$340 million facility was
funded through a combination of equity contributions and non-recourse debt. The
Company's investment in the partnership is approximately US$17 million.
NEW ORLEANS
Harrah's New Orleans Investment Company, an indirect wholly-owned subsidiary
of the Company ("Harrah's Investment"), is the owner of an approximate 47%
interest in a partnership named Harrah's Jazz Company ("Harrah's Jazz"). The
other partners are Grand Palais Casino, Inc. and New Orleans/Louisiana
Development Corporation ("NOLDC").
On November 22, 1995, Harrah's Jazz and its wholly-owned subsidiary,
Harrah's Jazz Finance Corp., filed for reorganization under Chapter 11 of the
Bankruptcy Code. Prior to the filing, Harrah's Jazz was operating a temporary
casino in the New Orleans, Louisiana Municipal Auditorium (the "Temporary
Casino") and constructing a new permanent casino facility on the site of the
former Rivergate Convention Center in downtown New Orleans (the "Permanent
Casino"). Harrah's Jazz ceased operation of the Temporary Casino and
construction of the Permanent Casino on November 22, 1995 prior to the
bankruptcy filings.
On November 19, 1995, representatives of the Harrah's Jazz bank syndicate
informed Harrah's Jazz that the bank syndicate would not disburse funds to
Harrah's Jazz under the terms of Harrah's Jazz's $175 million bank credit
facility (the "Bank Credit Facility"). Faced with an absence of funding, on
November 21, 1995, Harrah's Jazz decided to cease Temporary Casino operations
and construction on the Permanent Casino, as well as to file for bankruptcy
protection. The Bank Credit Facility was accelerated and terminated by the bank
lenders on November 21, 1995. Thereafter, on November 22, 1995, the bankruptcy
filings were made.
In connection with the closing in November 1994 of the 14.25% First Mortgage
Notes due 2001 of Harrah's Jazz (the "Public Debt") and the Bank Credit
Facility, the Company delivered completion guaranties to the trustee under the
Public Debt (under which the City of New Orleans (the "City") was an express
third party beneficiary), the bank lenders under the Bank Credit Facility and
the Louisiana Economic Development and Gaming Corporation (the state agency
regulating Harrah's Jazz ("LEDGC")). Each completion guaranty was subject to
certain conditions, exceptions and qualifications. The Company believes that the
failure of Harrah's Jazz to obtain the funds under the Bank Credit Facility and
the acceleration of the loan by the bank syndicate terminated the Company's
obligations under the completion guaranties.
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Harrah's Investment made total capital contributions to the project of
approximately $90 million, and Harrah's New Orleans Management Company has
outstanding advances to the project of approximately $25 million. In addition,
in December 1995, the Company acquired from a commercial bank a $16 million loan
to NOLDC in satisfaction of the Company's obligations under a preexisting
agreement with the bank. The Company has written off these investments and other
related costs in the project.
Harrah's Investment currently owns approximately 47% of the general
partnership interests of Harrah's Jazz. The debt of Harrah's Jazz is not
consolidated with the Company's financial statements for accounting purposes.
Harrah's Jazz has until March 21, 1996, which date may be extended by the
Bankruptcy Court, the exclusive right under the bankruptcy laws to submit a plan
of reorganization. Discussions concerning the reorganization plan have occurred
among certain interested parties, but a number of issues remain to be resolved
and there can be no assurance that such discussions will lead to an agreement
among all necessary parties.
The Company has offered to invest an additional $75 million in the project
and deliver a new completion guaranty if a reorganization plan approved by the
Company is consummated. The Company has also offered to invest, prior to plan
consummation, up to $10 million in the form of debtor-in-possession financing
(such financing would be repaid or converted into equity (and count toward the
$75 million investment referred to above) upon consummation of a reorganization
plan approved by the Company) if the Company and other interested parties reach
an agreement in principle as to the key elements of the plan. There can be no
assurance that any agreements will be reached or a reorganization plan
consummated.
On March 4, 1996, Harrah's Jazz entered into a preliminary agreement with
the City which provides for, among other things, an immediate $4.3 million cash
payment by Harrah's Jazz to the City, of which $2.5 million is being funded by
the Company as debtor-in-possession financing and the balance is being funded
from Harrah's Jazz's assets. Although the $2.5 million loan is an administrative
priority claim in the bankruptcy, there can be no assurance that the loan will
be repaid. In exchange for these agreements by Harrah's Jazz, the City agreed to
waive any requirements to reopen the Temporary Casino and negotiate in good
faith numerous specified issues relating to the lease of the Permanent Casino
site.
In December 1995 Harrah's Investment filed a voluntary bankruptcy petition
under Chapter 11 of the Bankruptcy Code. The filing was made to facilitate
efforts to reorganize Harrah's Jazz.
See "Legal Proceedings" herein for a discussion of legal actions filed in
connection with the New Orleans project. See "Management's Discussion and
Analysis--Harrah's Jazz Company" on pages 28 and 29 of the Annual Report for
further information regarding New Orleans.
RIVERBOAT CASINOS
JOLIET
Harrah's Joliet, the Company's first riverboat casino operation, is located
in downtown Joliet, Illinois, on the Des Plaines River. The facilities include
two riverboats. The Harrah's Northern Star, a modern 210-foot mega-yacht, has
17,000 square feet of casino space with 30 table games and 477 slot machines.
This riverboat, which has three levels, has the capacity to accommodate
approximately 825 guests per cruise. It offers six cruises per day. The second
riverboat casino, the newly renovated Southern Star II (formerly the Shreveport
Rose), which replaced the Harrah's Southern Star vessel in November 1995, is a
210-foot long riverboat and contains approximately 20,200 square feet of casino
space. The riverboat features 495 slot machines, 28 table games, and can
accommodate up to 825 guests per cruise. It offers eight cruises per day. With
both riverboats in operation on a typical weekday, Harrah's can serve 11,550
customers based on a combined total of 14 excursions. Dockside facilities
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include a 35,000 square foot pavilion with a buffet restaurant, one lounge and a
retail shop. Parking is available for 1,071 cars, including a 4-story parking
garage with 580 spaces. In September 1995, the Company commenced construction of
an expansion of and improvements to the shoreside pavilion at Harrah's Joliet
involving an approximate cost of $8 million. The expansion, which is expected to
be completed in second quarter 1996, will increase the pavilion by approximately
4,400 square feet, and will include new meeting room facilities, enhanced
restaurant facilities and improvements to the public area.
A partnership, in which an indirect subsidiary of the Company is the 80
percent general partner, developed and owns the dockside facilities, the
Harrah's Northern Star and the Southern Star II vessels, and the riverboat
businesses. The businesses are operated by Harrah's for a fee under a long-term
management contract.
The Chicago metropolitan area is the primary feeder market for Harrah's
Joliet, with Joliet being only 30 miles from downtown Chicago.
TUNICA
Harrah's Tunica is a dockside riverboat casino located in Tunica,
Mississippi, approximately 30 miles south of downtown Memphis, Tennessee. The
stationary riverboat, with a classic antebellum design, has 27,000 square feet
of casino space on two levels, with 992 slot machines, 34 table games and an
entertainment lounge. On the third level there is approximately 3,000 square
feet for conventions, meetings and special events. Adjacent to the riverboat
casino is a 30,000 square foot pavilion that houses two restaurants, employee
facilities and executive offices. On-site parking is available for 1,336 cars
with valet parking available.
A partnership, of which the Company is the 83% general partner, owns the
constructed facilities and the casino business. The underlying land, including
adjoining land used for a private access road and a sewage treatment facility,
is under long term lease to the partnership with options to purchase. The
riverboat casino business is operated by Harrah's for a fee under a long-term
management contract.
The primary feeder market for Harrah's Tunica is the Memphis metropolitan
area.
In July 1995, a partnership, of which the Company is the 83% general
partner, acquired at bankruptcy auction the leasehold and improvements
constituting the former Southern Belle casino entertainment property located
near the existing Harrah's casino in Tunica County, Mississippi. The Southern
Belle is currently under renovation, including the addition of a hotel with
approximately 200 rooms. The renovated facility, to be called Harrah's Tunica
Mardi Gras Casino, is expected to be completed during second quarter 1996 and
will feature approximately 50,000 square feet of casino space, with 1,189 slot
machines and 56 table games, three food outlets, a child care facility, retail
shop, a 15,400 square foot entertainment/ballroom area and customer parking for
2,712 cars. The total project cost for the Harrah's Tunica Mardi Gras Casino,
including the cost of acquisition, is estimated at $87.2 million. Under current
plans, the Company's existing Harrah's Tunica facility is expected to remain
open after the opening of the second facility. The opening of the second
facility is subject to receipt of necessary regulatory approvals.
VICKSBURG
Harrah's Vicksburg is the Company's dockside casino entertainment complex in
Vicksburg, Mississippi. The complex, which is located in downtown Vicksburg on
the Yazoo Diversion Canal of the Mississippi River, includes a 297-foot long
stationary riverboat casino designed in the spirit of a traditional 1800's
riverboat with approximately 11,800 square feet of casino space, 574 slot
machines and 40 table games. The casino is docked next to the Company's
shoreside entertainment complex which features a buffet, a restaurant/lounge, a
child care facility, a retail outlet and meeting rooms/convention area. Adjacent
to the riverboat is a 117-room Harrah's hotel owned and operated by
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the Company and two covered parking garages are across the street with combined
parking for 839 cars. The Company owns the riverboat and holds long-term rights
to all real property pertaining to the project.
The casino's primary feeder markets are western and central Mississippi and
eastern Louisiana.
SHREVEPORT
Harrah's Shreveport is the Company's dockside riverboat casino in downtown
Shreveport, Louisiana. In February 1995, the Company replaced its initial
riverboat in Shreveport with a 254-foot long 19th-century design paddlewheeler
riverboat. The new riverboat, the ShreveStar, has 30,000 square feet of gaming
space with 928 slot machines and 49 table games. A 42,000 square foot pavilion
adjoins the casino on the banks of the Red River and includes a 4,100 square
foot area for private parties and group functions and three restaurants.
The casino and related facilities were developed by a partnership in which
an indirect subsidiary of the Company is the 99% general partner. In February
1996, a separate indirect subsidiary of the Company acquired the remaining one
percent interest in the partnership not owned by the Company and accordingly,
the Company now owns 100% of this casino and related facilities.
The primary feeder markets for the casino are northeastern Louisiana and
east Texas, including the Dallas/Fort Worth metropolitan area.
NORTH KANSAS CITY
The Company owns and operates a riverboat casino in North Kansas City,
Missouri. The facilities include a 295-foot long classic sternwheeler designed
stationary riverboat with approximately 31,600 square feet of casino space, with
969 slot machines and 80 table games. Shoreside facilities include a 53,100
square foot pavilion that houses three restaurants, a meeting room, employee
facilities and administrative offices. On-site parking is available for 1,800
cars.
In June 1995, the Company announced a $78 million expansion of Harrah's
North Kansas City, to include a second riverboat casino with approximately
30,000 square feet of casino space, 45 table games and 879 slot machines. Also
included in the expansion is a 200 room hotel, a 30,500 square feet addition to
the shoreside pavilion, enhanced restaurant facilities and additional parking
areas, including a three-story 1,060-space parking garage. Construction of the
expansion commenced in fourth quarter 1995, with completion expected in stages
as follows: the parking garage in March 1996, the second riverboat casino in
June 1996, the pavillion addition and enhanced restaurant facilities in October
1996 and the hotel in December 1996. The opening of the second riverboat is
subject to receipt of all necessary regulatory approvals.
The casino's primary feeder market is the Kansas City metropolitan area.
UNDER DEVELOPMENT
ST. LOUIS-RIVERPORT
The Company is currently constructing a riverboat casino project along the
Missouri River in Maryland Heights, Missouri, in northwest St. Louis County, 16
miles from downtown St. Louis, with Players International, Inc. ("Players"). The
partnership formed by Harrah's and Players will lease space to both Harrah's and
Players in which to operate their separately branded casinos and specialty
restaurants. Each company will operate two riverboat casinos. Each of the
Company's riverboats will include approximately 30,000 square feet of gaming
space.
A 330,000 square foot shoreside pavilion will include a buffet restaurant,
lounge, retail space and conference facilities. Also included in the shoreside
facilities will be a 7-story 291-room Harrah's hotel, a 1,500-car parking garage
and surface parking for 3,600 cars. Harrah's will manage the shoreside pavilion,
hotel and parking areas for a fee.
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Approximately 74 acres of land being used for the development is owned by
the Company and leased to the partnership. Approximately 140 acres of additional
land to be used for the development was purchased by the partnership.
The total estimated investment by the Company will be $166 million.
Construction on the project commenced in October 1995, with completion targeted
for first quarter 1997. Opening of the project is subject to various regulatory
and other necessary approvals.
INDIAN GAMING
AK-CHIN
Harrah's Phoenix Ak-Chin casino is owned by the Ak-Chin Indian Community and
is located on the Community's reservation, approximately 25 miles south of
Phoenix, Arizona. The casino includes 32,000 square feet of casino space with
475 slot machines, 23 poker tables, bingo, keno, a restaurant, an entertainment
lounge, meeting rooms and a retail shop. The complex has customer parking for
approximately 1,000 cars and has valet parking available. Harrah's manages the
casino for a fee under a management contract that has a five year term, expiring
in December 1999. Renewal of the contract would require mutual agreement between
Harrah's and the Ak-Chin Community and approval by the NIGC.
The Company has guaranteed repayment of a bank loan, the proceeds of which
were used to construct the Ak-Chin facility, and Sodak Gaming, Inc. ("Sodak")
has provided a guarantee to Harrah's for one-half of this financing.
Approximately $13.2 million of the loan was outstanding as of December 31, 1995.
The primary feeder markets for the casino are Phoenix and Tucson.
UPPER SKAGIT
Harrah's Skagit Valley casino opened in December 1995 and is located on the
Upper Skagit Indian Reservation, approximately 70 miles north of Seattle,
Washington. The casino includes 26,000 square feet of casino space with an
800-seat bingo parlor which also serves as a showroom, 44 gaming tables, poker,
keno and pull tabs. Non-gaming amenities include nightly live entertainment, two
restaurants as well as an arcade and gift shop. The complex has customer parking
for approximately 1,000 cars. Harrah's manages the casino for a fee under a
management contract that has a five year term, expiring in December 2000.
Renewal of the contract would require mutual agreement between Harrah's and the
Upper Skagit Indian Tribe and approval by the NIGC.
The Company has guaranteed the Tribe's repayment of a bank loan of $22.8
million, the proceeds of which were used to construct the Upper Skagit facility.
At year end 1995, $18.7 million of the loan had been drawn and was outstanding.
The primary feeder markets for the casino are northwestern Washington state
and southwestern Canada, including the Seattle and Bellingham, Washington and
Vancouver, British Columbia metropolitan areas.
SODAK GAMING, INC.
The Company owns a 14.1% ownership interest in Sodak. Sodak is a leading
distributor of electronic gaming machines and gaming-related products and
systems. Under terms of an agreement with International Game Technology ("IGT")
expiring in May 1998, Sodak is the exclusive distributor for IGT of its gaming
equipment in the states of North Dakota, South Dakota and Wyoming, and on
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Native American Reservations in the United States (except Nevada, New Jersey and
Hawaii). This distribution agreement continues from year to year after May 1998,
until it is cancelled. Sodak also has an international distributorship agreement
with IGT for gaming equipment.
In addition, Sodak has also entered the business of financing, developing
and managing Native American and commercial casino businesses in the United
States and abroad.
PROPOSED DEVELOPMENTS
The Company has entered into preliminary management and development
agreements with certain other Indian communities in connection with the proposed
development of casino entertainment facilities on lands owned by the respective
tribes. These agreements are subject to various conditions including approval by
the NIGC. Development of the casino facilities, which would be managed by the
Company for a fee, will not commence until NIGC approval and other required
approvals are received. The Company expects the proposed projects will be
financed by bank loans that would be guaranteed by
the Company.
OTHER
In addition to the above, the Company is actively pursuing numerous casino
entertainment opportunities in various jurisdictions both domestically and
abroad, including land-based, riverboat casino and Indian gaming projects in the
United States. A number of these projects, if they go forward, would require
significant capital investments by the Company.
TRADEMARKS
The following trademarks used herein are owned by the Company: Harrah's(R);
Bill's(R); Harrah's Northern Star(sm); Harrah's Southern Star(sm); Harrah's
Southern Star II(sm); ShreveStar(sm); Southern Belle(sm); Harrah's Tunica
Mardi Gras Casino(sm); and Harrah's Jazz Company(sm). The name "Harrah's" is
registered as a service mark in the United States and in certain foreign
countries, including New Zealand. The Company considers all of these marks,
and the associated name recognition, to be valuable to its business.
COMPETITION
Harrah's, which operates land-based, dockside, riverboat, Indian and limited
stakes casino facilities in all of the traditional, and many of the new, U.S.
casino entertainment jurisdictions, as well as a land based casino in New
Zealand, competes with numerous casinos and casino hotels of varying quality and
size in the market areas where its properties are located, with other resorts
and vacation areas, and with various other casino entertainment businesses. The
casino entertainment business is characterized by competitors which vary
considerably by their size, number of operations, growth strategies and
geographic diversity. In certain areas such as Las Vegas, Harrah's competes with
a wide range of casinos, some of which are significantly larger and newer and
offer substantially more non-gaming activities to attract customers.
In most markets, Harrah's competes directly with other casino facilities
operating in the immediate and surrounding market areas. In major casino
destinations, such as Las Vegas and Atlantic City, Harrah's faces competition
from other markets in addition to direct competition in its market areas.
Harrah's believes it is well positioned to take advantage of any new
jurisdictions which allow casino gaming, the trend of positive consumer
acceptance of casino gaming as an entertainment activity, and
9
increased visitation to casino facilities. However, the expansion of casino
entertainment presents competitive issues for Harrah's and as casino
entertainment properties increase, competition within markets and among
different markets could intensify. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Effects of Current Economic and
Political Conditions" on pages 32 and 33 of the Annual Report, which
pages are incorporated herein by reference.
GOVERNMENTAL REGULATION
GAMING-NEVADA
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local ordinances and
regulations. Harrah's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board"), the Clark County Liquor and
Gaming Licensing Board ("CCLGLB"), the City of Reno ("Reno"), and the Douglas
County Sheriff's Department ("Douglas"). The Nevada Commission, the Nevada State
Gaming Control Board, the CCLGLB, Reno, and Douglas are collectively referred to
as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on Harrah's Nevada gaming operations.
