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, 2008
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 or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| One Caesars Palace Drive Las Vegas, Nevada |
89109 | |
| (Address of principal executive offices) | (Zip Code) |
(702) 407-6000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 31, 2008, the Registrant had 10 shares of voting Common Stock and 40,747,287 shares of non-voting Common Stock outstanding.
PART I—FINANCIAL INFORMATION
| Item 1. | Financial Statements |
The accompanying unaudited Consolidated Condensed Financial Statements of Harrah’s Entertainment, Inc., a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles in the United States. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of operating results.
Results of operations for interim periods are not necessarily indicative of a full year of operations. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.
2
HARRAH’S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
| Successor | Predecessor | |||||||||
| (In millions, except share amounts) | September 30, 2008 | December 31, 2007 | ||||||||
| ASSETS |
||||||||||
| Current assets |
||||||||||
| Cash and cash equivalents |
$ | 1,005.9 | $ | 710.0 | ||||||
| Receivables, less allowance for doubtful accounts of $172.8 and $126.2 |
405.3 | 476.4 | ||||||||
| Deferred income taxes |
145.4 | 200.0 | ||||||||
| Income tax receivable |
7.4 | 5.0 | ||||||||
| Prepayments and other |
232.3 | 216.2 | ||||||||
| Inventories |
70.3 | 70.3 | ||||||||
| Total current assets |
1,866.6 | 1,677.9 | ||||||||
| Land, buildings, riverboats and equipment |
18,718.8 | 18,753.5 | ||||||||
| Less: accumulated depreciation |
(446.2 | ) | (3,182.0 | ) | ||||||
| 18,272.6 | 15,571.5 | |||||||||
| Assets held for sale |
50.6 | 4.5 | ||||||||
| Goodwill (Note 4) |
9,315.0 | 3,553.6 | ||||||||
| Intangible assets (Note 4) |
6,272.1 | 2,039.5 | ||||||||
| Investments in and advances to nonconsolidated affiliates |
32.9 | 18.6 | ||||||||
| Deferred costs and other |
1,202.5 | 492.1 | ||||||||
| $ | 37,012.3 | $ | 23,357.7 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
| Current liabilities |
||||||||||
| Accounts payable |
$ | 403.1 | $ | 442.0 | ||||||
| Accrued expenses |
1,547.4 | 1,351.2 | ||||||||
| Current portion of long-term debt (Note 6) |
84.0 | 10.8 | ||||||||
| Total current liabilities |
2,034.5 | 1,804.0 | ||||||||
| Liabilities held for sale |
0.7 | 0.6 | ||||||||
| Long-term debt (Note 6) |
24,130.2 | 12,429.6 | ||||||||
| Deferred credits and other |
461.5 | 464.8 | ||||||||
| Deferred income taxes |
4,513.0 | 1,979.6 | ||||||||
| 31,139.9 | 16,678.6 | |||||||||
| Minority interests |
57.3 | 52.2 | ||||||||
| Commitments and contingencies (Notes 6, 8, 9 and 10) |
||||||||||
| Preferred stock of Successor Entity; $0.01 par value; 40,000,000 shares authorized; 19,930,196 shares issued and outstanding at September 30, 2008 (net of 5,338 shares held in treasury) |
2,206.2 | — | ||||||||
| Stockholders’ equity (Notes 5 and 6) |
||||||||||
| Common stock non-voting and voting of Successor Entity; $0.01 par value; 80,000,020 shares authorized; 40,747,298 shares issued and outstanding at September 30, 2008 (net of 10,912 shares held in treasury) |
0.4 | — | ||||||||
| Common stock of Predecessor Entity; $0.10 par value, authorized - 720,000,000 shares, outstanding -188,778,819 shares (net of 36,033,752 shares held in treasury) at December 31, 2007 |
— | 18.9 | ||||||||
| Additional paid-in capital |
3,876.5 | 5,395.4 | ||||||||
| Retained (deficit)/earnings |
(314.2 | ) | 1,197.2 | |||||||
| Accumulated other comprehensive income |
46.2 | 15.4 | ||||||||
| 3,608.9 | 6,626.9 | |||||||||
| $ | 37,012.3 | $ | 23,357.7 | |||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
3
HARRAH’S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Successor | Predecessor | Predecessor | ||||||||||||||||||||
| Successor | Predecessor | January 28, 2008 | January 1, 2008 | Nine Months | ||||||||||||||||||
| Third Quarter Ended | Through | Through | Ended | |||||||||||||||||||
| (In millions) | Sept. 30, 2008 | Sept. 30, 2007 | Sept. 30, 2008 | January 27, 2008 | Sept. 30, 2007 | |||||||||||||||||
| Revenues |
||||||||||||||||||||||
| Casino |
$ | 2,130.1 | $ | 2,333.6 | $ | 5,653.2 | $ | 614.6 | $ | 6,686.7 | ||||||||||||
| Food and beverage |
427.6 | 445.1 | 1,160.2 | 118.4 | 1,299.1 | |||||||||||||||||
| Rooms |
316.7 | 341.6 | 894.2 | 96.4 | 1,035.9 | |||||||||||||||||
| Management fees |
16.6 | 20.5 | 45.8 | 5.0 | 64.2 | |||||||||||||||||
| Other |
181.9 | 184.8 | 462.4 | 42.7 | 525.1 | |||||||||||||||||
| Less: casino promotional allowances |
(427.0 | ) | (485.3 | ) | (1,127.3 | ) | (117.0 | ) | (1,413.3 | ) | ||||||||||||
| Net revenues |
2,645.9 | 2,840.3 | 7,088.5 | 760.1 | 8,197.7 | |||||||||||||||||
| Operating expenses |
||||||||||||||||||||||
| Direct |
||||||||||||||||||||||
| Casino |
1,129.4 | 1,195.9 | 3,037.1 | 340.6 | 3,444.8 | |||||||||||||||||
| Food and beverage |
178.1 | 194.3 | 486.1 | 50.5 | 553.7 | |||||||||||||||||
| Rooms |
64.9 | 67.0 | 179.4 | 19.6 | 201.1 | |||||||||||||||||
| Property general, administrative and other |
631.8 | 592.7 | 1,619.0 | 178.2 | 1,795.4 | |||||||||||||||||
| Depreciation and amortization |
152.0 | 206.8 | 452.4 | 63.5 | 601.4 | |||||||||||||||||
| Write-downs, reserves and recoveries |
46.8 | (54.5 | ) | (61.8 | ) | 4.7 | (83.0 | ) | ||||||||||||||
| Project opening costs |
16.3 | 4.8 | 26.3 | 0.7 | 22.1 | |||||||||||||||||
| Corporate expense |
34.7 | 37.6 | 95.9 | 8.5 | 97.7 | |||||||||||||||||
| Merger and integration costs |
1.0 | 0.7 | 23.1 | 125.6 | 8.3 | |||||||||||||||||
| Loss/(income) on interests in nonconsolidated affiliates |
2.5 | 0.1 | 1.3 | (0.5 | ) | (3.6 | ) | |||||||||||||||
| Amortization of intangible assets |
38.8 | 17.7 | 119.2 | 5.5 | 53.5 | |||||||||||||||||
| Total operating expenses |
2,296.3 | 2,263.1 | 5,978.0 | 796.9 | 6,691.4 | |||||||||||||||||
| Income/(loss) from operations |
349.6 | 577.2 | 1,110.5 | (36.8 | ) | 1,506.3 | ||||||||||||||||
| Interest expense, net of interest capitalized |
(533.4 | ) | (216.1 | ) | (1,469.4 | ) | (89.7 | ) | (578.4 | ) | ||||||||||||
| Gains/(losses) on early extinguishments of debt |
7.4 | (2.0 | ) | (203.9 | ) | — | (2.0 | ) | ||||||||||||||
| Other income, including interest income |
7.2 | 4.9 | 18.7 | 1.1 | 28.7 | |||||||||||||||||
| (Loss)/income from continuing operations before income taxes and minority interests |
(169.2 | ) | 364.0 | (544.1 | ) | (125.4 | ) | 954.6 | ||||||||||||||
| Benefit/(provision) for income taxes |
46.0 | (137.4 | ) | 147.7 | 26.0 | (354.1 | ) | |||||||||||||||
| Minority interests |
(7.2 | ) | (6.0 | ) | (6.2 | ) | (1.6 | ) | (17.2 | ) | ||||||||||||
| (Loss)/income from continuing operations |
(130.4 | ) | 220.6 | (402.6 | ) | (101.0 | ) | 583.3 | ||||||||||||||
| Discontinued operations |
||||||||||||||||||||||
| Income from discontinued operations |
0.7 | 39.0 | 141.6 | 0.1 | 133.3 | |||||||||||||||||
| Provision for income taxes |
— | (15.2 | ) | (53.2 | ) | — | (49.4 | ) | ||||||||||||||
| Income from discontinued operations, net |
0.7 | 23.8 | 88.4 | 0.1 | 83.9 | |||||||||||||||||
| Net (loss)/income |
$ | (129.7 | ) | $ | 244.4 | $ | (314.2 | ) | $ | (100.9 | ) | $ | 667.2 | |||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
4
HARRAH’S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Successor | Predecessor | Predecessor | ||||||||||||
| (In millions) | January 28, 2008 Through Sept. 30, 2008 |
January 1, 2008 Through January 27, 2008 |
Nine Months Ended Sept. 30, 2007 |
|||||||||||
| Cash flows from operating activities |
||||||||||||||
| Net (loss)/income |
$ | (314.2 | ) | $ | (100.9 | ) | $ | 667.2 | ||||||
| Adjustments to reconcile net (loss)/income to cash flows from operating activities: |
||||||||||||||
| Income from discontinued operations, before income taxes |
(141.6 | ) | (0.1 | ) | (133.3 | ) | ||||||||
| Income from insurance claims for hurricane losses |
(185.5 | ) | — | (116.9 | ) | |||||||||
| Losses on early extinguishment of debt |
203.9 | — | 2.0 | |||||||||||
| Depreciation and amortization |
744.4 | 104.9 | 664.8 | |||||||||||
| Write-downs, reserves and recoveries |
37.5 | (0.1 | ) | 3.1 | ||||||||||
| Other non-cash items |
91.1 | 34.4 | 23.2 | |||||||||||
| Share-based compensation expense |
11.8 | 50.9 | 39.4 | |||||||||||
| Deferred income taxes |
(251.2 | ) | (19.0 | ) | 84.6 | |||||||||
| Tax benefit from stock equity plans |
— | 42.6 | 1.3 | |||||||||||
| Minority interests’ share of income |
6.2 | 1.6 | 17.2 | |||||||||||
| Loss/(income) on interests in nonconsolidated affiliates |
1.3 | (0.5 | ) | (3.6 | ) | |||||||||
| Net change in insurance receivables for hurricane damage |
0.9 | — | 0.2 | |||||||||||
| Returns on investment in nonconsolidated affiliate |
2.5 | 0.1 | 1.3 | |||||||||||
| Insurance proceeds for hurricane losses |
97.9 | — | 63.9 | |||||||||||
| Net losses/(gains) from asset sales |
8.0 | (7.4 | ) | (16.9 | ) | |||||||||
| Net change in long-term accounts |
(42.6 | ) | 68.3 | 4.8 | ||||||||||
| Net change in working capital accounts |
390.4 | (167.6 | ) | (117.4 | ) | |||||||||
| Cash flows provided by operating activities |
660.8 | 7.2 | 1,184.9 | |||||||||||
| Cash flows from investing activities |
||||||||||||||
| Land, buildings, riverboats and equipment additions |
(966.9 | ) | (117.4 | ) | (1,035.8 | ) | ||||||||
| Insurance proceeds for hurricane losses for discontinued operations |
83.3 | — | 58.2 | |||||||||||
| Insurance proceeds for hurricane losses for continuing operations |
98.1 | — | 58.0 | |||||||||||
| Payment for Merger |
(17,490.2 | ) | — | — | ||||||||||
| Payments for businesses acquired, net of cash acquired |
— | 0.1 | (579.6 | ) | ||||||||||
| Investments in and advances to nonconsolidated affiliates |
(5.9 | ) | — | (0.8 | ) | |||||||||
| Proceeds from other asset sales |
4.6 | 3.1 | 95.8 | |||||||||||
| Increase/(decrease) in construction payables |
1.9 | (8.2 | ) | (15.1 | ) | |||||||||
| Other |
(31.4 | ) | (1.7 | ) | (76.2 | ) | ||||||||
| Cash flows used in investing activities |
(18,306.5 | ) | (124.1 | ) | (1,495.5 | ) | ||||||||
| Cash flows from financing activities |
||||||||||||||
| Proceeds from issuance of long-term debt, net of issue costs |
20,101.2 | 11,316.3 | 23,607.8 | |||||||||||
| Repayments under lending agreements |
(5,834.8 | ) | (11,288.8 | ) | (22,263.9 | ) | ||||||||
| Early extinguishments of debt |
(1,941.5 | ) | (87.7 | ) | (120.1 | ) | ||||||||
| Premiums paid on early extinguishments of debt |
(225.9 | ) | — | — | ||||||||||
| Scheduled debt retirements |
(6.5 | ) | — | (1,001.7 | ) | |||||||||
| Dividends paid |
— | — | (224.2 | ) | ||||||||||
| Equity contribution from buyout |
6,007.0 | — | — | |||||||||||
| Minority interests’ distributions, net of contributions |
(7.6 | ) | (1.6 | ) | (12.8 | ) | ||||||||
| Proceeds from exercises of stock options |
— | 2.4 | 71.3 | |||||||||||
| Excess tax benefit from stock equity plans |
(50.5 | ) | 77.5 | 32.4 | ||||||||||
| Other |
(2.3 | ) | (0.8 | ) | (1.6 | ) | ||||||||
| Cash flows provided by financing activities |
18,039.1 | 17.3 | 87.2 | |||||||||||
| Cash flows from discontinued operations |
