SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1995
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)
(901) 762-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
At September 30, 1995, there were outstanding 102,632,996 shares of the
Company's Common Stock.
Page 1 of 36
Exhibit Index Page 35
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited Consolidated Condensed Financial Statements of
Harrah's Entertainment, Inc. (Harrah's or the Company), a Delaware corporation,
have been prepared in accordance with the instructions to Form 10-Q, and
therefore do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited, but reflect
all adjustments (consisting only of normal recurring adjustments) which
management considers necessary for a fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative of a
full year of operations.
As discussed in Notes 1 and 2, on June 30, 1995, Harrah's, formerly The
Promus Companies Incorporated (Promus), completed a planned spin-off (Spin-off)
that split the Company into two independent public corporations, one for
conducting its casino entertainment business and one for conducting its hotel
business. Harrah's retained ownership of the casino entertainment business.
As a result of the Spin-off, the accompanying Consolidated Condensed Financial
Statements reflect the hotel business as discontinued operations. These
Consolidated Condensed Financial Statements should be read in conjunction with
the Consolidated Financial Statements and notes thereto included in the
Company's 1994 Annual Report to Stockholders.
-2-
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
Sept. 30, Dec. 31,
(In thousands, except share amounts) 1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 72,821 $ 84,968
Receivables, including notes receivable of
$402 and $528, less allowance for doubtful
accounts of $10,311 and $9,551 49,924 33,051
Deferred income taxes 21,308 18,979
Supplies 11,886 11,463
Prepayments and other 21,461 23,374
---------- ---------
Total current assets 177,400 171,835
---------- ---------
Land, buildings, riverboats and equipment 1,705,334 1,602,620
Less: accumulated depreciation (521,252) (472,779)
---------- ---------
1,184,082 1,129,841
Net assets of discontinued hotel operations
(Notes 1 and 2) - 143,008
Investments in and advances to
nonconsolidated affiliates (Note 9) 78,510 116,932
Deferred costs and other 177,823 176,349
---------- ----------
$1,617,815 $1,737,965
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 35,503 $ 54,621
Accrued litigation settlement and related
costs (Note 8) - 72,101
Construction payables 3,470 10,879
Accrued expenses 175,041 156,446
Current portion of long-term debt 1,783 1,036
---------- ---------
Total current liabilities 215,797 295,083
Long-term debt 698,641 727,493
Deferred credits and other 65,892 66,735
Deferred income taxes 7,551 7,138
---------- ---------
987,881 1,096,449
---------- ---------
Minority interests 20,591 18,079
---------- ---------
Commitments and contingencies (Notes 7, 8 and 9)
Stockholders' equity
Common stock, $0.10 par value,
authorized - 360,000,000 shares,
outstanding - 102,632,996 and 102,402,619
shares (net of 50,258 and 37,172 shares
held in treasury) 10,263 10,240
Capital surplus 362,663 350,196
Retained earnings 238,697 265,574
Deferred compensation related to
restricted stock (2,280) (2,573)
---------- ----------
609,343 623,437
---------- ----------
$1,617,815 $1,737,965
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Third Quarter Ended Nine Months Ended
(In thousands, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
except per share amounts) 1995 1994 1995 1994
Revenues
Casino $363,394 $304,892 $ 990,365 $831,376
Food and beverage 51,146 44,948 138,422 121,236
Rooms 31,252 30,291 83,758 80,451
Management fees 4,413 257 11,224 702
Other 19,130 20,438 65,341 55,966
Less: casino promotional allowances (43,511) (34,015) (117,468) (93,883)
-------- -------- ---------- --------
Total revenues 425,824 366,811 1,171,642 995,848
-------- -------- ---------- --------
Operating expenses
Direct
Casino 163,916 139,808 459,032 368,217
Food and beverage 27,951 21,192 70,697 62,999
Rooms 8,474 8,942 24,644 25,420
Depreciation of buildings,
riverboats and equipment 19,669 18,179 57,686 51,239
Development costs 3,206 7,438 11,863 14,498
Preopening costs - 10,172 - 15,313
Other 91,982 77,422 266,732 223,971
-------- -------- ---------- --------
Total operating expenses 315,198 283,153 890,654 761,657
-------- -------- ---------- --------
Operating profit before corporate expense 110,626 83,658 280,988 234,191
Corporate expense (6,855) (7,807) (21,036) (19,075)
-------- -------- ---------- --------
Operating income 103,771 75,851 259,952 215,116
Interest expense, net of interest
capitalized (19,128) (18,605) (56,123) (56,156)
Interest expense, net, from nonconsolidated
affiliates (7,345) - (15,979) -
Provision for settlement of litigation and
related costs (Note 8) - (744) - (2,507)
Interest and other income (Note 9) 12,507 374 15,353 1,216
-------- -------- ---------- --------
Income before income taxes and minority
interest 89,805 56,876 203,203 157,669
Provision for income taxes (34,924) (24,587) (78,520) (65,645)
Minority interests (3,571) (1,698) (9,326) (9,679)
-------- -------- ---------- --------
Income from continuing operations 51,310 30,591 115,357 82,345
Discontinued operations (Note 2)
Earnings from hotel operations, net of tax
provisions of $9,833, $15,434,
and $22,570 - 13,592 21,230 29,930
Spin-off transaction expenses, net of tax
benefit of $5,134 - - (21,194) -
-------- -------- ---------- --------
Income before cumulative effect of change in
accounting policy 51,310 44,183 115,393 112,275
Cumulative effect of change in accounting
policy, net of tax benefit of $4,317 - - - (7,932)
-------- -------- ---------- --------
Net income $ 51,310 $ 44,183 $ 115,393 $104,343
======== ======== ========== ========
Earnings per share
Continuing operations $ 0.50 $ 0.30 $ 1.12 $ 0.80
Discontinued operations
Earnings from hotel operations, net - 0.13 0.21 0.29
Spin-off transaction expenses, net - - (0.21) -
Cumulative effect of change in accounting
policy, net - - - (0.08)
-------- -------- ---------- --------
Earnings per share $ 0.50 $ 0.43 $ 1.12 $ 1.01
======== ======== ========== ========
Average common shares outstanding 103,347 102,818 103,209 102,831
======== ======== ========== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1995 1994
Cash flows from operating activities
Net income $ 115,393 $ 104,343
Adjustments to reconcile net income
to cash flows from operating activities
Discontinued operations
Earnings from hotel operations (21,230) (29,930)
Spin-off transaction expenses, before income
taxes 26,328 -
Cumulative effect of change in accounting
policy, before income taxes - 12,249
Depreciation and amortization 68,127 65,327
Other noncash items 11,486 6,842
Minority interests' share of net income 9,326 9,679
Equity in and distributions of (earnings)
losses of nonconsolidated affiliates 39,547 8,366
Net gains from asset sales (13,355) -
Net change in long-term accounts 37,973 (21,594)
Net change in working capital accounts (3,151) 48,445
Net change in accrued litigation settlement
and related costs (42,228) -
Tax indemnification payments to Bass (28,000) (26,466)
--------- ---------
Cash flows provided by operating activities 200,216 177,261
--------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment
additions (130,143) (172,440)
Investments in and advances to
nonconsolidated affiliates (25,544) (26,264)
Decrease in construction payables (7,409) (19,369)
Proceeds from sale of equity investments 19,910 -
Proceeds from asset sales 9,747 5,426
Other (700) (17,168)
--------- ---------
Cash flows used in investing activities (134,139) (229,815)
--------- ---------
Cash flows from financing activities
Net borrowings under Revolving Credit Facility (9,338) 54,250
Debt retirements (19,333) (40,157)
Minority interest distributions, net of contributions (6,587) (6,104)
Other (543) -
--------- ---------
Cash flows provided by (used in) financing
activities (35,801) 7,989
--------- ---------
Cash flows from discontinued hotel operations
Net transfers to (from) discontinued hotel operations (17,680) 45,554
Payment of spin-off transaction expenses (24,743) -
--------- ---------
Cash flows provided by (used in) discontinued
operations (42,423) 45,554
--------- ---------
Net change in cash and cash equivalents (12,147) 989
Cash and cash equivalents, beginning of period 84,968 58,309
--------- ---------
Cash and cash equivalents, end of period $ 72,821 $ 59,298
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Note 1 - Basis of Presentation and Organization
- -----------------------------------------------
Harrah's Entertainment, Inc., (Harrah's or the Company), a Delaware
corporation, is one of America's leading casino companies and currently operates
16 casino entertainment facilities. On January 30, 1995, the Company announced
a spin-off, completed on June 30, 1995, to split into two independent public
corporations, one for conducting its casino entertainment business and one for
conducting its hotel business. Harrah's, formerly The Promus Companies
Incorporated (Promus), retained ownership of the casino entertainment business.