Harrah's Operating Company, Inc. ("HOC"), a direct subsidiary of Harrah's,
and Harrah's Las Vegas, Inc. and Harrah's Laughlin, Inc., each an indirect
subsidiary of Harrah's (hereinafter collectively referred to as the "Gaming
Subsidiaries"), are required to be licensed by the Nevada Gaming Authorities to
enable Harrah's to operate casinos at Harrah's Lake Tahoe, Bill's Lake Tahoe
Casino, Harrah's Reno, Harrah's Las Vegas, and Harrah's Laughlin. The gaming
licenses require the periodic payment of fees and taxes and are not
transferable. Harrah's is registered with the Nevada Commission as a publicly
traded corporation ("Registered Corporation"), and as such, it is required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information which the Nevada Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, the Gaming Subsidiaries without first obtaining licenses and
approvals from the Nevada Gaming Authorities. Harrah's and the Gaming
Subsidiaries have obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
Harrah's has been found suitable to be the sole shareholder of HOC, which,
in addition to being a gaming licensee, is a Registered Corporation (by virtue
of being the obligor on certain outstanding debt securities) and has been found
suitable to be the sole shareholder of Harrah's Las Vegas, Inc. and Harrah's
Laughlin, Inc. HOC is also licensed as a manufacturer and distributor of gaming
devices. Harrah's may not sell or transfer beneficial ownership of any of HOC's
voting securities without prior approval of the Nevada Commission.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Harrah's or the Gaming
Subsidiaries in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers,
10
directors and certain key employees of the Gaming Subsidiaries (except HOC) must
file applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of Harrah's and HOC who are actively and directly involved in
gaming activities of the Gaming Subsidiaries may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with Harrah's or the Gaming Subsidiaries, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require Harrah's or the Gaming Subsidiaries to terminate the
employment of any person who refuses to file appropriate applications. According
to the Nevada Act, determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
Harrah's and the Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Gaming Subsidiaries must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by the Gaming
Subsidiaries, the gaming licenses they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Gaming Subsidiaries, Harrah's and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission. Further,
a supervisor could be appointed by the Nevada Commission to operate Harrah's
gaming properties and, under certain circumstances, earnings generated during
the supervisor's appointment (except for the reasonable rental value of the
Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect Harrah's gaming operations.
Any beneficial holder of Harrah's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of Harrah's voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the state of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of Harrah's
voting securities to report the acquisition to the Nevada Commission. The Nevada
Act requires that beneficial owners of more than 10% of Harrah's voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Act, which acquires more than 10%, but not more than
15%, of Harrah's voting securities may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
voting securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly,
11
the election of a majority of the members of the board of directors of Harrah's,
any change in Harrah's corporate charter, bylaws, management, policies or
operations of Harrah's, or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding Harrah's
voting securities for investment purposes only. Activities which are not deemed
to be inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. Harrah's is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with Harrah's or the Gaming
Subsidiaries, it: (i) pays that person any dividend or interest upon voting
securities of Harrah's; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services rendered or
otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his voting securities for cash at fair market value.
Additionally, the CCLGLB requires that any person who is required to be licensed
or found suitable by the Nevada Commission must file a license application with
the CCLGLB.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
Harrah's would normally be required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Gaming Authorities at any time, but
instead, it has been required by the Nevada Commission to maintain its stock
ledgers in its executive offices in Memphis, Tennessee which may be examined by
the Nevada Board at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Harrah's
also is required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require the Company's
stock certificates to bear a legend indicating that the securities are subject
to the Nevada Act. However, to date, the Nevada Commission has not imposed such
a requirement on Harrah's.
Harrah's and HOC may not make a public offering of their securities without
the prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. On April 20, 1995, the Nevada Commission granted Harrah's and HOC
prior approval to make offerings for a period of one year, subject to certain
conditions ("Shelf Approval"). The Shelf
12
Approval does not constitute a finding, recommendation or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the prospectus
or the investment merits of the securities offered. Any representation to the
contrary is unlawful. Harrah's and HOC are in the process of seeking a one year
renewal of the Shelf Approval.
Changes in control of Harrah's through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price thereof and
before a corporate acquisition opposed by management can be consummated. The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by the Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Gaming Subsidiaries' respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees") and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
13
The Company is in present material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Nevada.
GAMING-NEW JERSEY
As a holding company of Marina Associates ("Marina"), which holds a license
to operate Harrah's Atlantic City in New Jersey, Harrah's is subject to the
provisions of the New Jersey Casino Control Act (the "New Jersey Act"). The
ownership and operation of casino hotel facilities in Atlantic City, New Jersey,
are the subject of pervasive state regulation under the New Jersey Act and the
regulations adopted thereunder by the New Jersey Casino Control Commission (the
"New Jersey Commission"). The New Jersey Commission is empowered to regulate a
wide spectrum of gaming and non-gaming related activities and to approve the
form of ownership and financial structure of not only the casino licensee,
Marina, but also its intermediary and ultimate holding companies, including
Harrah's and HOC. In addition to taxes imposed by the State of New Jersey on all
businesses, the New Jersey Act imposes certain fees and taxes on casino
licensees, including an 8% gross gaming revenue tax, an investment alternative
obligation of 1.25% (or an investment alternative tax of 2.5%) of gross gaming
revenue (generally defined as gross receipts less payments to customers as
winnings) and various license fees.
No casino hotel facility may operate unless the appropriate licenses and
approvals are obtained from the New Jersey Commission, which has broad
discretion with regard to the issuance, renewal and revocation or suspension of
the non-transferable casino license (which licenses are issued initially for a
one-year period and renewable for one-year periods for the first two renewals
and four-year periods thereafter), including the power to impose conditions
which are necessary to effectuate the purposes of the New Jersey Act. Each
applicant for a casino license must demonstrate, among other things, its
financial stability (including establishing ability to maintain adequate casino
bankroll, meet ongoing operating expenses, pay all local, state and federal
taxes, make necessary capital improvements and pay, exchange, refinance, or
extend all long and short term debt due and payable during the license term),
its financial integrity and responsibility, its reputation for good character,
honesty and integrity, the suitability of the casino and related facilities and
that it has sufficient business ability and casino experience to establish the
likelihood of creation or maintenance of a successful, efficient casino
operation. With the exception of licensed lending institutions and certain
"institutional investors" waived from the qualification requirements under the
New Jersey Act, each applicant is also required to establish the reputation of
its financial sources including, but not limited to, its financial backers,
investors, mortgagees and bond holders.
The New Jersey Act requires that all officers, directors and principal
employees of the casino licensee be licensed. In addition, each person who
directly or indirectly holds any beneficial interest or ownership of the casino
licensee and any person who in the opinion of the New Jersey Commission has the
ability to control the casino licensee must obtain qualification approval. Each
holding and intermediary company having an interest in the casino licensee must
also obtain qualification approval by meeting essentially the same standards as
that required of the casino licensee. All directors, officers and persons who
directly or indirectly hold any beneficial interest, ownership or control in any
of the intermediary or ultimate holding companies of the casino licensee may
have to seek qualification from the New Jersey Commission. Lenders,
underwriters, agents, employees and security holders of both equity and debt of
the intermediary and holding companies of the casino licensee and any other
person whom the New Jersey Commission deems appropriate may also have to seek
qualification from the New Jersey Commission. Since Harrah's and HOC are
publicly-traded holding companies (as defined by the New Jersey Act), however,
the persons described in the two previous sentences may be waived from
compliance with the qualification process if the New Jersey Commission, with the
concurrence of the Director of the New Jersey Division of Gaming Enforcement,
determines that they are not significantly involved in the activities of Marina
and, in the case of security holders, that they do not have the ability
14
to control Harrah's (or its subsidiaries) or elect one or more of its directors.
Any person holding 5% or more of a security in an intermediary or ultimate
holding company, or having the ability to elect one or more of the directors of
a company, is presumed to have the ability to control the company and thus may
be required to seek qualification unless the presumption is rebutted.
Notwithstanding this presumption of control, the New Jersey Act permits the
waiver of the qualification requirements for passive "institutional investors"
(as defined by the New Jersey Act), when such institutional holdings are for
investment purposes only and where such securities represent less than 10% of
the equity securities of a casino licensee's holding or intermediary companies
or debt securities of a casino licensee's holding or intermediary companies not
exceeding 20% of a company's total outstanding debt or 50% of an individual debt
issue. The waiver, which is subject to certain specified conditions including,
upon request, the filing of a certified statement that the investor has no
intention of influencing the affairs of the issuer, may be granted to an
"institutional investor" holding a higher percentage of such securities upon a
showing of good cause. If an "institutional investor" is granted a waiver of the
qualification requirements and subsequently changes its investment intent, the
New Jersey Act provides that no action other than divestiture may be taken by
the investor without compliance with the Interim Casino Authorization Act (the
"Interim Act") described below.
In the event a security holder of either equity or debt is required to
qualify under the New Jersey Act, the provisions of the Interim Act may be
triggered requiring, among other things, either: (i) the filing of a completed
application for qualification within 30 days after being ordered to do so, which
application must include an approved Trust Agreement pursuant to which all
securities of Harrah's (or its respective subsidiaries) held by the security
holder must be placed in trust with a trustee who has been approved by the New
Jersey Commission; or (ii) the divestiture of all securities of Harrah's (or its
respective subsidiaries) within 120 days after the New Jersey Commission
determines that qualification is required or declines to waive qualification,
provided the security holder files a notice of intent to divest within 30 days
after the determination of qualification. If a security holder files an
application under the Interim Act, during the period the Trust Agreement remains
in place, such holder may, through the approved trustee, continue to exercise
all rights incident to the ownership of the securities with the exception that:
(i) the security holder may only receive a return on its investment in an amount
not to exceed the actual cost of the investment (as defined by the New Jersey
Act) until the New Jersey Commission finds such holder qualified; and (ii) in
the event the New Jersey Commission finds there is reasonable cause to believe
that the security holder may be found unqualified, the Trust Agreement will
become fully operative vesting the trustee with all rights incident to ownership
of the securities pending a determination on such holder's qualifications;
provided, however, that during the period the securities remain in trust, the
security holder may petition the New Jersey Commission to: (a) direct the
trustee to dispose of the trust property; and (b) direct the trustee to
distribute proceeds thereof to the security holder in an amount not to exceed
the lower of the actual cost of the investment or the value of the securities on
the date the Trust became operative. If the security holder is ultimately not
found to be qualified, the trustee is required to sell the securities and to
distribute the proceeds of the sale to the applicant in an amount not exceeding
the lower of the actual cost of the investment or the value of the securities on
the date the Trust became operative (if not already sold and distributed at the
direction of the security holder) and to distribute the remaining proceeds to
the Casino Revenue Fund. If the security holder is found qualified, the Trust
Agreement will be terminated.
The New Jersey Commission can find that any holder of the equity or debt
securities issued by Harrah's or its subsidiaries is not qualified to own such
securities. If a security holder of Harrah's or its subsidiaries is found
disqualified, the New Jersey Act provides that it is unlawful for the security
holder to: (i) receive any dividends or interest payment on such securities;
(ii) exercise, directly or indirectly, any rights conferred by the securities;
or (iii) receive any remuneration from the company in which the security holder
holds an interest. To implement these provisions, the New Jersey Act requires,
among other things, casino licensees and their holding companies to adopt
provisions in their certificate of incorporation providing for certain remedial
action in the event that a holder of any security of such
15
company is found disqualified. The required certificate of incorporation
provisions vary depending on whether such company is a publicly or privately
traded company as defined by the New Jersey Act. The Certificates of
Incorporation of Harrah's and HOC (both "publicly-traded companies" as defined
by the New Jersey Act) contain provisions which provide Harrah's and HOC,
respectively, with the right to redeem the securities of disqualified holders,
if necessary, to avoid any regulatory sanctions, to prevent the loss or to
secure the reinstatement of any license or franchise held by Harrah's or HOC or
their affiliates, or if such holder is determined by any gaming regulatory
agency to be unsuitable, has an application for a license or permit rejected, or
has a previously issued license or permit rescinded, suspended, revoked or not
renewed. The Certificates of Incorporation of Harrah's and HOC also contain
provisions defining the redemption price and the rights of a disqualified
security holder. In the event a security holder is disqualified, the New Jersey
Commission is empowered to propose any necessary action to protect the public
interest, including the suspension or revocation of the casino license of
Marina. The New Jersey Act provides, however, that the New Jersey Commission
shall not take action against a casino licensee or its parent companies with
respect to the continued ownership of the security interest by the disqualified
holder, if the New Jersey Commission finds that: (i) such company has a
certificate of incorporation provision providing for the disposition of such
securities as discussed above; (ii) such company has made a good faith effort to
comply with any order requiring the divestiture of the security interest held by
the disqualified holder; and (iii) the disqualified holder does not have the
ability to control the casino licensee or its parent companies or to elect one
or more members to the board of directors of such company. The Certificate of
Incorporation of HOC further provides that debt securities issued by HOC are
held subject to the condition that if a holder is found unsuitable by any
governmental agency the corporation shall have the right to redeem the
securities.
If, at any time, it is determined that Marina or its holding companies have
violated the New Jersey Act or regulations promulgated thereunder or that such
companies cannot meet the qualification requirements of the New Jersey Act,
Marina could be subject to fines or its license could be suspended or revoked.
If Marina's license is suspended or revoked, the New Jersey Commission could
appoint a Conservator to operate and dispose of the casino hotel facilities of
Marina. A Conservator would be vested with title to the assets of Marina,
subject to valid liens, claims and encumbrances. The Conservator would be
required to act under the general supervision of the New Jersey Commission and
would be charged with the duty of conserving, preserving and, if permitted,
continuing the operation of the casino hotel. During the period of any such
conservatorship, the Conservator may not make any distributions of net earnings
without the prior approval of the New Jersey Commission. The New Jersey
Commission may direct that all or part of such net earnings be paid to the
Casino Revenue Fund, provided, however, that a suspended or former licensee is
entitled to a fair rate of return.
The New Jersey Commission granted Marina a plenary casino license in
connection with Harrah's Atlantic City in November 1981, and it has been renewed
since then. In April 1994, the New Jersey Commission renewed the license for a
two-year period and also found Harrah's and HOC to be qualified as holding
companies of Marina. Harrah's is in the process of completing its renewal
application for a four-year license commencing April 1996.
The Company is in present material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of New Jersey.
GAMING-COLORADO
The ownership and operation of limited gaming facilities in the State of
Colorado are subject to extensive state and local regulation. In Colorado, the
two casinos managed and partially owned by subsidiaries of Harrah's (Harrah's
Central City and Harrah's Black Hawk) are subject to licensing by and regulatory
control of both the State of Colorado Limited Gaming Control Commission and the
State of Colorado Division of Gaming (hereinafter collectively referred to as
the "Colorado Gaming
16
Authorities"). As Harrah's is a public company, the casinos must comply with
specific rules relating to public companies involved in limited gaming. The
Colorado Gaming Authorities examine and decide upon the suitability of persons
owning any interest in a limited gaming establishment, as well as those persons
associated with such owners. Persons employed in connection with gaming
operations must also be licensed as either "key employees" or "support
employees." The State of Colorado Limited Gaming Control Commission also has the
power to levy substantial taxes with respect to gaming revenues, and with
respect to gaming devices. The licenses held by Harrah's Central City and
Harrah's Black Hawk are not transferable, and must be renewed on an annual
basis. A Colorado constitutional amendment passed in November 1990, legalized
limited stakes gaming ($5.00 or less per bet) in three Colorado cities: Central
City, Black Hawk, and Cripple Creek. The constitutional amendment restricts
limited gaming to the commercially zoned districts of each respective city. At
each limited gaming location, no more than thirty-five percent (35%) of the
total square footage of a building, and no more than fifty percent (50%) of the
square footage of any single floor may be used for limited gaming purposes. The
Colorado Gaming Authorities have broad power to insure compliance with the
statute and regulations currently in force in the State of Colorado. The
Colorado Gaming Authorities may inspect, without notice, any premises where
gaming is being conducted, and may seize, impound, or remove any gaming device.
The statute and regulations require licensees to maintain certain minimum
operating, security and payoff procedures, as well as books and records that are
audited on an annual basis.
There are specific reporting procedures and approval requirements for
transfers of interests and other involvement with publicly traded corporations
directly or indirectly involved in limited gaming in the State of Colorado. In
addition to the reporting requirements, certain provisions must be included in
the Articles of Organization or other similar chartering documents of any entity
licensed as either an operator or retailer in the State of Colorado. The State
of Colorado Limited Gaming Control Commission may require that any individual
who has a material relationship to or a material involvement with a licensee, or
otherwise, must apply for a finding of suitability by the Commission, or apply
for a key employee license. If an individual or person has been deemed to be
unsuitable by the State of Colorado Limited Gaming Control Commission, the
Commission may require a licensee to pursue all lawful efforts to require that
the unsuitable person relinquish all voting securities in addition to certain
other powers granted to the Commission.
The Colorado Gaming Authorities have full and complete access to any records
of a licensee, as well as individuals associated with licensees, investigate the
background and conduct of licensees and their employees, and are empowered to
bring disciplinary actions against licensees. The Colorado Gaming Authorities
have the power to investigate the background of creditors of licensees as well.
No interest in a licensee, once approved by the Commission, may be alienated in
any fashion without the prior approval of the State of Colorado Limited Gaming
Control Commission. Any person or entity may not have an interest in more than
three retail gaming licenses.
All persons, places or practices connected with limited gaming must be
"suitable" as determined by the Colorado Gaming Authorities. In this regard, the
burden is always on any applicant to prove by clear and convincing evidence that
the applicant is qualified for the licenses applied for. Thus, licensees must be
able to demonstrate that any equity holder, or any person providing financing in
connection with the establishment or operation of a licensee, must be: (i) of
good moral character; (ii) a person whose prior activities, criminal record,
reputation, habits and associations do not pose a threat to the public interests
of the State of Colorado; (iii) a person who has not served a sentence upon a
conviction of a felony or been under the supervision of a probation department
within ten years prior to the date of application; (iv) and, a person who has
not seriously or repeatedly violated the provisions of the "Limited Gaming Act
of 1991" in Colorado. At the request of the Colorado Gaming Authorities, any
person connected with limited gaming must disclose personal background and
financial information, including criminal records, and any and all other
information requested by the Colorado Gaming Authorities.
17
The constitutional amendment gave the State of Colorado Limited Gaming
Control Commission the power to tax up to forty percent (40%) of the adjusted
gross proceeds (generally defined as gross receipts less payments to customers
as winnings) received by a licensee from limited gaming. Effective October 1,
1994, the tax schedule for the gaming year (October 1 to September 30) is as
follows:
PERCENTAGE
ADJUSTED GROSS PROCEEDS TAX
- ----------------------------------------------------------------- ----------
Up to $2,000,000................................................. 2%
$2,000,001 to $4,000,000......................................... 8%
$4,000,001 to $5,000,000......................................... 15%
$5,000,001 and over.............................................. 18%
For the same gaming year, the State gaming device fee is Seventy-Five Dollars
($75) per gaming device. In addition, local device fees are assessed by both
Central City and Black Hawk. In Central City the current device fee is One
Thousand Two Hundred Sixty-Five Dollars ($1,265) per device per year. In Black
Hawk, Seven Hundred Fifty Dollars ($750) per device per year is the current
device fee.
