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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] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-10410
HARRAH'S ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE I.R.S. NO. 62-1411755
(State of Incorporation) (I.R.S. Employer Identification No.)
1023 CHERRY ROAD
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices) (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 EXCHANGE
PHILADELPHIA STOCK EXCHANGE
* Common Capital Stock also has special stock purchase rights listed on each of
the same exchanges
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 30, 1998, based upon the closing price of $22.0625 for
the Common Stock on the New York Stock Exchange on that date, was
$2,201,684,188.
As of January 30, 1998, the Registrant had 101,053,752 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1998 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, 1997 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. Harrah's,
formerly named The Promus Companies Incorporated ("Promus"), was incorporated on
November 2, 1989 under Delaware law. On June 30, 1995, Promus changed its name
to Harrah's Entertainment, Inc., following the spin-off of its hotel business
into a separate public corporation.
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.
On December 18, 1997, the Company entered into an agreement whereby Harrah's
agreed to acquire Showboat, Inc. ("Showboat"), subject to various conditions,
including regulatory approvals and approval by the stockholders of Showboat.
Showboat owns and operates casinos in Atlantic City, New Jersey and Las Vegas,
Nevada. It manages and is the largest single shareholder, currently owning
approximately 24.6%, of the Star City casino in Sydney, New South Wales,
Australia. Showboat also owns 55% of a subsidiary which owns and manages the
Showboat Mardi Gras Casino in East Chicago, Indiana. It is anticipated that the
acquisition of Showboat will be completed in second quarter 1998.
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, which page is 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 33 of the Annual Report, which pages are incorporated herein by
reference.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
Annual Report on Form 10-K and other materials filed or to be filed by the
Company with the Securities and Exchange Commission ("SEC") (as well as
information included in oral statements or other written statements made or to
be made by the Company) contains statements that are forward looking. These
include statements relating to the following activities, among others: (A)
operations and expansions of existing properties, including future performance,
anticipated scope and opening dates of expansions; (B) planned development of
casinos that would be owned or managed by the Company; (C) the proposed plan of
reorganization and its various facets for New Orleans; (D) planned capital
expenditures for 1998 and beyond; (E) the impact of the WINet and Total Gold
Card Programs; and (F) completion of the acquisition of Showboat. These
activities involve important factors that could cause actual results to differ
materially from those expressed in any forward looking statements made by or on
behalf of the Company. These include, but are not limited to, the following
factors as well as other factors described from time to time in the Company's
reports filed with the SEC: construction factors, including zoning issues,
environmental restrictions, soil and water conditions, weather and other
hazards, site access matters and building permit issues; access to available and
feasible financing; regulatory, licensing and other governmental approvals,
third party consents and approvals, and relations with partners, owners and
other third parties; conditions of credit markets and other business and
economic conditions; litigation, judicial actions and political uncertainties,
including gaming legislative action and taxation; and effects of competition,
including locations of competitors and operating and marketing competition. Any
forward looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
1
CASINO ENTERTAINMENT
GENERAL
Harrah's casino business commenced operations more than 60 years ago and is
unique among casino entertainment companies in its broad geographic
diversification. At year end, Harrah's operated 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 operated riverboat casinos in
Joliet, Illinois; dockside casinos in Vicksburg and Tunica, Mississippi,
Shreveport, Louisiana, and St. Louis and North Kansas City, Missouri; casinos on
three Indian reservations, one near Phoenix, Arizona, one north of Seattle,
Washington and one in Cherokee, North Carolina; and a land-based casino in
Auckland, New Zealand. On January 13, 1998, the Company commenced management of
a casino on an Indian reservation near Topeka, Kansas.
As of December 31, 1997, Harrah's operated a total of approximately 774,500
square feet of casino space, 19,835 slot machines, 934 table games, 8,197 hotel
rooms or suites, approximately 158,200 square feet of convention space, 61
restaurants, 21 snack bars, seven showrooms and four cabarets.
In September 1997, Harrah's introduced its new Total Gold (U.S. Patent
Pending) program, a fully integrated national player recognition and rewards
program that connects player activity and provides rewards across all of its
properties. It is the first and only program in the casino industry that rewards
and recognizes casino customers on the level of a national brand--coast to
coast. Underpinning Harrah's Total Gold is a database management system
exclusive to Harrah's, The Winners Information Network system, or WINet (U.S.
Patent Pending), which maximizes Harrah's distribution and links all of its
domestic locations.
Harrah's marketing strategy is currently designed to appeal primarily to the
broad middle-market gaming customer segment, with special emphasis on the
rapidly growing segment of multi-market gamers. 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 is situated on 24.17 acres in the
Marina area of Atlantic City and at year end had approximately 80,800 square
feet of casino space with 2,529 slot machines and 97 table games. It consists of
three 16-story hotel towers with 278 suites and 896 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 820-seat showroom, a health
club with swimming pool and parking for 2,862 cars, including a substantial
portion in a parking garage. The property also has a 75-slip marina.
In 1997, the Company completed an $83.7 million expansion of the property
which commenced in 1995. In 1996, construction was completed on a casino
expansion as well as enhancement of the facility's restaurant offerings. The
final portion of the expansion, construction of a new 416-room, 16-story hotel
tower, was completed in June 1997.
The Company has announced a possible additional expansion to its Atlantic
City property, pending suitable economic analysis as well as substantive
progress on development of new casino hotel projects in the Marina area by other
companies, appropriate regulatory approvals and adequate resolution of road and
access improvements that have been the subject of discussions among the state,
city and developers. This additional expansion, if completed as currently
envisioned, would include significant additional guest rooms and casino space,
as well as enhancements in convention facilities, restaurant offerings, parking
facilities and other nongaming amenities. At present, because of the
uncertainties relating to this project, there is no assurance this further
expansion will proceed.
The Company also owns approximately 8.45 acres of land adjacent to Harrah's
Atlantic City and 170 acres of wetlands in the Marina area.
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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 17.7 acres on the Las Vegas
Strip and at year end, consisted of a 15-floor hotel tower, a 23-floor hotel
tower, two 35-story hotel towers, and adjacent low-rise buildings which house
the 15,000 square foot convention center and the casino. The hotel has 2,587
regular rooms and 90 suites. The Harrah's Las Vegas complex has approximately
86,700 square feet of casino space, with 1,963 slot machines and 97 table games.
Also included are six restaurants, four snack bars, the 525-seat Commander's
Theatre, a 367-seat cabaret, an arcade, a health club and a heated pool. There
are 2,500 parking spaces available, including a substantial portion in a
self-park garage.
The Company completed a $200 million expansion of Harrah's Las Vegas in
fourth quarter 1997. The expansion, which commenced in 1996, included a new
35-story hotel tower, additional casino space, new restaurant facilities, a
complete renovation of the facade of the casino located on the Strip, as well as
significant additions and improvements to nongaming amenities.
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 1,711 slot machines and 107 table games. The casino hotel, with 79 suites
and 453 luxury rooms, has seven restaurants, two snack bars, the 688-seat South
Shore Showroom, a 197-seat cabaret, 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. The casino includes approximately
18,000 square feet of casino space, with 547 slot machines and 20 table games,
and one restaurant.
The primary feeder markets for both casinos are California and the Pacific
Northwest.
RENO
Harrah's Reno, situated on approximately 3.7 acres, consists of a casino
hotel complex with a 24-story structure, an approximate 15,450 square foot
convention center and 55,450 square feet of casino space, with 1,581 slot
machines and 65 table games. The facilities include a Harrah's hotel, with 557
rooms and eight suites, the 420-seat Sammy's Showroom, a pool, a health club and
an arcade. The property has six restaurants, including a Planet Hollywood
restaurant and lounge operated by a non-affiliated restaurant company. The
complex can accommodate guest parking for 1,739 cars, including a valet parking
garage, a self-park garage and off-site valet parking.
The Company owns a 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., provides high-quality, moderately-priced guest rooms
to accommodate Harrah's guests.
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 1,632 standard
rooms and 58 suites, a 378-seat showroom, a 3,164-seat outdoor amphitheater,
five restaurants and two snack bars, including a McDonald's and a Baskin Robbins
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which are operated by non-affiliated companies. Harrah's Laughlin has
approximately 47,000 square feet of casino space, with 1,291 slot machines and
42 table games, and approximately 7,000 square feet of convention center space.
The facility has customer parking for 2,604 cars, including a covered parking
garage, and a park for recreational vehicles. Other amenities include a health
club, swimming pools, an arcade and retail shops. It is the only property in
Laughlin with a developed beachfront on the River.
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.
NEW ZEALAND
Sky City, a casino entertainment facility in Auckland, New Zealand, is owned
by Sky City Limited, a publicly-traded New Zealand corporation in which 12.5%
was owned by the Company until third quarter 1997 when Harrah's sold its
interest in the corporation. Harrah's currently manages the facility for a fee
under a management contract. Harrah's was notified in 1997 that Sky City Limited
would buy out the management contract for a price based upon an agreed upon
formula set forth in the management contract. Harrah's will continue to manage
the Sky City complex until June 30, 1998, at which time the management contract
is expected to terminate.
The facility is located on 3.1 acres of land and has approximately 59,700
square feet of casino space, 1,121 slot machines and 111 table games. It also
features four restaurants, a 100-seat cabaret, several lounges, two snack bars,
retail shops, a health club and a swimming pool. The complex also includes a
hotel with 306 rooms and 38 suites, a 700-seat theater/showroom and
approximately 15,000 square feet of conference space. The facilities also
include customer parking for 2,552 cars, a portion of which is in an underground
parking garage. Valet parking is also available. A special attraction of the
facility is a 1,066-foot Sky Tower, which opened in August 1997. The Sky Tower,
the tallest structure in the southern hemisphere, features two enclosed and one
open-air observation decks and a revolving bar and restaurant.
NEW ORLEANS
A Harrah's subsidiary owns an approximate 47% interest in Harrah's Jazz
Company ("Harrah's Jazz"), a partnership formed for purposes of developing,
owning and operating the exclusive land-based casino entertainment facility (the
"Rivergate Casino") in New Orleans, Louisiana, on the site of the former
Rivergate Convention Center. In November 1995, Harrah's Jazz and its
wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed petitions for relief
under Chapter 11 of the Bankruptcy Code. Harrah's Jazz filed a plan of
reorganization with the Bankruptcy Court in April 1996 and filed several
subsequent amendments to the plan (the "Plan"). In April 1997, the Bankruptcy
Court confirmed and approved the Plan.
