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 June 30, 2009
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
HARRAHS 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
(Registrants 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ 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 ¨ | Accelerated filer ¨ | Non-accelerated filer x | 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 August 1, 2009, the Registrant had 10 shares of voting Common Stock and 40,678,719 shares of non-voting Common Stock outstanding.
PART IFINANCIAL INFORMATION
Item 1. | Financial Statements |
The accompanying unaudited Consolidated Condensed Financial Statements of Harrahs 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, 2008.
2
HARRAHS ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
Successor | ||||||||
(In millions, except share amounts) |
June 30, 2009 | December 31, 2008 | ||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 947.1 | $ | 650.5 | ||||
Receivables, less allowance for doubtful accounts of $216.5 and $201.4 |
316.6 | 394.0 | ||||||
Deferred income taxes |
151.2 | 157.6 | ||||||
Income tax receivable |
9.0 | 5.5 | ||||||
Prepayments and other |
249.3 | 216.4 | ||||||
Inventories |
56.3 | 62.7 | ||||||
Total current assets |
1,729.5 | 1,486.7 | ||||||
Land, buildings, riverboats and equipment |
19,184.1 | 18,881.4 | ||||||
Less: accumulated depreciation |
(959.4 | ) | (614.3 | ) | ||||
18,224.7 | 18,267.1 | |||||||
Assets held for sale |
7.3 | 49.3 | ||||||
Goodwill (Note 4) |
4,647.1 | 4,902.2 | ||||||
Intangible assets (Note 4) |
5,181.5 | 5,307.9 | ||||||
Investments in and advances to non-consolidated affiliates |
30.5 | 30.4 | ||||||
Deferred costs and other |
891.8 | 1,005.0 | ||||||
$ | 30,712.4 | $ | 31,048.6 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT) |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 265.2 | $ | 382.3 | ||||
Interest payable |
200.6 | 417.7 | ||||||
Accrued expenses |
1,216.6 | 1,115.0 | ||||||
Current portion of long-term debt (Note 6) |
31.9 | 85.6 | ||||||
Total current liabilities |
1,714.3 | 2,000.6 | ||||||
Long-term debt (Note 6) |
19,345.7 | 23,123.3 | ||||||
Deferred credits and other |
718.2 | 669.1 | ||||||
Deferred income taxes |
5,741.3 | 4,327.0 | ||||||
27,519.5 | 30,120.0 | |||||||
Commitments and contingencies (Notes 6, 9 through 11 and 13) |
||||||||
Preferred stock; $0.01 par value; 40,000,000 shares authorized; 19,896,658 and 19,912,447 shares issued and outstanding (net of 38,876 and 23,088 shares held in treasury) |
2,465.3 | 2,289.4 | ||||||
Stockholders equity/(deficit) (Notes 3, 5 and 6) |
||||||||
Common stock, non-voting and voting; $0.01 par value; 80,000,020 shares authorized; 40,678,729 and 40,711,008 shares issued and outstanding (net of 79,481 and 47,201 shares held in treasury) |
0.4 | 0.4 | ||||||
Additional paid-in capital |
3,702.3 | 3,825.1 | ||||||
Accumulated deficit |
(2,940.6 | ) | (5,096.3 | ) | ||||
Accumulated other comprehensive loss |
(90.7 | ) | (139.6 | ) | ||||
Total Harrahs Entertainment, Inc. stockholders equity/(deficit) |
671.4 | (1,410.4 | ) | |||||
Non-controlling interests |
56.2 | 49.6 | ||||||
Total equity/(deficit) |
727.6 | (1,360.8 | ) | |||||
$ | 30,712.4 | $ | 31,048.6 | |||||
See accompanying Notes to Consolidated Condensed Financial Statements.