Changes in this regulatory scheme could adversely affect the operation of
the Colorado properties.
The Company is in present material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Colorado.
GAMING-LOUISIANA (NEW ORLEANS)
On November 22, 1995, Harrah's Jazz Company (the "Casino Operator"), the
partnership in which an indirect subsidiary of Harrah's owns an approximate 47%
interest, and which has the contract (the "Casino Operating Contract") with the
LEDGC to operate the sole land-based casino (the "Gaming Facilities") in New
Orleans, Louisiana, filed for protection under Chapter 11 of the Bankruptcy Code
and ceased operation of the Temporary Casino.
See "New Orleans" and "Legal Proceedings" herein for further discussions of
the New Orleans project and the legal proceedings filed in connection with the
New Orleans project.
Under the Casino Operating Contract, the Casino Operator has the authority
to engage a separate indirect subsidiary of Harrah's, Harrah's New Orleans
Management Company (the "Casino Manager"), to manage the Gaming Facilities. The
ownership and operation of the Gaming Facilities are subject to pervasive
governmental regulation, including regulation by the LEDGC in accordance with
the terms of the Louisiana Economic Development and Gaming Corporation Law (the
"Gaming Act"), the rules and regulations promulgated thereunder from time to
time, and the Casino Operating Contract.
Since the Casino Operator is presently in bankruptcy, enforcement of the
Casino Operating Contract and the rules and regulations promulgated under the
Gaming Act, including, without limitation, the restrictions imposed by the
Casino Operating Contract and the LEDGC's rules and regulations on the
transferability of the Casino Operating Contract or interests in the Casino
Operator, is subject to, and limited by, the bankruptcy laws. In addition, if a
plan of reorganization of the Casino Operator is consummated in the bankruptcy,
it is uncertain whether the Casino Operating Contract and such rules and
regulations will remain in their present form. Any changes to the Casino
Operating Contract or such rules and regulations may be material.
In addition, under the bankruptcy laws, the Casino Operating Contract is
considered an executory contract which, subject to bankruptcy court approval,
may be rejected or assumed by the Casino Operator. In order to assume or
assume and assign the Casino Operating Contract, the Casino Operator
must satisfy
18
certain requirements under the bankruptcy laws, including, without limitation,
the curing, or providing adequate assurance of the prompt curing of, defaults
under the Casino Operating Contract except for certain types of defaults. Unless
the bankruptcy court otherwise orders, the Casino Operator may assume or reject
the Casino Operating Contract at any time prior to or simultaneously with the
confirmation of its plan of reorganization.
The Governor of the State of Louisiana has stated his intent to call a
special legislative session beginning March 17, 1996 to consider legislation
relating to all forms of gaming in Louisiana (including the Gaming Facilities).
The Governor and various legislative leaders have expressed their support for
legislation which would provide for a public referendum on such gaming
(including the Gaming Facilities). The nature and scope of any referendum and
any effect it could have on the Gaming Facilities is uncertain at this time.
There could be other legislation relating to the Gaming Facilities
introduced at this session or the Legislature's next regular session beginning
April 29, 1996. There can be no assurance that legislation will not be enacted
or a public referendum not called and held which in either case could have a
material adverse effect on the Gaming Facilities.
The LEDGC. The Gaming Act established the LEDGC as a special public purpose
corporation to regulate land-based gaming in Louisiana. The Gaming Act provides
that the LEDGC is not a state agency except as specifically provided therein,
and none of its obligations is subject to or backed by the full faith and credit
of the State of Louisiana. The affairs of the LEDGC are supervised by a nine
member board of directors appointed by the governor and confirmed by the
Louisiana Senate.
On December 4, 1995, the Attorney General of the State of Louisiana assumed
control of the business and staff functions of the LEDGC, terminating all but a
few employees. The stated reason for the action was that the LEDGC was without
funds to operate in light of the shutdown of the Temporary Casino, which had
provided such funds. The future existence and extent of operation of the LEDGC
is unknown at this time.
LEDGC's Authority to Enter Into Casino Operating Contract. The Casino
Operating Contract was entered into by the LEDGC pursuant to authority granted
under the Gaming Act. Under the Casino Operating Contract, the Casino Operator
can conduct gaming operations at a single official land-based gaming
establishment located at the site of the Rivergate Convention Center. The term
of the Casino Operating Contract is 20 years with one 10-year renewal option.
Under the Casino Operating Contract, the Casino Operator was required to pay the
LEDGC an initial payment of $125 million (the "Initial Payment") in
installments, and the entirety of the Initial Payment was paid timely. In
addition to the Initial Payment, the Casino Operating Contract requires the
Casino Operator to pay to the LEDGC a share of annual gross gaming revenues
(generally defined as gross receipts less payments to customers as winnings)
from the Permanent Casino equal to the greater of (a) $100 million or (b) a
percentage of annual gross gaming revenue as follows:
(i) 19% of gross gaming revenue up to and including $600 million; plus
(ii) 20% of gross gaming revenue in excess of $600 million up to and
including $700 million; plus
(iii) 22% of gross gaming revenue in excess of $700 million up to and
including $800 million; plus
(iv) 24% of gross gaming revenue in excess of $800 million up to and
including $900 million; plus
19
(v) 25% of gross gaming revenue in excess of $900 million.
Under the Gaming Act, the gaming activities that may be conducted, subject
to the rule-making authority of the LEDGC, include any banking or percentage
game that is played with cards, dice or any electronic, electrical or mechanical
device or machine for money, property or any thing of value, but exclude
lottery, bingo, charitable games, raffles, electronic video bingo, pull tabs,
cable television bingo, wagering on dog or horse races, sports betting or
wagering on any type of sports contest or event. The Gaming Act provides that
the LEDGC shall adopt rules for the conduct of specific games and gaming
operations, including the types of games to be conducted and the granting of
credit to a patron.
The Gaming Act provides that the LEDGC is authorized to permit the casino
operator to conduct limited temporary gaming operations in Orleans Parish at a
location designated by the casino operator and approved by the LEDGC. The
compensation payable to the LEDGC from gaming operations at the Temporary Casino
is 25% of gross gaming revenues with the remainder to the Casino Operator, the
net proceeds therefrom after deducting operating expenses to be used to perform
and complete the obligations of the Casino Operator as contained in the Casino
Operating Contract. The Gaming Act requires that gaming operations at the
Temporary Casino cease upon the commencement of gaming operations at the
Permanent Casino.
The Gaming Act requires the casino operator to agree to maintain its
suitability at all times during the existence of the casino operating contract.
The Gaming Act provides that the LEDGC has the right but is not required to set
aside or renegotiate the provisions of the casino operating contract if the
casino operator is voluntarily or involuntarily placed in bankruptcy,
receivership, conservatorship or similar status.
Regulations. Under the Gaming Act, the LEDGC has broad discretionary
authority to regulate all aspects of the casino operator's operations, and it
has exercised that authority by adopting wide-ranging administrative rules and
regulations governing all aspects of licensing, suitability, transfers of
interest and other financial transactions and the conduct of gaming operations.
The Gaming Act gives the LEDGC the power, among other things, to (i) investigate
the qualifications of the gaming operator and each applicant for a license or
permit, (ii) investigate violations of the Gaming Act and any rules and
regulations promulgated thereunder, and any other incidents or transactions
which it deems appropriate, (iii) conduct hearings and proceedings concerning,
and review and inspections of, gaming operations and related activities, (iv)
inspect and examine all premises, and all equipment or supplies thereon, where
gaming activities are conducted or gaming devices or equipment are manufactured,
sold, or distributed, and summarily seize and remove from such premises and
impound any equipment or supplies for the purpose of examination and inspection,
(v) audit the records of applicants and gaming operators respecting all revenues
produced by any gaming operations, (vi) issue interrogatories and subpoenas, and
(vii) monitor the conduct of all casino operators, licensees, permittees and
other persons having a material involvement directly or indirectly with a casino
operator.
Issuance of Licenses and Permits. Under the Gaming Act, the LEDGC is
required to issue licenses or permits to certain persons associated with gaming
operations, including: (i) certain employees of the casino operator, (ii)
certain manufacturers, distributors and suppliers of gaming devices; (iii)
certain suppliers of goods or services; (iv) any person who furnishes services
or property to the casino operator under an arrangement pursuant to which the
person receives payments based on earnings, profits or receipts from gaming
operations; and (v) any other persons deemed necessary by the LEDGC.
The securing of the requisite licenses and permits under the Gaming Act is a
prerequisite for conducting, operating or performing any activity regulated by
the LEDGC or the Gaming Act. The Gaming Act provides that the LEDGC has full and
absolute power to deny an application, or to limit, condition, restrict, revoke
or suspend any license, permit or approval, or to fine any person licensed,
permitted or approved for any cause specified in the Gaming Act or rules
promulgated by the LEDGC.
20
The Rules and Regulations provide that the LEDGC may take any of the foregoing
actions with respect to any person licensed, permitted, or approved, or any
person registered, found suitable, or holding a contract, for any cause deemed
reasonable.
The Gaming Act provides that it is the express intent, desire and policy of
the legislature that no holder of the casino operating contract, applicant for a
license, permit, contract or other thing existing, issue or let as a result of
the Gaming Act shall have any right or action to obtain any license, permit,
contract or the granting of the approval sought except as provided for and
authorized by the Gaming Act. Any license, permit, contract, approval or thing
obtained or issued pursuant to the provisions of the Gaming Act has been
expressly declared by the legislature to be a pure and absolute revocable
privilege and not a right, property or otherwise, under the constitutions of the
United States or of the State of Louisiana. The Gaming Act also provides that no
holder acquires any vested right therein or thereunder.
Suitability. Under the Gaming Act, no person is eligible to receive a
license or enter into a contract to conduct casino gaming operations unless,
among other things, the LEDGC is satisfied the applicant is suitable.
Suitability requires a demonstration by each applicant, by clear and convincing
evidence, that, among other things, (i) the applicant is a person of good
character, honesty and integrity; (ii) the applicant's prior activities,
criminal record, if any, reputation, habits and associations do not pose a
threat to the public interest of the State or the regulation and control of
casino gaming or create or enhance the dangers of unsuitable, unfair or illegal
practices, methods and activities in the conduct of gaming or the carrying on of
the business and financial arrangements incidental thereto; and (iii) the
applicant is capable of and is likely to conduct the activities for which a
license or contract is sought. In addition, to be found suitable for purposes of
the casino operating contract, the casino operator must demonstrate by clear and
convincing evidence that: (a) it has or guarantees acquisition of adequate
business competence and experience in the operation of casino gaming operations;
(b) the proposed financing is adequate for the proposed operation and is from
suitable sources; and (c) it has or is capable of and guarantees the obtaining
of a bond or satisfactory financial guarantee of sufficient amount, as
determined by the LEDGC, to guarantee successful completion of and compliance
with the casino operating contract or such other projects which are regulated by
the LEDGC. The Rules and Regulations provide that an applicant shall release all
claims and accept any risk of adverse publicity, embarrassment, criticism, or
other action, or financial loss which may result or occur from action with
respect to an application and expressly waive any claim for damages as a result
thereof.
Under the Gaming Act, the LEDGC may not award the casino operating contract
or a license to a person disqualified on the basis of any of the following
criteria: (i) failures of the applicant to prove suitability in accordance with
the provisions of the Gaming Act; (ii) failure of the applicant to provide
information and documentation material to a suitability determination, or
providing untrue or misleading material information pertaining to the
qualification criteria; (iii) conviction of, or plea of guilty or nolo
contendere by, or current prosecution of, or pending charges in any jurisdiction
against, the applicant, or of any person required to be qualified under the
Gaming Act as a condition for a contract, for an offense punishable by
imprisonment for more than one year; (iv) if the applicant is a corporation that
is owned by a parent or other corporation or person, then the applicant shall be
disqualified if any person owning more than 5% of the common stock of the parent
corporation has been convicted of, or pled guilty or nolo contendere to, a
felony offense; or (v) if the applicant is a corporation or other entity of
which any individual holding 5% or more interest in the profits or loss has been
convicted of, or pled guilty or nolo contendere to, an offense that at the time
of conviction is punishable as a felony. The Rules and Regulations further
provide that a license or contract shall not be granted to an applicant that has
been found unsuitable or has been denied a gaming license or permit or has had a
gaming license or permit suspended or revoked in another gaming jurisdiction,
unless the LEDGC determines that such action is not contrary to the interest of
the State. The Rules and Regulations provide that no person shall knowingly be
or remain employed by the casino operator, nor shall they be licensed or receive
a permit, if they are not current in filing all applicable tax returns and in
the payment of all taxes, interest and penalties owed to the State of Louisiana
and the Internal Revenue Service, with certain exceptions.
21
The Rules and Regulations provide that the LEDGC may deny, revoke, suspend,
limit, condition, or restrict any finding of suitability or application therefor
upon the same grounds as it may take such action with respect to licensees and
permittees, without exclusion of any other grounds. The Rules and Regulations
provide that the LEDGC may further take such action on the grounds that the
registrant or person found suitable is associated with, or is controlled by, or
is under common control with, an unsuitable or disqualified person. The Rules
and Regulations also provide that the LEDGC has full and absolute authority to
deny the application, or to limit, condition or restrict any license, contract
or finding of suitability.
The LEDGC can find that the holder of any equity interest in, or debt
securities issued by, the casino operator or its affiliated companies, must be
found suitable to own such interest or securities. The Gaming Act provides that
every person that has or controls more than a 5% ownership, income or profit
interest in an entity that has or applies for a contract in accordance with the
provisions of the Gaming Act or has the ability, in the opinion of the LEDGC, to
exercise significant influence over the activities of the casino operator, must
meet all suitability requirements and qualifications for licensees. The Gaming
Act provides that the LEDGC may also issue, under penalty of revocation of a
license, a condition of disqualification naming the person or persons and
declaring that such person or persons may not: (i) receive dividends or interest
on securities of the casino operator; (ii) exercise directly or indirectly,
including through a trustee or nominee, a right conferred by securities of the
casino operator; (iii) receive remuneration from the casino operator; (iv)
receive any economic benefit from the casino operator; or (v) continue in an
ownership or economic interest in a casino gaming operation contract or remain
as a manager, officer, director or partner of the casino operator (collectively,
"Ownership Benefits").
Under the Rules and Regulations, if at any time the LEDGC finds that any
person required to be and remain suitable has failed to demonstrate suitability,
the LEDGC may, consistent with the Gaming Act and the casino operating contract,
take any action that the LEDGC deems necessary to protect the public interest.
The Rules and Regulations provide, however, that if a person associated with the
casino operator or an affiliate, intermediary, or holding company thereof has
failed to be found or remain suitable, the LEDGC shall not declare the casino
operator or its affiliate, intermediary, or holding company, as the case may be,
unsuitable as a result if such companies comply with the conditional licensing
provisions, take immediate good faith action and comply with any order of the
LEDGC to cause such person to dispose of its interest, and, before such
disposition, ensure that the disqualified person does not receive any Ownership
Benefits. The above safe harbor protections do not apply if: (i) the casino
manager has failed to remain suitable, (ii) the casino operator engaged in a
relationship with the unsuitable person and had actual or constructive knowledge
of the wrongdoing causing the LEDGC's action, (iii) the casino operator is so
tainted by such person that it affects the suitability standards contained in
the Gaming Act and the Rules and Regulations.
The Gaming Act provides that every person who is required to be found
suitable has a continuing duty to maintain such person's suitability. The casino
operator and all licensees, permittees, registrants and persons required to be
qualified under the Gaming Act have a continuing duty to inform the LEDGC of any
action that they believe would constitute a violation of the Gaming Act.
Transfers. The sale, transfer, assignment, or alienation of a casino
operating contract, or an interest therein, without the approval of the LEDGC,
is prohibited. Also, the sale, transfer, assignment, pledge, alienation,
disposition, public offering, or acquisition of securities that results in one
person's owning 5% or more of the total outstanding shares issued by the casino
operator is void as to such person without prior approval of the LEDGC. Failure
to obtain prior approval by the LEDGC of a person acquiring 5% or more of the
total outstanding shares of a licensee or 5% or more economic interest in the
casino operator is grounds for cancellation of the casino operating contract or
license suspension or revocation.
22
Exclusive Contract. The Gaming Act provides that the casino operating
contract is exclusive and no other official gaming establishment shall be
contracted or licensed in Orleans Parish during the term of the casino operating
contract. The Gaming Act also provides that, in the event that, at any time
while the casino operating contract is in effect, one or more land-based casino
gaming establishments in addition to the single casino gaming operation provided
for by the Gaming Act is authorized to operate in Orleans Parish, the casino
operator shall be relieved of the obligation to remit to the LEDGC the
compensation required under the casino operating contract. Gaming operations
upon riverboats in accordance with the Louisiana Riverboat Economic Development
and Gaming Control Act, video poker operations authorized pursuant to the Video
Draw Poker Devices Control Law, authorized charitable gaming activities, lottery
games conducted pursuant to the provisions of the Louisiana Lottery Corporation
Law and pari-mutuel wagering as authorized by the provisions of Chapter 4 of
Title 4 of the Louisiana Revised Statutes of 1950 do not constitute the
authorization of additional land-based casino gaming operations, which relieves
the casino operator of payment of compensation to the LEDGC. The Company and the
LEDGC dispute the effect of dockside riverboat gaming operations on the
Company's payment obligations under the Gaming Act and the Casino Operating
Contract. The Casino Operating Contract contains a detailed agreement on this
issue.
Priority to Louisiana Residents and Business; Minority Employment. The
Gaming Act obligates the casino operator to give preference and priority to
Louisiana residents, laborers, vendors and suppliers, except when not reasonably
possible to do so without added expense, substantial inconvenience or sacrifice
in operational efficiency. The Gaming Act further obligates the casino operator
to give preference and priority to Louisiana residents in considering applicants
for employment and requires (without respect to added expense, substantial
inconvenience or sacrifice in operational efficiency) that no less than 80% of
the persons employed by the casino operator be Louisiana residents for at least
one year immediately prior to employment. The Company believes that the impact
on labor costs of such 80% residency requirement will not be material.