The confirmed Plan contemplated, among other things, that a newly formed
corporation, Jazz Casino Corporation, would be responsible for completing
construction of the Rivergate Casino, a subsidiary of the Company would receive
approximately 40% of the equity in the project, and Harrah's would make a $75
million equity investment in the project (less any debtor-in-possession
financing provided to the project), guarantee $120 million of a $180 million
bank credit facility, guarantee timely completion and opening of the Rivergate
Casino and make an additional $20 million subordinated loan to the project to
finance the Rivergate Casino. However, since the Louisiana State Legislature did
not approve a component of the confirmed Plan--a modified casino operating
contract with Louisiana's gaming board--the confirmed Plan was not consummated.
Subsequently, Harrah's Jazz filed a modified plan with the Bankruptcy Court
which contemplated, among other things, the assumption of the existing casino
operating contract and relief from payment of any gaming taxes under the casino
operating contract. This modified plan was withdrawn by Harrah's Jazz.
In November 1997 and again in January 1998, Harrah's Jazz modified the
confirmed Plan. This most recent plan, which is supported by, among others, the
Governor of Louisiana and the Mayor of New Orleans, contemplates that a newly
formed limited liability company, Jazz Casino Company, L.L.C.
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("JCC"), would be responsible for completing construction of the Rivergate
Casino, a subsidiary of the Company would receive approximately 40% of the
equity in JCC's parent, and Harrah's would make a $75 million equity investment
in the project (less any debtor-in-possession financing provided to the
project), guarantee JCC's $100 million annual payment under the casino operating
contract to the State of Louisiana gaming board (the "State Guarantee"),
guarantee up to $154 million of a bank credit facility of up to $224 million,
guarantee timely completion and opening of the Rivergate Casino and make an
additional $10 million subordinated loan to JCC to finance the construction of
the Rivergate Casino. With respect to the State Guarantee, Harrah's would be
obligated to guarantee the first year of JCC's operations and, if certain cash
flow tests and other conditions are satisfied each year, to renew the guarantee
each year for a maximum term of approximately five years. Harrah's obligations
under the State Guarantee would be limited to a guarantee of the $100 million
payment obligation of JCC for the period in which the State Guarantee is in
effect and would be secured by a first priority lien on JCC's assets. JCC's
payment obligation would be $100 million at the commencement of each 12-month
period under the casino operating contract and would decline on a daily basis by
1/365 of $100 million as payments are made each day by JCC to Louisiana's gaming
board.
Final consummation of the plan is subject to numerous approvals, including
approval from the Company's Board of Directors, the Louisiana State Legislature,
the City of New Orleans City Council and others. The plan was confirmed by the
Bankruptcy Court on January 29, 1998 and it is anticipated that the casino
operating contract will be considered by the Louisiana State Legislature in a
special session commencing in late March 1998. There can be no assurance that
these approvals will be obtained and that such plan will be consummated.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Harrah's Jazz, totaling
approximately $32.2 million as of December 31, 1997, to fund certain payments to
the City of New Orleans and other cash requirements of Harrah's Jazz. Harrah's
has committed to provide up to $40 million in debtor-in-possession loans to
Harrah's Jazz, conditioned upon Harrah's Jazz meeting certain monthly milestones
in the bankruptcy. There can be no assurance that such committed
debtor-in-possession financing will be sufficient for Harrah's Jazz to
consummate the Plan. Should additional debtor-in-possession funding be necessary
for the consummation of the Plan, the approval of the Company's Board of
Directors would be necessary for Harrah's to provide any debtor-in-possession
financing in excess of $40 million.
See "Legal Proceedings" herein for a discussion of legal actions filed in
connection with the New Orleans project.
RIVERBOAT CASINOS
JOLIET
Harrah's Joliet is located in downtown Joliet, Illinois, on the Des Plaines
River. The two riverboat casinos, the Harrah's Northern Star, a modern 210-foot
mega-yacht, and the 210-foot Southern Star II, a re-creation of a Mississippi
riverboat, offer a combined total of 37,000 square feet of casino space with 56
table games and 988 slot machines. Each riverboat has the capacity to
accommodate approximately 825 guests per cruise. Harrah's Joliet offers a total
of 18 cruises per day.
The dockside facilities, which are situated on 6.8 acres, include a pavilion
with three restaurants, two snack bars, a lounge, approximately 3,700 square
feet of meeting space and a retail shop. Parking is available for 943 cars,
including a portion in a 4-story parking garage.
A partnership, in which an indirect subsidiary of the Company is the 80
percent general partner, owns the dockside facilities and underlying real
property, the Harrah's Northern Star and the Southern Star II vessels, and the
riverboat businesses. The businesses are operated by Harrah's, as general
partner in the partnership. The partnership also holds long-term rights to the
boat basin/berth.
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The Company is evaluating a proposed expansion project in Joliet to add a
hotel and additional meeting room facilities.
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 riverboat casino complex located in Tunica,
Mississippi, approximately 30 miles south of downtown Memphis, Tennessee. The
facilities include a casino constructed on a floating stationary barge with
approximately 50,000 square feet of casino space, 857 slot machines and 44 table
games. Shoreside facilities, which are situated on 88 acres of land, include a
Harrah's hotel, which features 181 rooms, 18 suites and exercise facilities,
three restaurants, a child care facility, an arcade, retail shop, approximately
13,500 square feet of convention area/meeting room space and customer parking
for approximately 2,600 cars.
The riverboat casino facilities are owned by a partnership in which an
indirect subsidiary of the Company is the 83% general partner. In April 1997, a
separate indirect subsidiary of the Company acquired the remaining interest in
the partnership not owned by the Company and accordingly, the Company owns 100%
of the casino and related facilities. The underlying land is held under a
long-term lease to the partnership.
The partnership which owns Harrah's Tunica has entered into agreements with
two nearby competitors for the development of a golf course and related
facilities adjacent to Harrah's Tunica. Construction on the project commenced in
November 1996 with completion expected in fourth quarter 1998. The Company's
investment in the golf course development is not expected to exceed $2 million.
The primary feeder market for Harrah's Tunica is the Memphis metropolitan
area.
The Company also operated another dockside casino in Tunica which closed in
May 1997. The Company is continuing to explore its options with respect to this
property.
VICKSBURG
Harrah's Vicksburg is the Company's dockside casino entertainment complex on
approximately 10.3 acres in Vicksburg, Mississippi. The complex, which is
located in downtown Vicksburg on the Yazoo Diversion Canal of the Mississippi
River, includes a 297-foot stationary riverboat casino designed in the spirit of
a traditional 1800's riverboat with approximately 18,000 square feet of casino
space, 573 slot machines and 31 table games. The casino is docked next to the
Company's shoreside complex which features three restaurants, child care
facilities, an arcade, a retail outlet and an approximate 8,500 square foot
meeting room/convention area. Adjacent to the riverboat is a Harrah's hotel,
with 109 rooms and eight suites, which is owned and operated by the Company. Two
covered parking garages are across the street with combined parking for 996 cars
and additional parking is available for 429 cars. The Company owns the riverboat
and hotel and owns or 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, which includes a 254-foot 19th-century design
paddlewheeler riverboat, the ShreveStar, with 22,550 square feet of gaming space
with 1,069 slot machines and 40 table games. A pavilion, on 11.2 acres of land,
adjoins the casino on the banks of the Red River and includes two restaurants
and a 5,000 square foot area for private parties and group functions. Parking is
available for 880 cars, including 750 spaces in a parking garage.
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The Company plans to commence construction during second quarter 1998 on
expanded parking facilities at Harrah's Shreveport, and is evaluating a possible
further expansion of the facilities to include a hotel as well as additional
restaurant and meeting facilities.
The casino and related facilities are owned by a partnership which is 100%
owned by the Company. The underlying land is held by the partnership under a
long-term lease from the City of Shreveport.
The primary feeder markets for the casino are northwestern Louisiana and
east Texas, including the Dallas/Fort Worth metropolitan area.
NORTH KANSAS CITY
The Company owns and operates riverboat casino facilities in North Kansas
City, Missouri, which include two riverboat casinos, the North Star, a 295-foot
classic sternwheeler-designed stationary riverboat, and the other, the Mardi
Gras, which is constructed on a floating stationary barge. The facilities offer
a combined total of approximately 62,100 square feet of casino space, 2,029 slot
machines and 82 table games.
Shoreside facilities, which are situated on 55 acres of land that is under a
long-term lease, include a Harrah's hotel which features 181 rooms and 19
suites, a pavilion that houses three restaurants and 10,000 square feet of
meeting space. Additional property amenities include four snack bars, an arcade,
swimming pool and exercise room. The property also has a three-story 1,048-car
parking garage as well as surface parking. Total on-site parking, including
valet parking, is available for 2,942 cars.
The casino's primary feeder market is the Kansas City metropolitan area.
ST. LOUIS-RIVERPORT
On March 11, 1997, the Company opened a riverboat casino complex with
Players International, Inc. ("Players") in Maryland Heights, Missouri, in
northwest St. Louis County, 16 miles from downtown St. Louis. The partnership
formed by Harrah's and Players leases space to both Harrah's and Players in
which to operate their separately branded casinos and specialty restaurants.
Each company operates two riverboat casinos. Harrah's two riverboats offer a
combined total of approximately 60,000 square feet of gaming space, with a total
of approximately 1,300 slot machines and 60 table games.
A shoreside pavilion includes four restaurants (one of which is owned and
managed by Players), a snack bar, an arcade, an entertainment lounge and retail
space. Additional amenities include a 10,000 square foot convention/special
events center and child care facilities. Also included in the shoreside
facilities are an 8-story Harrah's hotel with 275 rooms and 16 suites. Parking
is available for 4,071 cars, including a portion in a parking garage. Harrah's
manages the shoreside pavilion, hotel and parking areas for the partnership for
a fee.
The complex is located on a site comprised of approximately 74 acres which
is owned by the Company and leased to the partnership and approximately 140
acres of additional land which is owned by the partnership. The Company's total
investment in this development was $180 million.
The primary feeder market for Harrah's St. Louis Riverport is the St. Louis
metropolitan area.