||||||||||||||
| Cash flows from operating activities |
1.6 | 0.5 | 78.7 | |||||||||||
| Cash flows from investing activities |
— | — | (0.2 | ) | ||||||||||
| Cash flows provided by discontinued operations |
1.6 | 0.5 | 78.5 | |||||||||||
| Net increase/(decrease) in cash and cash equivalents |
395.0 | (99.1 | ) | (144.9 | ) | |||||||||
| Cash and cash equivalents, beginning of period |
610.9 | 710.0 | 799.6 | |||||||||||
| Cash and cash equivalents, end of period |
$ | 1,005.9 | $ | 610.9 | $ | 654.7 | ||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
5
HARRAH’S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
(UNAUDITED)
| Successor | Predecessor | Predecessor | ||||||||||||||||||||
| Successor | Predecessor | January 28, 2008 Through Sept. 30, 2008 |
January 1, 2008 Through January 27, 2008 |
Nine Months Ended Sept. 30, 2007 |
||||||||||||||||||
| Third Quarter Ended | ||||||||||||||||||||||
| (In millions) | Sept. 30, 2008 | Sept. 30, 2007 | ||||||||||||||||||||
| Net (loss)/income |
$ | (129.7 | ) | $ | 244.4 | $ | (314.2 | ) | $ | (100.9 | ) | $ | 667.2 | |||||||||
| Other comprehensive (loss)/income: |
||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax benefit of $14.2, $2.6, $21.1, $3.1 and $1.9 |
(29.9 | ) | (3.2 | ) | (36.1 | ) | (1.8 | ) | (2.2 | ) | ||||||||||||
| Minimum pension liability adjustment, net of tax (benefit)/provision of $0.0, $(2.7), $0.0, $0.0 and $4.0 |
— | (6.4 | ) | — | — | 9.2 | ||||||||||||||||
| Fair market value of interest rate cap agreements on commercial mortgage-backed securities, net of tax (benefit)/provision of $(11.4), $0.0, $8.5, $0.0 and $0.0 |
(20.3 | ) | — | 14.7 | — | — | ||||||||||||||||
| Reclassification of loss on derivative instruments from other comprehensive income to net income, net of tax provision of $0.1, $0.1, $0.2, $0.0 and $0.2 |
0.1 | 0.1 | 0.4 | — | 0.4 | |||||||||||||||||
| Fair market value of swap agreements, net of tax (benefit)/provision of $(22.6), $0.0, $36.5, $0.0 and $0.0 |
(41.3 | ) | — | 67.2 | — | — | ||||||||||||||||
| (91.4 | ) | (9.5 | ) | 46.2 | (1.8 | ) | 7.4 | |||||||||||||||
| Comprehensive (loss)/income |
$ | (221.1 | ) | $ | 234.9 | $ | (268.0 | ) | $ | (102.7 | ) | $ | 674.6 | |||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
6
HARRAH’S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(UNAUDITED)
Note 1—Basis of Presentation and Organization
Harrah’s Entertainment, Inc. (“Harrah’s Entertainment,” the “Company,” “we,” “our” or “us,” and including our subsidiaries where the context requires) is a Delaware corporation. As of September 30, 2008, we own or manage 52 casinos, primarily under the Harrah’s, Caesars and Horseshoe brand names in the United States. Our casino entertainment facilities include 33 land-based casinos, 12 dockside casinos, three managed casinos on Indian lands, one combination thoroughbred racetrack and casino, one combination greyhound racetrack and casino, one combination harness racetrack and casino and one managed casino in Canada. Our 33 land-based casinos include one in Uruguay, eleven in the United Kingdom, two in Egypt and one in South Africa. We view each property as an operating segment and aggregate all operating segments into one reporting segment.
On January 28, 2008, Harrah’s Entertainment was acquired by affiliates of Apollo Global Management, LLC (“Apollo”) and TPG Capital, LP (“TPG”) in an all cash transaction, hereinafter referred to as the “Merger.” Although Harrah’s Entertainment continued as the same legal entity after the Merger, the accompanying Consolidated Condensed Statement of Operations, the Consolidated Condensed Statement of Cash Flows and the Consolidated Condensed Statement of Comprehensive Income for the nine months ended September 30, 2008, are presented as the Predecessor period for the period preceding the Merger and as the Successor period for the period succeeding the Merger. As a result of the application of purchase accounting as of the Merger date, the consolidated condensed financial statements for the Successor period and the Predecessor period are presented on different bases and are, therefore, not comparable.
Certain of our properties were sold in 2006, and prior to their sales, assets and liabilities of these properties were classified in our Consolidated Condensed Balance Sheets as Assets/Liabilities held for sale, and their operating results through the date of their sales were presented as discontinued operations. See Note 12 for further information regarding discontinued operations.
Note 2—The Merger
As discussed in Note 1, the Merger was completed on January 28, 2008, and was financed by a combination of borrowings under the Company’s new term loan facility due 2015, the issuance of Senior Notes due 2016, Senior PIK Toggle Notes due 2018, senior cash pay interim loans due 2016 and senior PIK toggle interim loans due 2018, mortgage loans and/or related mezzanine financing and/or real estate term loans and equity investments of Apollo/TPG, co-investors and members of management. See Note 6 for a discussion of our debt.
The purchase price was approximately $30.7 billion, including the assumption of $12.4 billion of debt and approximately $1.0 billion of transaction costs. All of the outstanding shares of Harrah’s Entertainment stock were acquired, with shareholders receiving $90.00 in cash for each outstanding share of common stock.
The purchase price allocation is in process and will be completed within one year of the Merger; thus, for purposes of these financial statements, the preliminary allocation of the purchase price for property and equipment, intangible assets and deferred income taxes is based on preliminary valuation data. The purchase price is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determined the estimated fair values after review and consideration of relevant information including discounted cash flow analyses, quoted market prices and our own estimates. To the extent that the purchase price exceeds the fair value of the net identifiable tangible and intangible assets, such excess is allocated to goodwill. Goodwill and intangible assets that are determined to have an indefinite life are not amortized.
7
The following table reconciles the preliminary purchase price and financing adjustments in connection with the Merger and summarizes the estimated fair values of the assets and liabilities assumed at the date of the Merger. The purchase price allocation is in process and will be completed within one year of the Merger; thus, the allocation of the purchase price is subject to refinement. The preliminary allocation of the purchase price for property and equipment, intangible assets and deferred income taxes is based on preliminary valuation data.
| Predecessor | Successor | |||||||||||
| (In millions) | January 27, 2008 |
Merger Adjustments |
January 28, 2008 | |||||||||
| Assets |
||||||||||||
| Current assets |
$ | 1,658.6 | $ | 696.8 | $ | 2,355.4 | ||||||
| Land, buildings, riverboats and equipment |
15,621.3 | 2,167.2 | 17,788.5 | |||||||||
| Long-term assets |
511.5 | 811.7 | 1,323.2 | |||||||||
| Intangible assets |
2,030.2 | 4,385.7 | 6,415.9 | |||||||||
| Goodwill |
3,549.7 | 5,765.3 | 9,315.0 | |||||||||
| Total assets |
$ | 23,371.3 | $ | 13,826.7 | $ | 37,198.0 | ||||||
| Liabilities and Stockholders’ Equity |
||||||||||||
| Current liabilities, including current portion of long-term debt |
$ | 1,797.9 | $ | 321.3 | $ | 2,119.2 | ||||||
| Deferred income taxes |
1,974.1 | 2,784.8 | 4,758.9 | |||||||||
| Long-term debt |
12,367.5 | 11,535.0 | 23,902.5 | |||||||||
| Other long-term liabilities |
499.3 | 1.0 | 500.3 | |||||||||
| Total liabilities |
16,638.8 | 14,642.1 | 31,280.9 | |||||||||
| Minority interests |
52.3 | 2.0 | 54.3 | |||||||||
| Stockholders’ equity |
6,680.2 | (817.4 | ) | 5,862.8 | ||||||||
| Total liabilities and stockholders’ equity |
$ | 23,371.3 | $ | 13,826.7 | $ | 37,198.0 | ||||||
Of the estimated $6,415.9 million of intangible assets, $2,729.4 million has been assigned to trademarks that are not subject to amortization and $1,951.0 million has been assigned to gaming rights that are not subject to amortization. The remaining intangible assets include customer relationships of $1,454.5 million (12-year weighted-average useful life), contract/management rights estimated at $134.3 million (5-year weighted-average useful life), gaming rights estimated at $42.8 million (16-year estimated useful life), trademarks subject to amortization estimated at $10.4 million (5-year estimated useful life) and internally developed information technology systems estimated at $93.5 million (8-year estimated useful life). The weighted average useful life of all amortizing intangible assets related to the Merger is approximately 11 years.
We anticipate that the goodwill related to the Merger will not be deductible for tax purposes.
The following unaudited pro forma consolidated financial information assumes that the Merger was completed at the beginning of 2008 and 2007.
| Third Quarter Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (In millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
| Net revenues |
$ | 2,645.9 | $ | 2,840.3 | $ | 7,848.6 | $ | 8,197.7 | ||||||||
| Loss from continuing operations |
$ | (145.6 | ) | $ | (92.3 | ) | $ | (608.7 | ) | $ | (164.3 | ) | ||||
| Net loss |
$ | (144.8 | ) | $ | (68.5 | ) | $ | (520.2 | ) | $ | (80.4 | ) | ||||
For the quarter ended September 30, 2008, pro forma results include $1.0 million of costs related the Merger. Pro forma results for the nine months ended September 30, 2008, include non-recurring charges of $82.8 million related to the accelerated vesting of stock options, stock appreciation rights (“SARs”) and restricted stock and $65.9 million of other costs related to the Merger. Results for the quarter and nine months ended September 30, 2007, included $0.7 million and $8.3 million, respectively, for costs related to the Merger.
8
Note 3—Stock-Based Employee Compensation
Prior to the completion of the Merger, the Company granted stock options, SARs and restricted stock for a fixed number of shares to employees and directors under share-based compensation plans. The exercise prices of the stock options and SARs were equal to the fair market value of the underlying shares at the date of grant. Compensation expense for restricted stock awards was measured at fair value on the date of grant based on the number of shares granted and the quoted market price of the Company’s common stock. Such value was recognized as expense over the vesting period of the award adjusted for actual forfeitures.
In connection with the Merger, on January 28, 2008, outstanding and unexercised stock options and SARs, whether vested or unvested, were cancelled and converted into the right to receive a cash payment equal to the product of (a) the number of shares of common stock underlying the options and (b) the excess, if any, of the Merger consideration over the exercise price per share of common stock previously subject to such options, less any required withholding taxes. In addition, outstanding restricted shares vested and became free of restrictions, and each holder received $90 in cash for each outstanding share.