The Gaming Act requires that the casino operator and/or LEDGC adopt written
policies, procedures, and regulations to allow the participation of businesses
owned by minorities in all design, engineering, and construction contracts
and/or projects to the maximum extent practicable. The Rules and Regulations
provide that the casino operator and the casino manager must take the foregoing
actions with respect to all design, engineering, construction, banking and
maintenance contracts and any other projects initiated by the casino operator or
casino manager. The Gaming Act further requires the casino operator, as nearly
as practicable, to employ minorities consistent with the population of the
State. The Rules and Regulations extend this obligation to the casino manager as
well. The Rules and Regulations provide that if at any time the LEDGC shall
conclude that the casino operator or the casino manager is conducting itself in
a manner inconsistent with the requirements of Louisiana law or the Rules and
Regulations, the LEDGC may take enforcement action, including fines and the
imposition of a plan that the LEDGC determines meets the objectives of the
Gaming Act and the Rules and Regulations.
Limits on Restaurant, Lodging, Retail Operations. The Gaming Act provides
that the casino operator shall not: (i) offer seated restaurant facilities with
table food service for patrons, but may offer limited cafeteria style food
services for employees and patrons as provided by rule of the LEDGC, provided,
however, that no food may be given away or subsidized within the official gaming
establishment by the casino operator or any licensee, and no facility for food
service shall exceed seating for 250 persons; (ii) offer lodging in the official
gaming establishment, nor engage in any practice or enter into any business
relationships to give any hotel, whether or not affiliated with the casino
operator, any advantage or preference not available to all similarly situated
hotels; (iii) engage in such activities as are prohibited by the casino
operating contract; (iv) engage in the sale of products that are not directly
related to gaming; or (v) cash or accept in exchange for the purchase of tokens,
chips or electronic cards an identifiable employee payroll check. Any contract
between the casino operator and any hotel or lodging facilities must be
submitted to the LEDGC for approval prior to entering into the contract.
23
Rights of Holders of Security Interest. The Gaming Act authorizes the LEDGC
to provide for the protection of the rights of holders of security interests in
both immovable property and movable property used in or related to casino gaming
operations ("Gaming Collateral") and to provide for the continued operation of
the official gaming establishment during the period of time that a lender, as a
holder of a security interest, seeks to enforce its security interest in such
property. In connection therewith, the Gaming Act provides that the holder of a
security interest in Gaming Collateral may receive payments from the owner or
lessee of such property out of the proceeds of casino gaming operations received
by the owner or lessee, and, the holder of the security interest may be exempt
from the licensing requirements of the Gaming Act with respect to such payments
if the transaction(s) giving rise to such payments have been approved in advance
by the LEDGC and complies with all rules and regulations of the LEDGC and the
LEDGC determines the holder to be suitable.
Under the Gaming Act, a holder of a security interest in a gaming device who
asserts the right to ownership or possession of the encumbered property may be
granted a one-time, nonrenewable, provisional contract for a maximum of 90 days
for the sole purpose of acquiring ownership or possession for resale to a
licensed or approved person, all in accordance with rules and regulations to be
promulgated by the LEDGC. The license or contract shall not authorize the holder
to operate the gaming device or to utilize the property in gaming activities.
If the holder of a security interest in immovable property comprising the
official gaming establishment wishes to continue the operation of the official
gaming establishment during and after the filing of a suit to enforce the
security interest, the Gaming Act provides that the holder of the security
interest must name the LEDGC as a nominal defendant in such suit and request the
appointment of a receiver from among the persons on a list maintained by the
LEDGC. Upon proof of the debtor's default under the security instrument and the
holder's right to enforce the security interest, the court shall appoint a
person from the LEDGC's list as a receiver of the official gaming establishment.
Upon appointment of the receiver, the Gaming Act requires the receiver to
furnish a fidelity bond in favor of the security interest holder, the owner or
lessee of the official gaming establishment and the LEDGC in an amount to be set
by the court after consultation with the LEDGC and all parties. The Gaming Act
requires the LEDGC to issue to the receiver a one-time, nonrenewable,
provisional contract to continue gaming operations until the receivership is
terminated. The receiver is considered to have all the rights and obligations of
the casino operator under the casino operating contract. The holder of the
security interest provoking the appointment of a receiver under the Gaming Act
is required to pay the cost of the receiver's bond and the cost of operating the
official gaming establishment or gaming operator during the term of receivership
to the extent that such costs exceed available revenues, in accordance with the
rules and regulations of the LEDGC. The Gaming Act further provides that the
fees of the receiver and the authority for expenditures of the receiver are to
be established by rules and regulations of the LEDGC.
The Gaming Act provides that a receivership must terminate upon: (i) the
sale of the property subject to receivership to a duly approved or authorized
person; (ii) the payment in full of all obligations due to the holder of the
security interest in the property subject to the receivership; (iii) an
agreement for termination of the receivership signed by the holder of the
security interest and the debtor, and approved by the LEDGC and the court; or
(iv) the lapse of five years from the date of the initial appointment of the
receiver. Under the Gaming Act, a receivership may also be terminated by notice
from the holder of the security interest who provoked the receivership addressed
to the court and the LEDGC of its intention to withdraw its financial support of
the receivership at a specified time not less than 90 days from the date of the
notice. In the event of such notice, the Gaming Act provides that the holder of
the security interest giving the notice will not be responsible for any costs or
expenses of the receivership after the date specified in the notice; except for
reasonable costs and fees of the receiver in concluding the receivership, and
the costs of a final accounting.
24
GAMING-ILLINOIS
The ownership and operation of a gaming riverboat in Illinois is subject to
extensive regulation under Illinois gaming laws and regulations. A five-member
Illinois Gaming Board is charged with such regulatory authority, including the
issuance of riverboat gaming licenses not to exceed 10 in number. The granting
of an owner's license involves a preliminary approval procedure in which the
Illinois Gaming Board issues a finding of preliminary suitability to a license
applicant and effectively reserves a gaming license for such applicant. The
Board has issued all 10 licenses. Des Plaines Development Limited Partnership,
of which 80% is owned by Harrah's Illinois Corporation, received an owner's
license in 1993. Harrah's Illinois Corporation also holds a supplier's license,
which entitles it to manage the Joliet riverboats for the partnership for a fee.
To obtain an owner's license (and a finding of preliminary suitability),
applicants must submit comprehensive application forms, be fingerprinted and
undergo an extensive background investigation by the Illinois Gaming Board.
Each license granted entitles a licensee to own and operate up to two
riverboats (with a combined maximum of 1,200 gaming positions) and equipment
thereon from a specific location. The duration of the license initially runs for
a period of three years (with a fee of $25,000 for the first year and $5,000 for
the following two years). Thereafter, the license is subject to renewal on an
annual basis upon payments of a fee of $5,000 and a determination by the
Illinois Gaming Board that the licensee continues to be eligible for an owner's
license pursuant to the Illinois legislation and the Illinois Gaming Board's
rules.
An applicant is ineligible to receive an owner's license if the applicant,
any of its officers, directors or managerial employees or any person who
participates in the management or operation of gaming operations: (i) has been
convicted of a felony; (ii) has been convicted of any violation under Article 28
of the Illinois Criminal Code or any similar statutes in any other jurisdiction;
(iii) has submitted an application which contains false information; or (iv) is
a member of the Illinois Gaming Board. In addition, an applicant is ineligible
to receive an owners' license if the applicant owns more than a 10% ownership
interest in an entity holding another Illinois owner's license, or if a license
of the applicant issued under the Illinois legislation or a license to own or
operate gaming facilities in any other jurisdiction has been revoked.
In determining whether to grant a license, the Illinois Gaming Board
considers: (i) the character, reputation, experience and financial integrity of
the applicants; (ii) the type of facilities (including riverboat and docking
facilities) proposed by the applicant; (iii) the highest prospective total
revenue to be derived by the state from the conduct of riverboat gaming; (iv)
affirmative action plans of the applicant, including minority training and
employment; and (v) the financial ability of the applicant to purchase and
maintain adequate liability and casualty insurance. Municipal (or county, if an
operation is located outside of a municipality) approval of a proposed applicant
is required, and all documents, resolutions, and letters of support must be
submitted with the initial application.
A holder of a license is subject to the imposition of fines, suspension or
revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the state of Illinois, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rule, order or ruling of the Illinois Gaming Board or
its agents pertaining to gaming; (iii) receiving goods or services from a person
or business entity who does not hold a supplier's license but who is required to
hold such license by the rules; (iv) being suspended or ruled ineligible or
having a license revoked or suspended in any state or gaming jurisdiction; (v)
associating with, either socially or in business affairs, or employing persons
of, notorious or unsavory reputation or who have extensive police records, or
who have failed to cooperate with any official constituted investigatory or
administrative body and would adversely affect public confidence and trust in
gaming;
25
and (vi) employing in any Illinois riverboat's gaming operation any person known
to have been found guilty of cheating or using any improper device in connection
with any game. Fines may be made of up to $5,000 against individuals and up to
the greater of $10,000 or an amount equal to the daily gross receipts against
licensees for each violation.
An ownership interest in a license or in a business entity, other than a
publicly held business entity which holds an owner's license, may not be
transferred without approval of the Illinois Gaming Board. In addition, an
ownership interest in a license or in a business entity, other than a publicly
held business entity, which holds either directly or indirectly an owner's
license, may not be pledged as collateral without approval of the Illinois
Gaming Board.
A person employed at a riverboat gaming operation must hold an occupational
license which permits the holder to perform only activities included within such
holder's level of occupation license or any lower level of occupation license.
In addition, the Illinois Gaming Board issues suppliers licenses which authorize
the supplier licensee to sell or lease gaming equipment and supplies to any
licensee involved in the ownership and management of gaming operations.
Riverboat cruises are limited to a duration of four hours, and no gaming may
be conducted while the boat is docked, with the exceptions: (i) of 30-minute
time periods at the beginning of and at the end of a cruise while the passengers
are embarking and debarking (total gaming time is limited to four hours,
however, including the pre- and post-docking periods); and (ii) when weather or
mechanical problems prevent the boat from cruising. Minimum and maximum wagers
on games are set by the licensee and wagering may be conducted only with a
cashless wagering system, whereby money is converted to tokens, electronic cards
or chips which can only be used for wagering. No person under the age of 21 is
permitted to wager, and wagers may only be taken from a person present on a
licensed riverboat. With respect to electronic gaming devices, the payout
percentage may not be less than 80% nor more than 100%.
The legislation imposes a 20% wagering tax on adjusted receipts (generally
defined as gross receipts less payments to customers as winnings) from gambling
games. The tax imposed is to be paid by the licensed owner to the Illinois
Gaming Board on the day after the day when the wagers were made. Of the proceeds
of that tax, 25% goes to the local government where the home dock is located, a
small portion goes to the Illinois Gaming Board for administration and
enforcement expenses, and the remainder goes to the state education assistance
fund.
The legislation also requires that licensees pay a $2.00 admission tax for
each person admitted to a gaming cruise. Of this admission tax, the host
municipality or county receives $1.00. The licensed owner is required to
maintain public books and records clearly showing amounts received from
admission fees, the total amount of gross receipts and the total amount of
adjusted gross receipts.
All use, occupancy and excise taxes which apply to food and beverages and
all taxes imposed on the sale or use of tangible property apply to sales aboard
riverboats.
The Company is in present material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Illinois.
Bills have been introduced in the Illinois legislature proposing graduated
gaming taxes that would be in excess of the taxes currently imposed. There has
also been discussion of increasing the number of riverboat gaming licenses.
There can be no assurance that these bills will not become law, or that similar
legislation, legislation increasing the number of licenses or other legislation
will not be introduced in the future, any of which could have a material adverse
effect on the operations of the Company's riverboats.
GAMING-MISSISSIPPI
The ownership and operation of a gaming business in the State of Mississippi
is subject to extensive laws and regulations, including the Mississippi Gaming
Control Act (the "Mississippi Act") and the
26
regulations (the "Mississippi Regulations") promulgated thereunder by the
Mississippi Gaming Commission (the "Mississippi Commission"), which is empowered
to oversee and enforce the Mississippi Act. Gaming in Mississippi can be legally
conducted only on vessels of a certain minimum size in navigable waters within
any county bordering the Mississippi River or in waters of the State of
Mississippi which lie adjacent and to the south (principally in the Gulf of
Mexico) of the Counties of Hancock, Harrison and Jackson, provided that the
county in question has not voted by referendum not to permit gaming in that
county. The underlying policy of the Mississippi Act is to ensure that gaming
operations in Mississippi are conducted: (i) honestly and competitively; (ii)
free of criminal and corruptive influences; and (iii) in a manner which protects
the rights of the creditors of gaming operations.
The Mississippi Act requires that a person (including any corporation or
other entity) be licensed to conduct gaming activities in the State of
Mississippi. A license will be issued only for a specified location which has
been approved in advance as a gaming site by the Mississippi Commission.
Harrah's Vicksburg Corporation, an indirect subsidiary of Harrah's, is licensed
to operate a riverboat casino in Vicksburg, Mississippi. Harrah's Tunica
Corporation, another indirect subsidiary, is the general partner of Tunica
Partners L.P., the licensed operator of a riverboat casino in Tunica,
Mississippi. In addition, a parent company of a company holding a license must
register under the Mississippi Act. Harrah's and HOC are registered with the
Mississippi Commission.
The Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who exercises a material degree of control over the
licensee, either directly or indirectly, be found suitable by the Mississippi
Commission. In addition, any employee of a licensee who is directly involved in
gaming must obtain a work permit from the Mississippi Commission. The
Mississippi Commission will not issue a license or make a finding of suitability
unless it is satisfied, after an investigation paid for by the applicant, that
the persons associated with the gaming licensee or applicant for a license are
of good character, honesty and integrity, with no relevant or material criminal
record. In addition, the Mississippi Commission will not issue a license unless
it is satisfied that the licensee is adequately financed or has a reasonable
plan to finance its proposed operations from acceptable sources, and that
persons associated with the applicant have sufficient business probity,
competence and experience to engage in the proposed gaming enterprise. The
Mississippi Commission may refuse to issue a work permit to a gaming employee:
(i) if the employee has committed larceny, embezzlement or any crime of moral
turpitude, or has knowingly violated the Mississippi Act or Mississippi
Regulations; or (ii) for any other reasonable cause.
There can be no assurance that such persons will be found suitable by the
Mississippi Commission. An application for licensing, finding of suitability or
registration may be denied for any cause deemed reasonable by the issuing
agency. Changes in licensed positions must be reported to the issuing agency. In
addition to its authority to deny an application for a license, finding of
suitability or registration, the Mississippi Commission has jurisdiction to
disapprove a change in corporate position. If the Mississippi Commission were to
find a director, officer or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the licensee, such entity would be
required to suspend, dismiss and sever all relationships with such person. The
licensee would have similar obligations with regard to any person who refuses to
file appropriate applications. Each gaming employee must obtain a work permit
which may be revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship to, or material
involvement with, Harrah's may be required to submit to an investigation in
order to be found suitable or be licensed as a business associate of any
subsidiary holding a gaming license. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of
Harrah's may be deemed to have such a relationship or involvement.
The Mississippi Commission has the power to deny, limit, condition, revoke
and suspend any license, finding of suitability or registration, or to fine any
person, as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any
27
licensee or person who was found suitable up to $100,000 for each violation of
the Mississippi Act or the Mississippi Regulations which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of any final decision of the Mississippi Commission by petition to a
Mississippi Circuit Court, but the filing of such petition does not necessarily
stay any action taken by the Mississippi Commission pending a decision by the
Circuit Court.
Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings). The license fee equals four percent of gaming
receipts of $50,000 or less per month, six percent of gaming receipts over
$50,000 and up to $134,000 per month, and eight percent of gaming receipts over
$134,000. The foregoing license fees are allowed as a credit against Mississippi
State income tax liability for the year paid. An additional license fee, based
upon the number of games conducted or planned to be conducted on the gaming
premises, is payable to the State of Mississippi annually in advance. Also, up
to a four percent additional tax on gaming revenues may be imposed at the local
level of government.
The Company also is subject to certain audit and record-keeping
requirements, primarily intended to ensure compliance with the Mississippi Act,
including compliance with the provisions relating to the payment of license
fees.
Under the Mississippi Regulations, a person is prohibited from acquiring
control of Harrah's without prior approval of the Mississippi Commission.
Harrah's also is prohibited from consummating a plan of recapitalization
proposed by management in opposition to an attempted acquisition of control of
Harrah's and which involves the issuance of a significant dividend to Common
Stock holders, where such dividend is financed by borrowings from financial
institutions or the issuance of debt securities. In addition, Harrah's is
prohibited from repurchasing any of its voting securities under circumstances
(subject to certain exemptions) where the repurchase involves more than one
percent of Harrah's outstanding Common Stock at a price in excess of 110 percent
of the then-current market value of Harrah's Common Stock from a person who owns
and has for less than one year owned more than three percent of Harrah's
outstanding Common Stock, unless the repurchase has been approved by a majority
of Harrah's shareholders voting on the issue (excluding the person from whom the
repurchase is being made) or the offer is made to all other shareholders of
Harrah's.
Under the Mississippi Regulations, a gaming license may not be held by a
publicly held corporation, although an affiliated corporation, such as Harrah's,
may be publicly held so long as Harrah's registers with and gets the approval of
the Mississippi Commission. Harrah's must obtain prior approval from the
Mississippi Commission for any subsequent public offering of the securities of
Harrah's if any part of the proceeds from that offering are intended to be used
to pay for or reduce debt used to pay for the construction, acquisition or
operation of any gaming facility in Mississippi. In addition, in order to
register with the Mississippi Commission as a publicly held holding corporation,
Harrah's must provide further documentation which is satisfactory to the
Mississippi Commission, which includes all documents filed with the Securities
and Exchange Commission.
Any person who, directly or indirectly, or in association with others,
acquires beneficial ownership of more than five percent of the Common Stock of
Harrah's must notify the Mississippi Commission of this acquisition. Regardless
of the amount of securities owned, any person who has any beneficial ownership
in the Common Stock of Harrah's may be required to be found suitable if the
Mississippi Commission has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Mississippi. Any person
who is required to be found suitable must apply for a finding of suitability
from the Mississippi Commission within 30 days after being requested to do so,
and must deposit a sum of money which is adequate to pay the anticipated
investigatory costs associated with such finding. Any person who is found not to
be suitable by the Mississippi Commission shall not be permitted to have any
direct or indirect ownership in Harrah's Common Stock. Any person who is
required to apply for a finding of suitability and fails to do so, or who fails
to dispose of his or her interest in Harrah's Common Stock if found unsuitable,
is guilty of a misdemeanor. If a finding of
28
suitability with respect to any person is not applied for where required, or if
it is denied or revoked by the Mississippi Commission, Harrah's is not permitted
to pay such person for services rendered, or to employ or enter into any
contract with such person.
Harrah's is required to maintain current stock ledgers in the State of
Mississippi which may be examined by a representative of the Mississippi
Commission at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Mississippi Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Harrah's
also is required to render maximum assistance in determining the identity of the
beneficial owner.