INDIAN GAMING
AK-CHIN
Harrah's Phoenix Ak-Chin casino is owned by the Ak-Chin Indian Community and
is located on approximately 20 acres of land on the Community's reservation,
approximately 25 miles south of Phoenix, Arizona. The casino includes 38,000
square feet of casino space with 475 slot machines, 25 poker tables, bingo,
keno, two restaurants, two snack bars, an entertainment lounge, 11,050 square
feet of meeting room space and a retail shop. The complex has customer parking
for approximately 1,200 cars and has valet parking available. Harrah's manages
the casino for a fee under a management contract expiring in
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December 1999. Renewal of the contract would require mutual agreement between
Harrah's and the Ak-Chin Community and approval by the National Indian Gaming
Commission ("NIGC").
The primary feeder markets for the casino are Phoenix and Tucson.
SKAGIT VALLEY
Harrah's Skagit Valley casino is located on approximately ten acres of land
on the Upper Skagit Indian Reservation, approximately 70 miles north of Seattle,
Washington. The casino includes 26,000 square feet of casino space with a
600-seat bingo hall, 50 gaming tables, seven poker tables, keno and pulltabs.
Nongaming amenities include a 68-seat lounge, two restaurants, a snack bar, as
well as an arcade and gift shop. The complex has customer parking for
approximately 1,000 cars with valet service provided. Harrah's manages the
casino for a fee under a management contract expiring in December 2002. 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, the
proceeds of which were used to construct the Upper Skagit facility. At year end
1997, $16.3 million of the loan was outstanding. In addition, the Company has
made loans to the tribe. At year end 1997, the total amount outstanding under
these loans was $9.2 million.
The primary feeder markets for the casino are northwestern Washington state,
including the Seattle and Bellingham, Washington areas and southwestern Canada,
including the Vancouver, British Columbia metropolitan area.
CHEROKEE
On November 13, 1997, Harrah's Cherokee Smoky Mountains Casino opened.
Harrah's developed the casino for the Eastern Band of Cherokee Indians on 37
acres of land on their reservation in Cherokee, North Carolina. The casino
includes 50,000 square feet of casino space with 1,801 video gaming machines.
Additional facilities consist of a multi-purpose entertainment room with 1,500
theater-style seats, two restaurants, as well as a snack bar, a gift shop and
child care facilities. Parking is available for approximately 1,800 cars.
Harrah's manages the casino for a fee under a management contract expiring in
November 2002. Renewal of the contract would require mutual agreement between
Harrah's and the Cherokee Indian Tribe and approval by the NIGC.
The Company has guaranteed the Tribe's repayment of an $82 million bank
loan, the proceeds of which were used to construct the Cherokee facility. At
year end 1997, $75.5 million of the loan had been drawn and was outstanding.
The casino's primary feeder markets are eastern Tennessee, western North
Carolina, as well as northern Georgia and South Carolina.
PRAIRIE BAND
Harrah's Prairie Band Casino-Topeka, located approximately 17 miles north of
Topeka, Kansas, opened on January 13, 1998. The Company developed the casino for
the Prairie Band of Potawatomi Indians on approximately 80 acres of land owned
by the tribe. The casino facilities include 26,000 square feet of casino space
with 500 slot machines, 40 table games and a 420-seat bingo hall. The complex
also includes a 100-room hotel, a restaurant, two snack bars, an entertainment
lounge, a gift shop and parking for approximately 850 vehicles. The facilities
are managed by the Company for a fee under a management contract expiring in
January 2003. Renewal of the contract would require mutual agreement between
Harrah's and the Prairie Band and approval by the NIGC.
Topeka and Wichita are the primary feeder markets for the casino.
8
The Company has guaranteed the Tribe's repayment of a $37 million bank loan,
the proceeds of which were used to construct the Prairie facility. At year end
1997, $19.3 million of the loan had been drawn and was outstanding.
OTHER
The Company has entered into preliminary management and development
agreements with 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 and other governmental approvals. 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
SODAK GAMING, INC.
The Company owns approximately 14% of Sodak Gaming, Inc. ("Sodak"), a
publicly-owned corporation. 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 2001, Sodak is the
exclusive distributor for IGT of its gaming equipment in the states of North
Dakota, South Dakota and Wyoming, and on Native American Reservations in the
United States (except Nevada, New Jersey and Hawaii). This distribution
agreement provides for 2-year renewals after May 2001, until it is cancelled.
Sodak also has an IGT software distribution and license agreement for IGT
product software.
In addition, Sodak also is in the business of financing, developing and
managing Native American and commercial casino businesses in the United States
and abroad. Sodak has announced that it intends to develop, through a joint
venture with other companies, a riverboat casino, hotel and retail complex in
Shreveport, Louisiana.
INTERACTIVE ENTERTAINMENT LIMITED
The Company owns approximately 35.5% of Interactive Entertainment Limited
("IEL"), a publicly-owned corporation. IEL has pioneered development of
sophisticated remote control gaming entertainment software for use in the
international long-haul airline industry. IEL has a multi-year contract with
Singapore Airlines for planned use of the software.
In addition to the above, the Company is actively pursuing a variety of
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, could require
significant capital investments by the Company.
TRADEMARKS
The following trademarks used herein are owned by the Company:
Harrah's-Registered Trademark-; Bill's-Registered Trademark-; Total
Gold-Registered Trademark-; WINet(sm); Harrah's Northern Star(sm); North
Star(sm); Harrah's Southern Star II(sm); ShreveStar(sm); Mardi Gras(sm), Sammy's
Showroom(sm) and South Shore Showroom(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.
9
COMPETITION
Harrah's, which operates land-based, dockside, riverboat and Indian casino
facilities in all of the traditional, and most of the new, U.S. casino
entertainment jurisdictions, and manages 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 non-gaming resorts
and vacation areas, and with various other casino and other entertainment
businesses. The casino entertainment business is characterized by competitors
which vary considerably by their size, quality of facilities, number of
operations, brand identities, marketing and growth strategies, financial
strength and capabilities, level of amenities, management talent 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 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.
In recent years, with fewer new markets open for development, competition in
existing markets has intensified. Many casino operators, including Harrah's,
have invested in expanding existing facilities or in the development of new
facilities in existing markets, such as Las Vegas. This expansion of existing
casino entertainment properties, the increase in the number of properties and
the aggressive marketing strategies of many of the Company's competitors has
increased competition in many markets in which the Company competes and this
intense competition can be expected to continue. These competitive pressures
have adversely affected the financial performance of the Company in certain
markets and, the Company believes, has also adversely affected the financial
performance of certain competitors operating in these markets.
Harrah's believes it is well positioned to take advantage of any further
legalization of casino gaming, the continued positive consumer acceptance of
casino gaming as an entertainment activity, and increased visitation to casino
facilities. However, the expansion of casino entertainment into new markets also
presents competitive issues for Harrah's. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effects of Current
Economic and Political Conditions" on pages 31 and 32 and portions of
"Management's Discussion and Analysis--Division Operating Results and
Development Plans" on pages 26 and 28 of the Annual Report, which pages are
incorporated herein by reference.
GOVERNMENTAL REGULATION
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.
10
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 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
11
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 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
12
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 1996, the New Jersey Commission renewed the license for a
four-year period and also found Harrah's and HOC to be qualified as holding
companies of Marina.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of New Jersey.
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.
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.
13
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, 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.
14
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, 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.
15
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 23, 1997, the Nevada Commission granted Harrah's and HOC
prior approval to make offerings for a period of two years, subject to certain
conditions ("Shelf Approval"). The Shelf 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.
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 environment 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.
16
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.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Nevada.
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 the Sky City Casino are subject
to the licensing and regulatory control of the Casino Control Authority
("Authority").
Pursuant to the Casino Act: (1) the predecessor of Sky City Limited applied
for and was granted a Casino Premises License by the Authority; (2) Harrah's New
Zealand, Inc., an indirect subsidiary of the Company, applied for and was
granted a Casino Operator's License by the Authority; and (3) Sky City Limited
entered into a Casino Agreement ("Management Agreement") with Harrah's New
Zealand, Inc., 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 Sky City Limited, Harrah's New Zealand, Inc. 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 the Sky City Casino. In addition, no further casino premises licenses can be
granted within a radius of 100 kilometers of the site of the 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.
17
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.
The Company is currently in material compliance with the Casino Act and all
regulations promulgated thereunder.
GAMING-LOUISIANA (NEW ORLEANS)
On November 22, 1995, Harrah's Jazz Company (referred to in this section as
the "Casino Operator" or "HJC"), 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 Louisiana Gaming Control Board ("LGCB")
and previously with the Louisiana Economic Development and Gaming Corporation
("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 Basin Street 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 or "HNOMC"), to manage the Gaming
Facilities. The ownership and operation of the Rivergate Casino are subject to
pervasive governmental regulation, including regulation by the LEDGC and now by
the LGCB in accordance with the terms of the Louisiana Economic Development and
Gaming Act (the "Gaming Act"), the rules and regulations promulgated thereunder
from time to time (the "Rules and Regulations"), and the Casino Operating
Contract. The LGCB is empowered to regulate a wide spectrum of gaming and
non-gaming related activities.
The Gaming Act authorized the LEDGC and now the LGCB, among other things, to
enter into a casino operating contract with a casino operator for the conduct of
casino gaming operations at a single land-based gaming establishment, having at
least 100,000 square feet of useable space, to be located at the Rivergate site.
The term of the contract is not to exceed a total of 20 years with one ten-year
renewal option. Under the Plan filed in the bankruptcy proceedings, the minimum
compensation payable to the LGCB from gaming operations at the Rivergate Casino
will be 18 1/2% of gross gaming revenues, or $100 million annually, whichever is
greater.
The Gaming Act and the Rules and Regulations establish significant
regulatory requirements with respect to gaming activities and the casino
operator, including, without limitation, requirements with respect to minimum
accounting and financial practices, standards for gaming devices and
surveillance, licensure requirements for vendors and employees, standards for
credit extension and collection, and permissible food services. Failure to
comply with the Gaming Act and the Rules and Regulations could result in
disciplinary action, including fines and suspension or revocation of a license
or suitability. Certain regulatory violations could also constitute an event of
default under the Casino Operating Contract.