The Company's hotel operations, which included the Embassy Suites, Hampton Inn
and Homewood Suites hotel brands, were transferred to a new entity, named Promus
Hotel Corporation (PHC), the stock of which was distributed to Promus'
stockholders on a one-for-two basis (the PHC Spin-off). As a result of the PHC
Spin-off, Harrah's prior year financial statements have been restated to reflect
the hotel business as discontinued operations (see Note 2). The final
allocations relating to the PHC Spin-off have not yet been completed.
Management does not believe any adjustments related thereto will be material.
The Consolidated Condensed Financial Statements include the accounts of
Harrah's and its subsidiaries after elimination of all significant intercompany
accounts and transactions. Harrah's investment in the joint venture which
operates Harrah's New Orleans and its investments in 50% or less owned companies
and joint ventures over which Harrah's has the ability to exercise significant
influence are accounted for using the equity method. Harrah's reflects its
share of income before interest expense of these nonconsolidated affiliates in
revenues. Harrah's proportionate share of interest expense of such
nonconsolidated affiliates is included in interest expense, net, from
nonconsolidated affiliates (see Note 9).
Certain amounts for the prior year third quarter and nine months ended
September 30, 1994, have been reclassified to conform with the presentation for
the third quarter and nine months ended September 30, 1995.
Note 2 - Discontinued Operations
- --------------------------------
As discussed in Note 1, on June 30, 1995, Harrah's completed a spin-off of
its hotel operations. Accordingly, results of operations and cash flows of the
Company's hotel business have been reported as discontinued operations for all
periods presented in the Consolidated Condensed Financial Statements. The
Consolidated Balance Sheet as of December 31, 1994, also reflects the Company's
hotel business as discontinued operations. Summarized financial information of
the discontinued operations is presented in the following tables:
-6-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 2 - Discontinued Operations (Continued)
- -------------------------------------------
Net assets of discontinued hotel operations:
Dec. 31,
(In thousands) 1994
Current assets $ 25,565
Current liabilities (34,461)
---------
Net current liabilities (8,896)
Land, buildings and equipment, net 322,140
Other assets 72,860
Long-term debt, including allocated debt (189,943)
Other liabilities and deferred taxes (53,153)
---------
Net assets of discontinued hotel operations $ 143,008
=========
As of the date of the PHC Spin-off, the net assets of discontinued hotel
operations were $142.3 million. This amount has been charged against the
Company's retained earnings in the accompanying unaudited September 30, 1995,
Consolidated Condensed Balance Sheet to reflect the distribution of PHC's stock
to Promus stockholders on June 30, 1995.
Earnings from discontinued hotel operations:
Third
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1994 1995 1994
Revenues $ 65,506 $132,785 $ 184,600
Costs and expenses (34,426) (79,652) (109,475)
-------- -------- ---------
Operating income 31,080 53,133 75,125
Interest expense (7,682) (16,742) (22,703)
Other income 27 273 78
-------- -------- ---------
Income before income taxes 23,425 36,664 52,500
Provision for income taxes (9,833) (15,434) (22,570)
-------- -------- ---------
Earnings from discontinued
hotel operations $ 13,592 $ 21,230 $ 29,930
======== ======== =========
In addition to the earnings of its discontinued hotel operations, Harrah's
nine months ended September 30, 1995, operating results include a charge of
$21.2 million, net of tax, to accrue expenses of the PHC Spin-off transaction.
-7-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 2 - Discontinued Operations (Continued)
- -------------------------------------------
As part of the PHC Spin-off, Harrah's Operating Company, Inc. (HOC),
formerly Embassy Suites, Inc. (Embassy), a wholly-owned subsidiary of the
Company, obtained a new $350 million bank facility (Hotel Facility), secured by
the stock of PHC's material subsidiaries. Immediately prior to the PHC Spin-
off, HOC drew approximately $218 million on the Hotel Facility, $215 million of
which was used to retire a portion of the Company's existing corporate debt.
Upon consummation of the PHC Spin-off, HOC was released from liability under the
Hotel Facility. In addition, PHC assumed two of Harrah's existing interest rate
swaps, with a total notional amount of $100 million, converting that amount of
variable rate debt outstanding under the Hotel Facility to a fixed rate.
Prior to the PHC Spin-off, the Company's corporate debt was not
specifically related to either its casino entertainment or hotel segment.
However, corporate debt service requirements had been met using cash flows
provided by both segments. Therefore, in anticipation of the PHC Spin-off, a
portion of the Company's corporate debt balance, unamortized deferred finance
charges and interest expense were allocated to discontinued hotel operations for
all periods prior to the PHC Spin-off, based on the percentage of the Company's
existing corporate debt expected to be retired using proceeds from the Hotel
Facility. Net assets of discontinued hotel operations at December 31, 1994,
included allocations to discontinued hotel operations of corporate debt and
unamortized deferred finance charges of $187.8 million and $3.2 million,
respectively, together with debt specifically related to PHC of $3.3 million.
Interest expense of $4.2 million for the third quarter ended September 30, 1994
and $10.5 million and $12.7 million for the nine months ended September 30, 1995
and 1994, respectively, has been allocated to discontinued hotel operations.
-8-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 3 - Change in Accounting Policy
- ------------------------------------
Effective January 1, 1994, Harrah's changed its accounting policy for its
consolidated casinos relating to preopening costs to capitalize such costs as
incurred prior to opening and to expense them upon opening of each project.
Previously, the Company had capitalized preopening costs and amortized them to
expense over 36 months from the date of opening. As a result of this change,
operating results for the nine months ended September 30, 1994, reflect the
cumulative charge against earnings, net of income taxes, of $7.9 million, or
$0.08 per share, to write off the unamortized preopening costs balances related
to projects opened in prior years.
Note 4 - Long-Term Debt
- -----------------------
In connection with the PHC Spin-off, Harrah's negotiated changes to its
reducing revolving and letter of credit facility (the Facility) which became
effective June 30, 1995. Among the modifications were an increase in total
capacity from $650 million to $750 million, an extension of the maturity to
July 31, 2000, reduced borrowing costs and modifications to certain financial
covenants.
Interest Rate Agreements
- ------------------------
To manage the relative mix of its debt between fixed and variable rate
instruments, Harrah's enters into interest rate swap agreements to modify the
interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. As of September 30, 1995 and 1994, Harrah's was a
party to the following interest rate swap agreements pursuant to which it pays a
variable interest rate in exchange for receiving a fixed interest rate. The
average variable rate paid by Harrah's was 6.3% and 4.7% at September 30, 1995
and 1994, respectively, and the average fixed interest rate received was
5.9% at both dates. The impact of these interest rate swap agreements on the
effective interest rates of the associated debt was as follows:
Effective Next Semi-
Swap Rate at Annual Rate
Associated Rate Sept. 30, Adjustment
Debt (LIBOR+) 1995 1994 Date Swap Maturity
- -------------- -------- ----- ---- ----------- -------------
10 7/8% Notes
$200 million 4.73% 11.26% 9.16% October 15 October 1997
8 3/4% Notes
$50 million 3.42% 9.58% 8.85% November 15 May 1998
$50 million 3.22% 9.10% 8.71% January 15 July 1998
-9-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 4 - Long-Term Debt (Continued)
- ----------------------------------
In accordance with the terms of the interest rate swap agreements, the
effective interest rate on the $200 million 10 7/8% Notes was adjusted on
October 15, 1995, to 10.74%.
Harrah's also maintains interest rate swap agreements to effectively
convert a total of $350 million in variable rate debt to a fixed rate. Pursuant
to the terms of these swaps, Harrah's receives variable payments tied to LIBOR
in exchange for its payments at a fixed interest rate. The fixed rates to be
paid by Harrah's and variable rates to be received by Harrah's are summarized
in the following table:
Swap Rate
Swap Rate Received (Variable) Swap
Notional Amount Paid (Fixed) at Sept. 30, 1995 Maturity
- --------------- ------------ ------------------- ------------
$50 million 7.915% 5.938% January 1998
$50 million 7.914% 5.875% January 1998
$50 million 7.910% 5.938% January 1998
$50 million 6.985% 5.813% March 2000
$50 million 6.651% 5.875% May 2000
$50 million 5.788% 5.875% June 2000
$50 million 5.785% 5.875% June 2000
The differences to be paid or received under the terms of the interest rate
swap agreements described above are accrued as an adjustment to interest expense
for the related debt. Changes in the effective interest rates to be paid by
Harrah's pursuant to the terms of its interest rate agreements will have a
corresponding effect on its future cash flows. These agreements contain a
credit risk that the counterparties may be unable to meet the terms of the
agreements. Harrah's minimizes that risk by evaluating the creditworthiness of
its counterparties, which are limited to major banks and financial institutions,
and does not anticipate nonperformance by the counterparties.