Because Harrah's is licensed to conduct gaming in the State of Mississippi,
neither Harrah's nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission has
approved the conduct of gaming in all jurisdictions in which Harrah's has
ongoing operations or approved projects. There can be no assurance that any
future approvals will be obtained. The failure to obtain such approvals could
have a materially adverse effect on Harrah's.
The Company is in present material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Mississippi.
GAMING-LOUISIANA (RIVERBOAT)
The ownership and operation of a gaming riverboat in Louisiana is subject to
extensive regulation under Louisiana gaming laws and regulations. A seven-member
Riverboat Gaming Commission ("Commission") and the Riverboat Gaming Enforcement
Division ("Division"), a part of the Louisiana State Police, are charged with
such regulatory authority, including the issuance of riverboat gaming licenses.
The number of licenses to conduct gaming on a riverboat is limited by statute to
15. No more than six licenses may be granted for the operation of gaming
activities on riverboats in any one parish (county). In general, riverboat
gaming in Louisiana can be conducted legally only on approved riverboats that
cruise with certain exceptions including exceptions for certain portions of the
Red River where riverboats can be continuously docked. Harrah's Shreveport
Investment Company, Inc. an indirect subsidiary of Harrah's, is the general
partner of, and owns 99% of, Red River Entertainment of Shreveport Partnership
in Commendam, a Louisiana partnership which was granted a gaming license in
April, 1994, to operate a continuously docked gaming riverboat. Harrah's
Shreveport Management Company, Inc., another subsidiary, owns the remaining one
percent of the Partnership and manages the riverboat pursuant to an agreement
with the Partnership.
To obtain a gaming license, applicants must obtain certain Certificates of
Approval from the Commission and submit comprehensive application forms, be
fingerprinted and undergo an extensive background investigation by the Division.
An applicant is ineligible to receive a gaming license if the applicant has not
established good character, honesty and integrity. Each license granted entitles
a licensee to operate a riverboat and equipment thereon from a specific
location. The duration of the license initially runs for five years; renewals
are for one year terms. In determining whether to grant a license, the Division
considers: (i) the good character, honesty and integrity of the applicant; (ii)
the applicant's ability to conduct gaming operations; (iii) the adequacy and
source of the applicant's financing; (iv) the adequacy of the design documents
submitted; (v) the docking facilities to be used; (vi) applicant's plan to
recruit, train, and upgrade minorities in employment and to provide for
minority-owned business participation.
A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Louisiana, or that violates the gaming laws and regulations.
29
The transfer of a license or an interest in a license is prohibited. In
addition, an ownership interest of five percent or more in a business entity
which holds a gaming license may not be sold, assigned, transferred or pledged
without the Division's approval.
No person may be employed as a gaming employee unless such person holds a
gaming employee permit issued by the Division. In addition, the Division issues
suppliers licenses which authorize the supplier licensee to sell or lease gaming
equipment and supplies to any licensee.
Minimum and maximum wagers on games are set by the licensee and wagering may
be conducted only with a cashless wagering system, whereby all money is
converted to tokens, electronic cards, or chips used only for wagering in the
gaming establishment. No person under the age of 21 is permitted to wager, and
wagers may only be taken from a person present on a licensed riverboat.
The legislation imposes a franchise fee for the right to operate on
Louisiana waterways of 15% of net gaming proceeds and a license fee of $50,000
(first year) and $100,000 (subsequent years) plus three and one-half percent of
net gaming proceeds. All fees are paid to the Division. In addition, the
legislation authorizes local governing authorities the power to levy an
admission fee for each person boarding the riverboat. Currently that amount is
paid by the license holder. The Company's operation is currently paying an
admission fee of $3.00 per person.
The Company is in present material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Louisiana with respect
to riverboat casinos.
The Governor of the State of Louisiana has stated his intent to call a
special legislative session beginning March 17, 1996 to consider legislation
relating to all forms of gaming in Louisiana (including riverboat gaming). The
Governor and various legislative leaders have expressed their support for
legislation which would provide for a public referendum on such gaming
(including riverboat gaming). The nature and scope of any referendum and any
effect it could have on the riverboat's operations is uncertain at this time.
There could be other legislation relating to riverboat gaming introduced at
this session or the Legislature's next regular session beginning April 29, 1996.
There can be no assurance that legislation will not be enacted or a public
referendum not called and held which in either case could have a material
adverse effect on the riverboat operations.
GAMING-MISSOURI
The ownership and operation of a gaming riverboat in Missouri is subject to
extensive regulation under Missouri gaming laws and regulations. A five-member
Missouri Gaming Commission ("Commission") is charged with such regulatory
authority, including the issuance of riverboat gaming licenses. Harrah's North
Kansas City Corporation, an indirect subsidiary of Harrah's, has been issued a
license to conduct riverboat gaming by the Commission and has an application
pending for a second excursion gambling boat. Gaming in Missouri can be
conducted legally only on either excursion gambling boats or floating facilities
approved by the Commission on the Mississippi and Missouri Rivers. Unless
permitted to be continuously docked by the Commission for certain stated
reasons, including safety, excursion gambling boats must cruise. The Commission
has approved dockside gaming for the Company's riverboat in North Kansas City.
An application for dockside gaming for the second excursion gambling boat is
also pending.
To obtain a gaming license, applicants must submit comprehensive application
forms, be fingerprinted and undergo an extensive background investigation by the
Commission. An applicant is ineligible to receive an owner's license if the
applicant has not established good reputation and moral character or if the
applicant, any of its officers, directors or managerial employees or any person
who participates in the management or operation of gaming operations has been
convicted of a felony. There are separate licenses for owners and operators of
riverboat gambling operations, which can be applied for and held concurrently.
Each license granted entitles a licensee to own and/or operate an excursion
gambling boat and equipment thereon from a specific location. The duration of
the license initially runs
30
for two one-year terms followed by two-year terms. The Commission also licenses
the serving of alcoholic beverages on riverboats and adjacent facilities. All
local income, earnings, use, property and sales taxes are applicable to
licensees.
In determining whether to grant a license, the Commission considers: (i) the
integrity of the applicants; (ii) the types and variety of games to be offered;
(iii) the quality of the physical facility, together with improvements and
equipment, and how soon the project will be completed; (iv) the financial
ability of the applicant to develop and operate the facility successfully; (v)
the status of governmental actions required for the facility; (vi) management
ability of the applicant; (vii) compliance with applicable laws, rules,
charters, and ordinances; (viii) the economic, ecological and social impact of
the facility as well as the cost of public improvements; (ix) the extent of
public support or opposition; (x) the plan adopted by the home dock city or
county; and (xi) effects on competition.
A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Missouri, or that would discredit or tend to discredit the Missouri gaming
industry or the state of Missouri, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rules, order or ruling of the Commission or its
agents pertaining to gaming; (iii) receiving goods or services from a person or
business entity who does not hold a supplier's license but who is required to
hold such license by the legislation or the rules; (iv) being suspended or ruled
ineligible or having a license revoked or suspended in any state or gaming
jurisdiction; (v) associating with, either socially or in business affairs, or
employing persons of notorious or unsavory reputation or who have extensive
police records, or who have failed to cooperate with any official constituted
investigatory or administrative body and would adversely affect public
confidence and trust in gaming; (vi) employing in any Missouri gaming operation
any person known to have been found guilty of cheating or using any improper
device in connection with any game; (vii) use of fraud, deception,
misrepresentation or bribery in securing any license or permit issued pursuant
to the legislation; (viii) obtaining any fee, charge, or other compensation by
fraud, deception or misrepresentation; and (ix) incompetence, misconduct, gross
negligence, fraud, misrepresentation or dishonesty in the performance of the
functions or duties regulated by the legislation.
An ownership interest in a license or in a business entity, other than a
publicly held business entity which holds an owner's license, may not be
transferred without the approval of the Commission. In addition, an ownership
interest in a license or in a business entity, other than a publicly held
business entity, which holds either directly or indirectly an owner's license,
may not be pledged as collateral to other than a regulated bank or saving and
loan association without the Commission's approval.
Every employee participating in a riverboat gaming operation must hold an
occupational license which permits the holder to perform only activities
included within such holder's level of occupation license or any lower level of
occupation license. In addition, the Commission will issue suppliers licenses
which authorize the supplier licensee to sell or lease gaming equipment and
supplies to any licensee involved in the ownership and management of gaming
operations.
Even if continuously docked, licensed riverboats must establish and abide by
a cruise schedule. Riverboat cruises are required to be a minimum of two hours
and a maximum of four hours. For the Company's riverboat in North Kansas City,
Missouri, which is continuously docked, passengers may board the riverboat for a
45-minute period at the beginning of a cruise. They may disembark at any time.
There is a maximum loss per person per cruise of $500. Minimum and maximum
wagers on games are set by the licensee and wagering may be conducted only with
a cashless wagering system, whereby money is converted to tokens, electronic
cards or chips which can only be used for wagering. No person under the age of
21 is permitted to wager, and wagers may only be taken from a person present on
a licensed excursion gambling boat.
31
The legislation imposes a 20% wagering tax on adjusted gross receipts
(generally defined as gross receipts less payments to customers as winnings)
from gambling games. The tax imposed is to be paid by the licensed owner to the
Commissioner on the day after the day when the wagers were made. Of the proceeds
of that tax, 10% goes to the local government where the home dock is located,
and the remainder goes to the state education assistance fund.
The legislation also requires that licensees pay a $2.00 admission tax for
each person admitted to a gaming cruise. The licensed owner is required to
maintain public books and records clearly showing amounts received from
admission fees, the total amount of gross receipts and the total amount of
adjusted gross receipts.
The Company is presently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Missouri.
INDIAN GAMING
The terms and conditions of management contracts and the operation of
casinos and all gaming on Indian land in the United States are subject to the
Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by the
National Indian Gaming Commission ("NIGC"). IGRA is subject to interpretation by
the Secretary and NIGC and may be subject to judicial and legislative
clarification or amendment.
IGRA requires NIGC approval of management contracts for Class II and Class
III gaming as well as the review of all agreements collateral to the management
contracts. All contracts relating to Harrah's Phoenix Ak-Chin and Harrah's
Skagit Valley casinos were approved by the NIGC. The NIGC will not approve a
management contract if a director or a 10% shareholder of the management
company: (i) is an elected member of the Indian tribal government which owns the
facility purchasing or leasing the games; (ii) has been or is convicted of a
felony gaming offense; (iii) has knowingly and willfully provided materially
false information to the NIGC or the tribe; (iv) has refused to respond to
questions from the NIGC; or (v) is a person whose prior history, reputation and
associations pose a threat to the public interest or to effective gaming
regulation and control, or create or enhance the chance of unsuitable activities
in gaming or the business and financial arrangements incidental thereto. In
addition, the NIGC will not approve a management contract if the management
company or any of its agents have attempted to unduly influence any decision or
process of tribal government relating to gaming, or if the management company
has materially breached the terms of the management contract or the tribe's
gaming ordinance, or a trustee, exercising due diligence, would not approve such
management contract. A management contract can be approved only after NIGC
determines that the contract provides, among other things, for: (i) adequate
accounting procedures and verifiable financial reports, which must be furnished
to the tribe; (ii) tribal access to the daily operations of the gaming
enterprise, including the right to verify daily gross revenues and income; (iii)
minimum guaranteed payments to the tribe, which must have priority over the
retirement of development and construction costs; (iv) a ceiling on the
repayment of such development and construction costs and (v) a contract term not
exceeding five years and a management fee not exceeding 30% of net revenues (as
determined by the NIGC); provided that the NIGC may approve up to a seven year
term and a management fee not to exceed 40% of net revenues if NIGC is satisfied
that the capital investment required, and the income projections for the
particular gaming activity justify the larger fee and longer term.
There is no periodic or ongoing review of approved contracts by the NIGC.
The only post-approval action which could result in possible modification or
cancellation of a contract would be as the result of an enforcement action taken
by the NIGC based on a violation of the law or an issue affecting suitability.
IGRA established three separate classes of tribal gaming--Class I, Class II
and Class III. Class I includes all traditional or social games solely for
prizes of minimal value played by a tribe in connection
32
with celebrations or ceremonies. Class II gaming includes games such as bingo,
pulltabs, punchboards, instant bingo and non-banked card games (those that are
not played against the house), such as poker. Class III gaming is casino-style
gaming and includes banked table games such as blackjack, craps and roulette,
and gaming machines such as slots, video poker, lotteries and parimutuel
wagering. Harrah's Phoenix Ak-Chin provides Class II gaming and as limited by
the Tribal-State compact, Class III gaming.
IGRA prohibits all forms of Class III gaming unless the tribe has entered
into a written agreement with the state that specifically authorizes the types
of Class III gaming the tribe may offer (a "tribal-state compact"). IGRA
requires states to negotiate in good faith with tribes that seek tribal-state
compacts and grants Indian tribes the right to seek a federal court order to
compel such negotiations. Some states have refused to enter into such
negotiations. Tribes in several states have sought federal court orders to
compel such negotiations. The issue of whether this provision of IGRA is
unconstitutional as a violation of the Eleventh Amendment to the United States
Constitution which immunizes states from suit without the state's consent is
presently pending before the U. S. Supreme Court in the case of Seminole v.
State of Florida and Lawton Chiles. If Indian tribes are unable to compel states
to negotiate tribal-state compacts, the Company will not be able to develop and
manage casinos offering Class III games in states that refuse to enter into
tribal-state compacts.
If the decision of the U. S. Supreme Court in the Seminole case has the
effect of voiding IGRA in its entirety, this would end the exemption provided by
IGRA to the Johnson Act (15 USC 1171) concerning prohibition of gambling devices
on Indian land. Such outcome could have a material adverse effect on the
operations of the Harrah's Phoenix Ak-Chin casino.
These compacts provide among other things the manner and extent to which
each state will conduct background investigations and certify the suitability of
the manager, its officers, directors, and key employees to conduct gaming on
tribal lands. The Company received temporary certification pending completion of
its background check from the Arizona gaming authorities prior to opening the
Phoenix Ak-Chin casino and certification from the Washington gaming authorities
prior to the opening of the Upper Skagit casino.
Title 25, Section 81 of the United States Code states that "no agreement
shall be made by any person with any tribe of Indians, or individual Indians not
citizens of the United States, for the payment or delivery of any money or other
thing of value . . . in consideration of services for said Indians relative to
their lands . . . unless such contract or agreement be executed and approved" by
the Secretary of the Interior (the "Secretary") or his or her designee. An
agreement or contract for services relative to Indian lands which fails to
conform with the requirements of Section 81 is void and unenforceable. All money
or other thing of value paid to any person by any Indian or tribe for or on his
or their behalf, on account of such services, in excess of any amount approved
by the Secretary or his or her authorized representative will be subject to
forfeiture. The Company believes that it has complied with the requirements of
section 81 with respect to its management contracts for Harrah's Phoenix Ak-Chin
and Harrah's Skagit Valley and intends to comply with Section 81 with respect to
any other contract to manage casinos located on Indian land in the United
States.
Indian tribes are sovereign with their own governmental systems, which have
primary regulatory authority over gaming on land within the tribes'
jurisdiction. Therefore, persons engaged in gaming activities, including the
Company, are subject to the provisions of tribal ordinances and regulations on
gaming. These ordinances are subject to review by NIGC under certain standards
established by IGRA. NIGC may determine that some or all of the ordinances
require amendment, and that additional requirements, including additional
licensing requirements, may be imposed on the Company. The Company has received
no such notification regarding the Ak-Chin and Upper Skagit casinos. The
possession of valid licenses from the Ak-Chin Indian Community and the Upper
Skagit Indian Tribe are ongoing conditions of the Ak-Chin and Upper Skagit
Agreements.
33
The Company is in present material compliance with the IGRA and all
applicable rules and regulations promulgated by the NIGC.
GAMING-NEW ZEALAND
The ownership and operation of casino gaming facilities in New Zealand are
subject to the Casino Control Act of 1990 ("Casino Act") and the regulations
promulgated thereunder. The gaming operations of Harrah's Sky City are subject
to the licensing and regulatory control of the Casino Control Authority
("Authority").
Pursuant to the Casino Act: (1) the predecessor of Harrah's Sky City applied
for and was granted a Casino Premises License by the Authority; (2) Harrah's New
Zealand, Inc., a subsidiary of the Company, applied for and was granted a Casino
Operator's License by the Authority; and (3) Harrah's Sky City entered into a
Casino Agreement ("Management Agreement") with Harrah's New Zealand, which was
approved by the Authority. Prior to granting the Licenses and approving the
Management Agreement, the Authority conducted the relevant inquiries required by
the Casino Act, including a thorough investigation into the honesty, financial
stability, business skills and management structure of Harrah's Sky City,
Harrah's New Zealand and their respective associated persons and entities, and
found both companies suitable for licensure.
The Casino Premises License has a term of 25 years from the commencement of
casino operations and is renewable. The Casino Operator's License has no stated
term, but it can be used only in a facility with a Casino Premises License and
pursuant to an approved Management Agreement. No additional casino premises
licenses can be granted by the Authority for sites on the North Island of New
Zealand (where Auckland is located) for a period of two years after the opening
of Harrah's Sky City Casino. In addition, no further casino premises licenses
can be granted within a radius of 100 kilometers of the site of Harrah's Sky
City Casino for a period of five years from the commencement of casino
operations. Neither the Casino Premises License, the Casino Operator's License
nor the Management Agreement may be amended, mortgaged, assigned or transferred
without the prior approval of the Authority.
The Casino Act requires that all persons and/or entities which: (1) own a
share of, and are entitled to receive income from, the casino business; (2)
occupy the position of director, manager or other executive position and
secretary of the casino business; or (3) exercise directorial, managerial or
executive power over the casino business (all "Associated Persons"), must be
found suitable by the Authority. No person can become an Associated Person
without prior approval of the Authority. In addition all employees who are to be
employed in a casino in any capacity related to the conduct of gaming, the
movement of money or chips, cashiering, the operation, maintenance, construction
or repair of gaming equipment and the supervision or management of any such
activities must obtain a Certificate of Approval from the Authority prior to
employment.
Under the Casino Act, the day-to-day regulatory oversight at a casino is
performed by persons designated as inspectors, who may be members of the police,
and who report to the Authority. The inspectors have broad authority to
supervise gaming activities, inspect gaming equipment, supervise casino counts
and investigate customer complaints regarding the conduct of gaming. In the
exercise of their authority, inspectors have the power to enter and remain in
any part of a casino and require the production of documents, information and
gaming equipment or chips to ensure compliance with the Casino Act.
The Casino Act gives the Authority the power to cancel, suspend or vary or
add conditions to a Casino Premises License, a Casino Operator's License or a
Certificate of Approval after appropriate notice and hearing, which actions are
appealable to New Zealand's judicial system. The Authority also can levy fines
for various gaming-related offenses, allowing minors (under 20 years of age) in
the casino, obstructing inspectors and other specified offenses. The costs of
the Authority and the costs of administering and enforcing the Casino Act are
borne by the holders of casino premises licenses.