18
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 LGCB is satisfied the applicant is suitable. The Gaming Act and the Rules
and Regulations also require suitability findings for, among others, the casino
manager, anyone with a direct ownership interest or the ability to control the
casino operator or casino manager (as well as their intermediary and holding
companies), certain officers and directors of such companies, and certain
vendors and employees of the casino operator. Suitability requires a
demonstration by each applicant, by clear and convincing evidence, that, among
other things, (i) he is a person of good character, honesty and integrity, (ii)
his 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) he 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: (i) it has or guarantees
acquisition of adequate business competence and experience in the operation of
casino gaming operations; (ii) the proposed financing is adequate for the
proposed operation and is from suitable sources; and (iii) it has or is capable
of and guarantees the obtaining of a bond or satisfactory financial guarantee of
sufficient amount, as determined by the LGCB, to guarantee successful completion
of and compliance with the Casino Operating Contract or such other projects that
are regulated by the LGCB.
Under the Gaming Act and Rules and Regulations, the LGCB can also require
that the holder of debt securities issued by the casino operator or its
affiliated companies and the holders of equity interests in holding companies of
the casino operator be found suitable. Any person holding or controlling a five
percent or more equity interest in a non-publicly traded, direct or indirect,
holding company of the casino operator or casino manager or ten percent or more
equity interest in a publicly traded direct or indirect holding company of the
casino operator or casino manager, is presumed to have the ability to control
the casino operator or casino manager, as the case may be, requiring a finding
of suitability, unless, among other things: (i) the presumption is rebutted by
clear and convincing evidence; or (ii) the holder is one of several specified
types of passive institutional investors holding a stated minimum amount of
assets and, upon request, such institution files a certification stating that
they do not have an intention to influence the affairs of the casino operator or
casino manager.
Under the Gaming Act and Rules and Regulations, the LGCB has the authority
to deny, revoke, suspend, limit, condition, or restrict any finding of
suitability. Under the Rules and Regulations, the LGCB also has the authority to
take further action on the grounds that the person found suitable is associated
with, or controls, or is controlled by, or is under common control with, an
unsuitable or disqualified person. Under the Rules and Regulations and the
Casino Operating Contract, if at any time the LGCB finds that any person
required to be and remain suitable has failed to demonstrate suitability, the
LGCB may, consistent with the Gaming Act and the Casino Operating Contract, take
any action that the LGCB deems necessary to protect the public interest. Under
the Rules and Regulations, however, 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 LGCB shall not declare the casino operator or
its affiliate, intermediary, or holding company, as the case may be, unsuitable
if such companies comply with the conditional licensing provisions, take
immediate good faith action and comply with any order of the LGCB 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 is engaged in a relationship with the
unsuitable person and had actual or constructive knowledge of the wrongdoing
causing the LGCB's action, (iii) the casino operator is so tainted by such
person that it affects the suitability of the casino operator under the
standards of the Gaming Act, or (iv) the casino operator cannot meet the
suitability standard contained in the Gaming Act and the Rules and Regulations.
19
On July 15, 1994, the LEDGC entered into the Casino Operating Contract with
HJC, which sets forth the general parameters of, among other things, the
location and design and construction requirements of the Rivergate Casino, the
agreed upon compensation requirements due to the LEDGC from gaming operations,
the requirements for financing the Rivergate Casino, and other contractual and
regulatory requirements. In connection with the execution of the Casino
Operating Contract, the LEDGC found HJC, HNOMC and certain related intermediary
and holding companies and certain of their officers and directors to be
suitable. Since the bankruptcy filing by HJC, neither the LEDGC nor the LGCB has
informed HJC or any other person required to be found suitable that it is taking
action to revoke any finding of suitability in accordance with the Gaming Act or
Rules and Regulations, nor has the LEDGC or the LGCB given any notice of default
under the Casino Operating Contract.
Under the Gaming Act, the LGCB has the right 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. It is believed that certain provisions of this statute may be
unenforceable pursuant to Sections 365(e)(1) and 525 of the Bankruptcy Code.
Nevertheless, the LGCB maintains it has the right to negotiate the Casino
Operating Contract in connection with the Plan. In addition, a law enacted as a
result of the special session of the State legislature purports to provide
authority to the Governor, subject to legislative approval, or to the State
legislature, to set aside or order renegotiation or revocation of the Casino
Operating Contract when the casino operator is placed in bankruptcy.
Under the Plan and subject to certain approvals from the LGCB, the Casino
Operating Contract requirements would be amended in certain respects, including
the elimination of temporary casino operations, alterations of the size and
scope of the Rivergate Casino and permission for a revised opening schedule for
the Rivergate Casino. In addition, in connection with the Plan, certain rulings,
approvals and findings of suitability will be required, including findings of
suitability with respect to any directors of the JCC entities and any persons
having the ability to significantly affect the affairs thereof and certain other
approvals relating to the modified design of the Rivergate Casino and the
revised opening schedule.
GAMING-ILLINOIS
The ownership and operation of a gaming riverboat in Illinois is subject to
extensive regulation under the Illinois Riverboat Gambling Act and the rules and
regulations promulgated thereunder. 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, an indirect subsidiary of Harrah's,
received an owner's license in 1993.
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
20
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; 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
21
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 Illinois legislature recently amended the legislation to impose an
annual graduated wagering tax on adjusted receipts (generally defined as gross
receipts less payments to customers as winnings) from gambling games, effective
January 1, 1998. The graduated tax rate is as follows: up to $25 million-15%;
$25 to $50 million-20%; $50 to $75 million-25%; $75 to $100 million-30%; in
excess of $100 million-35%. 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 currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Illinois.
There have been discussions regarding increasing the number of riverboat
gaming licenses. There can be no assurance that 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 operating results 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 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. and Tunica Partners II L.P., each of which is the licensed
operator of a riverboat casino in Tunica, Mississippi. (Harrah's Vicksburg
Corporation is the limited partner of both partnerships.) As stated above, the
casino operated by Tunica Partners L.P. closed in May 1997. 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
22
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 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
23
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 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 currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Mississippi.
24
GAMING-LOUISIANA (RIVERBOAT)
The ownership and operation of a gaming riverboat in Louisiana is subject to
extensive regulation under Louisiana Riverboat Economic Development and Gaming
Control Act and the rules and regulations promulgated thereunder. A seven-member
Louisiana Gaming Control Board ("LGCB") 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 LGCB 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.
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, but in the future the Company expects to make
a payment in lieu of such admission fee of 4.75% of net gaming proceeds.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Louisiana with respect
to riverboat casinos.
25
GAMING-MISSOURI
The ownership and operation of a gaming riverboat in Missouri is subject to
extensive regulation under the Missouri Riverboat Gambling Act and the rules and
regulations promulgated thereunder. 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 two licenses by the Commission
to conduct riverboat gaming at its North Kansas City location. Harrah's Maryland
Heights LLC, also an indirect subsidiary of the Company, has been issued two
licenses by the Commission to conduct riverboat gaming at its Maryland Heights
location. 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
riverboats in North Kansas City and Maryland Heights.
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 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
26
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 riverboats in North Kansas City
and Maryland Heights, which are continuously docked, passengers may board the
riverboats 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.
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
Commission 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.
It is the Company's opinion that it is currently in material compliance with
all applicable gaming laws, rules and regulations promulgated by the State of
Missouri. For a discussion of the Missouri Supreme Court's decision in AKIN V.
MISSOURI GAMING COMMISSION and matters related thereto, see "Legal Proceedings"
herein.
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
NIGC. IGRA is subject to interpretation by the Secretary of the Interior (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, Harrah's Skagit
Valley, Harrah's Cherokee and Harrah's Prairie Band 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;
27
(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 require 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 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, Harrah's Skagit Valley, Harrah's Cherokee and Harrah's Prairie Band
provide 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 sought federal court orders to compel
such negotiations. The U. S. Supreme Court in the case of SEMINOLE V. STATE OF
FLORIDA AND LAWTON CHILES, determined that 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. The
Court did not address, however, the possibility that IGRA allows the Secretary
of the Department of the Interior to prescribe Class III gaming procedures where
states refuse to enter into compacts with Indian tribes. Subsequent to this
decision, the Secretary of the Interior issued proposed rules related to Class
III gaming which are out for public comment until April 1998. The issue of
whether the Secretary has the authority to issue such regulations either
generally or under IGRA can be expected to be litigated.
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 since has received its permanent certification) and
certification from the Washington and Kansas gaming authorities prior to the
opening of the Skagit Valley and Prairie Band casinos, respectively. The
certification for Cherokee was provided by the Tribal Gaming Commission.
28
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 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, Harrah's Skagit Valley,
Harrah's Cherokee and Harrah's Prairie Band 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 the NIGC under certain
standards established by IGRA. The 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, Skagit Valley, Cherokee
and/or Prairie Band casinos. The possession of valid licenses from the Ak-Chin
Indian Community, the Upper Skagit Indian Tribe, the Eastern Band of Cherokee
Indians and the Prairie Band of Potawatomi Nation are ongoing conditions of the
Company's agreements with these tribes.
The Company is in present material compliance with IGRA and all applicable
rules and regulations promulgated by the NIGC and all tribal and state
regulations.
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 operating results of 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 and Atlantic City, New Jersey, may be
restricted from time to time during the winter months by bad weather 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 23,400 employees.
Labor relations with employees are good.
Harrah's subsidiaries have collective bargaining agreements covering
approximately 3,100 employees. These agreements relate to certain casino, hotel
and restaurant employees at Harrah's Atlantic City and Harrah's Las Vegas.
Approximately 1,800 of these 3,100 employees are covered by a collective
bargaining
29
agreement which expired but which remains in effect while negotiations for a
successor agreement continue.
ITEM 3. LEGAL PROCEEDINGS.
NEW ORLEANS
On September 26, 1995, Harrah's New Orleans Investment Company ("HNOIC"), an
indirect subsidiary of the Company, filed in the United States District Court
for the Eastern District of Louisiana a suit styled HARRAH'S NEW ORLEANS
INVESTMENT COMPANY V. NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION, Civil No.