As a component of a transaction whereby Harrah's effectively secured an
option to a site for a potential casino, Harrah's has guaranteed a third party's
$25 million variable rate bank loan. Harrah's also has entered into an interest
rate swap agreement in which Harrah's receives a fixed interest rate of 7% from
the third party and pays the variable interest rate of the subject debt, which
is currently LIBOR plus 1.0%. The positive value of the swap, which is marked
to market by Harrah's, was approximately $0.3 million at September 30, 1995.
Adjustments to the swap's market value are included in interest expense in the
Consolidated Condensed Statements of Income. The interest rate swap agreement
expires December 1, 1996, and is also subject to
-10-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 4 - Long-Term Debt (Continued)
- ----------------------------------
earlier termination upon the occurrence of certain events. As with the other
interest rate swap agreements entered into by Harrah's, this agreement contains
an element of risk that the counterparty may be unable to meet the terms of the
agreement. Harrah's has minimized such exposure by obtaining a security
interest in certain assets of the third party.
Shelf Registration
- ------------------
To provide for additional financing flexibility, Harrah's, together with
its wholly-owned subsidiary Harrah's Operating Company, Inc. (HOC), has
registered up to $200 million of Harrah's common stock or HOC preferred stock or
debt securities pursuant to a shelf registration declared effective by the
Securities and Exchange Commission on October 11, 1995. The terms and
conditions of the HOC preferred stock or debt securities, which will be
unconditionally guaranteed by Harrah's, will be determined by market conditions
at the time of issuance. The shelf registration is available until
October 1997.
Note 5 - Stockholders' Equity
- -----------------------------
In addition to its common stock, Harrah's has the following classes of
stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 5,000,000 shares authorized -
Series B, $1.125 par value
Note 6 - Supplemental Disclosure of Cash Paid for Interest and Taxes
- --------------------------------------------------------------------
The following table reconciles Harrah's interest expense, net of interest
capitalized, per the Consolidated Condensed Statements of Income, to cash paid
for interest:
Nine Months Ended
Sept. 30, Sept. 30,
(In thousands) 1995 1994
Interest expense, net of amount capitalized $56,123 $56,156
Adjustments to reconcile to cash paid for
interest
Net change in accruals 11,832 (1,019)
Amortization of deferred finance charges (2,839) (2,163)
Net amortization of discounts and premiums (46) (131)
------- -------
Cash paid for interest, net of amount
capitalized $65,070 $52,843
======= =======
Cash payments for income taxes, net of refunds $63,557 $74,545
======= =======
-11-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 7 - Commitments and Contingent Liabilities
- -----------------------------------------------
Contractual Commitments
- -----------------------
Harrah's is pursuing additional casino development opportunities that may
require, individually and in the aggregate, significant commitments of capital,
up-front payments to third parties, guarantees by Harrah's of third party debt
and development completion guarantees. As of September 30, 1995, Harrah's has
guaranteed third party loans and leases of $86 million, which are secured by
certain assets, and has other contractual commitments of $32 million, excluding
amounts previously recorded.
See Note 9 for discussion of the completion guarantee provided to Harrah's
Jazz Company by Harrah's related to development of the New Orleans casino.
Guarantee of Insurance Contract
- -------------------------------
Harrah's has guaranteed the value of a guaranteed investment contract with
an insurance company held by Harrah's defined contribution savings plan.
Harrah's has also agreed to provide non-interest-bearing loans to the plan to
fund, on an interim basis, withdrawals from this contract by retired or
terminated employees. Harrah's maximum exposure on this guarantee as of
September 30, 1995, is approximately $7.2 million.
Self-Insurance
- --------------
Harrah's is self-insured for various levels of general liability, workers'
compensation and employee medical coverage. Insurance claims and reserves
include accruals of estimated settlements for known and anticipated claims, as
well as accruals of actuarial estimates of incurred but not reported claims.
Severance Agreements
- --------------------
Harrah's has severance agreements with 17 of its senior executives which
provide for payments to the executives in the event of their termination after a
change in control, as defined, of Harrah's. These agreements provide, among
other things, for a compensation payment equal to 2.99 times the average annual
compensation paid to the executive for the five preceding calendar years, as
well as for accelerated payment or accelerated vesting of any compensation or
awards payable to the executive under any of Harrah's incentive plans. The
estimated amount, computed as of September 30, 1995, that would have been
payable under the agreements to these executives based on earnings and stock
options aggregated approximately $35.7 million.
-12-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 7 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
Tax Sharing Agreements
- ----------------------
Under the terms of the Settlement between the Company and Bass PLC (Bass)
(see Note 8), the Tax Sharing Agreement entered into connection with the
February 7, 1990, spin-off (the 1990 Spin-off) of the Company and acquisition of
the Holiday Inn hotel business by Bass has been terminated. Under the Tax
Sharing Agreement, Promus was liable, with certain exceptions, for taxes of
Holiday and its subsidiaries for all pre-1990 Spin-off tax periods. Bass was
obligated under the same agreement to pay Promus the amount of any tax benefits
realized by Holiday as a result of adjustments to pre-1990 Spin-off tax periods
of Holiday and its subsidiaries. Under the provisions of the Settlement,
Harrah's remains obligated for certain tax issues related to Promus and its
subsidiaries for the pre-1990 Spin-off tax periods and certain other items
related to the final resolution of disputed issues from the Internal Revenue
Service (IRS) examination of income tax returns for 1987 through the 1990 Spin-
off date. A protest defending the taxpayers' position on all disputed issues
for these periods was filed with the IRS during third quarter 1993 and
negotiations to resolve these issues were finalized during third quarter 1995.
Final resolution of the disputed issues resulted in a favorable settlement on
those issues for which Harrah's was obligated.
In connection with the PHC Spin-off, Harrah's entered into a Tax Sharing
Agreement with PHC wherein each company is obligated for those taxes associated
with their respective businesses. Additionally, Harrah's is obligated for all
taxes of the Company for periods prior to the PHC Spin-off date which are not
specifically related to PHC operations and/or PHC hotel locations.
Note 8 - Litigation
- -------------------
In March 1995, the Company entered into a settlement agreement (the
Settlement) with Bass of all claims related to the Merger Agreement and Tax
Sharing Agreement arising from the 1990 Spin-off of Promus and acquisition of
the Holiday Inn hotel business by Bass. As a result of the Settlement, a charge
of $49.2 million was recorded in fourth quarter 1994's operating results to
accrue the estimated cost of the Settlement, the related legal fees and other
associated expenses. Operating results for the third quarter and nine months
ended September 30, 1994, include approximately $0.7 million and
$2.5 million, respectively, of legal fees and other expenses incurred related to
Harrah's defense of this litigation. The provision for settlement of litigation
and related costs is not expected to be deductible for federal income tax
purposes.
-13-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 8 - Litigation (Continued)
- ------------------------------
Harrah's is involved in various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an
element of uncertainty, management believes that the final outcome of these
matters will not have a material adverse effect upon Harrah's consolidated
financial position or its results of operations.
Note 9 - Nonconsolidated Affiliates
- -----------------------------------
Harrah's Jazz Company
- ---------------------
A Harrah's subsidiary owns an approximate 53% equity interest in Harrah's
Jazz Company (Harrah's Jazz), the partnership which operates the sole land-based
casino permitted by law to operate in Orleans Parish, Louisiana. One of
Harrah's partners in Harrah's Jazz has an agreement in principle, subject to
negotiation and completion of definitive documentation, for an option to
purchase a 14.6% ownership interest in Harrah's Jazz currently owned by
Harrah's. Because voting control of the partnership is presently shared
equally by each partner, Harrah's Jazz is not consolidated into Harrah's
financial statements.
Summarized balance sheet and income statement information for Harrah's
Jazz, which Harrah's accounts for using the equity method, as of September 30,
1995 and December 31, 1994, and for the third quarter and nine months ended
September 30, 1995 and 1994 were as follows:
Summarized Balance Sheet Information
Sept. 30, Dec. 31,
(In thousands) 1995 1994
Current assets $239,686 $454,295
Land, buildings and equipment, net 195,725 69,608
Other assets 258,626 141,488
-------- --------
Total assets 694,037 665,391
-------- --------
Current liabilities 85,497 23,894
Long-term debt 573,333 510,000
-------- --------
Total liabilities 658,830 533,894
-------- --------
Net assets $ 35,207 $131,497
======== ========
-14-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 9 - Nonconsolidated Affiliates (Continued)
- ----------------------------------------------
Summarized Statements of Operations
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1995 1994 1995 1994
Revenues $ 41,215 $ 133 $ 66,755 $ 233
======== ======= ======== ========
Operating loss $(25,243) $(3,721) $(59,210) $(16,221)
======== ======= ======== ========
Net loss $(39,954) $(4,136) $(96,290) $(17,180)
======== ======= ======== ========
The current estimated project cost, which includes both the temporary
casino and permanent casino, is $823.5 million. Harrah's Jazz originally
planned to fund the project cost from a combination of partner equity
contributions, public debt securities, bank debt and projected operating cash
flow from the temporary casino. The temporary casino's operating results since
its May opening have fallen significantly below original expectations (see
Results of Operations). In connection with its requirement to periodically
update the forecasted cash flow from the temporary casino as a condition to use
of the proceeds from the issuance of public debt securities, Harrah's Jazz
previously assumed, for purposes of internal capital budgeting, that no cash
flow would be available from the temporary casino. Subsequent thereto, in
early September, Harrah's Jazz further refined the capital budgeting plan to
assume that approximately $8.3 million in cash flow would be available from the
temporary casino.