34
The Company is in present material compliance with the Casino Act and all
regulations promulgated thereunder.
OTHER REGULATIONS
The Company's businesses are subject to various federal, state and local
laws and regulations in addition to gaming laws. These laws and regulations
include but are not limited to restrictions and conditions concerning alcoholic
beverages, environmental matters, employees, currency transactions, taxation,
zoning and building codes, and marketing and advertising. Such laws and
regulations could change or could be interpreted differently in the future, or
new laws and regulations could be enacted. Material changes, new laws or
regulations, or material differences in interpretations by courts or
governmental authorities could adversely affect the Company.
FUEL SHORTAGES AND COSTS; WEATHER
Although gasoline supplies are now in relative abundance, gasoline shortages
and price increases may have adverse effects on the casino business of Harrah's.
Access to several Harrah's casino entertainment facilities, including the Lake
Tahoe and Reno areas of northern Nevada, Atlantic City, New Jersey and the
Colorado properties may be restricted from time to time during the winter months
by adverse weather conditions which can cause road closures. Such closures have
at times adversely affected operating results at Harrah's Lake Tahoe, Harrah's
Reno, Bill's Lake Tahoe Casino and Harrah's Atlantic City.
EMPLOYEE RELATIONS
Harrah's, through its subsidiaries, has approximately 22,000 employees.
Labor relations with employees are good.
Harrah's subsidiaries have collective bargaining agreements covering
approximately 3,000 employees. These agreements relate to certain casino, hotel
and restaurant employees at Harrah's Atlantic City and Harrah's Las Vegas.
Approximately 2,500 of these 3,000 employees are covered by collective
bargaining agreements expiring in 1997.
ITEM 3. LEGAL PROCEEDINGS.
On September 26, 1995, Harrah's New Orleans Investment Company ("HNOIC"), an
indirect subsidiary of the Company, filed in the United States District Court
for the Eastern District of Louisiana a suit styled Harrah's New Orleans
Investment Company v. New Orleans Louisiana Development Corporation, Civil No.
95-3166. At issue in the suit is the percentage of ownership that New
Orleans/Louisiana Development Corporation ("NOLDC") holds in Harrah's Jazz
Company ("HJC"), a Louisiana partnership whose general partners are HNOIC, NOLDC
and Grand Palais Casino, Inc. This declaratory judgment action seeks to confirm
that, as of September 26, 1995, NOLDC's percentage interest in the Harrah's Jazz
Company partnership was only 13.73% and, therefore, NOLDC is not a "Material
Partner" in HJC. This case was put on "administrative hold" after the filing by
NOLDC of a Chapter 11 bankruptcy petition on November 21, 1995. Should it be put
back on the active list, HNOIC or the appropriate post-bankruptcy entity would
vigorously prosecute it. At the time the case was put on "administrative hold,"
no discovery on the merits had been taken and no answer had been filed by NOLDC.
On September 28, 1995, NOLDC filed suit against the Company and various of
its corporate affiliates in New Orleans Louisiana Development Corporation v.
Harrah's Entertainment, formerly
35
d/b/a The Promus Companies, Harrah's New Orleans Investment Company, Harrah's
New Orleans Management Company, Harrah's Jazz Company, and Promus Hotels,
formerly d/b/a Embassy Suites, Inc., Civil No. 95-14653, filed in the Civil
District Court for the Parish of Orleans. The case was subsequently removed by
defendants to the United States District Court for the Eastern District of
Louisiana. In this suit, NOLDC seeks to realign ownership interests in HJC among
HNOIC and NOLDC. NOLDC also seeks an unspecified dollar amount of damages
sufficient to compensate it for the losses it alleges it has suffered as a
result of actions of defendants. NOLDC has indicated that it intends to seek to
remand the suit to the Civil District Court. The case was also put on
"administrative hold" by the District Court Judge as a result of NOLDC's
bankruptcy filing. The Company and other defendants intend to vigorously defend
the action should it be put back on the active case list. At the time it was put
on "administrative hold," no answer had been filed by any defendant and no
discovery had been taken.
Beginning on November 28, 1995, eight separate class action suits were filed
against the Company and various of its corporate affiliates, officers and
directors in the United States District Court for the Eastern District of
Louisiana. They are Ben F. D'Angelo, Trustee for Ben F. D'Angelo Revocable Trust
v. Harrah's Entertainment Corp., Michael D. Rose, Philip G. Satre and Ron
Lenczycki; Max Fenster v. Harrah's Entertainment, Inc., Harrah's New Orleans
Investment Company, Grand Palais Casino, Inc., Philip G. Satre, Colin V. Reed,
Michael N. Regan, Christopher B. Hemmeter, Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Brothers, Inc., and BT Securities Corp.; Goldie
Rosenbloom v. Harrah's Entertainment Corp., Michael D. Rose, Philip G. Satre and
Ron Lenczycki; Barry Ross v. Harrah's New Orleans Investment Company, Philip G.
Satre, Colin V. Reed, Lawrence L. Fowler, Michael N. Regan, Cezar M. Froelich,
Ulric Haynes. Jr., Wendell Gauthier, T. George Solomon, Jr., Duplain W. Rhodes,
III, Harrah's Entertainment, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc., and BT Securities Corp.; Louis Silverman v.
Harrah's Entertainment, Inc., Harrah's New Orleans Investment Company, Grand
Palais Casino, Inc., Philip G. Satre, Colin V. Reed, Michael N. Regan,
Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation; Florence Kessler v. Philip G. Satre, Colin V. Reed, Charles A.
Ledsinger, Jr., Michael N. Regan, Lawrence L. Fowler, Christopher B. Hemmeter,
Cezar M. Froelich, Ulric Haynes, Jr., Wendell H. Gauthier, T. George Solomon,
Jr., Duplain W. Rhodes, III, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc., and BT Securities Corporation; Warren
Zeiller and Judith M.R. Zeiller v. Harrah's Entertainment Corp., Michael D.
Rose, Philip G. Satre, and Ron Lenczycki; and Charles Zwerving and Helene
Zwerving v. Harrah's Entertainment Corp., Philip G. Satre, Colin V Reed,
Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation. Per Court Order of January 26, 1996, plaintiffs have been directed
to file a consolidated complaint in the action numbered 95-3925. Each of the
suits alleges that various misstatements and omissions were made in connection
with the sale of Harrah's Jazz Company 14.25% First Mortgage Notes and
thereafter. Each of the eight class actions sought unspecified damages, as well
as costs of legal proceedings. No class has been certified, no answer has been
filed by any defendant and no discovery on the merits has been taken. The
Company and the other defendants intend to vigorously defend the suits.
On December 6, 1995 Centex Landis, the general contractor for the permanent
casino being developed by HJC, filed suit against the Company, among others, in
the Civil District Court for The Parish of Orleans in Centex Landis Construction
Co.. Inc. v. Harrah's Entertainment, Inc. formally d/b/a The Promus Companies,
Inc.; and Ronald A. Lenczycki, Civil No. 95-18101. Defendants removed the case
to the United States District Court for the Eastern District of Louisiana and it
was subsequently transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for withdrawal of the Bankruptcy Court reference and for
remand had been filed by Centex Landis. This suit seeks to collect more than $40
million allegedly owed to Centex Landis by HJC from the Company under guarantee,
fraud, fraudulent advertising and unfair trade practice theories. The Company
and
36
the other defendant intend to vigorously defend the action and have filed an
answer denying all of plaintiff's allegations. No discovery has been taken in
the action.
Russell M. Swody, et al. v. Harrah's New Orleans Management Company and
Harrah's Entertainment. Inc., Civil No. 95-4118, was filed against the Company
on December 13, 1995 in the United States District Court for the Eastern
District of Louisiana, and subsequently amended. Swody is a class action lawsuit
under the Worker Adjustment and Retraining Notification Act ("WARN Act") and
seeks damages for alleged failure to timely notify workers terminated by
Harrah's New Orleans Management Company at the time of the HJC bankruptcy.
Plaintiffs seek unspecified damages, as well as costs of legal proceedings, for
themselves and all members of the class. An answer has been filed denying all of
plaintiffs' allegations. No class has been certified and the Company and the
other defendant intend to vigorously defend the action.
Swody was recently consolidated with Susan N. Poirer, Darlene A. Moss, et
al. v. Harrah's Entertainment, Inc., Harrah's New Orleans Management Company,
and Harrah's Operating Company, Civil No. 96-0215, which was filed in the United
States District Court for the Eastern District of Louisiana on January 17, 1996,
and subsequently amended. Similar complaints were filed by Ms. Poirer in the
Bankruptcy Court for the Eastern District of Louisiana in the HJC, HNOIC and
Harrah's Jazz Finance Corp. bankruptcy cases. Adversary Nos. 96-1015, 96-1014,
and 96-1013. No answer has yet been filed in the federal District Court case, or
the bankruptcy adversary actions. The Poirer action purports to be class
actions, state claims under the WARN Act and ERISA, and seek damages for alleged
failure to timely notify workers terminated by Harrah's New Orleans Management
Company at the time of the Harrah's Jazz Company bankruptcy and for ERISA
severance pay benefits allegedly due. No class has been certified and the
Company intends to vigorously defend the actions.
On December 29, 1995 in the Civil District Court for The Parish of Orleans,
the City of New Orleans filed suit against the Company and others in City of New
Orleans and Rivergate Development Corporation v Harrah's Entertainment, Inc.
(f/k/a The Promus Companies, Inc.), Grand Palais Casino, Inc., Embassy Suites,
Inc., First National Bank of Commerce and Ronald A. Lenczycki, Civil No.
95-19285. This suit seeks to require the Company, among others, to complete
construction of the permanent casino being developed by HJC under theories of
breach of completion guarantee contract, breach of implied duty of good faith,
detrimental reliance, misrepresentation, and false advertising. Plaintiff seeks
unspecified damages, as well as costs of legal proceedings. Defendants have
removed the suit to the United States District Court for the Eastern District of
Louisiana and it was then transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for withdrawal of the Bankruptcy Court reference and for
remand has been filed by the City. The Company and the other defendants have
filed an answer denying all of plaintiffs' allegations and intend to vigorously
defend the action. Pursuant to a preliminary agreement dated March 4, 1996
between the City and HJC, all discovery and pending litigation between the City
and HJC or any of its partners (which would include this action) will be stayed
until June 30, 1996, and the City will not commence further litigation against
any such entities until that time.
Louisiana Economic Development and Gaming Corporation v. Harrah's
Entertainment, Inc. and Harrah's Operating Company, Inc., Civil No. 424328, was
filed on January 23, 1996 in the Nineteenth Judicial Court of the State of
Louisiana, Parish of East Baton Rouge. On February 21, 1996, the Company and the
other defendants removed the case to the Federal District Court for the Middle
District of Louisiana and asked that it be transferred to the Bankruptcy Court
handling the HJC bankruptcy. In this suit LEDGC seeks to require the Company and
Harrah's Operating Company to complete construction of the permanent casino
being developed by HJC under theories of breach of completion guarantee
contract, breach of implied duty of good faith, detrimental reliance,
misrepresentation and, in the alternative, seeks damages. No discovery has been
taken in the action and no answer has been filed. The defendants intend to
vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
37
EXECUTIVE OFFICERS OF THE REGISTRANT
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ----------------------------- ------------------------------------------------------------
Michael D. Rose (54)......... Chairman of the Board of Harrah's since November 1989. Chief
Executive Officer (1989-1994) and President (1989-1991) of
Harrah's. Mr. Rose also is a director of Ashland, Inc.,
First Tennessee National Corporation, General Mills, Inc.
and Darden Restaurants, Inc. and Chairman of the Board and
a director of Promus Hotel Corporation.
Philip G. Satre (46)......... Director since 1989, President since April 1991 and Chief
Executive Officer since April 1994 of Harrah's. Chief
Operating Officer (1991-1994) and Senior Vice President
(1989-1991) of Harrah's. President (1984-1995) and Chief
Executive Officer (1984-1991) of Harrah's Gaming Group. He
is a member of the Executive Committee of Harrah's Jazz
Company and a director and President of Harrah's Jazz
Finance Corp., both of which filed petitions under Chapter
11 of the United States Bankruptcy Code in November 1995.
He is also a director and President of Harrah's New
Orleans Investment Company which filed a petition under
Chapter 11 of the United States Bankruptcy Code in
December 1995.
Colin V. Reed (48)........... Executive Vice President of Harrah's since September 1995.
Senior Vice President, Corporate Development of Harrah's
from May 1992 to September 1995. Vice President, Corporate
Development of Harrah's from November 1989 to May 1992. He
also is a director of Sodak Gaming, Inc. He is also a
member of the Executive Committee of Harrah's Jazz Company
and a director and a Senior Vice President of Harrah's
Jazz Finance Corp., both of which filed petitions under
Chapter 11 of the United States Bankruptcy Code in
November 1995. He is also a director and Senior Vice
President of Harrah's New Orleans Investment Company which
filed a petition under Chapter 11 of the United States
Bankruptcy Code in December 1995.
John M. Boushy (41).......... Senior Vice President, Information Technology and Corporate
Marketing Services of Harrah's since June 1993. Vice
President, Strategic Marketing of Harrah's from April 1989
to June 1993.
Charles A. Ledsinger, Jr.
(46)....................... Senior Vice President and Chief Financial Officer of
Harrah's since August 1990. Treasurer of Harrah's from
November 1989 to February 1991. He also is a director of
Perkins Management Company, Inc., a privately-held general
partner of Perkins Family Restaurants, L.P., a
publicly-traded limited partnership. He is a Senior Vice
President of Harrah's Jazz Finance Corp. which filed a
petition under Chapter 11 of the United States Bankruptcy
Code in November 1995.
Bradford W. Morgan (50)...... Senior Vice President, Marketing of Harrah's since May 1995.
Executive Vice President, Marketing of the Company's
Gaming Group from June 1994 to May 1995. Executive Vice
President, Marketing & Sales of Visa U.S.A. from July 1988
to June 1994.
Ben C. Peternell (50)........ Senior Vice President, Corporate Human Resources and
Communications of Harrah's since November 1989. Mr.
Peternell is also a director of Promus Hotel Corporation.
E. O. Robinson, Jr. (56)..... Senior Vice President and General Counsel of Harrah's since
April 1993 and Secretary of Harrah's from November 1989 to
October 1995. Vice President and Associate General Counsel
of Harrah's from November 1989 to April 1993.
38
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange and
traded under the ticker symbol "HET" (formerly "PRI"). The stock is also listed
on the Chicago Stock Exchange, the Pacific Stock Exchange and the Philadelphia
Stock Exchange.
The following table sets forth the high and low price per share of the
Company's Common Stock for the last two years:
HIGH LOW
-------------- --------------
1994
First Quarter*............................................. 55 1/4 36 1/2
Second Quarter*............................................ 41 27 1/8
Third Quarter*............................................. 38 27 3/4
Fourth Quarter*............................................ 34 1/8 25 7/8
1995
First Quarter*............................................. 37 7/8 30
Second Quarter*............................................ 45 7/8 37
Third Quarter.............................................. 33 1/8 25
Fourth Quarter............................................. 29 3/8 22 1/8
- ------------
* Prior to July 3, 1995, prices include the value of shares of Promus Hotel
Corporation ("PRH") which was spun off to stockholders on June 30, 1995, in
the form of a special dividend, on a basis of one share of PRH stock for each
two shares of Harrah's. The average of the high and low share prices of PRH on
July 3, 1995, its first day of trading, was $22.625 or $11.31 per Harrah's
share.
The approximate number of holders of record of the Company's Common Stock as
of January 31, 1996, is as follows:
APPROXIMATE NUMBER
OF HOLDERS OF
TITLE OF CLASS RECORD
- --------------------------------------------------------- ------------------
Common Stock, Par Value $0.10 per share.................. 15,258
The Company does not presently intend to declare cash dividends. The terms
of the Company's Bank Facility substantially limit the Company's ability to pay
cash dividends on Common Stock and limitations are also contained in agreements
covering other debt of the Company. See "Management's Discussion and
Analysis--Intercompany Dividend Restriction" on page 33 of the Annual Report
and Note 16 to the consolidated financial statements on page 47 of the
Annual Report, which pages are incorporated herein by reference. When permitted
under the terms of the Bank Facility and the other debt, the declaration and
payment of dividends is at the discretion of the Board of Directors of the
Company. The Board of Directors of the Company intends to reevaluate its
dividend policy in the future in light of the Company's results of operations,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1991 through 1995 set forth under
"Financial and Statistical Highlights" on pages 2 and 3 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information set forth on pages 25 through 33 of the Annual
Report, which pages are incorporated herein by reference.
39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth on pages 34 through 49 of the Annual
Report, which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
See the information regarding the names, ages, positions and prior business
experience of the directors of the Company set forth in the section entitled
"Board of Directors" of the Proxy Statement, which information is incorporated
herein by reference.
EXECUTIVE OFFICERS
See "Executive Officers of the Registrant" on page in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the sections of the Proxy Statement
entitled "Compensation of Directors," "Summary Compensation Table," "Option
Grants in the Last Fiscal Year," "Aggregated Option Exercises in 1995 and
December 31, 1995 Option Values," "Ten-year Option/SAR Repricings"
and "Certain Employment Arrangements" which sections are incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information set forth in the sections of the Proxy Statement
entitled "Ownership of Harrah's Entertainment Securities" and "Certain
Stockholders," which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information set forth in the section of the Proxy Statement entitled
"Certain Transactions," which section is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements (including related notes to consolidated
financial statements)* filed as part of this report are listed below:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the Years Ended December 31, 1995,
1994 and 1993.
- -----------
* Incorporated by reference from pages 34 through 48 of the Annual Report.
40
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993.
2. Schedules for the years ended December 31, 1995, 1994 and 1993, are as
follows:
NO.
- ----
I-Condensed financial information of registrant
II-Consolidated valuation and qualifying accounts
Schedules III, IV, and V are not applicable and have therefore been omitted.
3. Exhibits (footnotes appear on pages 47 and 48):
NO.
- ----------
**3(1) -Certificate of Incorporation of The Promus Companies Incorporated; Certificate
of Amendment of Certificate of Incorporation of The Promus Companies
Incorporated dated April 29, 1994; Certificate of Amendment of Certificate of
Incorporation of The Promus Companies Incorporated dated May 26, 1995; and
Certificate of Amendment of Certificate of Incorporation of The Promus Companies
Incorporated dated June 30, 1995, changing its name to Harrah's Entertainment,
Inc.