95-3166. At issue in the suit is the percentage of ownership that New
Orleans/Louisiana Development Corporation ("NOLDC") holds in Harrah's Jazz
Company ("HJC"), a Louisiana partnership whose general partners are HNOIC, NOLDC
and Grand Palais Casino, Inc. This declaratory judgment action seeks to confirm
that, as of September 26, 1995, NOLDC's percentage interest in the Harrah's Jazz
Company partnership was only 13.73% and, therefore, NOLDC is not a "Material
Partner" in HJC. This case was put on "administrative hold" after the filing by
NOLDC of a Chapter 11 bankruptcy petition on November 21, 1995. Should it be put
back on the active list, HNOIC or the appropriate post-bankruptcy entity would
vigorously prosecute it. At the time the case was put on "administrative hold,"
no discovery on the merits had been taken and no answer had been filed by NOLDC.
On September 28, 1995, NOLDC filed suit against the Company and various of
its corporate affiliates in NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION V.
HARRAH'S ENTERTAINMENT, FORMERLY D/B/A THE PROMUS COMPANIES, HARRAH'S NEW
ORLEANS INVESTMENT COMPANY, HARRAH'S NEW ORLEANS MANAGEMENT COMPANY, HARRAH'S
JAZZ COMPANY, AND PROMUS HOTELS, FORMERLY D/B/A EMBASSY SUITES, INC., Civil No.
95-14653, filed in the Civil District Court for the Parish of Orleans. The case
was subsequently removed by defendants to the United States District Court for
the Eastern District of Louisiana. In this suit, NOLDC seeks to realign
ownership interests in HJC among HNOIC and NOLDC. NOLDC also seeks an
unspecified dollar amount of damages sufficient to compensate it for the losses
it alleges it has suffered as a result of actions of defendants. NOLDC has
indicated that it intends to seek to remand the suit to the Civil District
Court. The case was also put on "administrative hold" by the District Court
Judge as a result of NOLDC's bankruptcy filing. The Company and other defendants
intend to vigorously defend the action should it be put back on the active case
list. At the time it was put on "administrative hold," no answer had been filed
by any defendant and no discovery had been taken.
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.
30
HEMMETER, AND DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION. Per Court
Order of January 26, 1996, the above plaintiffs filed a consolidated complaint
in the action numbered 95-3925 IN RE HARRAH'S ENTERTAINMENT, INC. SECURITIES
LITIGATION. The consolidated complaint alleges that various misstatements and
omissions were made in connection with the sale of Harrah's Jazz Company 14.25%
First Mortgage Notes and thereafter, and seeks unspecified damages, as well as
costs of legal proceedings. On April 25, 1997, the United States District Court
preliminarily approved a settlement of this matter, which settlement is
contingent upon the consummation of a Plan of Reorganization for HJC. A final
fairness hearing was held on June 26, 1997. On July 31, 1997, the Court ruled
that the settlement was fair to class members.
On December 6, 1995 Centex Landis, the general contractor for the permanent
casino being developed by HJC, filed suit against the Company, among others, in
the Civil District Court for The Parish of Orleans in CENTEX LANDIS CONSTRUCTION
CO., INC. V. HARRAH'S ENTERTAINMENT, INC. FORMALLY D/B/A THE PROMUS COMPANIES,
INC.; AND RONALD A. LENCZYCKI, Civil No. 95-18101. Defendants removed the case
to the United States District Court for the Eastern District of Louisiana and it
was subsequently transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for remand is pending. This suit seeks to collect more than
$40 million allegedly owed to Centex Landis by HJC from the Company under
guarantee, fraud, fraudulent advertising and unfair trade practice theories. The
Company and the other defendant intend to vigorously defend the action and have
filed an answer denying all of plaintiff's allegations. No discovery has been
taken in the action.
RUSSELL M. SWODY, ET AL. V. HARRAH'S NEW ORLEANS MANAGEMENT COMPANY AND
HARRAH'S ENTERTAINMENT, INC., Civil No. 95-4118, was filed against the Company
on December 13, 1995 in the United States District Court for the Eastern
District of Louisiana, and subsequently amended. SWODY is a class action lawsuit
under the Worker Adjustment and Retraining Notification Act ("WARN Act") and
seeks damages for alleged failure to timely notify workers terminated by
Harrah's New Orleans Management Company at the time of the HJC bankruptcy.
Plaintiffs seek unspecified damages, as well as costs of legal proceedings, for
themselves and all members of the class. An answer has been filed denying all of
plaintiffs' allegations.
SWODY was consolidated with SUSAN N. POIRIER, DARLENE A. MOSS, ET AL. V.
HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW ORLEANS MANAGEMENT COMPANY, AND
HARRAH'S OPERATING COMPANY, Civil No. 96-0215, which was filed in the United
States District Court for the Eastern District of Louisiana on January 17, 1996,
and subsequently amended. POIRIER seeks not only damages under the WARN Act, but
also under the Employee Retirement Income Security Act ("ERISA") for the alleged
wrongful failure to provide severance to those terminated. Similar proofs of
claims were filed by Ms. Poirier in the Bankruptcy Court for the Eastern
District of Louisiana in the HJC, HNOIC and Harrah's Jazz Finance Corp.
bankruptcy cases.
A settlement has been reached with the SWODY and POIRIER plaintiffs, which
calls for a payment to be made by HJC in exchange for the dismissal of all
actions, which settlement is contingent on the consummation of the Plan of
Reorganization for HJC. That settlement has already been determined to be fair
to all class members by the Bankruptcy Court.
On December 29, 1995 in the Civil District Court for The Parish of Orleans,
the City of New Orleans filed suit against the Company and others in CITY OF NEW
ORLEANS AND RIVERGATE DEVELOPMENT CORPORATION V. HARRAH'S ENTERTAINMENT, INC.
(F/K/A THE PROMUS COMPANIES, INC.), GRAND PALAIS CASINO, INC., EMBASSY SUITES,
INC., FIRST NATIONAL BANK OF COMMERCE AND RONALD A. LENCZYCKI, Civil No.
95-19285. This suit seeks to require the Company, among others, to complete
construction of the permanent casino being developed by HJC under theories of
breach of completion guarantee contract, breach of implied duty of good faith,
detrimental reliance, misrepresentation, and false advertising. Plaintiff seeks
unspecified damages, as well as costs of legal proceedings. Defendants have
removed the suit to the United States District Court for the Eastern District of
Louisiana and it was then transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for remand is pending. The Company and the other defendants
have filed an answer denying all of plaintiffs' allegations and intend to
vigorously defend the action.
31
LOUISIANA ECONOMIC DEVELOPMENT AND GAMING CORPORATION V. HARRAH'S
ENTERTAINMENT, INC. AND HARRAH'S OPERATING COMPANY, INC., Civil No. 424328, was
filed on January 23, 1996 in the Nineteenth Judicial Court of the State of
Louisiana, Parish of East Baton Rouge. On February 21, 1996, the Company and the
other defendants removed the case to the Federal District Court for the Middle
District of Louisiana and asked that it be transferred to the Bankruptcy Court
handling the HJC bankruptcy. The case has been transferred. A motion for
reconsideration has been filed by LEDGC. In this suit LEDGC seeks to require the
Company and Harrah's Operating Company to complete construction of the permanent
casino being developed by HJC under theories of breach of completion guarantee
contract, breach of implied duty of good faith, detrimental reliance,
misrepresentation and, in the alternative, seeks damages. The Company has filed
an answer and counterclaim against LEDGC. LEDGC has moved to have that
counterclaim dismissed and/or for summary judgment. No ruling has yet been made
by the court. The defendants intend to vigorously defend the action and
prosecute their counterclaim.
On November 21, 1997 in the IN RE HARRAH'S JAZZ COMPANY bankruptcy
proceeding, HJC filed an adversary proceeding styled HARRAH'S JAZZ COMPANY V.
A&D MAINTENANCE SERVICES, ET AL., 97-1174, which names the Company and various
of its subsidiaries as defendants. As HJC noted at the time of the filing, the
action was filed "against numerous defendants, including the principal parties
in interest in the bankruptcy case, to preserve various causes of action." HJC
has not effected service on any defendant therein. This adversary proceeding
purports to state claims against the Company and its subsidiaries for
preferential transfers, insider preferential transfers, avoidance transfers,
violations of La. Civil Code Arts. 1978 ET SEQ., violations of La. Civil Code
Arts. 2315, 1953 as well as Arts., 1983, 1989, 1994, 1995, 1996, 1997 and 2000,
violations of La. Civil Code Arts. 1953, 1997, 2315, damage to its creditors as
a result of the projections in the 1994 offering of HJC bonds, and breach of
fiduciary duty and fair dealing. If the action is ever served on the Company,
the Company intends to defend the action vigorously.
On November 21, 1997 IN RE NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION
matter, NOLDC filed an adversary proceeding styled NEW ORLEANS LOUISIANA
DEVELOPMENT CORPORATION V. BANKERS TRUST COMPANY, 97-1176. et al., which names
the Company and several of its subsidiaries as defendants. NOLDC has not
effected service on any defendant therein. This adversary proceeding purported
to state claims for breach of fiduciary duty, negligent and fraudulent
misrepresentation, Stipulation Pour Autrui and violations of La. Civil Code Art.
1953 ET SEQ. If the action is ever served on the Company, the Company intends to
defend the action vigorously.
On November 21, 1997, Eddie Sapir and Eddie Sapir Inter Vivos Trust No. 1
filed suit against certain individuals and entities, including the Company. The
action is styled EDDIE SAPIR V. BANKER'S TRUST COMPANY, ET AL. and was filed in
the Civil District Court for the Parish of Orleans, No. 97-20643. The complaint
has not yet been served on the Company. Nonetheless, the Company removed the
action and asked that it be transferred to the Bankruptcy Court for the Eastern
District of Louisiana for consolidation with the IN RE HARRAH'S JAZZ COMPANY
bankruptcy proceeding. The complaint purports to state claims for detrimental
reliance, civil law equity, negotiorum guestro, unjust enrichment, breach of
covenant, quantum meruit, anticipatory breach of contract, abuse of right,
intentional interference with contract and negligent misrepresentation. If the
action is ever served on the Company, the Company intends to defend the action
vigorously.
MISSOURI
On November 25, 1997, the Missouri Supreme Court issued a ruling in AKIN V.