As a result of lower than anticipated revenues in September and October,
Harrah's Jazz is currently in the process of reevaluating its financial
forecasts for the permanent casino and the temporary casino. It is anticipated
that these forecasts will reflect temporary casino negative operating cash flow
and permanent casino revenues which are significantly less than the revenues
originally projected. Assuming the forecasts reflect temporary casino negative
operating cash flow, Harrah's Jazz will be required to obtain funds from other
sources to fund presently anticipated project costs. The amount of funding
required will likely be $8.3 million plus the amount of any temporary casino
negative operating cash flow. It is currently anticipated that Harrah's and
HOC will loan the required additional funds to Harrah's Jazz in accordance with
their agreement with project lenders and the Louisiana Economic Development
and Gaming Corporation, subject to certain conditions and exceptions, to
complete the facilities and pay project costs prior to completion. In exchange
for its agreements, Harrah's is entitled to receive a fee from Harrah's Jazz
upon the completion of the permanent casino under the terms of the Harrah's
Jazz debt agreements.
-15-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 9 - Nonconsolidated Affiliates (Continued)
- ----------------------------------------------
In its role as temporary casino manager, a Harrah's subsidiary has funded
certain payroll and related employee costs on behalf of Harrah's Jazz. At
September 30, 1995, the amount outstanding was approximately $14 million.
As of October 31, 1995, the amount of outstanding advances was approximately
$17.8 million.
Other
- -----
Condensed financial information relating to a joint venture which owns two
Colorado casinos and a restaurant subsidiary has not been presented since their
operating results and financial position are not material to Harrah's either
individually or in the aggregate. During third quarter 1995, Harrah's sold a
portion of its investment in a foreign casino property, reducing its ownership
percentage from 20% to 12.5% and resulting in a pre-tax gain of approximately
$11.7 million. As a result of this sale, this investment is now recorded under
the cost method.
Harrah's share of nonconsolidated affiliates' combined pre-interest
operating results is reflected as Revenues-other in the accompanying
Consolidated Condensed Statements of Income as follows:
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1995 1994 1995 1994
Pre-interest operating
loss (included in
Revenues-other) $(11,434) $(2,731) $(23,504) $(8,428)
======== ======= ======== =======
Harrah's share of nonconsolidated affiliates' combined interest expense is
reflected as Interest expense from nonconsolidated affiliates in the
Consolidated Condensed Statements of Income.
Sept. 30, Dec. 31,
(In thousands) 1995 1994
Harrah's investments in and advances to
nonconsolidated affiliates
At equity
Harrah's Jazz $37,695 $ 74,385
Other 8,435 18,320
At cost 32,380 24,227
------- --------
$78,510 $116,932
======= ========
-16-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)
Note 10 - Summarized Financial Information
- ------------------------------------------
HOC is a wholly-owned subsidiary and the principal asset of Harrah's.
Summarized financial information of HOC as of September 30, 1995 and
December 31, 1994, and for the third quarter and nine months ended September 30,
1995 and 1994, prepared on the same basis as Harrah's, was as follows:
Sept. 30, Dec. 31,
(In thousands) 1995 1994
Current assets $ 174,315 $ 171,445
Land, buildings, riverboats and
equipment, net 1,184,082 1,129,841
Net assets of discontinued hotel operations - 143,008
Other assets 256,098 293,015
---------- ----------
1,614,495 1,737,309
---------- ----------
Current liabilities 197,936 280,295
Long-term debt 698,641 727,493
Other liabilities 74,733 74,042
Minority interests 20,591 18,267
---------- ----------
991,901 1,100,097
---------- ----------
Net assets $ 622,594 $ 637,212
========== ==========
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands) 1995 1994 1995 1994
Revenues $425,788 $366,118 $1,170,895 $994,041
======== ======== ========== ========
Operating income $102,532 $ 76,240 $ 257,563 $214,201
======== ======== ========== ========
Income from continuing
operations $ 50,505 $ 30,845 $ 113,804 $ 81,750
======== ======== ========== ========
Net income $ 50,505 $ 44,437 $ 113,840 $103,748
======== ======== ========== ========
The agreements governing the terms of Harrah's debt contain certain
covenants which, among other things, place limitations on HOC's ability to pay
dividends and make other restricted payments, as defined, to Harrah's. The
amount of HOC'S restricted net assets, as defined, computed in accordance with
the most restrictive of these covenants regarding restricted payments, was
approximately $613.4 million at September 30, 1995.
-17-
Item 2. Management's Discussion and Analysis
---------------------------------------------
of Financial Condition and Results of Operations
------------------------------------------------
On June 30, 1995, Harrah's Entertainment, Inc. (referred to herein, together
with its subsidiaries where the context requires, as "Harrah's" or the
"Company"), formerly known as The Promus Companies Incorporated (Promus),
completed its previously announced spin-off that split Promus into two
independent public corporations, one for conducting its casino entertainment
business and one for conducting its hotel business. Promus was renamed Harrah's
Entertainment, Inc. and retained ownership of the casino entertainment business.
Promus' hotel operations were transferred to a new entity, Promus Hotel
Corporation (PHC), the stock of which was distributed to Promus' stockholders
on a one-for-two basis (the PHC Spin-off). As a result of the PHC Spin-off,
Harrah's historical financial statements reflect the hotel business as
discontinued operations.
RESULTS OF CONTINUING OPERATIONS
- --------------------------------
Overall
- -------
Third Quarter Percentage First Nine Months Percentage
(in millions, except ------------- Increase/ ----------------- Increase/
earnings per share) 1995 1994 (Decrease) 1995 1994 (Decrease)
------ ------ ---------- -------- ------ ----------
Revenues $425.8 $366.8 16.1% $1,171.6 $995.8 17.7%
Operating income 103.8 75.9 36.8% 260.0 215.1 20.9%
Income from continuing
operations 51.3 30.6 67.6% 115.4 82.3 40.2%
Net income 51.3 44.2 16.1% 115.4 104.3 10.6%
Earnings per share
Continuing operations 0.50 0.30 66.7% 1.12 0.80 40.0%
Net income 0.50 0.43 16.3% 1.12 1.01 10.9%
Operating margin 24.4% 20.7% 3.7pts 22.2% 21.6% 0.6pts
Harrah's operating results for third quarter and the nine months ended
September 30, 1995, include the combined results of its ownership and/or
management of 16 casino entertainment facilities located in eight states.
Revenues and operating income in third quarter 1995 reached record levels, due
primarily to growth within the Riverboat Casino Entertainment Division. Third
quarter 1995 also reflects improved operations at Harrah's Atlantic City and
the addition of management fees from Harrah's Phoenix Ak-Chin, the Company's
first managed Indian gaming operation, which opened on December 27, 1994. These
increases in third quarter operating income were partially offset by lower
operating income at Harrah's Nevada properties and increased losses from
Harrah's share of the Harrah's New Orleans partnership. Harrah's overall
operating margin increased 3.7 percentage points for third quarter 1995 compared
with the prior year period. The record operating income resulted in higher
income from continuing operations for third quarter and the nine months ended
September 30, 1995.