3(2) -Bylaws of the Company, as amended April 5, 1995. (5)
4(1) -Rights Agreement dated as of February 7, 1990, between The Promus Companies
Incorporated and The Bank of New York as Rights Agent. (12)
4(2) -Letter to Bank of New York dated March 18, 1993 constituting Certificate under
Section 12 of the Rights Agreement dated as of February 7, 1990. (11)
4(3) -First Supplemental Indenture dated as of July 15, 1987, among Irving Trust
Company, as resigning trustee with respect to the 1999 Notes, Indiana National
Bank as successor trustee with respect to the 1999 Notes and Holiday Inns, Inc.
; Second Supplemental Indenture dated as of January 8, 1988, under Indenture
dated as of January 15, 1984, between Holiday Inns, Inc., and Irving Trust
Company, as trustee with respect to 8 3/8% Notes due 1996; Third Supplemental
Indenture dated as of January 8, 1988, under Indenture dated as of January 15,
1984, among Holiday Inns, Inc., Irving Trust Company, as resigning trustee with
respect to the 8 3/8% Notes due 1996, and LaSalle National Bank as successor
trustee with respect to the 8 3/8% Notes due 1996; Fourth Supplemental Indenture
dated as of February 23, 1988, under Indenture dated as of January 15, 1984,
between Holiday Inns, Inc. and LaSalle National Bank, as trustee with respect to
the 8 3/8% Notes due 1996. (3)
4(4) -Fifth Supplemental Indenture dated as of January 23, 1990, with respect to the 8
3/8% Notes due 1996, among LaSalle National Bank, as trustee, The Promus
Companies Incorporated and Holiday Inns, Inc., as issuer; Sixth Supplemental
Indenture dated as of February 7, 1990, with respect to the 8 3/8% Notes due
1996, among Holiday Inns, Inc., Embassy Suites, Inc., The Promus Companies
Incorporated and LaSalle National Bank; Form of Note for 8 3/8% Notes due 1996.
(12)
4(5) -Indenture dated as of April 1, 1992, with respect to the 10 7/8% Senior
Subordinated Notes due 2002, among The Bank of New York, as trustee, The Promus
Companies Incorporated, as guarantor, and Embassy Suites, Inc., as issuer; Form
of Note for 10 7/8% Senior Subordinated Notes due 2002. (18)
4(6) -First Supplemental Indenture dated as of June 2, 1995, with respect to the 10
7/8% Senior Subordinated Notes due 2002, among Embassy Suites, Inc., as issuer,
The Promus Companies Incorporated, as guarantor, and The Bank of New York, as
trustee. (2)
- ------------
** Filed herewith
41
NO.
- ----------
4(7) -Indenture dated as of August 1, 1993, with respect to the 8 3/4% Senior
Subordinated Notes due 2000, among The Bank of New York, as trustee, The Promus
Companies Incorporated, as guarantor, and Embassy Suites, Inc., as issuer; Form
of Note for 8 3/4% Senior Subordinated Notes due 2000. (6)
4(8) -First Supplemental Indenture dated as of June 2, 1995, with respect to the 8
3/4% Senior Subordinated Notes due 2000, among Embassy Suites, Inc., as issuer,
The Promus Companies Incorporated, as guarantor, and The Bank of New York, as
trustee. (2)
4(9) -Interest Swap Agreement between The Sumitomo Bank, Limited and Embassy Suites,
Inc. dated October 22, 1992; Interest Swap Agreement between The Bank of Nova
Scotia and Embassy Suites, Inc. dated October 22, 1992; Interest Swap Agreement
between The Nippon Credit Bank and Embassy Suites, Inc. dated October 22, 1992.
(18)
4(10) -Interest Swap Agreement between Bank of America National Trust and Savings
Association and Embassy Suites, Inc. dated May 14, 1993. (6)
4(11) -Interest Swap Agreement between NationsBank of North Carolina, N. A. and Embassy
Suites, Inc. dated May 18, 1993. (6)
**4(12) -Interest Swap Agreement between Bank of America National Trust and Savings
Association and Harrah's Operating Company, Inc. dated December 21, 1995.
**4(13) -Interest Swap Agreement between NationsBank, N. A. (Carolinas) and Harrah's
Entertainment, Inc. dated December 21, 1995.
4(14) -Interest Swap Agreement between The Bank of Nova Scotia and Embassy Suites, Inc.
dated January 25, 1995 and amended February 2, 1995. (7)
4(15) -Interest Swap Agreement between The Bank of Nova Scotia and Embassy Suites, Inc.
dated March 16, 1995. (7)
4(16) -Interest Swap Agreement between Bankers Trust Company and Embassy Suites, Inc.
dated May 16, 1995. (10)
4(17) -Interest Swap Agreement between The Sumitomo Bank, Limited and Embassy Suites,
Inc. dated June 5, 1995. (10)
4(18) -Interest Swap Agreement between Bankers Trust Company and Embassy Suites, Inc.
dated June 6, 1995. (10)
10(1) -Credit Agreement, dated as of July 22, 1993 and amended and restated as of June
9, 1995, among The Promus Companies Incorporated, Embassy Suites, Inc., certain
subsidiaries of Embassy Suites, Inc., various banks, Bankers Trust Company, The
Bank of New York, CIBC, Inc., Credit Lyonnais, Atlanta Agency, First Interstate
Bank of California, The Long-Term Credit Bank of Japan, Limited, New York
Branch, NationsBank of Georgia, N.A., Societe Generale and Sumitomo Bank,
Limited, New York Branch, as Agents, and Bankers Trust Company, as
Administrative Agent. (2)
10(2) -Credit Agreement, dated as of June 9, 1995, among The Promus Companies
Incorporated, Embassy Suites, Inc., certain subsidiaries of Embassy Suites,
Inc., various banks, Bankers Trust Company, The Bank of New York, CIBC, Inc.,
Credit Lyonnais, Atlanta Agency, First Interstate Bank of California, The
Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank of
Georgia, N.A., Societe Generale and The Sumitomo Bank, Limited, New York Branch,
as Agents, and Bankers Trust Company, as Administrative Agent. (2)
10(3) -Amended and Restated Reimbursement Agreement, dated as of July 22, 1993, among
Embassy Suites, Inc., The Promus Companies Incorporated, Marina Associates and
The Sumitomo Bank, Limited, New York Branch. (19)
10(4) -Master Collateral Agreement, dated as of July 22, 1993, among The Promus
Companies Incorporated, Embassy Suites, Inc., the other Collateral Grantors
parties thereto, Bankers Trust Company, as Administrative Agent, and Bankers
Trust Company as Collateral Agent. (19)
- ------------
** Filed herewith
42
NO.
- ----------
10(5) -First Amendment to Master Collateral Agreement, dated as of June 30, 1995, among
The Promus Companies Incorporated, Embassy Suites, Inc., the other Collateral
Grantors parties thereto, Bankers Trust Company, as Administrative Agent, and
Bankers Trust Company as Collateral Agent amending the Master Collateral
Agreement, dated as of July 22, 1993, among The Promus Companies Incorporated,
Embassy Suites, Inc., the other Collateral Grantors parties thereto, Bankers
Trust Company, as Administrative Agent, and Bankers Trust Company as Collateral
Agent. (10)
10(6) -Security Agreement dated as of July 22, 1993, among Embassy Suites, Inc., the
Collateral Grantors parties thereto and Bankers Trust Company, as Collateral
Agent. (19)
10(7) -First Amendment to Security Agreement, dated as of June 30, 1995, among Embassy
Suites, Inc., the Collateral Grantors parties thereto and Bankers Trust Company,
as Collateral Agent, amending the Security Agreement dated as of July 22, 1993,
among Embassy Suites, Inc., the Collateral Grantors parties thereto and Bankers
Trust Company, as Collateral Agent. (10)
10(8) -Deed of Trust, Leasehold Deed of Trust, Assignment, Assignment of Leases and
Rents, Security Agreement and Financing Statement, dated as of July 22, 1993,
from Embassy Suites, Inc., Harrah's Laughlin, Inc., and Harrah's Reno Holding
Company, Inc., the Grantors, to First American Title Company of Nevada, as
Trustee, for the benefit of Bankers Trust Company, as Beneficiary. (19)
10(9) -First Amendment to Deed of Trust, Leasehold Deed of Trust, Assignment,
Assignment of Leases and Rents, Security Agreement and Financing Statement,
dated as of June 30, 1995, among Embassy Suites, Inc., Harrah's Laughlin, Inc.,
Harrah's Reno Holding Company, Inc., Harrah's, Harrah's Club and Harrah's Las
Vegas, Inc., the Collateral Grantors, and Bankers Trust Company as Collateral
Agent and Beneficiary, amending the Deed of Trust, Leasehold Deed of Trust,
Assignment, Assignment of Leases and Rents, Security Agreement and Financing
Statement, dated as of July 22, 1993, from Embassy Suites, Inc., Harrah's
Laughlin, Inc., and Harrah's Reno Holding Company, Inc., the Grantors, to First
American Title Company of Nevada, as Trustee, for the benefit of Bankers Trust
Company, as Beneficiary. (10)
10(10) -Mortgage, Leasehold Mortgage, Assignment, Assignment of Leases and Rents and
Security Agreement, dated as of July 22, 1993, from Marina Associates and
Embassy Suites, Inc., the Mortgagors, to Bankers Trust Company, as Collateral
Agent and the Mortgagee. (19)
10(11) -First Amendment to Mortgage, Leasehold Mortgage, Assignment, Assignment of
Leases and Rents and Security Agreement, dated as of June 30, 1995, among
Embassy Suites, Inc., Marina Associates, the Mortgagors, to Bankers Trust
Company, as Collateral Agent and the Mortgagee, amending the Mortgage, Leasehold
Mortgage, Assignment, Assignment of Leases and Rents and Security Agreement,
dated as of July 22, 1993, from Marina Associates and Embassy Suites, Inc., the
Mortgagors, to Bankers Trust Company, as Collateral Agent and the Mortgagee.
(10)
10(12) -Pledge Agreement, dated as of July 22, 1993, between The Promus Companies
Incorporated and Bankers Trust Company, as Collateral Agent. (19)
10(13) -First Amendment to Parent Pledge Agreement, dated as of June 30, 1995, among The
Promus Companies Incorporated and Bankers Trust Company, as Collateral Agent,
amending the Pledge Agreement, dated as of July 22, 1993, between The Promus
Companies Incorporated and Bankers Trust Company, as Collateral Agent. (10)
10(14) -Pledge Agreement, dated as of July 22, 1993, among Embassy Suites, Inc., ESI
Equity Development Corporation, Harrah's, Harrah's Club, Casino Holding Company,
and Bankers Trust Company, as the General Collateral Agent, and Bank of America
Nevada as the Nevada Collateral Agent. (19)
43
NO.
- ----------
10(15) -First Amendment to Company/Sub Pledge Agreement, dated as of June 30, 1995,
among Embassy Suites, Inc., Harrah's, Harrah's Club, and Bankers Trust Company,
as the General Collateral Agent, and Bank of America Nevada as the Nevada
Collateral Agent, amending the Pledge Agreement, dated as of July 22, 1993,
among Embassy Suites, Inc., ESI Equity Development Corporation, Harrah's,
Harrah's Club, Casino Holding Company, and Bankers Trust Company, as the General
Collateral Agent, and Bank of America Nevada as the Nevada Collateral Agent.
(10)
10(16) -Consent dated as of October 7, 1994, among The Promus Companies Incorporated,
Embassy Suites, Inc., the Banks and Agents parties thereto, Marina Associates
and Bankers Trust Company, as Administrative Agent. (17)
10(17) -Plan of Reorganization and Distribution Agreement, dated June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation. (10)
10(18) -Employee Benefits and Other Employment Matters Allocation Agreement, dated June
30, 1995, between The Promus Companies Incorporated and Promus Hotel
Corporation. (10)
10(19) -Risk Management Allocation Agreement, dated June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (10)
10(20) -Tax Sharing Agreement, dated June 30, 1995, between The Promus Companies
Incorporated and Promus Hotel Corporation. (10)
+10(21) -Form of Indemnification Agreement entered into by The Promus Companies
Incorporated and each of its directors and executive officers. (1)
**+10(22) -Financial Counseling Plan of Harrah's Entertainment, Inc. as amended January
1996.
+10(23) -The Promus Companies Incorporated 1996 Non-Management Director's Stock Incentive
Plan dated April 5, 1995. (9)
+10(24) -The Promus Companies Incorporated Key Executive Officer Annual Incentive Plan
dated February 24, 1995. (10)
+10(25) -Summary Plan Description of Executive Term Life Insurance Plan. (18)
**+10(26) -Form of Harrah's Entertainment, Inc.'s Annual Management Bonus Plan, as amended
1995.
+10(27) -Form of Severance Agreement dated July 30, 1993, entered into with E. O.
Robinson, Jr. and John M. Boushy. (22)
+10(28) -Severance Agreement, dated June 30, 1995, with Bradford W. Morgan. (10)
+10(29) -Amended and Restated Severance Agreement dated as of May 1, 1992 between The
Promus Companies Incorporated and Michael D. Rose. (18)
+10(30) -Form of Amended and Restated Severance Agreement dated November 5, 1992, entered
into with Charles A. Ledsinger, Jr., Ben C. Peternell, Philip G. Satre and Colin
V. Reed. (18)
+10(31) -Amendment, dated February 25, 1994 and effective April 29, 1994, to Amended and
Restated Severance Agreement dated November 5, 1992, between The Promus
Companies Incorporated and Philip G. Satre. (21)
+10(32) -Amended and Restated Employment Agreement, dated June 30, 1995, between Michael
D. Rose and Harrah's Entertainment, Inc. (10)
**+10(33) -Amendment dated as of December 19, 1995, to Amended and Restated Employment
Agreement between Michael D. Rose and Harrah's Entertainment, Inc.
+10(34) -Agreement, dated April 28, 1995, between Michael D. Rose and The Promus
Companies Incorporated concerning treatment of stock options in spin-off. (10)
- ------------
** Filed herewith
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
44
NO.
- ----------
+10(35) -Agreement, dated May 1, 1995, between Michael D. Rose and The Promus Companies
Incorporated concerning treatment of Executive Deferred Compensation Plan
account in spin-off. (10)
+10(36) -Employment Agreement dated as of February 25, 1994, and effective April 29,
1994, between The Promus Companies Incorporated and Philip G. Satre including
exhibits thereto. (17)
+10(37) -The Promus Companies Incorporated 1990 Stock Option Plan. (12)
+10(38) -The Promus Companies Incorporated 1990 Stock Option Plan (as amended as of April
30, 1993). (20)
+10(39) -The Promus Companies Incorporated 1990 Stock Option Plan, as amended April 29,
1994. (8)
+10(40) -The Promus Companies Incorporated 1990 Stock Option Plan, as amended July 29,
1994. (21)
+10(41) -Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990 Stock
Option Plan. (9)
**+10(42) -Revised Form of Stock Option (1990 Stock Option Plan).
+10(43) -Form of memorandum agreement dated July 2, 1991, eliminating stock appreciation
rights under stock options held by Charles A. Ledsinger, Jr., Ben C. Peternell
and Philip G. Satre. (14)
+10(44) -Form of Agreement to Cancel Options dated as of December 16, 1994 entered into
with Michael D. Rose, Philip G. Satre, Charles A. Ledsinger, Jr., Ben C.
Peternell, Colin V. Reed, E. O. Robinson, Jr. and John M. Boushy. (7)
+10(45) -The Promus Companies Incorporated 1990 Restricted Stock Plan. (12)
+10(46) -Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990
Restricted Stock Plan. (9)
**+10(47) -Revised Forms of Restricted Stock Award (1990 Restricted Stock Plan).
**+10(48) -Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan
and Stock Option Plan) dated October 27, 1995.
+10(49) -Deferred Compensation Plan dated October 16, 1991. (15)
+10(50) -Amendment, dated May 26, 1995, to The Promus Companies Incorporated Deferred
Compensation Plan. (2)
**+10(51) -Forms of Deferred Compensation Agreement.
**+10(52) -Amended and Restated Executive Deferred Compensation Plan dated as of October
27, 1995.
**+10(53) -Forms of Executive Deferred Compensation Agreement.
+10(54) -Escrow Agreement dated February 6, 1990 between The Promus Companies
Incorporated, certain subsidiaries thereof, and Sovran Bank, as escrow agent.
(12)
+10(55) -First Amendment to Escrow Agreement dated January 31, 1990 among Holiday
Corporation, certain subsidiaries thereof and Sovran Bank, as escrow agent. (12)
+10(56) -Amendment to Escrow Agreement dated as of October 29, 1993 among The Promus
Companies Incorporated, certain subsidiaries thereof, and NationsBank, formerly
Sovran Bank. (24)
+10(57) -Amendment, dated as of June 7, 1995, to Escrow Agreement among The Promus
Companies Incorporated, certain subsidiaries thereof and NationsBank. (2)
- ------------
** Filed herewith
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
45
NO.
- ----------
10(58) -Amended and Restated Partnership Agreement of Harrah's Jazz Company, dated as of
March 15, 1994, among Harrah's New Orleans Investment Company, New
Orleans/Louisiana Development Corporation and Grand Palais Casino, Inc.; First
Amendment to the Amended and Restated Partnership Agreement of Harrah's Jazz
Company, effective as of March 15, 1994. (24)
10(59) -Second Amendment dated March 31, 1994 to the Amended and Restated Partnership
Agreement of Harrah's Jazz Company. (8)
10(60) -Amended and Restated Third Amendment to the Amended and Restated Partnership
Agreement of Harrah's Jazz Company. (16)
10(61) -Fourth Amendment to the Amended and Restated Partnership Agreement of Harrah's
Jazz Company. (16)
10(62) -Indenture dated as of November 15, 1994 between Harrah's Jazz Company, Harrah's
Jazz Finance Corp. and First National Bank of Commerce as Trustee for the First
Mortgage Notes including form of First Mortgage Note. (16)
10(63) -Cash Collateral and Disbursement Agreement among First National Bank of Commerce
as Trustee, First National Bank of Commerce as Collateral Agent, Harrah's Jazz
Company and Harrah's Jazz Finance Corp., dated November 16, 1994. (16)
10(64) -Collateral Mortgage Note by Harrah's Jazz Company dated November 15, 1994. (16)
10(65) -Act of Collateral Mortgage and Collateral Assignment of Proceeds by Harrah's
Jazz Company dated November 15, 1994. (16)
10(66) -Act of Collateral Assignment of Leases and Rents between Harrah's Jazz Company
and First National Bank of Commerce as Collateral Agent dated November 15, 1994.