MISSOURI GAMING COMMISSION that defined the state constitutional requirements
for floating casino facilities in artificial basins. Subsequently, the Missouri
Gaming Commission (the "Commission") attempted to issue disciplinary resolutions
that effectively would have amended the gaming licenses of the Company's
Missouri casinos, and numerous other floating casino facilities in the
Commission's jurisdiction, to preclude games of chance, subject to evidentiary
hearings that were to be held if the licensees filed appeals to prove compliance
with the Supreme Court's ruling. Prior to the Commission's action, Harrah's and
other
32
licensees filed petitions in the Circuit Court of Cole County, Missouri, and
succeeded in having the Court issue an order restraining the Commission from
taking any such disciplinary action. The Commission has appealed to the Missouri
Supreme Court to permit it to proceed with its intended actions. The Supreme
Court will hear the appeal in May 1998, but the Circuit Court order restraining
the Commission remains in effect pending the Supreme Court's decision on the
appeal. Harrah's has also filed suit seeking declaratory judgment that its
gaming facilities meet the state constitutional mandates as established by the
Missouri Supreme Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
33
EXECUTIVE OFFICERS OF THE REGISTRANT
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ------------------------------------- --------------------------------------------------------------------------
Philip G. Satre (48)................. Director since 1989, Chairman of the Board since January 1997, President
since April 1991 and Chief Executive Officer since April 1994 of
Harrah's. Chief Operating Officer of Harrah's (1991-1994). President
(1984-1995) 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 (50)................... Executive Vice President of Harrah's since September 1995. Chief Financial
Officer of Harrah's since April 1997. Senior Vice President, Corporate
Development of Harrah's from May 1992 to September 1995. He is also a
director of Sodak Gaming, Inc. He is 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 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 (43).................. Senior Vice President, Information Technology and Marketing Services of
Harrah's since June 1993. Vice President, Strategic Marketing of
Harrah's from April 1989 to June 1993. He is a director of Interactive
Entertainment Limited.
Thomas J. Carr, Jr. (55)............. Senior Vice President, Brand Operations of Harrah's since July 1997.
Gaming Division Senior Vice President, Brand Strategy from February 1997
to July 1997. Senior Vice President and Managing Director, Harrah's Sky
City Casino from November 1994 to February 1997. Division Senior Vice
President, Indian Gaming from October 1992 to November 1994.
Ben C. Peternell (52)................ Senior Vice President, Corporate Human Resources and Communications of
Harrah's since November 1989.
E. O. Robinson, Jr. (58)............. 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.
34
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". The stock is also listed on the Chicago
Stock Exchange, the Pacific 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
--------- --------
1996
First Quarter....................... 30 1/4 24
Second Quarter...................... 38 7/8 27
Third Quarter....................... 28 3/8 17 1/4
Fourth Quarter...................... 21 3/4 16 3/8
1997
First Quarter....................... 20 3/4 17
Second Quarter...................... 20 1/4 15 1/2
Third Quarter....................... 22 15/16 17 5/16
Fourth Quarter...................... 22 7/16 16 15/16
The approximate number of holders of record of the Company's Common Stock as
of January 30, 1998, is as follows:
APPROXIMATE NUMBER
TITLE OF CLASS OF HOLDERS OF RECORD
- ------------------------------------------------------------------------- ---------------------
Common Stock, Par Value $0.10 per share.................................. 12,530
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,
which page is 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. In
October 1996, the Board of Directors of the Company approved a stock repurchase
plan which authorized the purchase of up to ten percent of the Company's
outstanding common stock. The repurchase of stock under this plan, which expired
December 31, 1997, was treated as a dividend for purposes of the Company's debt
agreements. 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 1993 through 1997 set forth under
"Financial and Statistical Highlights" on pages 4 and 5 of the Annual Report,
which pages are incorporated herein by reference.
35
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth on pages 34 through 50 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 1997 and
December 31, 1997 Option Values" 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.
36
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, 1997 and 1996.
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.
2. Schedules for the years ended December 31, 1997, 1996 and 1995, 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 43 through 45)
NO.
- --------
2(1)- Agreement and Plan of Merger, dated as of December 18, 1997, by
and among Harrah's Entertainment, Inc., HEI Acquisition Corp., and
Showboat, Inc. (19)
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. (25)
**3(2)- Bylaws of the Company, as amended December 12, 1997.
4(1)- Rights Agreement dated as of October 5, 1996, between Harrah's
Entertainment, Inc. and The Bank of New York, which includes the
form of Certificate of Designations of Series A Special Stock of
Harrah's Entertainment, Inc. as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase
Special Shares as Exhibit C. (3)
4(2)- First Amendment, dated as of February 21, 1997, to Rights
Agreement between Harrah's Entertainment, Inc. and The Bank of New
York. (27)
4(3)- Second Amendment, dated as of April 25, 1997, to Rights Agreement,
dated as of October 25, 1996, between Harrah's Entertainment, Inc.
and The Bank of New York. (5)
- ------------------------
* Incorporated by reference from pages 34 through 49 of the Annual Report.
** Filed herewith.
37
4(4)- Letter to Stockholders dated July 23, 1997 regarding Summary of
Rights To Purchase Special Shares As Amended Through April 25,
1997. (18)
4(5)- Certificate of Elimination of Series B Special Stock of Harrah's
Entertainment, Inc., dated February 21, 1997. (27)
4(6)- Certificate of Designations of Series A Special Stock of Harrah's
Entertainment, Inc., dated February 21, 1997. (27)
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 Bank of America National Trust and
Savings Association and Embassy Suites, Inc. dated May 14, 1993.
(6)
4(10)- Interest Swap Agreement between NationsBank of North Carolina, N.
A. and Embassy Suites, Inc. dated May 18, 1993. (6)
4(11)- Interest Swap Agreement between Bank of America National Trust and
Savings Association and Harrah's Operating Company, Inc. dated
December 21, 1995. (25)
4(12)- Interest Swap Agreement between NationsBank, N. A. (Carolinas) and
Harrah's Entertainment, Inc. dated December 21, 1995. (25)
4(13)- Interest Swap Agreement between The Bank of Nova Scotia and
Embassy Suites, Inc. dated January 25, 1995 and amended February
2, 1995. (7)
4(14)- Interest Swap Agreement between Bankers Trust Company and Embassy
Suites, Inc. dated May 16, 1995. (10)
4(15)- Interest Swap Agreement between The Sumitomo Bank, Limited and
Embassy Suites, Inc. dated June 5, 1995. (10)
4(16)- Interest Swap Agreement between Bankers Trust Company and Embassy
Suites, Inc. dated June 6, 1995. (10)
4(17)- Consent to Credit Agreements dated as of April 11, 1997, among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
Marina Associates, various lending institutions, and Bankers Trust
Company, The Bank of New York, CIBC Inc., Credit Lyonnais, Atlanta
Agency, Wells Fargo Bank, N.A., The Long-Term Credit Bank of
Japan, Limited, New York Branch, NationsBank, N.A. (South),
Societe Generale, The Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent. (18)
4(18)- Consent dated April 10, 1997 to Credit Agreement dated June 9,
1995, among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc., Marina Associates, various lenders, and Bankers
Trust Company, The Bank of New York, CIBC Inc., Credit Lyonnais,
Atlanta Agency, Wells Fargo Bank, N.A., The Long-Term Credit Bank
of Japan, Limited, New York Branch, NationsBank, N.A. (South),
Societe Generale, The Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent. (18)
38
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)- Second Amendment to Credit Agreement, dated as of October 15,
1996, among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc., Marina Associates, various lending institutions,
Bankers Trust Company, The Bank of New York, CIBC, Inc., Credit
Lyonnais, Atlanta Agency, First Interstate Bank of Nevada, N.A.,
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. (27)
10(4)- Consent dated as of April 17, 1996 to Credit Agreement, dated as
of June 9, 1995, among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., Marina Associates, various banks, Bankers
Trust Company, The Bank of New York, CIBC, Inc., Credit Lyonnais,
Atlanta Agency, First Interstate Bank of Nevada, N.A., 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. (11)
10(5)- Plan of Reorganization and Distribution Agreement, dated June 30,
1995, between The Promus Companies Incorporated and Promus Hotel
Corporation. (10)
10(6)- Risk Management Allocation Agreement, dated June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation.
(10)
10(7)- Tax Sharing Agreement, dated June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (10)
+10(8)- Form of Indemnification Agreement entered into by The Promus
Companies Incorporated and each of its directors and executive
officers. (1)
+10(9)- Financial Counseling Plan of Harrah's Entertainment, Inc. as
amended January 1996. (25)
+10(10)- The Promus Companies Incorporated 1996 Non-Management Director's
Stock Incentive Plan dated April 5, 1995. (9)
+10(11)- Amendment dated February 20, 1997 to 1996 Non-Management
Director's Stock Incentive Plan. (5)
**+10(12)- Trust Agreement dated November 7, 1997 between Harrah's
Entertainment, Inc. and NationsBank concerning the Non-Management
Director's Stock Incentive Plan.
- ------------------------
** 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.
39
+10(13)- The Promus Companies Incorporated Key Executive Officer Annual Incentive Plan
dated February 24, 1995. (10)
+10(14)- Summary Plan Description of Executive Term Life Insurance Plan. (27)
+10(15)- Form of Harrah's Entertainment, Inc.'s Annual Management Bonus Plan, as amended
1995. (25)
**+10(16)- Amendment dated as of December 12, 1997 to Harrah's Entertainment, Inc.'s Annual
Management Bonus Plan.
**+10(17)- Amended and Restated Severance Agreement dated as of October 31, 1997 entered
into with Philip G. Satre.
**+10(18)- Form of Amended and Restated Severance Agreement dated as of October 31, 1997
entered into with John M. Boushy, Thomas J. Carr, Jr., Ben C. Peternell, Colin V.
Reed and E. O. Robinson, Jr.