-18-
The following table summarizes operating profit before preopening costs and
corporate expense for the twelve month periods ended September 30, 1995, 1994
and 1993 in millions of dollars and as a percent of the total for each of
Harrah's casino entertainment divisions:
Operating Profit Contribution
for the Twelve Months
Ended September 30,
--------------------------------------------
In Millions of Dollars Percent of Total
---------------------- --------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Riverboat $163 $114 $ 12 47 % 37 % 6 %
Atlantic City 87 70 68 25 % 22 % 32 %
Southern Nevada 73 75 77 21 % 24 % 36 %
Northern Nevada 68 77 73 20 % 25 % 34 %
Indian Gaming 7 - - 2 % - -
New Orleans (23) (7) - (6)% (2)% -
Development costs (19) (17) (10) (6)% (5)% (5)%
Other (10) (4) (7) (3)% (1)% (3)%
---- ---- ---- --- --- ---
Total $346 $308 $213 100 % 100 % 100 %
==== ==== ==== === === ===
Riverboat Division
------------------
Third Quarter Percentage Nine Months Ended Percentage
------------------ Increase/ ------------------ Increase/
(in millions) 1995 1994 (Decrease) 1995 1994 (Decrease)
-------- -------- ---------- -------- -------- ----------
Revenues $ 160.7 $ 103.7 55.0% $ 444.9 $ 296.7 49.9 %
Operating income 49.1 27.6 77.9% 134.1 98.0 36.8 %
Operating margin 30.6% 26.6% 4.0pts 30.1% 33.0% (2.9)pts
Gaming volume $2,122.0 $1,205.9 76.0% $5,804.2 $3,138.3 85.0 %
Revenues and operating income for third quarter 1995 increased over third
quarter 1994 due primarily to the addition of the North Kansas City riverboat
casino, which opened on September 23, 1994. Harrah's Joliet and Harrah's
Shreveport achieved record third quarter operating income due to growth in
gaming volume. Harrah's Mississippi properties also contributed to the improved
results, with a combined operating income increase of 33.2% over third quarter
1994.
Third quarter 1995's overall operating margin for the Riverboat Division
improved from the prior year due to the addition of Harrah's North Kansas City
and increasing contributions by Harrah's Joliet and Shreveport properties,
which are in jurisdictions with a limited number of gaming licenses that
restricts competition. In third quarter 1994, the Division's earnings contained
a higher proportion of earnings from Harrah's Mississippi properties, both of
which face greater competition than Harrah's other riverboat operations and,
as a result, operate at lower margins.
-19-
Year to date operating margin declined from 1994, primarily due to
decreased operating margins at the Company's Mississippi casinos, particularly
Tunica, due to increased competition. Though management believes that Harrah's
Mississippi properties have now stabilized at performance levels appropriate
under current competitive market conditions, operating margins at the
Mississippi properties are not expected to return to the levels achieved during
the startup period of limited competition. Generally, the overall operating
margin for the Riverboat Division is higher than margins for other divisions
due to some of the operational differences between a riverboat facility and
conventional land-based properties and lesser levels of competition in some of
the riverboat markets.
In addition to North Kansas City's first year operations, revenue and
operating income for the nine months ended September 30, 1995, also include
operating results for Harrah's Shreveport for the full period. 1994's results
include operations from April 18, 1994, the property's opening date, and reflect
the impact of limited competition initially faced by the property.
Atlantic City
-------------
Third Quarter Percentage Nine Months Ended Percentage
---------------- Increase/ ------------------ Increase/
(in millions) 1995 1994 (Decrease) 1995 1994 (Decrease)
-------- ------ ---------- -------- -------- ----------
Revenues $ 97.9 $ 92.7 5.6% $ 259.7 $ 236.6 9.8%
Operating income 30.2 26.9 12.3% 68.1 55.5 22.7%
Operating margin 30.8% 29.0% 1.8pts 26.2% 23.5% 2.7pts
Gaming volume $1,045.2 $925.3 13.0% $2,744.9 $2,410.6 13.9%
Led by strong slot volume growth and higher nongaming revenues, Harrah's
Atlantic City posted gains in both revenues and gaming volume for both the third
quarter and year to date 1995 periods compared with the prior year. The higher
revenues for third quarter 1995 were partially offset by a lower table win
percentage as compared with third quarter 1994. Lower incremental costs on the
additional volume resulted in further improvements to operating income and
margins. These improvements can be attributed both to growth within the
overall Atlantic City market and to casino improvements made since the prior
year at Harrah's Atlantic City.
Southern Nevada Division
------------------------
Third Quarter Percentage Nine Months Ended Percentage
--------------- Increase/ ------------------- Increase/
(in millions) 1995 1994 (Decrease) 1995 1994 (Decrease)
------ ------ ---------- -------- -------- ----------
Revenues $ 75.7 $ 74.5 1.6 % $ 224.9 $ 220.5 2.0 %
Operating income 18.2 18.8 (3.2)% 55.6 57.1 (2.6)%
Operating margin 24.0% 25.2% (1.2)pts 24.7% 25.9% (1.2)pts
Gaming volume $739.9 $728.2 1.6 % $2,214.4 $2,237.8 (1.0)%
-20-
Third quarter gaming volume increased in both Las Vegas and Laughlin as
compared to the prior year third quarter, but a lower slot win percentage in
Laughlin held gaming revenue for the Division to a 1.1% increase over third
quarter 1994. Overall revenues grew 1.6%, however, as Las Vegas continued to
benefit from higher nongaming revenues, which increased 10.3% in third quarter
1995 over third quarter 1994. The increases in Division revenues were offset by
higher expenses in both markets, as both properties faced increased competition
over prior year periods, resulting in declines for both operating income and
operating margin.
Revenues increased for the nine months ended September 30, 1995, as
compared to the prior year period primarily as a result of improved nongaming
revenues, particularly lodging, in Las Vegas. Operating income and margin for
the nine months decreased, however, as both Las Vegas and Laughlin incurred
higher costs as a result of increased competition.
Northern Nevada Division
------------------------
Third Quarter Percentage Nine Months Ended Percentage
------------------ Increase/ ------------------- Increase/
(in millions) 1995 1994 (Decrease) 1995 1994 (Decrease)
-------- -------- ---------- -------- -------- ----------
Revenues $ 94.3 $ 95.7 (1.5)% $ 240.9 $ 241.3 (0.2)%
Operating income 26.6 31.7 (16.1)% 54.7 62.8 (12.9)%
Operating margin 28.2% 33.1% (4.9)pts 22.7% 26.0% (3.3)pts
Gaming volume $1,139.0 $1,153.2 (1.2)% $2,877.5 $2,888.7 (0.4)%
Gaming volume for the third quarter was lower at all three properties
during third quarter 1995 as compared to third quarter 1994, primarily due to
competition from a major new Reno property that opened in late July. Revenues
were further reduced by the higher promotional costs incurred to retain market
share and by lower win percentages at Harrah's Lake Tahoe. Operating income
decreased 16.1%, with the largest decline coming from Harrah's Reno as that
property implemented several competitive adjustments, which increased overall
costs.
Revenues and gaming volume for the nine months ended September 30, 1995
were consistent with the prior year period. Operating income for the nine
months decreased at all properties, with Reno experiencing the most significant
decline as a result of additional costs incurred in response to the recent
market entry of a major competitor.
-21-
Harrah's New Orleans
--------------------
Revenues and operating income for third quarter 1995 and 1994 include
losses of $9.1 million and $2.1 million, respectively, representing Harrah's
pro rata share of losses incurred by the partnership developing Harrah's New
Orleans. Harrah's share of partnership losses included in revenues and
operating income for the nine months ended September 30, 1995 and 1994 were
$20.7 million and $6.9 million, respectively. The higher losses in third
quarter 1995 represent Harrah's share of operating losses for the temporary
casino, which opened May 1, 1995, including the accelerated write-offs of
temporary casino assets due to the limited useful life of the facility.
Operating losses of the temporary casino have exceeded planned levels due to
lower than expected guest counts and gaming volume including guest counts and
gaming volume in the first half of the fall season. Also contributing to the
higher losses in 1995 is a decision by Harrah's to recognize, effective
September 1, 1995, 52.9% of the partnership's results of operations. Harrah's
had previously recognized 38.3% of the partnership's operations due to the
existence of a partner's option to acquire the incremental 14.6% interest from
Harrah's. Though the original option period has expired, Harrah's and the
partner have reached an agreement in principle, subject to negotiation and
completion of definitive documentation, to extend the partner's option.
Harrah's and its partner have each filed lawsuits regarding certain issues in
this matter. A condition of the definitive agreements will be that such
litigation will be dismissed upon execution and regulatory approval of the
agreements.
Although Harrah's owns a majority equity interest in the partnership,
Harrah's Jazz is not consolidated into Harrah's financial statements because the
partnership voting control is presently shared equally by all three partners.
As a result of the lower than expected gaming volume and accelerated writeoffs
of the temporary casino, Harrah's expects losses from its New Orleans investment
will continue until the opening of the permanent casino in late second quarter
1996. (See Capital Spending and Development section for further discussion of
the current status of this development project.)
Other
-----
Development costs include those costs incurred to pursue additional casino
development opportunities and, for the nine months ended September 30, 1995 and
1994, were $11.9 million and $14.5 million, respectively.