The following is a summary of activity under the equity incentive plans that were in effect upon adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004) through the effective date of the Merger, when all of the stock options and SARs were cancelled and restricted shares were vested:
| Predecessor Entity | ||||||||
| Plan |
Outstanding at January 1, 2008 |
Cancelled | Outstanding at January 27, 2008 | |||||
| Stock options |
||||||||
| 2004 Equity Incentive Award Plan |
7,303,293 | 7,303,293 | — | |||||
| Broad-Based Stock Incentive Plan |
50,097 | 50,097 | — | |||||
| 2004 Long Term Incentive Plan |
537,387 | 537,387 | — | |||||
| 1998 Caesars Plans |
102,251 | 102,251 | — | |||||
| Total options outstanding |
7,993,028 | 7,993,028 | — | |||||
| Weighted average exercise price per option |
$ | 57.51 | $ | 57.51 | — | |||
| Weighted average remaining contractual term per option |
3.5 years | — | — | |||||
| Options exercisable at January 27, 2008: |
||||||||
| Number of options |
— | |||||||
| Weighted average exercise price |
— | |||||||
| Weighted average remaining contractual term |
— | |||||||
| SARs |
||||||||
| 2004 Equity Incentive Award Plan |
3,229,487 | 3,229,487 | — | |||||
| Broad-Based Stock Incentive Plan |
— | — | — | |||||
| 2004 Long Term Incentive Plan |
27,695 | 27,695 | — | |||||
| 1998 Caesars Plans |
— | — | — | |||||
| Total SARs outstanding |
3,257,182 | 3,257,182 | — | |||||
| Weighted average exercise price per SAR |
$ | 69.26 | $ | 69.26 | — | |||
| Weighted average remaining contractual term per SAR |
5.7 years | — | — | |||||
| SARs exercisable at January 27, 2008: |
||||||||
| Number of SARs |
— | |||||||
| Weighted average exercise price |
— | |||||||
| Weighted average remaining contractual term |
— | |||||||
| Restricted shares | Vested | |||||||
| 2004 Equity Incentive Award Plan |
687,624 | 687,624 | — | |||||
| Broad-Based Stock Incentive Plan |
— | — | — | |||||
| 2004 Long Term Incentive Plan |
36,691 | 36,691 | — | |||||
| 1998 Caesars Plans |
— | — | — | |||||
| Total restricted shares outstanding |
724,315 | 724,315 | — | |||||
| Grant date fair value per restricted share |
$ | 70.71 | $ | 70.71 | — | |||
9
Prior to the Merger, our employees were also granted restricted stock or options to purchase shares of common stock under the Harrah’s Entertainment, Inc. 2001 Broad-based Stock Incentive Plan (the “2001 Plan”). Two hundred thousand shares were authorized for issuance under the 2001 Plan, which was an equity compensation plan not approved by stockholders.
There were no share-based grants during the period January 1, 2008 through January 27, 2008 (predecessor entity).
The total intrinsic value of stock options and SARs cancelled and restricted shares vested due to the Merger was approximately $456.9 million, $225.3 million and $46.9 million, respectively, for the period January 1, 2008 through January 27, 2008 (predecessor entity).
The following is a summary of the activity for nonvested stock option and SAR grants and restricted share awards as of January 27, 2008 and the changes for the period January 1, 2008 to January 27, 2008:
| Predecessor Entity | ||||||||||||||||||
| Stock Options | SARs | Restricted Shares | ||||||||||||||||
| Options | Fair Value (1) |
SARs | Fair Value (1) |
Shares | Fair Value (1) | |||||||||||||
| Nonvested at January 1, 2008 |
2,157,766 | $ | 19.87 | 2,492,883 | $ | 19.51 | 724,315 | $ | 70.71 | |||||||||
| Grants |
— | — | — | — | — | — | ||||||||||||
| Vested |
(1,505,939 | ) | 19.82 | (16,484 | ) | 23.71 | (724,315 | ) | 70.71 | |||||||||
| Cancelled |
(651,827 | ) | 20.00 | (2,476,399 | ) | 19.48 | — | — | ||||||||||
| Nonvested at January 27, 2008 |
— | $ | — | — | $ | — | — | $ | — | |||||||||
| (1) |
Represents the weighted-average grant date fair value per share-based unit, using the Black-Scholes option-pricing model for stock options and SARs and the average high/low market price of the Company’s common stock for restricted shares. |
The total fair value of stock options and SARs cancelled and restricted shares vested during the period from January 1, 2008, through January 27, 2008, (predecessor entity) was approximately $42.9 million, $48.6 million and $51.2 million, respectively.
As of December 31, 2007, there was approximately $12.7 million, $38.2 million and $36.6 million of total unrecognized compensation cost related to stock option grants, SARs and restricted share awards, respectively, under the stock-based compensation plans. The consummation of the Merger accelerated the recognition of compensation cost of $82.8 million, which was included in Merger and integration costs in the Consolidated Condensed Statements of Operations in the period from January 1, 2008, through January 27, 2008 (predecessor entity).
Share-based Compensation Plans—Successor Entity
In February 2008, the Board of Directors approved and adopted the Harrah’s Entertainment, Inc. Management Equity Incentive Plan (the “Equity Plan”). The Board of Directors approved the grant of options to purchase 3,218,020 shares of our non-voting common stock in February 2008. The Equity Plan authorizes equity award options to be granted to management and other personnel and key service providers. Grants may be either shares of time-based options or shares of performance-based options, or a combination. Time-based options generally vest in equal increments of 20% on each of the first five anniversaries of the grant date. The performance-based options vest based on the investment returns of our stockholders. One-half of the performance-based options become eligible to vest upon the stockholders receiving cash proceeds equal to two times their amount vested, and one-half of the performance-based options become eligible to vest upon the stockholders receiving cash proceeds equal to three times their amount vested subject to certain conditions and limitations. In addition, the performance-based options may vest earlier at lower thresholds upon liquidity events prior to December 31, 2009 and 2011, as well as pro rata, in certain circumstances.
10
The following is a summary of share-based option activity for the period January 28, 2008 through September 30, 2008:
| Successor Entity | |||||||||||
| Options |
Shares | Weighted Average Exercise Price |
Fair Value(1) |
Weighted Average Remaining Contractual Term (years) | |||||||
| Outstanding at January 28, 2008 |
133,133 | $ | 25.00 | $ | 20.82 | ||||||
| Options granted |
3,321,476 | 100.00 | 36.52 | ||||||||
| Exercised |
— | — | — | ||||||||
| Cancelled |
(192,347 | ) | 100.00 | 36.60 | |||||||
| Outstanding at September 30, 2008 |
3,262,262 | $ | 96.94 | $ | 35.02 | 9.2 | |||||
| Exercisable at September 30, 2008(2) |
133,133 | 25.00 | $ | 20.82 | 3.7 | ||||||
| (1) |
Represents the weighted-average grant date fair value per option, using the Monte Carlo simulation option-pricing model for performance-based options, and the Black-Scholes option-pricing model for time-based options. |
| (2) |
On January 27, 2008, an executive and the Company entered into a stock option rollover agreement that provides for the conversion of options to purchase shares of the Company prior to the Merger into options to purchase shares of the Company following the Merger with such conversion preserving the intrinsic “spread value” of the converted option. The rollover option is immediately exercisable with respect to 133,133 shares of non-voting common stock of the Company at an exercise price of $25.00 per share. The rollover options expire on June 17, 2012. |
There are no provisions in the Equity Plan for the issuance of SARs or restricted shares.
The weighted-average grant date fair value of options granted during the quarter ended September 30, 2008 was $38.32. There were no stock option exercises during the period January 28, 2008 through September 30, 2008.
The Company utilized historical optionee behavioral data to estimate the option exercise and termination rates used in the option-pricing models. The expected term of the options represents the period of time the options were expected to be outstanding based on historical trends. Expected volatility was based on the historical volatility of the common stock of Harrah’s Entertainment and its competitor peer group for a period approximating the expected life. The Company does not expect to pay dividends on common stock. The risk-free interest rate within the expected term was based on the U.S. Treasury yield curve in effect at the time of grant.
The assumptions and fair value of options granted during the quarter ended September 30, 2008 and the period January 28, 2008 through September 30, 2008 are as follows:
| Quarter Ended Sept. 30, 2008 Successor Entity |
January 28 to Sept. 30, 2008 Successor Entity | |||||
| Expected volatility |
34.6% | 34.9% | ||||
| Expected dividend yield |
— | — | ||||
| Expected term (in years) |
5.7 | 6.0 | ||||
| Risk-free interest rate |
3.2% | 3.3% | ||||
| Weighted average fair value per share of options granted |
$ | 38.32 | $ | 36.51 | ||
As of September 30, 2008, there was approximately $74.6 million of total unrecognized compensation cost related to stock option grants. This cost is expected to be recognized over a remaining weighted-average period of 2.2 years. The compensation cost that has been charged against income for stock option grants was approximately $4.9 million and $11.8 million for the quarter ended September 30, 2008 and for the period January 28, 2008 through September 30, 2008, respectively. $3.4 million was included in Corporate expense and $1.5 million was included in Property general, administrative and other in the Consolidated Condensed
11
Statements of Operations for the quarter ended September 30, 2008 and $8.5 million was included in Corporate expense and $3.3 million was included in Property general, administrative and other in the Consolidated Condensed Statements of Operations for the period January 28, 2008 through September 30, 2008.
Note 4—Goodwill and Other Intangible Assets
The following table sets forth changes in our goodwill for the nine months ended September 30, 2008.
| (In millions) | ||||
| Balance at December 31, 2007 (Predecessor) |
$ | 3,553.6 | ||
| Additions or adjustments |
(3.9 | ) | ||
| Balance at January 27, 2008 (Predecessor) |
3,549.7 | |||
| Elimination of Predecessor goodwill |
(3,549.7 | ) | ||
| Goodwill assigned in preliminary purchase price allocation |
9,315.0 | |||
| Balance at September 30, 2008 (Successor) |
$ | 9,315.0 | ||
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets.
| Predecessor | ||||||||||||||
| (In millions) | As of December 31, 2007 |
Additions/ Other Changes |
Amortization | As of January 27, 2008 | ||||||||||
| Amortizing intangible assets |
||||||||||||||
| Trademarks |
$ | 15.2 | $ | — | $ | (0.4 | ) | $ | 14.8 | |||||
| Gaming rights |
34.2 | — | (0.1 | ) | 34.1 | |||||||||
| Contract rights |
100.8 | — | (1.3 | ) | 99.5 | |||||||||
| Customer relationships |
511.2 | — | (3.7 | ) | 507.5 | |||||||||
| 661.4 | — | (5.5 | ) | 655.9 | ||||||||||
| Nonamortizing intangible assets |
||||||||||||||
| Trademarks |
570.4 | — | 570.4 | |||||||||||
| Gaming rights |
807.7 | (3.8 | ) | 803.9 | ||||||||||
| 1,378.1 | (3.8 | ) | 1,374.3 | |||||||||||
| Total |
$ | 2,039.5 | $ | (3.8 | ) | $ | (5.5 | ) | $ | 2,030.2 | ||||
| Successor | ||||||||||||||
| (In millions) | As of January 28, 2008 |
Additions/ Other Changes |
Amortization | As of Sept. 30, 2008 | ||||||||||
| Amortizing intangible assets |
||||||||||||||
| Trademarks |
$ | 10.4 | $ | — | $ | (1.4 | ) | $ | 9.0 | |||||
| Gaming rights |
42.8 | — | (1.7 | ) | 41.1 | |||||||||
| Patented technology |
93.5 | — | (7.8 | ) | 85.7 | |||||||||
| Contract rights |
134.3 | (2.7 | ) | (24.6 | ) | 107.0 | ||||||||
| Customer relationships |
1,454.5 | — | (83.7 | ) | 1,370.8 | |||||||||
| 1,735.5 | (2.7 | ) | (119.2 | ) | 1,613.6 | |||||||||
| Nonamortizing intangible assets |
||||||||||||||
| Trademarks |
2,729.4 | — | 2,729.4 | |||||||||||
| Gaming rights |
1,951.0 | (21.9 | ) | 1,929.1 | ||||||||||
| 4,680.4 | (21.9 | ) | 4,658.5 | |||||||||||
| Total |
$ | 6,415.9 | $ | (24.6 | ) | $ | (119.2 | ) | $ | 6,272.1 | ||||
The aggregate amortization for the quarter and nine months ended September 30, 2008, for those assets that are amortized under the provisions of SFAS No. 142 was $38.8 million and $124.7 million, respectively. Estimated annual amortization expense for those assets for the years ending December 31, 2008, 2009, 2010, 2011 and 2012 is $162.0 million, $175.5 million, $162.0 million, $156.3 million and $155.0 million, respectively. The amount of amortization to be recorded in future periods is subject to change as the purchase price allocation is refined and finalized.