+10(19)- 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(20)- Amendment, dated May 5, 1997, to Employment Agreement of Philip G. Satre dated as
of February 25, 1994. (5)
+10(21)- The Promus Companies Incorporated 1990 Stock Option Plan. (12)
+10(22)- The Promus Companies Incorporated 1990 Stock Option Plan (as amended as of April
30, 1993). (20)
+10(23)- The Promus Companies Incorporated 1990 Stock Option Plan, as amended April 29,
1994. (8)
+10(24)- The Promus Companies Incorporated 1990 Stock Option Plan, as amended July 29,
1994. (21)
+10(25)- Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990 Stock
Option Plan as adjusted on December 12, 1996. (27)
+10(26)- Revised Form of Stock Option (1990 Stock Option Plan). (25)
+10(27)- Revised Form of Stock Option with attachments (1990 Stock Option Plan). (27)
+10(28)- Form of memorandum agreement dated July 2, 1991, eliminating stock appreciation
rights under stock options held by Ben C. Peternell and Philip G. Satre. (14)
+10(29)- The Promus Companies Incorporated 1990 Restricted Stock Plan. (12)
+10(30)- Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990
Restricted Stock Plan. (9)
+10(31)- Revised Forms of Restricted Stock Award (1990 Restricted Stock Plan). (25)
+10(32)- Revised Form of Restricted Stock Award (1990 Restricted Stock Plan). (27)
+10(33)- Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan
and Stock Option Plan) dated October 27, 1995. (25)
+10(34)- Amendment to Administrative Regulations, Long Term Compensation Plan (Restricted
Stock Plan and Stock Option Plan) dated December 12, 1996. (27)
+10(35)- Deferred Compensation Plan dated October 16, 1991. (15)
- ------------------------
** 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.
40
+10(36)- Amendment, dated May 26, 1995, to The Promus Companies Incorporated Deferred Com-
pensation Plan. (2)
+10(37)- Forms of Deferred Compensation Agreement. (25)
+10(38)- Amended and Restated Executive Deferred Compensation Plan dated as of October 27,
1995. (25)
+10(39)- Amendment dated April 24, 1997 to Harrah's Entertainment, Inc.'s Executive
Deferred Compensation Plan. (18)
+10(40)- Description of Amendments to Executive Deferred Compensation Plan. (22)
+10(41)- Restated Amendment, dated July 18, 1996, to Harrah's Entertainment, Inc.
Executive Deferred Compensation Plan. (27)
+10(42)- Forms of Executive Deferred Compensation Agreement. (25)
+10(43)- Amendment dated April 24, 1997, to Harrah's Entertainment, Inc.'s Deferred
Compensation Plan. (18)
+10(44)- Escrow Agreement dated February 6, 1990 between The Promus Companies
Incorporated, certain subsidiaries thereof, and Sovran Bank, as escrow agent.
(12)
+10(45)- First Amendment to Escrow Agreement dated January 31, 1990 among Holiday
Corporation, certain subsidiaries thereof and Sovran Bank, as escrow agent. (12)
+10(46)- 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(47)- Amendment, dated as of June 7, 1995, to Escrow Agreement among The Promus
Companies Incorporated, certain subsidiaries thereof and NationsBank. (2)
+10(48)- Amendment, dated as of July 18, 1996, to Escrow Agreement between Harrah's
Entertainment, Inc. and NationsBank. (26)
+10(49)- Time Accelerated Restricted Stock Award Plan ("TARSAP") program dated December
12, 1996. (27)
+10(50)- Form of TARSAP Award. (27)
+10(51)- Form of Agreement, dated October 30, 1996, regarding cancellation and reissue of
stock options, entered into with Philip G. Satre, Colin V. Reed, Ben C.
Peternell, E.O. Robinson, Jr. and John M. Boushy; and Form of Reissued Stock
Option. (27)
10(52)- 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(53)- Second Amendment dated March 31, 1994 to the Amended and Restated Partnership
Agreement of Harrah's Jazz Company. (8)
10(54)- Amended and Restated Third Amendment to the Amended and Restated Partnership
Agreement of Harrah's Jazz Company. (16)
- ------------------------
+ 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.
41
10(55)- Fourth Amendment to the Amended and Restated Partnership Agreement of Harrah's
Jazz Company. (16)
10(56)- 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(57)- 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(58)- Collateral Mortgage Note by Harrah's Jazz Company dated November 15, 1994. (16)
10(59)- Act of Collateral Mortgage and Collateral Assignment of Proceeds by Harrah's Jazz
Company dated November 15, 1994. (16)
10(60)- 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(61)- 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(62)- 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(63)- 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(64)- 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(65)- 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(66)- 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(67)- 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(68)- 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(69)- 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(70)- Casino Operating Contract between the Louisiana Economic Development and Gaming
Corporation and Harrah's Jazz Company dated July 15, 1994. (4)
10(71)- 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(72)- Amended and Restated Management Agreement between Harrah's New Orleans Manage-
ment Company and Harrah's Jazz Company dated March 14, 1994. (4)
42
10(73)- 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(74)- Design and Construction Agreement between Harrah's Jazz Company and Broadmoor
dated October 10, 1994, for the construction of the parking structure. (13)
10(75)- Owner's Policy issued March 16, 1994 by First American Title Insurance Company to
Harrah's Jazz Company with attachments. (16)
10(76)- Lender's Title Insurance Policy issued November 16, 1994 by First American Title
Insurance Company together with reinsurance agreements. (16)
10(77)- Construction Lien Indemnity Obligation Agreement between Harrah's Jazz Company
and Embassy Suites, Inc. dated October 12, 1994. (23)
10(78)- First Amendment to the Construction Lien Indemnity Obligation Agreement. (16)
10(79)- Specimen form of 14 1/4% First Mortgage Note Due 2001 of Harrah's Jazz Company
and Harrah's Jazz Finance Corp. (16)
10(80)- 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)
**10(81)- Fifth Amendment to Limited Partnership Agreement of Des Plaines Limited
Partnership dated as of April 1, 1997.
**+10(82)- Amendment, dated as of October 30, 1997, to Escrow Agreement between Harrah's
Entertainment, Inc., Harrah's Operating Company, Inc. and NationsBank.
**10(83)- Third Amendment to Credit Agreements dated as of November 22, 1997, among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., Marina
Associates, various lending institutions, Bankers Trust Company, The Bank of New
York, CIBC, Inc., Credit Lyonnais, Atlanta Agency, Wells Fargo Bank, N.A., The
Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank, N.A.
(South), Societe Generale and The Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent.
**11- Computations of per share earnings.
**12- Computations of ratios.
**13- Portions of Annual Report to Stockholders for the year ended December 31, 1997.
(28)
**21- List of subsidiaries of Harrah's Entertainment, Inc.
**27- Financial Data Schedule.
- ------------------------
** 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.
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.
43
(3) Incorporated by reference from the Company's Current Report on Form 8-K,
filed August 9, 1996, File No. 1-10410.
(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, 1997, filed May 13, 1997, 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 June 30, 1996, filed August 13, 1996, 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 Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, filed August 13, 1997, File No.
1-10410.
(19) Incorporated by reference from the Company's Current Report on Form 8-K
filed December 24, 1997, 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, 1997, filed November 13, 1997, File No.
1-10410.
44
(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) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, filed March 6, 1996, File No.
1-10410.
(26) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, filed November 12, 1996, File No.
1-10410.
(27) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, filed March 11, 1997, File No.
1-10410.
(28) Filed herewith to the extent portions of such report are specifically
included herein by reference.
(b) The following reports on Form 8-K were filed by the Company during the
fourth quarter of 1997 and thereafter through March 1, 1998: December 24,
1997-Reports the proposed acquisition of Showboat, Inc.
45
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.
BY: /S/ PHILIP G. SATRE
-----------------------------------------
(Philip G. Satre, Chairman, President
DATED: MARCH 10, 1998 and Chief Executive Officer)
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/ SUSAN CLARK-JOHNSON Director
- ------------------------------ March 10, 1998
(Susan Clark-Johnson)
/s/ JAMES B. FARLEY Director
- ------------------------------ March 10, 1998
(James B. Farley)
/s/ JOE M. HENSON Director
- ------------------------------ March 10, 1998
(Joe M. Henson)
/s/ RALPH HORN Director
- ------------------------------ March 10, 1998
(Ralph Horn)
/s/ R. BRAD MARTIN Director
- ------------------------------ March 10, 1998
(R. Brad Martin)
/s/ WALTER J. SALMON Director
- ------------------------------ March 10, 1998
(Walter J. Salmon)
/s/ PHILIP G. SATRE Director, Chairman,
- ------------------------------ President and Chief March 10, 1998
(Philip G. Satre) Executive Officer
/s/ BOAKE A. SELLS Director
- ------------------------------ March 10, 1998
(Boake A. Sells)
/s/ EDDIE N. WILLIAMS Director
- ------------------------------ March 10, 1998
(Eddie N. Williams)
/s/ COLIN V. REED Chief Financial Officer
- ------------------------------ March 10, 1998
(Colin V. Reed)
/s/ JUDY T. WORMSER Controller and Principal
- ------------------------------ Accounting Officer March 10, 1998
(Judy T. Wormser)
46
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 the Harrah's Entertainment, Inc. 1997
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 3, 1998. 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 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,
February 3, 1998.
SCHEDULE I
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
----------------------
1997 1996
---------- ----------
ASSETS
Cash...................................................................................... $ - $ -
Investments in and advances to subsidiaries (eliminated in consolidation)................. 735,491 719,821
---------- ----------
$ 735,491 $ 719,821
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued taxes, including federal income taxes............................................. $ (12) $ 75
---------- ----------
Commitments and contingencies (Notes 2, 3, 6 and 7)
Stockholders' equity (Note 4)
Common stock, $0.10 par value, authorized-360,000,000 shares, outstanding-101,035,898
and 102,969,699 shares (net of 3,001,568 and 771,571 held in treasury)................ 10,104 10,297
Capital surplus......................................................................... 388,925 385,941
Retained earnings....................................................................... 349,386 290,797
Unrealized gain on marketable equity securities held by a subsidiary.................... 2,884 51,394
Deferred compensation related to restricted stock....................................... (15,796) (18,683)
---------- ----------
735,503 719,746
---------- ----------
$ 735,491 $ 719,821
---------- ----------
---------- ----------
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,
---------------------------------
1997 1996 1995
---------- --------- ----------
Revenues....................................................................... $ - $ - $ -
Costs and expenses............................................................. 144 150 182
---------- --------- ----------
Loss before income taxes and equity in subsidiaries' continuing earnings....... (144) (150) (182)
Income tax benefit............................................................. 50 57 64
---------- --------- ----------
Loss before equity in subsidiaries' continuing earnings........................ (94) (93) (118)
Equity in subsidiaries' continuing earnings.................................... 107,616 98,990 78,928
---------- --------- ----------
Income from continuing operations.............................................. 107,522 98,897 78,810
Discontinued operations (Note 1)
Equity in subsidiaries' income from discontinued operations.................. - - 21,230
Spin-off transaction expenses, net of tax benefit of $5,134.................. - - (21,194)
---------- --------- ----------
Income before extraordinary loss............................................... 107,522 98,897 78,846
Extraordinary loss, net of tax benefit of $4,477 (Note 3)...................... (8,134) - -
---------- --------- ----------
Net income..................................................................... $ 99,388 $ 98,897 $ 78,846
---------- --------- ----------
---------- --------- ----------
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,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
Cash flows from operating activities
Net income................................................................. $ 99,388 $ 98,897 $ 78,846
Adjustment to reconcile net income to cash flows from operating activities
Equity in undistributed continuing earnings of subsidiaries............ (107,616) (98,990) (78,928)
Extraordinary loss..................................................... 12,611 - -
Amortization........................................................... - - 31
Discontinued operations
Equity in subsidiaries' income from discontinued operations.......... - - (21,230)
Spin-off transaction expenses, before income taxes................... - - 26,328
Other noncash activity................................................. (4,383) 93 (5,047)
----------- ---------- ----------
Cash flows from operating activities................................. - - -
----------- ---------- ----------
Cash flows from financing activities
Distributions from subsidiary.............................................. 41,022 13,014 -
Treasury stock purchases................................................... (41,022) (13,014) -
----------- ---------- ----------
Cash flows from financing activities................................. - - -
----------- ---------- ----------
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 statements of income and cash flows for periods prior to the
PHC Spin-off reflect the hotel business as discontinued operations.