-22-
Other Factors Affecting Income Per Share
- ----------------------------------------
Third Quarter Percentage First Nine Months Percentage
(Income)/Expense ------------- Increase/ ----------------- Increase/
(in millions) 1995 1994 (Decrease) 1995 1994 (Decrease)
----- ----- ---------- ------ ----- ----------
Preopening costs $ - $10.2 N/A $ - $15.3 N/A
Corporate expense 6.9 7.8 (11.5)% 21.0 19.1 9.9 %
Interest expense 26.5 18.6 42.5 % 72.1 56.2 28.3 %
Provision for settlement of
litigation and related costs - 0.7 N/A - 2.5 N/A
Other income 12.5 0.4 N/A 15.4 1.2 N/A
Effective tax rate 38.9% 43.2% (4.3)pts 38.6% 41.6 (3.0)pts
Minority interests $(3.6) $(1.7) (111.8)% $ (9.3) $(9.7) 4.1 %
Discontinued Operations
Earnings from hotel operations,
net of income taxes - 13.6 N/A 21.2 29.9 29.1 %
Spin-off transaction expenses,
net of income taxes - - N/A (21.2) - N/A
Cumulative effect of change
in accounting policy,
net of income taxes - - N/A - (7.9) N/A
1994 preopening costs represent those costs charged to expense upon the
opening of Harrah's Shreveport in April 1994 and Harrah's North Kansas City in
September 1994. Third quarter 1994 preopening costs also included the write-off
of amounts incurred to date related to Harrah's Maryland Heights project.
Corporate expense decreased for the current third quarter as compared with the
prior year period due primarily to timing of incurrence of expenses. Corporate
expense for the nine months ended September 30, 1995, versus the comparable
prior year period, increased due to both higher information technology costs and
the inclusion in the 1994 period of the reimbursement of certain expenses.
Interest expense increased in both the third quarter and nine months ended
September 30, 1995, over comparable prior year periods primarily as a result of
the inclusion of Harrah's pro rata share of Harrah's New Orleans interest
expense.
The provision for settlement of litigation and related costs included legal
fees and other expenses incurred during 1994 related to defense of litigation
associated with the 1990 Spin-off of Promus and the acquisition of the Holiday
Inn business by Bass PLC. A settlement agreement was reached in March 1995
and reflected in fourth quarter 1994 operating results.
Other income increased for the third quarter and nine months ended September
30, 1995, versus the comparable prior year periods primarily as a result of an
$11.7 million gain on the sale of a portion of Harrah's investment in the
partnership developing a casino entertainment facility in Auckland, New Zealand.
(See Capital Development section for additional discussion of this transaction.)
-23-
The effective tax rates for all periods are higher than the federal
statutory rate primarily due to state income taxes. Minority interests reflect
joint venture partners' shares of income at joint venture riverboat casinos.
As previously discussed, on June 30, 1995, Harrah's completed a spin-off of
its hotel operations. Accordingly, the operating results of Harrah's former
hotel business are reported as discontinued operations in the accompanying
Consolidated Condensed Financial Statements (see further discussion below). The
prior year statements have been restated to conform to the 1995 presentation.
The nine months ended September 30, 1995, include an after-tax charge of
$21.2 million to accrue the expenses of the PHC Spin-off transaction.
Effective January 1, 1994, Harrah's changed its accounting policy for
consolidated casinos related to preopening costs. Operating results for the
nine months ended September 30, 1994, reflect the cumulative charge against
earnings incurred in connection with this change, net of income taxes, of
$7.9 million, or $0.08 per share (see Note 3 to the accompanying Consolidated
Condensed Financial Statements).
Discontinued Hotel Operations
- -----------------------------
As a result of the June 30, 1995 PHC Spin-off, there were no earnings from
discontinued operations included in Harrah's third quarter 1995 operating
results.
Prior to the PHC Spin-off, Harrah's corporate debt was not specifically
related to either its casino entertainment or hotel segment. However, corporate
debt service requirements were met using cash flows provided by both segments.
Therefore, for all periods prior to the PHC Spin-off, a portion of Harrah's
corporate debt balance, unamortized deferred finance charges and interest
expense were allocated to discontinued hotel operations for the periods
presented based on the percentage of Harrah's existing corporate debt which was
expected to be retired using proceeds from the new PHC bank facility. Net
assets of discontinued hotel operations at December 31, 1994, included
allocations to discontinued hotel operations of corporate debt and unamortized
deferred finance charges of $187.8 million and $3.2 million, respectively,
together with debt specifically related to PHC of $3.3 million. Interest
expense of $4.2 million for the third quarter ended September 30, 1994, and
$10.5 million and $12.7 million for the nine months ended September 30, 1995 and
1994, respectively, has been allocated to discontinued hotel operations.
-24-
CAPITAL SPENDING AND DEVELOPMENT
- --------------------------------
Harrah's continues to pursue development opportunities within the casino
entertainment industry. These opportunities include traditional land-based
casinos, riverboat casinos, Indian gaming projects and international casino
projects.
Land-Based Casino Development
- -----------------------------
Harrah's New Orleans
--------------------
Harrah's Jazz Company (Harrah's Jazz), in which a Harrah's subsidiary is one
of three partners, operates the sole land-based casino permitted by law to
operate in Orleans Parish, Louisiana. Harrah's Jazz currently operates a
temporary casino, which will operate until the construction of a permanent
casino entertainment facility is completed. Harrah's Jazz has leased the site
of the City's former Rivergate Convention Center, the legally mandated site of
the permanent casino, and construction is currently underway on the 400,000
square foot facility (approximately 200,000 square feet of casino space). The
permanent facility is expected to open during late second quarter 1996.
The current estimated project cost, which includes both the temporary casino
and permanent casino, is $823.5 million. Harrah's Jazz originally planned to
fund the project cost from a combination of partner equity contributions, public
debt securities, bank debt and projected operating cash flow from the temporary
casino. The temporary casino's operating results since its May opening have
fallen significantly below original expectations (see Results of Operations).
In connection with its requirement to periodically update the forecasted cash
flow from the temporary casino as a condition to use of the proceeds from the
issuance of public debt securities, Harrah's Jazz previously assumed, for
purposes of its internal capital budgeting, that no cash flow would be
available from the temporary casino. Subsequent thereto, in early September,
Harrah's Jazz further refined the capital budgeting plan to assume that
approximately $8.3 million in cash flow would be available from the temporary
casino.
As a result of lower than anticipated revenues in September and October,
Harrah's Jazz is currently in the process of reevaluating its financial
forecasts for the permanent casino and the temporary casino. It is anticipated
that these forecasts will reflect temporary casino negative operating cash flow
and permanent casino revenues which are significantly less than the revenues
originally projected. Assuming the forecasts reflect temporary casino negative
operating cash flow, Harrah's Jazz will be required to obtain funds from other
sources to fund presently anticipated project costs. The amount of funding
required will likely be $8.3 million plus the amount of any temporary casino
negative operating cash flow. It is currently anticipated that Harrah's and
HOC will loan the required additional funds to Harrah's Jazz in accordance
with their agreement with project lenders and the Louisiana Economic
Development and Gaming Corporation, subject to certain conditions and
exceptions, to complete the facilities and pay project costs prior to
completion. In exchange for its agreements, Harrah's is entitled to receive a
fee from Harrah's Jazz upon the completion of the permanent casino in
accordance with the terms of the Harrah's Jazz debt agreements.
-25-
In its role as temporary casino manager, a Harrah's subsidiary has funded
certain payroll and related employee costs on behalf of Harrah's Jazz. At
September 30, 1995, the amount outstanding was approximately $14 million.
As of October 31, 1995, the amount of outstanding advances was approximately
$17.8 million.
Harrah's contributed a total of $90 million to the partnership and currently
holds a 52.9% equity interest. One of Harrah's partners has an agreement in
principle, subject to negotiation completion of definitive documentation, for
an option to acquire a 14.6% ownership interest in Harrah's Jazz currently held
by Harrah's.
Existing Land-Based Properties
------------------------------
On October 1, 1995, Harrah's Reno opened a 408-room, 26-story Hampton Inn
hotel on the site of Harrah's Reno. The $28 million hotel is company-owned and
is being operated under a license agreement with Promus Hotels, Inc. During
August 1995, Harrah's announced plans for major expansions at both its Las Vegas
and Atlantic City casino properties. Each project includes the addition of a
hotel tower and casino space, as follows:
Estimated Costs Additional
Project Incurred Casino Additional Projected
Cost at Sept. 30 Square Hotel Opening Dates
Location (millions) (millions) Feet Rooms Casino Hotel
- ------------- ---------- ------------ ---------- ---------- ------ ------
Las Vegas $146.9 $0.2 17,000 694 Jul-96 Oct-97
Atlantic City 81.0 0.9 10,000 412 Jul-96 Jul-97
Riverboat Casino Development
- ----------------------------
Harrah's has announced or completed several enhancements to its existing
riverboat casino entertainment properties during the first nine months of 1995.