12
We perform an annual assessment of intangible assets for impairment during the fourth quarter of each year. Our annual budget and forecasting process is also completed in the fourth quarter and provides key inputs into the impairment analysis. The provisions of SFAS No. 142 call for interim testing if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. An example of an event is a significant adverse change in the business climate, which we believe has occurred during the third quarter. However, as discussed in Note 2, the purchase price allocation related to the Merger has not yet been completed. Given that the asset values are not yet finalized and that other key inputs that support the impairment analysis are not yet available, it was not reasonably possible to develop an estimate of any potential impairment in the third quarter. The allocation of the purchase price related to the Merger and the annual impairment analysis will be completed during fourth quarter. We believe there is a reasonable possibility that the completion of these activities will result in a non-cash, impairment charge in the fourth quarter. The amount of the charge, however, cannot be reasonably estimated until the analysis is completed.
Note 5—Preferred and Common Stock
Preferred Stock
As of September 30, 2008, the authorized Preferred Stock shares are 40,000,000, par value $0.01 per share, stated value $100.00 per share.
On January 28, 2008, the Board adopted a resolution authorizing the creation and issuance of a series of Preferred Stock to be known as the Non-Voting Perpetual Preferred Stock. The number of shares constituting such series shall be 20,000,000.
On a quarterly basis, each share of non-voting preferred stock accrues dividends at a rate of 15.0% per annum, compounded quarterly. Dividends will be paid in cash, when, if and as declared by the board of directors, subject to approval by relevant regulators. We currently do not expect to pay cash dividends. Dividends on Non-Voting Perpetual Preferred Stock are cumulative. As of September 30, 2008, such dividends in arrears are $213.0 million. Shares of the non-voting preferred stock rank prior in right of payment to the non-voting and voting common stock and are entitled to a liquidation preference.
Upon the occurrence of any liquidating event, each holder of non-voting preferred stock shall have the right to require the Company to repurchase each outstanding share of non-voting preferred stock before any payment or distribution shall be made to the holders of non-voting common stock, voting common stock or any other junior stock. After the payment to the holders of non-voting preferred stock of the full preferential amounts, the holders of non-voting preferred stock shall have no right or claim to any of the remaining assets of the Company. Non-voting preferred stock may be converted into non-voting common stock on a pro rata basis with the consent of the holders of a majority of the non-voting preferred stock. Neither the non-voting preferred stock nor the non-voting common stock will have any voting rights.
Common Stock
As of September 30, 2008, the authorized Common Stock of the Company totaled 80,000,020 shares, consisting of 20 shares of Voting Common Stock, par value $0.01 per share and 80,000,000 shares of Non-Voting Common Stock, par value $0.01 per share. The voting common stock represents less than 1% of the capital stock of Harrah’s Entertainment, with the non-voting common stock and non-voting preferred stock together representing the remainder.
The Voting Common Stock has no economic rights or privileges, including rights in liquidation. The holders of Voting Common Stock shall be entitled to one vote per share on all matters to be voted on by the stockholders of the Company.
Subject to the rights of holders of Preferred Stock, when, as and if dividends are declared on the Common Stock, the holders of Non-Voting Common Stock shall be entitled to share in dividends equally, share for share.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Non-Voting Common Stock will receive a pro rata distribution of any remaining assets after payment of or provision for liabilities and the liquidation preference on preferred stock (including the Non-Voting Preferred Stock), if any.
13
Note 6—Debt
Long-term debt consisted of the following:
| (In millions) |
Successor At Sept. 30, 2008 |
Predecessor At December 31, 2007 |
||||||||
| Credit facilities |
||||||||||
| Term loans, 5.8% at September 30, 2008, maturities to 2015 |
$ | 7,213.8 | $ | — | ||||||
| 6.5%-7.0%, maturities to 2014 |
250.0 | — | ||||||||
| 4.05%-6.25%, maturities to 2011 |
— | 5,768.1 | ||||||||
| Subsidiary guaranteed debt |
||||||||||
| 10.75% Senior Notes due 2016, including senior interim loans of $342.6, 9.25% at September 30, 2008 |
5,275.0 | — | ||||||||
| 10.75%/11.5% Senior PIK Toggle Notes due 2018, including senior interim loans of $97.4, 10.0% at September 30, 2008 |
1,500.0 | — | ||||||||
| Unsecured Senior Notes |
||||||||||
| 7.5%, maturity 2009 |
5.1 | 136.2 | ||||||||
| 7.5%, maturity 2009 |
0.9 | 442.4 | ||||||||
| 5.5%, maturity 2010 |
658.3 | 747.1 | ||||||||
| 8.0%, maturity 2011 |
64.5 | 71.7 | ||||||||
| 5.375%, maturity 2013 |
354.9 | 497.7 | ||||||||
| 7.0%, maturity 2013 |
0.7 | 324.4 | ||||||||
| 5.625%, maturity 2015 |
661.1 | 996.3 | ||||||||
| 6.5%, maturity 2016 |
498.1 | 744.3 | ||||||||
| 5.75%, maturity 2017 |
454.0 | 745.8 | ||||||||
| Floating Rate Contingent Convertible Senior Notes, maturity 2024 |
0.2 | 370.6 | ||||||||
| Floating Rate Notes, maturity 2008 |
— | 250.0 | ||||||||
| Unsecured Senior Subordinated Notes |
||||||||||
| 8.875%, maturity 2008 |
— | 409.6 | ||||||||
| 7.875%, maturity 2010 |
345.4 | 394.9 | ||||||||
| 8.125%, maturity 2011 |
297.2 | 380.3 | ||||||||
| Other Secured Borrowings |
||||||||||
| CMBS financing, 5.49% at September 30, 2008, maturity 2013 |
6,500.0 | — | ||||||||
| S. Africa, prime less 1.5%, maturity 2009 |
7.6 | 10.5 | ||||||||
| 6.0%, maturity 2010 |
25.0 | 25.0 | ||||||||
| 4.25%–8.5%, maturities to 2037 at September 30, 2008 |
2.4 | 4.4 | ||||||||
| 7.1%, maturity 2028 |
— | 87.7 | ||||||||
| Other Unsecured Borrowings |
||||||||||
| LIBOR plus 4.5%, maturity 2010 |
23.5 | 29.1 | ||||||||
| 5.3% special improvement district bonds, maturity 2037 |
69.7 | — | ||||||||
| Other, various maturities |
1.4 | 1.6 | ||||||||
| Capitalized Lease Obligations |
||||||||||
| 5.75%–10.0%, maturities to 2011 |
5.4 | 2.7 | ||||||||
| 24,214.2 | 12,440.4 | |||||||||
| Current portion of long-term debt |
(84.0 | ) | (10.8 | ) | ||||||
| $ | 24,130.2 | $ | 12,429.6 | |||||||
In connection with the Merger, $7.7 billion, face amount, of our debt was retired, $4.6 billion, face amount, of our debt was retained and $20.5 billion, face amount, of new debt was issued, resulting in a very different debt structure for the successor entity. The discussion that follows is intended to update the information provided in our 2007 Annual Report on Form 10-K.
Charges of $211.3 million were recorded in the first quarter of 2008 for premiums paid and write-offs of unamortized deferred financing costs and market value premiums associated with the early retirement of debt in connection with the Merger.
At September 30, 2008, $5.1 million, face amount, of our 7.5% Senior Notes due January 15, 2009, and $0.8 million, face amount, of our 7.5% Senior Notes due September 1, 2009, are classified as long-term in our Consolidated Condensed Balance Sheet because the Company has both the intent and the ability to refinance these notes. The majority of our debt is due after 2010. Payments of short-term debt obligations and other commitments are expected to be made from operating cash flows and from borrowings under our established debt programs. Long-term obligations are expected to be paid through operating cash flows, refinancing of debt, joint venture partners or, if necessary, additional debt offerings.
14
In August 2008, our Board of Directors authorized the Company to spend, from time to time through cash purchases, up to $80 million to retire our outstanding debt in open market purchases, privately negotiated transactions or otherwise. These repurchases will be funded through available cash from operations and borrowings from our established debt programs. Such repurchases are dependent on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. As of September 30, 2008, $32.3 million, face amount, of our 5.5% Senior Notes due 2010, $12.1 million, face amount, of our 7.875% Senior Subordinated Notes due 2010 and $21.7 million, face amount, of our 8.125% Senior Subordinated Notes due 2011 were retired for a total of $53.3 million. Gains totaling $7.4 million, representing discounts associated with the early retirement of debt, were recorded and are included in Income from continuing operations in our Consolidated Condensed Statements of Operations for the period ended September 30, 2008.
In July 2008, Harrah’s Operating Company (“HOC”), a wholly-owned subsidiary of the Company and the holder of a majority of its debt, made the permitted election under the Indenture governing its 10.75%/11.5% Senior Toggle Notes due 2018 and the Senior Unsecured Interim Loan Agreement dated January 28, 2008, to pay all interest due on January 28, and February 1, 2009, for the loan in kind. The Company intends to use the cash savings generated by this election for general corporate purposes, including the early retirement of other debt.
Credit Agreement
As of September 30, 2008, our senior secured credit facilities (the “Credit Facilities”) provide for senior secured financing of up to $9.214 billion, consisting of (i) senior secured term loan facilities in an aggregate principal amount of up to $7.214 billion maturing on January 28, 2015 and (ii) a senior secured revolving credit facility in an aggregate principal amount of $2.0 billion, maturing January 28, 2014, including both a letter of credit sub-facility and a swingline loan sub-facility. Interest on the Credit Agreement is based on our debt ratings and leverage ratio and is subject to change. In addition, we may request one or more incremental term loan facilities and/or increase commitments under our revolving facility in an aggregate amount of up to $1.75 billion, subject to certain conditions and receipt of commitments by existing or additional financial institutions or institutional lenders. As of September 30, 2008, $7.46 billion in borrowings was outstanding under the Credit Facilities with an additional $0.2 billion committed to back letters of credit. Our total borrowings outstanding at September 30, 2008, include $250 million that we borrowed on September 19, 2008, to provide us with greater financial flexibility in light of the turmoil in the financial markets. After consideration of these borrowings and letters of credit, $1.6 billion of additional borrowing capacity was available to the Company under the Credit Facilities as of September 30, 2008. As of the date of this filing, we have drawn an additional $250 million of the available borrowing capacity to further preserve our financial flexibility.
Borrowings under the Credit Facilities bear interest at a rate equal to the then-current LIBOR rate or at a rate equal to the alternate base rate, in each case plus an applicable margin. In addition, on a quarterly basis, we are required to pay each lender (i) a commitment fee in respect of any unused commitments under the revolving credit facility and (ii) a letter of credit fee in respect of the aggregate face amount of outstanding letters of credit under the revolving credit facility. As of September 30, 2008, the Credit Facilities bore interest based upon 300 basis points over LIBOR for the term loans, 200 basis points over the alternate base rate for the revolver loan and 150 basis points over LIBOR for the swingline loan and bore a commitment fee for unborrowed amounts of 50 basis points.
The Credit Facilities require scheduled quarterly payments on the term loans in amounts equal to 0.25% of the original principal amount of the term loans for six years and three quarters, with the balance paid at maturity.
CMBS Financing
In connection with the Merger, eight of our properties (“the CMBS properties”) and their related assets were spun out of HOC to Harrah’s Entertainment. As of the Merger date, the CMBS properties were Harrah’s Las Vegas, Rio, Flamingo Las Vegas, Harrah’s Atlantic City, Showboat Atlantic City, Harrah’s Lake Tahoe, Harveys Lake Tahoe and Bill’s Lake Tahoe. The CMBS properties borrowed $6.5 billion secured by the assets of the CMBS properties. On May 22, 2008, Paris Las Vegas and Harrah’s Laughlin and their related operating assets were spun out of HOC to Harrah’s Entertainment and became property secured under the CMBS loans, and Harrah’s Lake Tahoe, Harveys Lake Tahoe, Bill’s Lake Tahoe and Showboat Atlantic City were transferred to HOC from Harrah’s Entertainment as contemplated under the debt agreements effective pursuant to the Merger.