(16)
10(67) -Act of Security Agreement and Pledge between Harrah's Jazz Company and First
National Bank of Commerce as Collateral Agent dated November 15, 1994. (16)
10(68) -Pledge Agreement between Harrah's Jazz Company, Harrah's Jazz Finance Corp. and
First National Bank of Commerce as Collateral Agent dated as of November 16,
1994. (16)
10(69) -Security Agreement among Harrah's Jazz Company, Harrah's Jazz Finance Corp. and
First National Bank of Commerce as Collateral Agent dated as of November 16,
1994. (16)
10(70) -Security Agreement (Cash Collateral) among Harrah's Jazz Company, Harrah's Jazz
Finance Corp. and First National Bank of Commerce as Trustee dated November 16,
1994. (16)
10(71) -Manager Subordination Agreement (First Mortgage Notes) among Harrah's Jazz
Company, Harrah's New Orleans Management Company and First National Bank of
Commerce as Trustee dated as of November 16, 1994. (16)
10(72) -Consultant Subordination Agreement (First Mortgage Notes) among Harrah's Jazz
Company, Grand Palais Management Company, New Orleans/Louisiana Development
Corporation and First National Bank of Commerce as Trustee dated as of November
16,1994. (16)
10(73) -Amended Lease Agreement between the Rivergate Development Corporation, as
Landlord and Harrah's Jazz Company, as Tenant and City of New Orleans, as
Intervenor dated March 15, 1994. (13)
10(74) -Amended General Development Agreement between Rivergate Development Corporation
and Harrah's Jazz Company and City of New Orleans, as Intervenor dated March 15,
1994. (4)
10(75) -Temporary Casino Lease between Rivergate Development Corporation, as Landlord
and Harrah's Jazz Company, as Tenant and City of New Orleans, as Intervenor
dated March 15, 1994. (4)
46
NO.
- ----------
10(76) -Amendment to Amended Lease Agreement between Rivergate Development Corporation,
as Landlord and Harrah's Jazz Company, as Tenant and City of New Orleans, as
Intervenor dated October 5, 1994. (13)
10(77) -Agreement between the City of New Orleans and Harrah's Jazz Company, dated
October 5, 1994 (the "Separate City Agreement"). (13)
10(78) -Agreement among the Rivergate Development Corporation, the City of New Orleans
and Embassy Suites, Inc. and Harrah's Jazz Company, as intervenor, dated October
5, 1994 (the "Embassy Access Agreement"). (13)
10(79) -Casino Operating Contract between the Louisiana Economic Development and Gaming
Corporation and Harrah's Jazz Company dated July 15, 1994. (4)
10(80) -First Amendment to Casino Operating Contract between the Louisiana Economic
Development and Gaming Corporation and Harrah's Jazz Company dated August 31,
1994. (13)
10(81) -Amended and Restated Management Agreement between Harrah's New Orleans
Management Company and Harrah's Jazz Company dated March 14, 1994. (4)
10(82) -Construction Agreement between Harrah's Jazz Company and Centex Landis
Construction Co., Inc. dated October 10, 1994, for the construction of the
Permanent Casino. (13)
10(83) -Design and Construction Agreement between Harrah's Jazz Company and Broadmoor
dated October 10, 1994, for the construction of the parking structure. (13)
10(84) -Owner's Policy issued March 16, 1994 by First American Title Insurance Company
to Harrah's Jazz Company with attachments. (16)
10(85) -Lender's Title Insurance Policy issued November 16, 1994 by First American Title
Insurance Company together with reinsurance agreements. (16)
10(86) -Construction Lien Indemnity Obligation Agreement between Harrah's Jazz Company
and Embassy Suites, Inc. dated October 12, 1994. (23)
10(87) -First Amendment to the Construction Lien Indemnity Obligation Agreement. (16)
10(88) -Specimen form of 14 1/4% First Mortgage Note Due 2001 of Harrah's Jazz Company
and Harrah's Jazz Finance Corp. (16)
10(89) -Limited Partnership Agreement of Des Plaines Limited Partnership between
Harrah's Illinois Corporation and John Q. Hammons, dated February 28, 1992;
First Amendment to Limited Partnership Agreement of Des Plaines Limited
Partnership dated as of October 5, 1992. (24)
**11 -Computations of per share earnings.
**12 -Computations of ratios.
**13 -Portions of Annual Report to Stockholders for the year ended December 31, 1995.
(25)
**21 -List of subsidiaries of Harrah's Entertainment, Inc.
**27 -Financial Data Schedule
- ------------
** Filed herewith
FOOTNOTES
(1) Incorporated by reference from the Company's Registration Statement on Form
10, File No. 1-10410, filed on December 13, 1989.
(2) Incorporated by reference from the Company's Current Report on Form 8-K
filed June 15, 1995, File No. 1-10410.
(3) Incorporated by reference from Holiday Corporation's Annual Report on Form
10-K for the fiscal year ended January 1, 1988, filed March 31, 1988, File
No. 1-8900.
47
(4) Incorporated by reference from Amendment No. 3 to Form S-1 Registration
Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File
No. 33-73370, filed August 4, 1994.
(5) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, filed May 15, 1995, File No. 1-10410.
(6) Incorporated by reference from the Company's and Embassy Suites, Inc.'s
Amendment No. 2 to Form S-4 Registration Statement, File No. 33-49509-01,
filed July 16, 1993.
(7) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, filed March 21, 1995, File No.
1-10410.
(8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994, filed May 12, 1994, File No. 1-10410.
(9) Incorporated by reference from the Company's Proxy Statement for the May
26, 1995 Annual Meeting of Stockholders, filed April 25, 1995.
(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, filed August 14, 1995, File No.
1-10410.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.
(12) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1989, filed March 28, 1990, File No.
1-10410.
(13) Incorporated by reference from Amendment No. 4 to Form S-1 Registration
Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File
No. 33-73370, filed October 12, 1994.
(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1991, filed November 8, 1991, File No.
1-10410.
(15) Incorporated by reference from Amendment No. 2 to the Company's and
Embassy's Registration Statement on Form S-1, File No. 33-43748, filed
March 18, 1992.
(16) Incorporated by reference from Harrah's Jazz Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, filed December 21,
1994, File No. .
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, filed November 14, 1994, File No.
1-10410.
(18) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, filed March 12, 1993, File No.
1-10410.
(19) Incorporated by reference from the Company's Current Report on Form 8-K
filed August 6, 1993, File No. 1-10410.
(20) Incorporated by reference from Post-Effective Amendment No. 1 to the
Company's Form S-8 Registration Statement, File No. 33-32864-01, filed July
22, 1993.
(21) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, filed August 11, 1994, File No.
1-10410.
(22) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, filed November 12, 1993, File No.
1-10410.
(23) Incorporated by reference from Amendment No. 5 to Form S-1 Registration
Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File
No. 33-73370, filed October 26, 1994.
(24) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, filed March 28, 1994, File No.
1-10410.
(25) Filed herewith to the extent portions of such report are specifically
included herein by reference.
(b) No Reports on Form 8-K were filed during the fourth quarter of 1995 and
thereafter through February 29, 1996.
(d) The financial statements of Harrah's Jazz Company will be filed as an
amendment to this Form 10-K.
48
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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.
Dated: March 6, 1996
By
/s/ MICHAEL D. ROSE
---------------------------------
(Michael D. Rose, Chairman)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
- ------------------------------------ ------------------------------------ ---------------
/s/ JAMES L. BARKSDALE Director March 6, 1996
....................................
(James L. Barksdale)
/s/ SUSAN CLARK-JOHNSON Director March 6, 1996
....................................
(Susan Clark-Johnson)
/s/ JAMES B. FARLEY Director March 6, 1996
....................................
(James B. Farley)
/s/ JOE M. HENSON Director March 6, 1996
....................................
(Joe M. Henson)
/s/ RALPH HORN Director March 6, 1996
....................................
(Ralph Horn)
/s/ MICHAEL D. ROSE Director and Chairman March 6, 1996
....................................
(Michael D. Rose)
/s/ WALTER J. SALMON Director March 6, 1996
....................................
(Walter J. Salmon)
/s/ PHILIP G. SATRE Director, President and Chief March 6, 1996
.................................... Executive Officer
(Philip G. Satre)
/s/ BOAKE A. SELLS Director March 6, 1996
....................................
(Boake A. Sells)
/s/ EDDIE N. WILLIAMS Director March 6, 1996
....................................
(Eddie N. Williams)
/s/ SHIRLEY YOUNG Director March 6, 1996
....................................
(Shirley Young)
/s/ CHARLES A. LEDSINGER, JR. Chief Financial Officer March 6, 1996
....................................
(Charles A. Ledsinger, Jr.)
/s/ MICHAEL N. REGAN Controller and Principal Accounting March 6, 1996
.................................... Officer
(Michael N. Regan)
49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harrah's Entertainment, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Harrah's Entertainment, Inc. 1995 annual
report to stockholders, incorporated by reference in this Form 10-K, and have
issued our report thereon dated March 5, 1996. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed under Item 14(a)2 on page 41 are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements, and in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 5, 1996.
SCHEDULE I
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
--------------------
1995 1994
-------- --------
ASSETS
Cash................................................................... $ - $ -
Investments in and advances to subsidiaries (eliminated in
consolidation)....................................................... 585,624 480,520
Net assets of discontinued hotel operations............................ - 143,008
Organizational costs................................................... - 31
-------- --------
$585,624 $623,559
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued taxes, including federal income taxes.......................... $ 75 $ 122
-------- --------
Commitments and contingencies (Notes 4, 8 and 9)
Stockholders' equity (Note 5)
Common stock, $0.10 par value, authorized-360,000,000 shares,
outstanding-102,673,828 and 102,402,619 shares (net of 19,026 and
37,172 shares held in treasury).................................... 10,267 10,240
Capital surplus...................................................... 362,783 350,196
Unrealized gain on marketable equity securities held by a
subsidiary......................................................... 10,552 -
Retained earnings.................................................... 204,838 265,574
Deferred compensation related to restricted stock.................... (2,891) (2,573)
-------- --------
585,549 623,437
-------- --------
$585,624 $623,559
-------- --------
-------- --------
The accompanying Notes to Financial Statements
are an integral part of these balance sheets.
S-1
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- ------- -------
Revenues...................................................... $ - $ - $ -
Costs and expenses............................................ 182 466 319
-------- ------- -------
Loss before income taxes and equity in subsidiaries'
continuing earnings......................................... (182) (466) (319)
Income tax benefit............................................ 64 163 112
-------- ------- -------
Loss before equity in subsidiaries' continuing earnings....... (118) (303) (207)
Equity in subsidiaries' continuing earnings................... 78,928 50,287 75,074
-------- ------- -------
Income from continuing operations............................. 78,810 49,984 74,867
Discontinued operations (Note 1)
Equity in subsidiaries' income from discontinued
operations................................................ 21,230 36,319 16,926
Spin-off transaction expenses, net of tax benefit of
$5,134.................................................... (21,194) - -
-------- ------- -------
Income before extraordinary loss and cumulative effect of
change in accounting policy................................. 78,846 86,303 91,793
Extraordinary loss on early extinguishment of debt by a
subsidiary, net of tax benefit of $3,415.................... - - (5,447)
Cumulative effect of change in accounting policy, net of tax
benefit of $4,317 (Note 7).................................. - (7,932) -
-------- ------- -------
Net income.................................................... $ 78,846 $78,371 $86,346
-------- ------- -------
-------- ------- -------
The accompanying Notes to Financial Statements
are an integral part of these statements.
S-2
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from operating activities
Net income................................................. $ 78,846 $ 78,371 $ 86,346
Adjustment to reconcile net income to cash flows from
operating activities
Discontinued operations
Equity in subsidiaries' income from discontinued
operations........................................... (21,230) (36,319) (16,926)
Spin-off transaction expenses, before income taxes..... 26,328 - -
Extraordinary loss....................................... - - 8,862
Cumulative effect of change in accounting policy, before
income taxes........................................... - 13,924 -
Amortization............................................. 31 271 271
Equity in undistributed continuing earnings of
subsidiaries........................................... (78,928) (50,287) (75,074)
Net change in working capital accounts................... (5,047) (5,960) (3,479)
-------- -------- --------
Net change in cash........................................... - -
Cash, beginning of period.................................... - - -
-------- -------- --------
Cash, end of period.......................................... $ - $ - $ -
-------- -------- --------
-------- -------- --------
The accompanying Notes to Financial Statements
are an integral part of these statements.
S-3
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BASIS OF ORGANIZATION
Harrah's Entertainment, Inc. (Harrah's or the Company), a Delaware
corporation, is a holding company, the principal assets of which are the capital
stock of two subsidiaries, Harrah's Operating Company, Inc. (HOC) and Aster
Insurance Ltd. (Aster). These condensed financial statements should be read in
conjunction with the consolidated financial statements of Harrah's and
subsidiaries.
On June 30, 1995, the Company completed a spin-off of its hotel business
(the PHC Spin-off) with the distribution to its stockholders on a one-for-two
basis of the stock of a new entity, Promus Hotel Corporation (PHC). The Company
had transferred its hotel operations to PHC prior to the PHC Spin-off. Through
its subsidiaries, Harrah's, formerly The Promus Companies Incorporated, retained
ownership of the casino entertainment business. As a result of the PHC Spin-off,
Harrah's financial statements reflect the hotel business as discontinued
operations.
NOTE 2--ORGANIZATIONAL COSTS
Organizational costs were amortized on a straight-line basis over a five
year period.
NOTE 3--INVESTMENT IN ASTER
The value of Harrah's investment in Aster has been reduced below zero.
Harrah's negative investment in Aster at December 31, 1995 and 1994 was $12.7
million and $13.4 million, respectively, and is included in investments in and
advances to subsidiaries on the balance sheet. In addition, Harrah's has
guaranteed the future payment by Aster of certain insurance-related liabilities.
NOTE 4--LONG-TERM DEBT
Harrah's has no long-term debt obligations. Harrah's has guaranteed certain
long-term debt obligations of HOC.
NOTE 5--STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 5,000,000 shares authorized-
Series B, $1.125 par value
On June 30, 1995, the PHC Spin-off was completed and the Company distributed
to its stockholders the stock of PHC as a dividend. To reflect this distribution
the $139.6 million book value of the net assets of discontinued operations as of
the spin-off date has been charged against the Company's retained earnings (see
Note 1).
S-4
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
Due to continued appreciation in the market value of the stock of an equity
investee of HOC, during 1995 the carrying value of the investment was adjusted
by HOC to include the unrealized gain in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." A corresponding increase, net of
the related income tax provision, was recorded in stockholders' equity. The
amount of such unrealized gain in prior years was not material.
NOTE 6--INCOME TAXES
Harrah's files a consolidated tax return with its subsidiaries.
NOTE 7--CHANGE IN ACCOUNTING POLICY
Effective January 1, 1994, Harrah's changed its accounting policy for its
consolidated casinos relating to preopening costs. As a result of this change,
operating results for the year ended December 31, 1994, reflect the cumulative
charge against earnings, net of income taxes, of $7.9 million, or $0.08 per
share, to write off the unamortized preopening costs balances related to
projects opened in prior years.
NOTE 8--COMMITMENTS AND CONTINGENCIES
A Harrah's subsidiary owns an approximate 47% interest in a partnership
named Harrah's Jazz Company (Harrah's Jazz). On November 22, 1995, Harrah's Jazz
and its wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed for Chapter
11 bankruptcy. Prior to the filing, Harrah's Jazz was operating a temporary
casino in the New Orleans, Louisiana Municipal Auditorium (the Temporary Casino)
and constructing a new permanent casino facility on the site of the former
Rivergate Convention Center in downtown New Orleans (the Permanent Casino).
Harrah's Jazz ceased operation of the Temporary Casino and construction of the
Permanent Casino on November 22, 1995 prior to the bankruptcy filings.
Prior to these events, Harrah's delivered completion guaranties to the
trustee of Harrah's Jazz's $435 million of 14.25% First Mortgage Notes, the bank
lenders under a Harrah's Jazz $175 million bank credit facility and the
Louisiana Economic Development and Gaming Corporation (the state agency
regulating Harrah's Jazz). Each completion guaranty was subject to certain
conditions, exceptions and qualifications. The Company believes that its
obligations under these guaranties have been terminated by the recent events.
NOTE 9--LITIGATION
Harrah's and certain of its subsidiaries have been named as defendants in a
number of lawsuits arising from the suspension of development of a land-based
casino, and the closing of the temporary gaming facility, in New Orleans,
Louisiana, by Harrah's Jazz. The ultimate outcomes of these lawsuits
S-5
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 9--LITIGATION (CONTINUED)
cannot be predicted at this time, and no provisions for the claims are included
in the accompanying consolidated financial statements. The Company intends to
defend these actions vigorously.
In March 1995, the Company entered into a settlement agreement (the
Settlement) with Bass PLC (Bass) of all claims related to the Merger Agreement
and Tax Sharing Agreement arising from the 1990 Spin-off of Promus and
acquisition of the Holiday Inn hotel business by Bass. As a result of the
Settlement, a charge of $49.2 million was recorded in 1994 on the books of HOC
to accrue the estimated cost of the settlement, the related legal fees and other
associated expenses.
S-6
SCHEDULE II
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------
BALANCE
BALANCE AT CHARGED CHARGED DEDUCTIONS AT CLOSE
BEGINNING TO COSTS TO OTHER FROM OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS RESERVES PERIOD
- -------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts
Current......................... $ 9,551 $ 5,910 $ - $ (4,551)(A) $10,910
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Long-term....................... $ 75 $ - $ - $ - $ 75
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Allowance for losses on property
dispositions.................... $ 11,231 $ - $ - $ (11,231)(B) $ -
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Insurance allowances and
reserves........................ $ 49,448 $ 22,865 $ - $ (22,492) $49,821
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts
Current......................... $ 9,252 $ 5,731 $ - $ 5,432(A) $ 9,551
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Long-term....................... $ - $ 75 $ - $ - $ 75
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Allowance for losses on property
dispositions.................... $ 11,000 $ 231 $ - $ - $11,231
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Insurance allowances and
reserves........................ $ 39,859 $ 52,908 $ - $ 43,319 $49,448
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
FISCAL YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts,
current......................... $ 9,617 $ 4,673 $ - $ 5,038(A) $ 9,252
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Allowance for losses on property
dispositions.................... $ 11,000 $ - $ - $ - $11,000
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
Insurance allowances and
reserves........................ $ 31,371 $ 46,333 $ - $ 37,845 $39,859
---------- ------------ -------- ---------- --------
---------- ------------ -------- ---------- --------
- ------------
(A) Uncollectible accounts written off, net of amounts recovered.
(B) Reduction of reserve due to disposition of subject property.
S-7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated March 5, 1996, included in this Form 10-K for the year ended
December 31, 1995, into the Company's previously filed Registration Statements
File Nos. 33-32863, 33-32864, 33-32865, 33-59991, 33-59969, 33-59975, 33-59971
and 33-62783.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 5, 1996.