Harrah's recently completed the $5 million renovation of a riverboat which will
be transferred to Joliet during fourth quarter as a replacement for the Southern
Star. A related $7 million project providing for additions and improvements
to Joliet's existing shoreside pavilion is also nearing completion, and is
expected to open during first quarter 1996. The costs associated with
exchanging the riverboats and with maintaining riverboats until they are
returned to service are not material.
-26-
In July 1995, a Harrah's affiliate purchased at a bankruptcy auction the
former Southern Belle casino entertainment property, located near the existing
Harrah's casino in Tunica County, Mississippi, for $34.2 million. In addition
to the purchase price, Harrah's plans to spend up to $49 million to renovate the
facility, including the addition of a hotel with approximately 200 rooms. The
renovated facility will feature 55,000 square feet of casino space and is
expected to open during second quarter 1996. Harrah's currently operates 27,000
square feet of casino space in its present Harrah's Tunica property which is
expected to remain open.
Harrah's has announced a $78 million expansion of Harrah's North Kansas
City, to include a second riverboat casino, a 200-room hotel, parking garage and
additional shoreside amenities which, when completed, is expected to result in
77% more gaming positions. The opening of the project is subject to the
approval of and licensing from the Missouri Gaming Commission.
In addition to the six riverboat casinos now operating, Harrah's previously
announced a second riverboat casino project in the state of Missouri to be
located in Maryland Heights, a suburb of St. Louis. Approximately $40 million
had been incurred on the project as of the end of third quarter 1995. In March
1995, Harrah's announced plans to form a joint venture with Players
International, Inc., to jointly develop a riverboat casino entertainment complex
in Maryland Heights. Each company will operate separately branded riverboat
casinos and Harrah's, in partnership with Players, will develop the shoreside
facility which will include a 300-room Harrah's hotel. Subject to the receipt
of the necessary approvals and conclusion of necessary documentation,
construction is expected to begin in fourth quarter 1995 and be completed by the
end of 1996. Harrah's investment in the project, including the amount invested
to date, is expected to be approximately $166 million.
All of the projects mentioned above are subject to appropriate regulatory
approval and, where applicable, the completion of definitive joint venture
agreements.
Indian Lands
- ------------
Harrah's Phoenix Ak-Chin, the Company's first managed Indian gaming
facility, opened on December 27, 1994. The facility is owned by the Ak-Chin
Indian Community and is managed by Harrah's for a fee under terms of a
management contract with a five year term. Though Harrah's did not fund the
development, it guaranteed the community's borrowing for development costs of
the casino entertainment facility. Additionally, Sodak Gaming, Inc., has
provided a guarantee to Harrah's for one-half of this financing. Harrah's also
paid certain development and startup costs on behalf of the community. These
costs have now been repaid by the community.
-27-
In April 1995, Harrah's received approval from the National Indian Gaming
Commission for gaming management and development agreements between Harrah's and
the Upper Skagit Indian Tribe. Construction continues on a $23.5 million casino
entertainment facility approximately 70 miles north of Seattle, Washington,
which is expected to open in December 1995 and will be managed by Harrah's for a
fee under a five year management agreement. Though Harrah's is not funding the
development, it has guaranteed the related bank financing.
In September 1995, Harrah's signed definitive development and management
agreements with the Pokagon Band of Potawatomi Indians for future casino
developments in Michigan and Indiana. Similar agreements with the Cherokee
Nation for a casino development near Asheville, North Carolina are awaiting
approval by the National Indian Gaming Commission. Harrah's has also previously
announced agreements with certain other Indian tribes, which are in various
stages of negotiation and are subject to various conditions, including approval
from appropriate government agencies, prior to substantive financial involvement
by Harrah's. Upon the receipt of necessary approvals, Harrah's will most likely
guarantee the related bank financing for the projects, which could be
significant. For all existing guarantees of Indian debt, Harrah's has obtained
a first lien on the personal property (tangible and intangible) of the casino
enterprise. Additionally, Harrah's also receives a limited waiver from the
Indian tribe of its sovereign immunity to allow Harrah's to pursue its rights
under the contracts between the parties and to enforce collection efforts as to
any assets in which a security interest is taken.
International
- -------------
Harrah's and its local partner continue construction of a US$335 million
casino entertainment facility in Auckland, New Zealand. The facility, which
will be managed by Harrah's, will contain approximately 45,000 square feet of
casino space and the casino is expected to open during first quarter 1996.
During July 1995, the partners completed a private placement offering that
lowered Harrah's ownership interest from 20% to 12.5%, resulting in a pre-tax
gain to Harrah's of $11.7 million. At September 30, 1995, Harrah's investment
in the project was approximately US$17 million.
Other
- -----
In addition to these projects, Harrah's continues the on-going refurbishment
and maintenance of its existing casino entertainment facilities to maintain the
quality standards set for these properties.
-28-
Overall
- -------
Harrah's continues to pursue additional casino entertainment development
opportunities in various possible jurisdictions across the United States and
abroad. Until necessary approvals to proceed with development of a project are
obtained from the appropriate regulatory bodies, the costs of pursuing casino
entertainment projects are expensed as incurred. Construction-related costs
incurred after the receipt of necessary approvals are capitalized and
depreciated over the estimated useful life of the resulting asset. Other
preopening costs are deferred as incurred and expensed at the respective
property's opening.
A number of these projects, if they go forward, may require, individually
and in the aggregate, a significant capital commitment and, if completed, may
result in significant additional revenues. The commitment of capital, the
timing of completion and the commencement of operations of casino entertainment
development projects are contingent upon, among other things, negotiation of
final agreements and receipt of approvals from the appropriate political and
regulatory bodies. Cash needed to finance projects currently under development
as well as additional projects being pursued by Harrah's will be made available
from operating cash flows, the Bank Facility (see Debt and Liquidity section),
joint venture partners, specific project financing, guarantees by Harrah's of
third party debt and, if necessary, Harrah's debt and/or equity offerings.
Harrah's capital spending during the nine months ended September 30, 1995
totalled approximately $156 million. Total anticipated 1995 capital
expenditures are estimated at $225 million to $275 million, including the
projects discussed in this Capital Spending and Development section as well as
other projects and refurbishment of existing facilities. Including the projects
discussed above and others under consideration, capital spending of $350 million
to $450 million is expected during 1996.
DEBT AND LIQUIDITY
- ------------------
Bank Facility
- -------------
In connection with the PHC Spin-off, Harrah's negotiated changes to its
reducing revolving and letter of credit facility (the Facility) which became
effective June 30, 1995. Among the modifications were an increase in total
capacity from $650 million to $750 million, an extension of the maturity to July
31, 2000, reduced borrowing costs and favorable modifications to
certain financial covenants. As of September 30, 1995, $290.9 million in
borrowings were outstanding under the Facility, with an additional $24.1 million
committed to back letters of credit. These facility commitments resulted in
$435.0 million of the Facility being available to Harrah's as of September 30,
1995. During October 1995, Harrah's senior implied debt rating was upgraded by
Standard and Poor's and, in accordance with the Facility agreement, borrowing
costs under the Facility have been reduced by 25 basis points to LIBOR plus 50
basis points.
-29-
Interest Rate Agreements
- ------------------------
To manage the relative mix of its debt between fixed and variable rate
instruments, Harrah's enters into interest rate swap agreements to modify the
interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. As of September 30, 1995, Harrah's was a party to
the following interest rate swap agreements which effectively convert certain
fixed rate debt to variable rates:
Effective Next Semi-
Swap Rate at Annual Rate
Associated Rate September 30, Adjustment
Debt (LIBOR+) 1995 Date Swap Maturity
- -------------- ------ ------------ ----------- -------------
10 7/8% Notes
$200 million 4.73% 11.26% October 15 October 1997
8 3/4% Notes
$50 million 3.42% 9.58% November 15 May 1998
$50 million 3.22% 9.10% January 15 July 1998
In accordance with the terms of the interest rate swap agreements, the
effective interest rate on the $200 million 10 7/8% Notes was adjusted on
October 15, 1995, to 10.74%.
Harrah's has also entered into additional interest rate swap agreements to
effectively convert a total of $350 million in variable rate debt to a fixed
rate. The swaps, which are summarized in the following table, reset on a
quarterly basis.