Derivative Instruments
We account for derivative instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and all amendments thereto. SFAS No. 133 requires that all derivative instruments be recognized in the financial
15
statements at fair value. Any changes in fair value are recorded in the statements of operations or in other comprehensive income/(loss), depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction and the effectiveness of the hedge. The estimated fair values of our derivative instruments are based on market prices obtained from dealer quotes. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts.
Our derivative instruments contain a credit risk that the counterparties may be unable to meet the terms of the agreements. We minimize that risk by evaluating the creditworthiness of our counterparties, which are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties.
We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of September 30, 2008, we have ten interest rate swap agreements for notional amounts totaling $6.5 billion. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows. The major terms of the interest rate swap agreements are as follows.
| Effective Date |
Notional Amount |
Fixed Rate Paid |
Variable Rate Received as of September 30, 2008 |
Next Reset Date | Maturity Date | ||||||||
| (In millions) | |||||||||||||
| April 25, 2007 |
$ | 200 | 4.898 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | |||||
| April 25, 2007 |
200 | 4.896 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | ||||||
| April 25, 2007 |
200 | 4.925 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | ||||||
| April 25, 2007 |
200 | 4.917 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | ||||||
| April 25, 2007 |
200 | 4.907 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | ||||||
| September 26, 2007 |
250 | 4.809 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | ||||||
| September 26, 2007 |
250 | 4.775 | % | 2.800 | % | October 27, 2008 | April 25, 2011 | ||||||
| April 25, 2008 |
1,000 | 4.172 | % | 2.800 | % | October 27, 2008 | April 25, 2012 | ||||||
| April 25, 2008 |
2,000 | 4.276 | % | 2.800 | % | October 27, 2008 | April 25, 2013 | ||||||
| April 25, 2008 |
2,000 | 4.263 | % | 2.800 | % | October 27, 2008 | April 25, 2013 | ||||||
Until February 15, 2008, none of our interest rate swap agreements were designated as hedging instruments; therefore, gains or losses resulting from changes in the fair value of the swaps were recognized in earnings in the period of the change. On February 15, 2008, eight of our interest rate swap agreements for notional amounts totaling $3.5 billion were designated as hedging instruments, and on April 1, 2008, the remaining swap agreements were designated as hedging instruments. Upon designation as hedging instruments, only any measured ineffectiveness is recognized in earnings in the period of change. In the quarter and nine months ended September 30, 2008, a credit of $13.9 million and a net charge of $54.6 million, respectively, representing the changes in the fair values of our swap agreements are included in Interest expense in our 2008 Consolidated Condensed Statement of Operations, compared with $25.2 million and $10.8 million, respectively, for the quarter and nine months ended September 30, 2007.
Additionally, on January 28, 2008, we entered into an interest rate cap agreement to partially hedge the risk of future increases in the variable rate of the CMBS debt. The interest rate cap agreement, which was effective January 28, 2008, and terminates February 13, 2013, is for a notional amount of $6.5 billion at a LIBOR cap rate of 4.5%. The interest rate cap was designated as a hedging instrument on May 1, 2008. In the quarter and nine months ended September 30, 2008, a credit of $0.1 million and a net charge of $12.2 million, respectively, are included in Interest expense in our Consolidated Condensed Statement of Operations.
Note 7—Fair Value Measurements
We adopted the required provisions of SFAS No. 157, “Fair Value Measurements,” on January 1, 2008. SFAS No. 157 outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures.
FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157,” defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis
16
(at least annually). At this time, we have chosen not to apply SFAS No. 157 early for nonrecurring measurements made for nonfinancial assets and nonfinancial liabilities. There were no nonfinancial assets or nonfinancial liabilities recognized or disclosed at fair value during the first nine months of 2008.
Under SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of SFAS No. 115,” entities are permitted to choose to measure many financial instruments and certain other items at fair value. We did not elect the fair value measurement option under SFAS No. 159 for any of our financial assets or financial liabilities.
In accordance with the fair value hierarchy described in SFAS No. 157, the following table shows the fair value of our financial assets and financial liabilities that are required to be measured at fair value as of September 30, 2008.
| (In millions) | Balance at Sept. 30, 2008 |
Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: |
||||||||||||||
| Derivative instruments |
$ | 142.0 | $ | — | $ | 142.0 | $ | — | ||||||
| Deferred compensation plan assets |
128.0 | — | 128.0 | — | ||||||||||
| Liabilities: |
||||||||||||||
| Derivative instruments |
(121.8 | ) | — | (121.8 | ) | — | ||||||||
| Deferred compensation plan liabilities |
(109.7 | ) | — | (109.7 | ) | — | ||||||||
The following section describes the valuation methodologies used to measure fair value, key inputs, and significant assumptions:
Derivative instruments – The estimated fair values of our derivative instruments are based on market prices obtained from dealer quotes. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. Derivative instruments are included in the Deferred costs and other and Deferred credits and other lines of our Consolidated Condensed Balance Sheets. See Note 6 for more information on our derivative instruments.
Deferred compensation plan assets and liabilities – The estimated fair values of our deferred compensation plan assets and liabilities are based on the market values of the underlying account funds. Deferred compensation plan assets and liabilities are included in Deferred costs and other and Deferred credits and other lines of our Consolidated Condensed Balance Sheets.
Note 8—Supplemental Cash Flow Disclosures
Cash Paid for Interest and Taxes
The following table reconciles our Interest expense, net of interest capitalized, per the Consolidated Condensed Statements of Operations, to cash paid for interest:
| Successor | Predecessor | Predecessor | ||||||||||||
| (In millions) | January 28, 2008 Through Sept. 30, 2008 |
January 1, 2008 Through January 27, 2008 |
Nine Months Ended Sept. 30, 2007 |
|||||||||||
| Interest expense, net of interest capitalized |
$ | 1,469.4 | $ | 89.7 | $ | 578.4 | ||||||||
| Adjustments to reconcile to cash paid for interest: |
||||||||||||||
| Net change in accruals |
(210.3 | ) | 8.7 | 0.4 | ||||||||||
| Amortization of deferred finance charges |
(67.4 | ) | (0.8 | ) | (7.6 | ) | ||||||||
| Net amortization of discounts and premiums |
(92.8 | ) | 2.9 | 30.6 | ||||||||||
| Amortization of other comprehensive income |
(0.6 | ) | (0.1 | ) | (0.7 | ) | ||||||||
| Change in accrual (related to PIK) |
(26.9 | ) | — | — | ||||||||||
| Change in fair value of interest rate swaps |
(27.7 | ) | (39.2 | ) | (10.8 | ) | ||||||||
| Cash paid for interest, net of amount capitalized |
$ | 1,043.7 | $ | 61.2 | $ | 590.3 | ||||||||
| Cash payments of income taxes, net |
$ | 5.5 | $ | 1.0 | $ | 278.8 | ||||||||
17
Note 9—Commitments and Contingent Liabilities
Contractual Commitments
We continue to pursue additional casino development opportunities that may require, individually and in the aggregate, significant commitments of capital, up-front payments to third parties and development completion guarantees. The agreements pursuant to which we manage casinos on Indian lands contain provisions required by law that provide that a minimum monthly payment be made to the tribe. That obligation has priority over scheduled repayments of borrowings for development costs and over the management fee earned and paid to the manager. In the event that insufficient cash flow is generated by the operations to fund this payment, we must pay the shortfall to the tribe. Subject to certain limitations as to time, such advances, if any, would be repaid to us in future periods in which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the management contract. Our aggregate monthly commitment for the minimum guaranteed payments, pursuant to these contracts for the three managed Indian-owned facilities now open, which extend for periods of up to 62 months from September 30, 2008, is $1.2 million. Each of these casinos currently generates sufficient cash flows to cover all of its obligations, including its debt service.
In February 2008, we entered into an agreement with the State of Louisiana whereby we extended our guarantee of an annual payment obligation of JCC, our wholly-owned subsidiary, of $60 million owed to the State of Louisiana. The guarantee was extended for one year to end March 31, 2011.
In addition to the guarantees discussed above, as of September 30, 2008, we had commitments and contingencies of $1,605.2 million, including construction-related commitments.
Severance Agreements
As of September 30, 2008, we have severance agreements with 20 of our executives, which provide for payments to the executives in the event of their termination after a change in control, as defined. These agreements provide, among other things, for a compensation payment of 1.5 to 3.0 times the executive’s average annual compensation, as defined. The estimated amount, computed as of September 30, 2008, that would be payable under the agreements to these executives aggregated approximately $53.4 million. The estimated amount that would be payable to these executives does not include an estimate for the tax gross-up payment, provided for in the agreements, that would be payable to the executive if the executive becomes entitled to severance payments which are subject to federal excise tax imposed on the executive.
Employment Agreement
We entered into an employment agreement with one executive that replaced his severance agreement as of January 28, 2008. The employment agreement provides for payments to the executive in the event of his termination after a change in control, as defined, and provides for, among other things, a compensation payment of 3.0 times the executive’s average annual compensation, as defined. The estimated amount, computed as of September 30, 2008, that would be payable under the agreement to the executive based on the compensation payment aggregated approximately $17.3 million. The estimated amount that would be payable to the executive does not include an estimate for the tax gross-up payment, provided for in the agreement, that would be payable to the executive if the executive becomes entitled to severance payments which are subject to federal excise tax imposed on the executive.
Self-Insurance
We are 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 claims, as well as accruals of actuarial estimates of incurred but not reported claims.
Note 10—Litigation
Certain of our legal proceedings are reported in our Annual Report on Form 10-K for the year ended December 31, 2007, with material developments since that report described below.
Litigation Related to the Merger
On October 5, 2006, Henoch Kaiman and Joseph Weiss filed a purported class action complaint in the Delaware Court of Chancery, Civil Action No. 2453-N, against Harrah’s, its board of directors and the Sponsors, challenging the proposed transaction as inadequate and unfair to Harrah’s public stockholders. Two similar putative class actions were subsequently filed in the Delaware
18
Court of Chancery: Phillips v. Loveman, et al., Civil Action No. 2456-N; and Momentum Partners v. Atwood, et al., Civil Action No. 2455-N. On October 19, 2006, the Delaware Court of Chancery consolidated the three Delaware cases under the heading In Re Harrah’s Entertainment, Inc. Shareholder Litigation.
On December 22, 2006, Delaware plaintiffs’ counsel filed an amended and consolidated class action complaint against Harrah’s, its directors, the Sponsors, and added as defendants Apollo Management V, L.P., Hamlet Holdings and Merger Sub. The consolidated complaint alleges that Harrah’s board of directors breached their fiduciary duties and that the Sponsors aided and abetted the alleged breaches of fiduciary duty in entering into the merger agreement. The consolidated complaint seeks, among other relief, class certification of the lawsuit, an injunction against the proposed transaction, compensatory and/or rescissory damages to the class, and an award of attorneys’ fees and expenses to plaintiffs. On February 14, 2007, defendants began to produce documents in response to plaintiff’s initial discovery request.
Subsequent to the entering of a memorandum of understanding and a stipulation of settlement by the parties, a Stipulation and Order of Dismissal was submitted to the Delaware Court of Chancery on April 29, 2008. On June 12, 2008, the court entered an Order and Final Judgment approving the settlement and dismissing the action.
Litigation Related to Development
On March 6, 2008, Caesars Bahamas Investment Corporation (“CBIC”), an indirect subsidiary of HOC terminated its previously announced agreement to enter into a joint venture in the Bahamas with Baha Mar Joint Venture Holdings Ltd. and Baha Mar JV Holding Ltd. (collectively, “Baha Mar”). To enforce its rights, on March 13, 2008, CBIC filed a complaint against Baha Mar, and the Baha Mar Development Company Ltd., in the Supreme Court of the State of New York, seeking a declaratory judgment with respect to CBIC’s rights under the Subscription and Contribution Agreement (the “Subscription Agreement”), between CBIC and Baha Mar, dated January 12, 2007. Pursuant to the Subscription Agreement, CBIC agreed, subject to certain conditions, to subscribe for shares in Baha Mar Joint Venture Holdings Ltd., which was formed to develop and construct a casino, golf course and resort project in the Bahamas. The complaint alleges that (i) the Subscription Agreement grants CBIC the right to terminate the agreement at any time prior to the closing of the transactions contemplated therein, if the closing does not occur on time; (ii) the closing did not occur on time; and, (iii) CBIC exercised its right to terminate the Subscription Agreement, and to abandon the transactions contemplated therein. The complaint seeks a declaratory judgment that the Subscription Agreement has been terminated in accordance with its terms and the transactions contemplated therein have been abandoned.