NOTE 2--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, 1997 and 1996 was $8.1
million and $10.4 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 3--LONG-TERM DEBT
Harrah's has no long-term debt obligations. Harrah's has guaranteed certain
long-term debt obligations of HOC. During second quarter 1997, HOC redeemed its
$200 million 10 7/8% Senior Subordinated Notes due 2002 (the "Notes"). As a
result of the early extinguishment of the Notes, an $8.1 million extraordinary
loss, net of tax benefit, was recorded.
NOTE 4--STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, $1.125 par value, 5,000,000 shares authorized
Series A Special Stock, 2,000,000 shares designated
Harrah's Board of Directors has authorized that one special stock purchase
right (a "Right") be attached to each outstanding share of common stock. These
Rights are exercisable only if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer for 15% or more of the common
stock. Each Right entitles stockholders to buy one two-hundredth of a share of
Series A Special Stock of the Company at an initial price of $130 per Right. If
a person acquires 15% or more of the Company's outstanding common stock, each
Right entitles its holder to purchase common stock of the Company having a
market value at that time of twice the Right's exercise price. Under certain
conditions, each Right entitles its holder to purchase stock of an acquiring
company at a discount. Rights held by the 15% holder will become void. The
Rights will expire on October 5, 2006, unless earlier redeemed by the Board at
one cent per Right.
S-4
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 4--STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to a plan approved by Harrah's Board of Directors in October 1996
and which expired on December 31, 1997, the Company repurchased 2,993,700 shares
of its common stock at an average price of $18.05 per share. The repurchased
shares are held in treasury.
On June 30, 1995, the PHC Spin-off was completed and the Company distributed
to its stockholders the stock of PHC as a dividend on a one-for-two basis. To
reflect this distribution, the $139.6 million value of the net assets of
discontinued operations as of the PHC Spin-off date was charged against the
Company's retained earnings.
NOTE 5--INCOME TAXES
Harrah's files a consolidated tax return with its subsidiaries.
NOTE 6--COMMITMENTS AND CONTINGENCIES
A Harrah's subsidiary owns an approximate 47% interest in a partnership
named Harrah's Jazz Company ("Harrah's Jazz"). In November 1995, Harrah's Jazz
and its wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed petitions
for relief under Chapter 11 of the Bankruptcy Code. Harrah's Jazz filed a plan
of reorganization with the Bankruptcy Court in April 1996 and has filed several
subsequent amendments to the plan (the Plan). In April 1997, the Bankruptcy
Court confirmed and approved the Plan. However, since the Louisiana State
Legislature did not approve a component of the confirmed Plan - a modified
casino operating contract with Louisiana's gaming board - the confirmed Plan was
not consummated.
In November 1997 and again in January 1998, Harrah's Jazz modified the
confirmed Plan. This most recent plan, which is supported by, among others, the
Governor of Louisiana and the Mayor of New Orleans, contemplates that a newly
formed limited liability company, Jazz Casino Company, L.L.C. ("JCC"), would be
responsible for completing construction of the exclusive New Orleans land-based
casino entertainment facility (the "Rivergate Casino"), a subsidiary of the
Company would receive approximately 40% of the equity in JCC's parent, and
Harrah's would make a $75 million equity investment in the project (less any
debtor-in-possession financing provided to the project), guarantee JCC's $100
million annual payment under the casino operating contract to the State of
Louisiana gaming board (the "State Guarantee"), guarantee up to $154 million of
a bank credit facility of up to $224 million, guarantee timely completion and
opening of the Rivergate Casino and make an additional $10 million subordinated
loan to JCC to finance the Rivergate Casino. With respect to the State
Guarantee, Harrah's would be obligated to guarantee the first year of JCC's
operations and, if certain cash flow tests and other conditions are satisfied
each year, to renew the guarantee each year for a maximum term of approximately
five years. Harrah's obligations under the guarantee would be limited to a
guarantee of the $100 million payment obligation of JCC for the period in which
the guarantee is in effect and would be secured by a first priority lien on
JCC's assets. JCC's payment obligation would be $100 million at the commencement
of each twelve month period under the casino operating contact and would decline
on a daily basis by 1/365 of $100 million as payments are made each day by JCC
to Louisiana's gaming board.
Consummation of the plan is subject to numerous approvals, including
approval from the Company's Board of Directors, the Louisiana State Legislature,
the City of New Orleans City Council and others. The plan was confirmed by the
Bankruptcy Court on January 29, 1998, and it is anticipated that the casino
S-5
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
operating contract will be considered by the Louisiana State Legislature in a
special session commencing in late March 1998. There can be no assurance that
these approvals will be obtained and that such plan will be consummated.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Harrah's Jazz, totaling
approximately $32.2 million as of December 31, 1997, to fund certain payments to
the City of New Orleans and other cash requirements of Harrah's Jazz. Harrah's
has committed to provide up to $40 million in debtor-in-possession loans to
Harrah's Jazz, conditioned upon Harrah's Jazz meeting certain monthly milestones
in the bankruptcy. There can be no assurance that such committed
debtor-in-possession financing will be sufficient for Harrah's Jazz to
consummate the plan. Should additional debtor-in-possession funding be necessary
for the consummation of the plan, the approval of the Company's Board of
Directors would be necessary for Harrah's to provide any debtor-in-possession
financing in excess of $40 million.
NOTE 7--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 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 the event a bankruptcy reorganization plan is not
consummated, the Company anticipates that such lawsuits, which are presently
inactive, would become active, and additional lawsuits would be filed.
In November 1997, the Missouri Supreme Court issued a ruling that defined
the state constitutional requirements for floating casino facilities in
artificial basins. Subsequently, the Missouri Gaming Commission (the
"Commission") attempted to issue disciplinary resolutions that effectively would
have amended the gaming licenses of the Company's Missouri casinos, and numerous
other floating casino facilities in the Commission's jurisdiction, to preclude
games of chance, subject to evidentiary hearings that were to be held if the
licensees filed appeals to prove compliance with the Supreme Court's ruling.
Prior to the Commission's action, Harrah's Missouri casinos and other licensees
filed petitions in the Circuit Court of Cole County, Missouri, and succeeded in
having the Court issue an order restraining the Commission from taking any such
disciplinary action. The Commission has appealed to the Missouri Supreme Court
to permit it to proceed with its intended actions. The Supreme Court has not
indicated when it will hear the appeal. Harrah's Missouri casinos have also
filed suit seeking declaratory judgment that its gaming facilities meet the
state constitutional mandates as established by the Missouri Supreme Court.
Management is unable to predict at this time the final outcome of this matter or
whether that outcome could materially affect the Company's results of
operations, cash flows or financial position of its Missouri casinos.
NOTE 8--AGREEMENT TO ACQUIRE SHOWBOAT, INC.
During December 1997, Harrah's and Showboat, Inc. ("Showboat") entered into
a definitive agreement whereby Harrah's agreed to acquire Showboat for $30.75
per share in an all-cash transaction valued at $519 million (net of options
proceeds), and assume $635 million in Showboat debt. The transaction is expect
to be completed during second quarter 1998, subject to various conditions
including regulatory approvals, Showboat stockholder approval and other third
party approvals.
S-6
SCHEDULE II
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN C
-------------------
COLUMN B ADDITIONS
--------- ------------------- COLUMN D COLUMN E
BALANCE CHARGED ---------- ---------
COLUMN A AT TO COSTS CHARGED DEDUCTIONS BALANCE
- --------------------------------------------------------------- BEGINNING AND TO OTHER FROM AT CLOSE
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- --------------------------------------------------------------- --------- -------- -------- ---------- ---------
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts
Current...................................................... $14,064 $ 5,332 $ 27 $ (7,961)(A) $11,462
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Long-term.................................................... $ 4,628 $ 1,118 $ - $ 4,675 $10,421
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for debtor-in-possession loans to nonconsolidated
subsidiary................................................... $ - $ 13,000 - - $13,000
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for impairment of long-lived assets.................... $33,369 $ - $ - $ - $33,369
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for contingent liability exposure...................... $ 9,481 $ - $ - $ (4,675) $ 4,806
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Insurance allowances and reserves.............................. $49,590 $ 54,198 $ - $(56,918) $46,870
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
Current...................................................... $10,910 $ 7,814 $ - $ (4,660)(A) $14,064
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Long-term.................................................... $ 75 $ - $ - $ 4,553 $ 4,628
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for impairment of long-lived assets.................... $ - $ 33,369 $ - $ - $33,369
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for contingent liability exposure...................... $ - $ 14,034 $ - $ (4,553) $ 9,481
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Insurance allowances and reserves.............................. $49,821 $ 39,829 $ - $(40,060) $49,590
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
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 $ 40,412 $ - $(40,039) $49,821
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
- ------------------------
(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 February 3, 1998, included in this Form 10-K for the year ended
December 31, 1997, into the Company's previously filed Registration Statements
File Nos. 33-32863, 33-32864, 33-32865, 33-59991, 33-59969, 33-59975 and
33-59971.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 9, 1998.