Swap Rate
Swap Rate Received (Variable) Swap
Notional Amount Paid (Fixed) at September 30, 1995 Maturity
- --------------- ----------- --------------------- -------------
$50 million 7.915% 5.938% January 1998
$50 million 7.914% 5.875% January 1998
$50 million 7.910% 5.938% January 1998
$50 million 6.985% 5.813% March 2000
$50 million 6.651% 5.875% May 2000
$50 million 5.788% 5.875% June 2000
$50 million 5.785% 5.875% June 2000
The differences to be paid or received under the terms of the interest rate
swap agreements described above are accrued as interest rates change and
recognized as an adjustment to interest expense for the related debt. Changes
in the effective interest rates to be paid by Harrah's pursuant to the terms of
its interest rate agreements will have a corresponding effect on its future cash
flows. These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. Harrah's minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
-30-
As a component of a transaction whereby Harrah's effectively secured an
option to a site for a potential casino, Harrah's has guaranteed a third party's
$25 million variable rate bank loan. Harrah's also entered into an interest
rate swap agreement in which Harrah's receives a fixed interest rate of 7% from
the third party and pays the variable interest rate of the subject debt (LIBOR
plus 1% at September 30, 1995) to the bank. The positive value of the swap,
which is marked to market by Harrah's, was approximately $0.3 million at
September 30, 1995. Adjustments to the swap's market value are included in
interest expense in the consolidated statements of income. Harrah's swap
agreement expires December 1, 1996, and is also subject to earlier termination
upon the occurrence of certain events.
Shelf Registration
- -------------------
To provide for additional financing flexibility, Harrah's, together with its
wholly-owned subsidiary Harrah's Operating Company, Inc. (HOC), has registered
up to $200 million of Harrah's common stock or HOC preferred stock or debt
securities pursuant to a shelf registration declared effective by the Securities
and Exchange Commission on October 11, 1995. The terms and conditions of the
HOC preferred stock or debt securities, which will be unconditionally guaranteed
by Harrah's, will be determined by market conditions at the time of issuance.
The shelf registration is available until October 1997.
INCOME TAX MATTERS
- ------------------
Under the terms of the March 1995 Settlement between the Company and Bass
PLC (Bass), the Tax Sharing Agreement entered into in connection with the
February 7, 1990 spin-off (the 1990 Spin-off) of the stock of Promus to
stockholders of Holiday Corporation has been terminated. Under the Tax Sharing
Agreement, Promus was liable, with certain exceptions, for taxes of Holiday and
its subsidiaries for all pre-1990 Spin-off tax periods. Bass was obligated
under the same agreement to pay Promus the amount of any tax benefits realized
from pre-1990 Spin-off tax periods of Holiday and its subsidiaries. Under the
provisions of the Settlement, Harrah's remains obligated for certain tax issues
related to Promus and its subsidiaries for the pre-Spin-off tax periods and
certain other items related to the final resolution of disputed issues from the
Internal Revenue Service (IRS) examination of income tax returns for 1987
through the 1990 Spin-off date. A protest defending the taxpayers' position on
all disputed issues for these periods was filed with the IRS during third
quarter 1993 and negotiations to resolve these issues were finalized during
third quarter 1995. Final resolution of the disputed issues resulted in a
favorable settlement on those issues for which Harrah's was obligated.
-31-
In connection with the PHC Spin-off, Harrah's entered into a Tax Sharing
Agreement with PHC wherein each company is obligated for those taxes associated
with their respective businesses. Additionally, Harrah's is obligated for all
taxes of the Company for periods prior to the PHC Spin-off date which are not
specifically related to PHC operations and/or PHC hotel locations.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
In recent years, the casino entertainment industry in the United States has
experienced significant expansion in both existing markets and new
jurisdictions. Though expansion is continuing within the industry, the pace of
casino gaming approval within new jurisdictions in the United States is
unpredictable and, as a result, future increases or decreases in gaming demand
and legalization are difficult to predict. The proliferation of casino gaming
has also been furthered in recent years by the Indian Gaming Regulatory Act of
1988 which, as of October 23, 1995, had resulted in the approval of 140 compacts
for the development of casinos on Native American lands in 24 states.
Development has begun on several new projects and major expansions of
existing properties in and around Las Vegas. Revenues in the Laughlin market
continue to be impacted by the recently completed additions to competitive
supply in and around Las Vegas and from Indian casinos in the region. In Reno,
a major new property which adds substantial additional casino space and hotel
rooms to that market opened July 28, 1995. New casino projects have been
announced recently in Atlantic City.
Harrah's is not able to determine the long-term impact, whether favorable or
unfavorable, that these developments will have on the markets in which it
currently operates. However, management believes that the current balance of
its operations among the existing casino entertainment divisions as discussed
above, combined with the further geographic diversification and the continuing
pursuit of the Harrah's national brand strategy, including the enhanced
corporate identity resulting from the PHC Spin-off, have well-positioned
Harrah's to face the challenges presented by these market forces.
INTERCOMPANY DIVIDEND RESTRICTION
- ---------------------------------
Agreements governing the terms of its debt require Harrah's to abide by
covenants which, among other things, limit HOC's ability to pay dividends and
make other restricted payments, as defined, to Harrah's. The amount of HOC's
restricted net assets, as defined, computed in accordance with the most
restrictive of these covenants regarding restricted payments, was approximately
$613.4 million at September 30, 1995. Harrah's principal asset is the stock of
HOC, a wholly-owned subsidiary. HOC holds, directly and through subsidiaries,
the principal assets of Harrah's businesses. Given this ownership structure,
these restrictions should not impair Harrah's ability to conduct its business
through its subsidiaries or to pursue its development plans.
-32-
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------------------
(a) Exhibits
*EX-11 Computation of per share earnings.
*EX-27 Financial Data Schedule.
- ------------
*Filed herewith.
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1995.
-33-
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRAH'S ENTERTAINMENT, INC.
November 14, 1995 BY: /s/ MICHAEL N. REGAN
------------------------------
Michael N. Regan
Vice President and Controller
(Chief Accounting Officer)
-34-
Exhibit Index
-------------
Exhibit No. Description Sequential Page No.
- ----------- ------------ ------------------
*EX-11 Computation of per share earnings. 36
*EX-27 Financial Data Schedule.
- ------------
*Filed herewith.
-35-
Exhibit 11
HARRAH'S ENTERTAINMENT, INC. EX-11
COMPUTATION OF PER SHARE EARNINGS
Third Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
Income from continuing operations $ 51,310,000 $ 30,591,000 $115,357,000 $ 82,345,000
Discontinued operations
Earnings from hotel operations, net - 13,592,000 21,230,000 29,930,000
Spin-off transaction expenses, net - - (21,194,000) -
Cumulative effect of change in accounting
policy, net - - - (7,932,000)
------------ ------------ ------------ ------------
Net income $ 51,310,000 $ 44,183,000 $115,393,000 $104,343,000
============ ============ ============ ============
Primary earnings per share
Weighted average number of common shares
outstanding 102,428,430 101,649,124 102,298,599 101,585,696
Common stock equivalents
Additional shares based on average
market price for period applicable to:
Restricted stock 70,215 452,743 102,439 456,115
Stock options 848,622 716,129 807,558 789,604
------------ ------------ ------------ ------------
Average number of primary common and
common equivalent shares outstanding 103,347,267 102,817,996 103,208,596 102,831,415
============ ============ ============ ============
Primary earnings per common and common
equivalent share
Income from continuing operations $ 0.50 $ 0.30 $ 1.12 $ 0.80
Discontinued operations
Earnings from hotel operations, net - 0.13 0.21 0.29
Spin-off transaction expenses, net - - (0.21) -
Change in accounting policy, net - - - (0.08)
------ ------ ------ ------
Net income $ 0.50 $ 0.43 $ 1.12 $ 1.01
====== ====== ====== ======
Fully diluted earnings per share
Average number of primary common and
common equivalent shares outstanding 103,347,267 102,817,996 103,208,596 102,831,415
Additional shares based on period-
end price applicable to:
Restricted stock 3,529 18,177 7,348 39,219
Stock options 10,446 11,282 51,511 -
------------ ------------ ------------ -------------
Average number of fully diluted common and
common equivalent shares outstanding 103,361,242 102,847,455 103,267,455 102,870,634
============ ============ ============ =============
Fully diluted earnings per common and
common equivalent share
Income from continuing operations $ 0.50 $ 0.30 $ 1.12 $ 0.80
Discontinued operations
Earnings from hotel operations, net - 0.13 0.21 0.29
Spin-off transaction expenses, net - - (0.21) -
Change in accounting policy, net - - - (0.08)
------ ------ ------ ------
Net income $ 0.50 $ 0.43 $ 1.12 $ 1.01
====== ====== ====== ======
-36-
5
1,000
9-MOS
DEC-31-1995
SEP-30-1995
72,821
0
60,235
10,311
11,886
177,400
1,705,334
521,252
1,617,815
215,797
698,641
10,263
0
0
599,080
1,617,815
0
1,171,642
0
886,032
21,036
4,622
72,102
203,203
78,520
115,357
36
0
0
115,393
1.12
1.12