Baha Mar and Baha Mar Development Company Ltd. (“Baha Mar Development”) filed an Amended Answer and Counterclaims against CBIC and a Third Party Complaint dated June 18, 2008 against HOC in the Supreme Court of the State of New York. Baha Mar and the Baha Mar Development Company Ltd. allege that CBIC wrongfully terminated the Subscription Agreement and that CBIC wrongfully failed to make capital contributions under the Joint Venture Investors Agreement (“Investors Agreement”), by and between CBIC and Baha Mar, dated January 12, 2007. In addition, Baha Mar and Baha Mar Development allege that HOC wrongfully failed to perform its purported obligations under the Harrah’s Baha Mar Joint Venture Guaranty, dated January 12, 2007 (“Guaranty”). Baha Mar and Baha Mar Development assert claims for breach of contract, breach of fiduciary duty, promissory estoppel, equitable estoppel and negligent misrepresentation. Baha Mar and Baha Mar Development seek (i) declaratory relief; (ii) specific performance; (iii) the recovery of alleged monetary damages; (iv) the recovery of attorneys fees, costs, and expenses and (v) the dismissal with prejudice of CBIC’s Complaint. CBIC and HOC have each answered, denying all allegations of wrongdoing.
In addition, the Company is party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material adverse effect on our consolidated financial position or results of operations.
Note 11—Income Taxes
We are subject to income taxes in the United States as well as various states and foreign jurisdictions in which we operate. We account for income taxes under SFAS No. 109, “Accounting for Income Taxes,” whereby deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax returns. Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and their respective tax bases using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, we recognized an approximate $12 million reduction to the January 1, 2007, balance of retained earnings.
19
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. As a large taxpayer, we are under continual audit by the Internal Revenue Service (“IRS”) on open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next twelve months. We are participating in the IRS’s Compliance Assurance Program for the 2007 and 2008 tax years. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Our 2004, 2005, and 2006 federal income tax returns are currently being examined by the IRS in a traditional audit process.
We also are subject to exam by various state and foreign tax authorities, although tax years prior to 2004 are generally closed as the statutes of limitations have lapsed. However, various subsidiaries are still being examined by the New Jersey Division of Taxation for tax years beginning with 1999.
We classify reserves for tax uncertainties within Accrued expenses and Deferred credits and other in our Consolidated Condensed Balance Sheets, separate from any related income tax payable or deferred income taxes. In accordance with FIN 48, we reserve amounts related to any uncertain tax position, as well as potential interest or penalties associated with those items.
Note 12—Discontinued Operations
Discontinued operations consist of insurance proceeds from the settlement of claims related to hurricane damages to Grand Casino Gulfport, which we sold in March 2006. Operating results for Grand Casino Gulfport were presented as discontinued operations until its sale. No gain or loss was recorded on this sale. Pursuant to the terms of the sale agreement, we were to retain all insurance proceeds related to Grand Casino Gulfport, and in the nine months ended September 30, 2008, $141.1 million of insurance proceeds related to Mississippi Gulf Coast claims are reported in Discontinued operations in our Consolidated Condensed Statement of Operations.
Note 13—Insurance Proceeds Related to Hurricane-Damaged Properties
In first quarter 2008, we entered into a settlement agreement with our insurance carriers related to the remaining unsettled claims associated with damages incurred in Mississippi from Hurricane Katrina in 2005, and the final payment of $338.1 million was received in first quarter. Insurance proceeds exceeded the net book value of the impacted assets and costs and expenses that were reimbursed under our business interruption claims, and the excess is recorded as income in the line item, Write-downs, reserves and recoveries, for properties included in continuing operations and in the line item, Income from discontinued operations, for properties included in discontinued operations. In the nine months ended September 30, 2008, $185.4 million of insurance proceeds are included in Write-downs, reserves and recoveries and $141.1 million of insurance proceeds are included in Discontinued operations in our Consolidated Condensed Statements of Operations.
Note 14—Related Party Transactions
In connection with the Merger, Apollo/TPG and their affiliates entered into a services agreement with Harrah’s Entertainment relating to the provision of financial and strategic advisory services and consulting services. We paid Apollo/TPG a one-time transaction fee of $200 million for structuring the Merger and debt financing negotiations. This amount has been included in the overall purchase price of the Merger. In addition, we pay an annual monitoring fee equal to the greater of $30 million or 1% of the Company’s EBITDA, as defined, for management services and advice.
Note 15—Consolidating Financial Information of Guarantors and Issuers
As of September 30, 2008, HOC, a 100% owned subsidiary of Harrah’s Entertainment, is the issuer of certain debt securities that have been guaranteed by Harrah’s Entertainment and certain subsidiaries of HOC. The following consolidating schedules present condensed financial information for Harrah’s Entertainment, the parent and guarantor; HOC, the subsidiary issuer; guarantor subsidiaries of HOC; and non-guarantor subsidiaries of Harrah’s Entertainment and HOC, which includes the CMBS properties, as of September 30, 2008, and December 31, 2007, and for the successor companies for the three months ended September 30, 2008, and the period January 28, 2008, through September 30, 2008, and for the predecessor companies for the periods from January 1, 2008, through January 27, 2008, and for the three months and nine months ended September 30, 2007. The condensed consolidating financial information as of December 31, 2007, has been recast to reflect the results of HOC based on its legal ownership of guarantor and non-guarantor subsidiaries that existed as of that date. We believe this alternative presentation is more meaningful as it includes the operations and financial position of the subsidiaries consolidated by HOC at that time and is therefore the preferable method.
The financial information included in this section reflects ownership of the CMBS properties pursuant to the spin-off and transfer described in Note 6 – Debt, CMBS Financing.
20
HARRAH’S ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2008
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non Guarantors |
Consolidating/ Eliminating Adjustments |
Total | |||||||||||||
| ASSETS |
|||||||||||||||||||
| Current assets |
|||||||||||||||||||
| Cash and cash equivalents |
$ | 52.7 | $ | 404.7 | $ | 254.5 | $ | 294.0 | $ | — | $ | 1,005.9 | |||||||
| Receivables, less allowance for doubtful accounts |
— | 7.3 | 274.0 | 124.0 | — | 405.3 | |||||||||||||
| Deferred income taxes |
— | 59.7 | 63.2 | 22.5 | — | 145.4 | |||||||||||||
| Income tax receivable |
— | 4.0 | 1.6 | 1.8 | — | 7.4 | |||||||||||||
| Prepayments and other |
— | 13.8 | 105.7 | 112.8 | — | 232.3 | |||||||||||||
| Inventories |
— | 1.9 | 45.9 | 22.5 | — | 70.3 | |||||||||||||
| Intercompany receivables |
— | 231.5 | 127.2 | 147.7 | (506.4 | ) | — | ||||||||||||
| Total current assets |
52.7 | 722.9 | 872.1 | 725.3 | (506.4 | ) | 1,866.6 | ||||||||||||
| Land, buildings, riverboats and equipment, net of accumulated depreciation |
— | 263.2 | 10,960.2 | 7,053.6 | (4.4 | ) | 18,272.6 | ||||||||||||
| Assets held for sale |
— | 36.1 | 14.5 | — | — | 50.6 | |||||||||||||
| Goodwill |
— | 8.9 | 5,304.6 | 4,001.5 | — | 9,315.0 | |||||||||||||
| Intangible assets |
— | 7.1 | 5,377.3 | 887.7 | — | 6,272.1 | |||||||||||||
| Investments in and advances to nonconsolidated affiliates |
5,572.0 | 19,058.0 | 4.5 | 28.4 | (24,630.0 | ) | 32.9 | ||||||||||||
| Deferred costs and other |
— | 586.7 | 250.3 | 365.5 | — | 1,202.5 | |||||||||||||
| Intercompany receivables |
200.0 | 1,315.8 | 1,687.7 | 1,202.4 | (4,405.9 | ) | — | ||||||||||||
| $ | 5,824.7 | $ | 21,998.7 | $ | 24,471.2 | $ | 14,264.4 | $ | (29,546.7 | ) | $ | 37,012.3 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||||||||||
| Current liabilities |
|||||||||||||||||||
| Accounts payable |
$ | — | $ | 148.3 | $ | 170.8 | $ | 84.0 | $ | — | $ | 403.1 | |||||||
| Accrued expenses |
7.6 | 538.5 | 578.1 | 423.2 | — | 1,547.4 | |||||||||||||
| Current portion of long-term debt |
— | 72.5 | 3.5 | 8.0 | — | 84.0 | |||||||||||||
| Intercompany payables |
— | 16.7 | 275.4 | 214.3 | (506.4 | ) | — | ||||||||||||
| Total current liabilities |
7.6 | 776.0 | 1,027.8 | 729.5 | (506.4 | ) | 2,034.5 | ||||||||||||
| Liabilities held for sale |
— | — | 0.7 | — | — | 0.7 | |||||||||||||
| Long-term debt |
— | 17,506.7 | 99.7 | 6,523.8 | — | 24,130.2 | |||||||||||||
| Deferred credits and other |
— | 371.3 | 38.2 | 52.0 | — | 461.5 | |||||||||||||
| Deferred income taxes |
— | 161.5 | 2,890.3 | 1,461.2 | — | 4,513.0 | |||||||||||||
| Intercompany notes |
2.0 | 298.1 | 1,973.4 | 2,132.4 | (4,405.9 | ) | — | ||||||||||||
| 9.6 | 19,113.6 | 6,030.1 | 10,898.9 | (4,912.3 | ) | 31,139.9 | |||||||||||||
| Minority interests |
— | — | — | 57.3 | — | 57.3 | |||||||||||||
| Preferred stock |
2,206.2 | — | — | — | — | 2,206.2 | |||||||||||||
| Stockholders’ equity |
3,608.9 | 2,885.1 | 18,441.1 | 3,308.2 | (24,634.4 | ) | 3,608.9 | ||||||||||||
| $ | 5,824.7 | $ | 21,998.7 | $ | 24,471.2 | $ | 14,264.4 | $ | (29,546.7 | ) | $ | 37,012.3 | |||||||
21
HARRAH’S ENTERTAINMENT, INC.
(PREDECESSOR ENTITY)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2007
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||
| ASSETS |
||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 15.2 | $ | 353.1 | $ | 341.7 | $ | — | $ | 710.0 | ||||||||
| Receivables, net of allowance for doubtful accounts |
— | 55.3 | 300.1 | 121.0 | — | 476.4 | ||||||||||||||
| Deferred income taxes |
— | 114.1 | 70.2 | 15.7 | — | 200.0 | ||||||||||||||
| Income tax receivable |
— | — | 2.9 | 2.1 | — | 5.0 | ||||||||||||||
| Prepayments and other |
— | 11.8 | 96.5 | 107.9 | — | 216.2 | ||||||||||||||
| Inventories |
— | 1.6 | 46.5 | 22.2 | — | 70.3 | ||||||||||||||
| Intercompany receivables |
— | 288.6 | 151.2 | 69.8 | (509.6 | ) | — | |||||||||||||
| Total current assets |
— | 486.6 | 1,020.5 | 680.4 | (509.6 | ) | 1,677.9 | |||||||||||||
| Land, buildings, riverboats and equipment, net of accumulated depreciation |
— | 352.6 | 9,919.4 | 5,304.8 | (5.3 | ) | 15,571.5 | |||||||||||||
| Assets held for sale |
— | — | 4.5 | — | — | 4.5 | ||||||||||||||
| Goodwill |
— | — | 2,575.8 | 977.8 | — | 3,553.6 | ||||||||||||||
| Intangible assets |
— | — | 1,608.4 | 431.1 | — | 2,039.5 | ||||||||||||||
| Investments in and advances to nonconsolidated affiliates |
6,628.1 | 16,446.1 | 10.8 | 7.8 | (23,074.2 | ) | 18.6 | |||||||||||||
| Deferred costs and other |
— | 169.4 | 261.9 | 60.8 | — | 492.1 | ||||||||||||||
| Intercompany receivables |
— | 2,296.0 | 1,902.7 | 1,915.4 | (6,114.1 | ) | — | |||||||||||||
| $ | 6,628.1 | $ | 19,750.7 | $ | 17,304.0 | $ | 9,378.1 | $ | (29,703.2 | ) | $ | 23,357.7 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Accounts payable |
$ | — | $ | 149.1 | $ | 186.7 | $ | 106.2 | $ | — | $ | 442.0 | ||||||||
| Accrued expenses |
1.2 | 408.6 | 567.5 | 373.9 | — | 1,351.2 | ||||||||||||||
| Current portion of long-term debt |
— | — | 2.5 | 8.3 | — | 10.8 | ||||||||||||||
| Intercompany payables |
— | 10.7 | 437.8 | 61.1 | (509.6 | ) | — | |||||||||||||
| Total current liabilities |
1.2 | 568.4 | 1,194.5 | 549.5 | (509.6 | ) | 1,804.0 | |||||||||||||
| Liabilities held for sale |
— | — | 0.6 | — | — | 0.6 | ||||||||||||||
| Long-term debt |
— | 12,279.4 | 118.0 | 32.2 | — | 12,429.6 | ||||||||||||||
| Deferred credits and other |
— | 308.4 | 108.0 | 48.4 | — | 464.8 | ||||||||||||||
| Deferred income taxes |
— | (110.7 | ) | 1,449.0 | 641.3 | — | 1,979.6 | |||||||||||||
| Intercompany notes |
— | 98.1 | 2,564.7 | 3,451.3 | (6,114.1 | ) | — | |||||||||||||
| 1.2 | 13,143.6 | 5,434.8 | 4,722.7 | (6,623.7 | ) | 16,678.6 | ||||||||||||||
| Minority interests |
— | — | — | 52.2 | — | 52.2 | ||||||||||||||
| Stockholders’ equity |
6,626.9 | 6,607.1 | 11,869.2 | 4,603.2 | (23,079.5 | ) | 6,626.9 | |||||||||||||
| $ | 6,628.1 | $ | 19,750.7 | $ | 17,304.0 | $ | 9,378.1 | $ | (29,703.2 | ) | $ | 23,357.7 | ||||||||
22
HARRAH’S ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Casino |
$ | — | $ | 27.5 | $ | 1,415.2 | $ | 687.4 | $ | — | $ | 2,130.1 | ||||||||||||
| Food and beverage |
— | 6.1 | 247.9 | 173.6 | — | 427.6 | ||||||||||||||||||
| Rooms |
— | 6.1 | 177.3 | 133.3 | — | 316.7 | ||||||||||||||||||
| Management fees |
— | 2.3 | 17.5 | (0.7 | ) | (2.5 | ) | 16.6 | ||||||||||||||||
| Other |
— | 9.2 | 92.6 | 81.7 | (1.6 | ) | 181.9 | |||||||||||||||||
| Less: casino promotional allowances |
— | (8.0 | ) | (279.9 | ) | (139.1 | ) | — | (427.0 | ) | ||||||||||||||
| Net revenues |
— | 43.2 | 1,670.6 | 936.2 | (4.1 | ) | 2,645.9 | |||||||||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Direct |
||||||||||||||||||||||||
| Casino |
— | 16.4 | 756.8 | 356.2 | — | 1,129.4 | ||||||||||||||||||
| Food and beverage |
— | 2.9 | 93.9 | 81.3 | — | 178.1 | ||||||||||||||||||
| Rooms |
— | 0.5 | 33.7 | 30.7 | — | 64.9 | ||||||||||||||||||
| Property general, administrative and other |
— | 19.7 | 377.9 | 232.3 | 1.9 | 631.8 | ||||||||||||||||||
| Depreciation and amortization |
— | 2.1 | 91.0 | 58.8 | 0.1 | 152.0 | ||||||||||||||||||
| Write-downs, reserves and recoveries |
9.0 | 2.5 | 20.6 | 14.7 | — | 46.8 | ||||||||||||||||||
| Project opening costs |
— | — | 15.2 | 1.1 | — | 16.3 | ||||||||||||||||||
| Corporate expense |
9.9 | 19.6 | 7.1 | 4.1 | (6.0 | ) | 34.7 | |||||||||||||||||
| Merger and integration costs |
— | 1.0 | — | — | — | 1.0 | ||||||||||||||||||
| Losses/(income) on interests in nonconsolidated affiliates |
118.5 | (237.1 | ) | (40.0 | ) | 2.1 | 159.0 | 2.5 | ||||||||||||||||
| Amortization of intangible assets |
— | 0.1 | 25.6 | 13.1 | — | 38.8 | ||||||||||||||||||
| Total operating expenses |
137.4 | (172.3 | ) | 1,381.8 | 794.4 | 155.0 | 2,296.3 | |||||||||||||||||
| (Loss)/income from operations |
(137.4 | ) | 215.5 | 288.8 | 141.8 | (159.1 | ) | 349.6 | ||||||||||||||||
| Interest expense, net of interest capitalized |
— | (429.8 | ) | (45.0 | ) | (140.2 | ) | 81.6 | (533.4 | ) | ||||||||||||||
| Losses on early extinguishments of debt |
— | 7.4 | — | — | — | 7.4 | ||||||||||||||||||
| Other income, including interest income |
1.6 | 30.3 | 27.0 | 29.9 | (81.6 | ) | 7.2 | |||||||||||||||||
| (Loss)/income from continuing operations before income taxes and minority interests |
(135.8 | ) | (176.6 | ) | 270.8 | 31.5 | (159.1 | ) | (169.2 | ) | ||||||||||||||
| Benefit/(provision) for income taxes |
6.1 | 142.2 | (88.1 | ) | (14.2 | ) | — | 46.0 | ||||||||||||||||
| Minority interests |
— | — | 0.1 | (7.3 | ) | — | (7.2 | ) | ||||||||||||||||
| (Loss)/income from continuing operations |
(129.7 | ) | (34.4 | ) | 182.8 | 10.0 | (159.1 | ) | (130.4 | ) | ||||||||||||||
| Discontinued operations |
||||||||||||||||||||||||
| Income from discontinued operations |
— | — | 0.7 | — | — | 0.7 | ||||||||||||||||||
| Provision for income taxes |
— | — | — | — | — | — | ||||||||||||||||||
| Income from discontinued operations, net |
— | — | 0.7 | — | — | 0.7 | ||||||||||||||||||
| Net (loss)/income |
$ | (129.7 | ) | $ | (34.4 | ) | $ | 183.5 | $ | 10.0 | $ | (159.1 | ) | $ | (129.7 | ) | ||||||||
23
HARRAH’S ENTERTAINMENT, INC.
(PREDECESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Casino |
$ | — | $ | 28.1 | $ | 1,565.3 | $ | 740.2 | $ | — | $ | 2,333.6 | ||||||||||||
| Food and beverage |
— | 6.3 | 251.2 | 187.6 | — | 445.1 | ||||||||||||||||||
| Rooms |
— | 6.7 | 192.0 | 142.9 | — | 341.6 | ||||||||||||||||||
| Management fees |
— | 2.2 | 23.0 | — | (4.7 | ) | 20.5 | |||||||||||||||||
| Other |
— | 0.8 | 102.5 | 102.2 | (20.7 | ) | 184.8 | |||||||||||||||||
| Less: casino promotional allowances |
— | (7.5 | ) | (319.4 | ) | (158.4 | ) | — | (485.3 | ) | ||||||||||||||
| Net revenues |
— | 36.6 | 1,814.6 | 1,014.5 | (25.4 | ) | 2,840.3 | |||||||||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Direct |
||||||||||||||||||||||||
| Casino |
— | 14.5 | 777.6 | 403.8 | — | 1,195.9 | ||||||||||||||||||
| Food and beverage |
— | 3.2 | 97.6 | 93.5 | — | 194.3 | ||||||||||||||||||
| Rooms |
— | 0.8 | 35.5 | 30.7 | — | 67.0 | ||||||||||||||||||
| Property general, administrative and other |
— | 21.1 | 397.5 | 199.3 | (25.2 | ) | 592.7 | |||||||||||||||||
| Depreciation and amortization |
— | 3.4 | 138.2 | 65.4 | (0.2 | ) | 206.8 | |||||||||||||||||
| Write-downs, reserves and recoveries |
— | 7.1 | (1.8 | ) | (59.8 | ) | — | (54.5 | ) | |||||||||||||||
| Project opening costs |
— | — | — | 4.8 | — | 4.8 | ||||||||||||||||||
| Corporate expense |
— | 30.8 | 6.8 | — | — | 37.6 | ||||||||||||||||||
| Merger and integration costs |
— | 0.7 | — | — | — | 0.7 | ||||||||||||||||||
| (Income)/losses on interests in nonconsolidated affiliates |
(244.4 | ) | (802.0 | ) | (16.6 | ) | 1.0 | 1,062.1 | 0.1 | |||||||||||||||
| Amortization of intangible assets |
— | — | 17.3 | 0.4 | — | 17.7 | ||||||||||||||||||
| Total operating expenses |
(244.4 | ) | (720.4 | ) | 1,452.1 | 739.1 | 1,036.7 | 2,263.1 | ||||||||||||||||
| Income/(loss) from operations |
244.4 | 757.0 | 362.5 | 275.4 | (1,062.1 | ) | 577.2 | |||||||||||||||||
| Interest expense, net of interest capitalized |
— | (221.1 | ) | (71.6 | ) | (121.5 | ) | 198.1 | (216.1 | ) | ||||||||||||||
| Loss on early extinguishment of debt |
— | — | — | (2.0 | ) | — | (2.0 | ) | ||||||||||||||||
| Other income, including interest income |
— | 37.5 | 85.8 | 79.7 | (198.1 | ) | 4.9 | |||||||||||||||||
| Income/(loss) from continuing operations before income taxes and minority interests |
244.4 | 573.4 | 376.7 | 231.6 | (1,062.1 | ) | 364.0 | |||||||||||||||||
| Benefit/(provision) for income taxes |
— | 84.8 | (176.8 | ) | (45.4 | ) | — | (137.4 | ) | |||||||||||||||
| Minority interests |
— | — | — | (6.0 | ) | — | (6.0 | ) | ||||||||||||||||
| Income/(loss) from continuing operations |
244.4 | 658.2 | 199.9 | 180.2 | (1,062.1 | ) | 220.6 | |||||||||||||||||
| Discontinued operations |
||||||||||||||||||||||||
| Income from discontinued operations |
— | — | 39.0 | — | — | 39.0 | ||||||||||||||||||
| Provision for income taxes |
— | — | (15.2 | ) | — | — | (15.2 | ) | ||||||||||||||||
| Income from discontinued operations, net |
— | — | 23.8 | — | — | 23.8 | ||||||||||||||||||
| Net income/(loss) |
$ | 244.4 | $ | 658.2 | $ | 223.7 | $ | 180.2 | $ | (1,062.1 | ) | $ | 244.4 | |||||||||||
24
HARRAH’S ENTERTAINMENT, INC.
(PREDECESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 1, 2008 THROUGH JANUARY 27, 2008
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non-Guarantors | Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Casino |
$ | — | $ | 5.7 | $ | 400.5 | $ | 208.4 | $ | — | $ | 614.6 | ||||||||||||
| Food and beverage |
— | 1.5 | 65.7 | 51.2 | — | 118.4 | ||||||||||||||||||
| Rooms |
— | 1.3 | 52.7 | 42.4 | — | 96.4 | ||||||||||||||||||
| Management fees |
— | 0.7 | 6.0 | 0.1 | (1.8 | ) | 5.0 | |||||||||||||||||
| Other |
— | 0.7 | 26.3 | 22.0 | (6.3 | ) | 42.7 | |||||||||||||||||
| Less: casino promotional allowances |
— | (1.5 | ) | (76.9 | ) | (38.6 | ) | — | (117.0 | ) | ||||||||||||||
| Net revenues |
— | 8.4 | 474.3 | 285.5 | (8.1 | ) | 760.1 | |||||||||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Direct |
||||||||||||||||||||||||
| Casino |
— | 4.1 | 217.8 | 118.7 | — | 340.6 | ||||||||||||||||||
| Food and beverage |
— | 1.0 | 26.0 | 23.5 | — | 50.5 | ||||||||||||||||||
| Rooms |
— | 0.2 | 10.0 | 9.4 | — | 19.6 | ||||||||||||||||||
| Property general, administrative and other |
— | 5.6 | 112.7 | 68.0 | (8.1 | ) | 178.2 | |||||||||||||||||
| Depreciation and amortization |
— | 1.1 | 41.9 | 20.5 | — | 63.5 | ||||||||||||||||||
| Write-downs, reserves and recoveries |
— | 0.6 | (0.4 | ) | 4.5 | — | 4.7 | |||||||||||||||||
| Project opening costs |
— | — | (0.2 | ) | 0.9 | — | 0.7 | |||||||||||||||||
| Corporate expense |
— | 7.9 | 0.6 | — | — | 8.5 | ||||||||||||||||||
| Merger and integration costs |
— | 125.6 | — | — | — | 125.6 | ||||||||||||||||||
| Losses/(income) on interests in nonconsolidated affiliates |
102.3 | (1.3 | ) | 1.6 | (0.2 | ) | (102.9 | ) | (0.5 | ) | ||||||||||||||
| Amortization of intangible assets |
— | — | 5.2 | 0.3 | — | 5.5 | ||||||||||||||||||
| Total operating expenses |
102.3 | 144.8 | 415.2 | 245.6 | (111.0 | ) | 796.9 | |||||||||||||||||
| (Loss)/income from operations |
(102.3 | ) | (136.4 | ) | 59.1 | 39.9 | 102.9 | (36.8 | ) | |||||||||||||||
| Interest expense, net of interest capitalized |
— | (89.3 | ) | (7.1 | ) | (27.3 | ) | 34.0 | (89.7 | ) | ||||||||||||||
| Other income, including interest income |
— | 12.6 | 9.8 | 12.7 | (34.0 | ) | 1.1 | |||||||||||||||||
| (Loss)/income from continuing operations before income taxes and minority interests |
(102.3 | ) | (213.1 | ) | 61.8 | 25.3 | 102.9 | (125.4 | ) | |||||||||||||||
| Benefit/(provision) for income taxes |
1.4 | 56.3 | (18.9 | ) | (12.8 | ) | — | 26.0 | ||||||||||||||||
| Minority interests |
— | — | — | (1.6 | ) | — | (1.6 | ) | ||||||||||||||||
| (Loss)/income from continuing operations |
(100.9 | ) | (156.8 | ) | 42.9 | 10.9 | 102.9 | (101.0 | ) | |||||||||||||||
| Discontinued operations |
||||||||||||||||||||||||
| Income from discontinued operations |
— | — | 0.1 | — | — | 0.1 | ||||||||||||||||||
| Provision for income taxes |
— | — | — | — | — | — | ||||||||||||||||||
| Income from discontinued operations, net |
— | — | 0.1 | — | — | 0.1 | ||||||||||||||||||
| Net (loss)/income |
$ | (100.9 | ) | $ | (156.8 | ) | $ | 43.0 | $ | 10.9 | $ | 102.9 | $ | (100.9 | ) | |||||||||
25
HARRAH’S ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 28, 2008 THROUGH SEPTEMBER 30, 2008
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Casino |
$ | — | $ | 68.6 | $ | 3,745.3 | $ | 1,839.3 | $ | — | $ | 5,653.2 | ||||||||||||
| Food and beverage |
— | 15.4 | 657.6 | 487.2 | — | 1,160.2 | ||||||||||||||||||
| Rooms |
— | 14.4 | 492.0 | 387.8 | — | 894.2 | ||||||||||||||||||
| Management fees |
— | 6.3 | 47.1 | (0.1 | ) | (7.5 | ) | 45.8 | ||||||||||||||||
| Other |
— | 29.2 | 303.6 | 210.9 | (81.3 | ) | 462.4 | |||||||||||||||||
| Less: casino promotional allowances |
— | (19.2 | ) | (733.4 | ) | (374.7 | ) | — | (1,127.3 | ) | ||||||||||||||
| Net revenues |
— | 114.7 | 4,512.2 | 2,550.4 | (88.8 | ) | 7,088.5 | |||||||||||||||||
| Operating expenses |
||||||||||||||||||||||||
| Direct |
||||||||||||||||||||||||
| Casino |
— | 41.3 | 1,994.4 | 1,001.4 | — | 3,037.1 | ||||||||||||||||||
| Food and beverage |
— | 8.1 | 254.4 | 223.6 | — | 486.1 | ||||||||||||||||||
| Rooms |
— | 1.5 | 92.6 | 85.3 | — | 179.4 | ||||||||||||||||||
| Property general, administrative and other |
— | 40.5 | 1,046.8 | 598.8 | (67.1 | ) | 1,619.0 | |||||||||||||||||
| Depreciation and amortization |
— | 5.4 | 290.2 | 156.8 | — | 452.4 | ||||||||||||||||||
| Write-downs, reserves and recoveries |
9.0 | 5.7 | (143.1 | ) | 66.6 | — | (61.8 | ) | ||||||||||||||||
| Project opening costs |
— | — | 20.3 | 6.0 | — | 26.3 | ||||||||||||||||||
| Corporate expense |
22.7 | 58.6 | 17.0 | 19.3 | (21.7 | ) | 95.9 | |||||||||||||||||
| Merger and integration costs |
— | 23.1 | — | — | — | 23.1 | ||||||||||||||||||
| Losses/(income) on interests in nonconsolidated affiliates |
294.6 | (435.7 | ) | (52.7 | ) | 0.8 | 194.3 | 1.3 | ||||||||||||||||
| Amortization of intangible assets |
— | 0.4 | 77.2 | 41.6 | — | 119.2 | ||||||||||||||||||
| Total operating expenses |
326.3 | (251.1 | ) | 3,597.1 | 2,200.2 | 105.5 | 5,978.0 | |||||||||||||||||
| (Loss)/income from operations |
(326.3 | ) | 365.8 | 915.1 | 350.2 | (194.3 | ) | 1,110.5 | ||||||||||||||||
| Interest expense, net of interest capitalized |
— | (1,178.2 | ) | (150.4 | ) | (369.2 | ) | 228.4 | (1,469.4 | ) | ||||||||||||||
| Losses on early extinguishments of debt |
— | (203.9 | ) | — | — | — | (203.9 | ) | ||||||||||||||||
| Other income, including interest income |
3.6 | 79.9 | 89.9 | 73.7 | (228.4 | ) | 18.7 | |||||||||||||||||
| (Loss)/income from continuing operations before income taxes and minority interests |
(322.7 | ) | (936.4 | ) | 854.6 | 54.7 | (194.3 | ) | (544.1 | ) | ||||||||||||||
| Benefit/(provision) for income taxes |
8.5 | 467.9 | (290.7 | ) | (38.0 | ) | — | 147.7 | ||||||||||||||||
| Minority interests |
— | — | 0.1 | (6.3 | ) | — | (6.2 | ) | ||||||||||||||||
| (Loss)/income from continuing operations |
(314.2 | ) | (468.5 | ) | 564.0 | 10.4 | (194.3 | ) | (402.6 | ) | ||||||||||||||
| Discontinued operations |
||||||||||||||||||||||||
| Income from discontinued operations |
— | — | 141.6 | — | — | 141.6 | ||||||||||||||||||
| Provision for income taxes |
— | — | (53.2 | ) | — | — | (53.2 | ) | ||||||||||||||||
| Income from discontinued operations, net |
— | — | 88.4 | — | — | 88.4 | ||||||||||||||||||
| Net (loss)/income |
$ | (314.2 | ) | $ | (468.5 | ) | $ | 652.4 | $ | 10.4 | $ | (194.3 | ) | $ | (314.2 | ) | ||||||||
26
HARRAH’S ENTERTAINMENT, INC.
(PREDECESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
| Revenues |
||||||||||||||||||||||||
| Casino |
$ | — | $ | 81.4 | $ | 4,523.6 | $ | 2,081.7 | $ | — | $ | 6,686.7 | ||||||||||||
| Food and beverage |
— | 18.2 | 738.8 | 542.1 | — | 1,299.1 | ||||||||||||||||||
| Rooms |
— | 17.8 | 574.3 | 443.8 | — | 1,035.9 | ||||||||||||||||||
| Management fees |
— | 6.0 | 69.2 | 0.2 | (11.2 | ) | 64.2 | |||||||||||||||||
| Other |
— | 3.6 | 298.4 | 281.1 | (58.0 | ) | 525.1 | |||||||||||||||||
| Less: casino promotional allowances |
— | (20.5 | ) | (944.2 | ) | (448.6 | ) | — | (1,413.3 | ) | ||||||||||||||
| Net revenues |
— | 106.5 | 5,260.1 | 2,900.3 | (69.2 | ) | 8,197.7 | |||||||||||||||||
| Operating Expenses |
||||||||||||||||||||||||
| Direct |
||||||||||||||||||||||||
| Casino |
— | 44.3 | 2,279.6 | 1,120.9 | — | 3,444.8 | ||||||||||||||||||
| Food and beverage |
— | 9.4 | 282.1 | 262.2 | — | 553.7 | ||||||||||||||||||
| Rooms |
— | 2.7 | 104.9 | 93.5 | — | 201.1 | ||||||||||||||||||
| Property general, administrative and other |
— | 75.7 | 1,181.3 | 607.4 | (69.0 | ) | 1,795.4 | |||||||||||||||||
| Depreciation and amortization |
— | 10.7 | 402.6 | 188.3 | (0.2 | ) | 601.4 | |||||||||||||||||
| Write-downs, reserves and recoveries |
21.3 | (44.8 | ) | (59.5 | ) | — | (83.0 | ) | ||||||||||||||||
| Project opening costs |
— | — | 2.3 | 19.8 | — | 22.1 | ||||||||||||||||||
| Corporate expense |
0.1 | 82.9 | 14.7 | — | — | 97.7 | ||||||||||||||||||
| Merger and integration costs |
— | 8.3 | — | — | — | 8.3 | ||||||||||||||||||
| (Income)/losses on interests in nonconsolidated affiliates |
(668.6 | ) | (1,340.3 | ) | (45.4 | ) | (1.8 | ) | 2,052.5 | (3.6 | ) | |||||||||||||
| Amortization of intangible assets |
— | — | 52.3 | 1.2 | — | 53.5 | ||||||||||||||||||
| Total operating expenses |
(668.5 | ) | (1,085.0 | ) | 4,229.6 | 2,232.0 | 1,983.3 | 6,691.4 | ||||||||||||||||
| Income/(loss) from operations |
668.5 | 1,191.5 | 1,030.5 | 668.3 | (2,052.5 | ) | 1,506.3 | |||||||||||||||||
| Interest expense, net of interest capitalized |
— | (595.2 | ) | (181.9 | ) | (246.8 | ) | 445.5 | (578.4 | ) | ||||||||||||||
| Loss on early extinguishment of debt |
— | — | (2.0 | ) | — | (2.0 | ) | |||||||||||||||||
| Other income, including interest income |
(0.1 | ) | 91.5 | 223.1 | 159.7 | (445.5 | ) | 28.7 | ||||||||||||||||
| Income/(loss) from continuing operations before income taxes and minority interests |
668.4 | 687.8 | 1,071.7 | 579.2 | (2,052.5 | ) | 954.6 | |||||||||||||||||
| (Provision)/benefit for income taxes |
(1.2 | ) | 226.1 | (409.4 | ) | (169.6 | ) | — | (354.1 | ) | ||||||||||||||
| Minority interests |
— | — | — | (17.2 | ) | — | (17.2 | ) | ||||||||||||||||
| Income/(loss) from continuing operations |
667.2 | 913.9 | 662.3 | 392.4 | (2,052.5 | ) | 583.3 | |||||||||||||||||
| Discontinued operations |
||||||||||||||||||||||||
| Income from discontinued operations |
— | — | 133.3 | — | — | 133.3 | ||||||||||||||||||
| Provision for income taxes |
— | — | (49.4 | ) | — | — | (49.4 | ) | ||||||||||||||||
| Income from discontinued operations, net |
— | — | 83.9 | — | — | 83.9 | ||||||||||||||||||
| Net income/(loss) |
$ | 667.2 | $ | 913.9 | $ | 746.2 | $ | 392.4 | $ | (2,052.5 | ) | $ | 667.2 | |||||||||||
27
HARRAH’S ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD
JANUARY 28, 2008 THROUGH SEPTEMBER 30, 2008
(UNAUDITED)
| (In millions) | HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | |||||||||||||||||
| Cash flo | |||||||||||||||||||||||