3
HARRAHS ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Successor | Predecessor | |||||||||||||||||||||
(In millions) |
Second Quarter Ended June 30, 2009 |
Second Quarter Ended June 30, 2008 |
Six Months Ended June 30, 2009 |
January 28, 2008 Through June 30, 2008 |
January 1, 2008 Through January 27, 2008 |
|||||||||||||||||
Revenues |
||||||||||||||||||||||
Casino |
$ | 1,810.6 | $ | 2,057.5 | $ | 3,622.8 | $ | 3,523.1 | $ | 614.6 | ||||||||||||
Food and beverage |
376.9 | 431.3 | 747.8 | 732.6 | 118.4 | |||||||||||||||||
Rooms |
271.6 | 335.9 | 546.3 | 577.5 | 96.4 | |||||||||||||||||
Management fees |
15.2 | 17.1 | 28.6 | 29.2 | 5.0 | |||||||||||||||||
Other |
148.9 | 168.7 | 288.4 | 280.5 | 42.7 | |||||||||||||||||
Less: casino promotional allowances |
(351.8 | ) | (408.4 | ) | (707.8 | ) | (700.3 | ) | (117.0 | ) | ||||||||||||
Net revenues |
2,271.4 | 2,602.1 | 4,526.1 | 4,442.6 | 760.1 | |||||||||||||||||
Operating expenses |
||||||||||||||||||||||
Direct |
||||||||||||||||||||||
Casino |
977.1 | 1,131.0 | 1,970.4 | 1,907.7 | 340.6 | |||||||||||||||||
Food and beverage |
154.4 | 183.7 | 298.2 | 308.0 | 50.5 | |||||||||||||||||
Rooms |
54.1 | 64.1 | 106.1 | 114.5 | 19.6 | |||||||||||||||||
Property general, administrative and other |
500.3 | 577.3 | 1,004.6 | 987.2 | 178.2 | |||||||||||||||||
Depreciation and amortization |
168.8 | 176.2 | 341.2 | 300.4 | 63.5 | |||||||||||||||||
Write-downs, reserves and recoveries |
26.9 | 50.1 | 54.3 | (108.7 | ) | 4.7 | ||||||||||||||||
Impairment of intangible assets |
297.1 | | 297.1 | | | |||||||||||||||||
Project opening costs |
0.6 | 7.2 | 2.6 | 10.0 | 0.7 | |||||||||||||||||
Corporate expense |
41.7 | 36.6 | 72.0 | 61.3 | 8.5 | |||||||||||||||||
Merger and integration costs |
0.1 | 5.1 | 0.3 | 22.1 | 125.6 | |||||||||||||||||
Loss/(income) on interests in non-consolidated affiliates |
0.3 | (0.5 | ) | 0.1 | (1.3 | ) | (0.5 | ) | ||||||||||||||
Amortization of intangible assets |
43.7 | 48.2 | 87.5 | 80.5 | 5.5 | |||||||||||||||||
Total operating expenses |
2,265.1 | 2,279.0 | 4,234.4 | 3,681.7 | 796.9 | |||||||||||||||||
Income/(loss) from operations |
6.3 | 323.1 | 291.7 | 760.9 | (36.8 | ) | ||||||||||||||||
Interest expense, net of interest capitalized |
(463.4 | ) | (468.0 | ) | (960.2 | ) | (935.9 | ) | (89.7 | ) | ||||||||||||
Gains/(losses) on early extinguishments of debt |
4,279.5 | | 4,280.7 | (211.3 | ) | | ||||||||||||||||
Other income, including interest income |
10.6 | 3.8 | 19.1 | 11.5 | 1.1 | |||||||||||||||||
Income/(loss) from continuing operations before income taxes (1) |
3,833.0 | (141.1 | ) | 3,631.3 | (374.8 | ) | (125.4 | ) | ||||||||||||||
(Provision)/benefit for income taxes |
(1,536.2 | ) | 43.5 | (1,461.9 | ) | 101.7 | 26.0 | |||||||||||||||
Income/(loss) from continuing operations, net of tax (1) |
2,296.8 | (97.6 | ) | 2,169.4 | (273.1 | ) | (99.4 | ) | ||||||||||||||
Discontinued operations |
||||||||||||||||||||||
(Loss)/income from discontinued operations |
(0.2 | ) | (0.2 | ) | (0.3 | ) | 140.8 | 0.1 | ||||||||||||||
Benefit/(provision) for income taxes |
0.1 | 0.6 | 0.1 | (53.2 | ) | | ||||||||||||||||
(Loss)/income from discontinued operations, net |
(0.1 | ) | 0.4 | (0.2 | ) | 87.6 | 0.1 | |||||||||||||||
Net income/(loss) (1) |
2,296.7 | (97.2 | ) | 2,169.2 | (185.5 | ) | (99.3 | ) | ||||||||||||||
Less: net (income)/loss attributable to non-controlling interests |
(7.7 | ) | (0.4 | ) | (12.9 | ) | 1.0 | (1.6 | ) | |||||||||||||
Net income/(loss) attributable to Harrahs Entertainment, Inc. (1) |
$ | 2,289.0 | $ | (97.6 | ) | $ | 2,156.3 | $ | (184.5 | ) | $ | (100.9 | ) | |||||||||
(1) | Due to the January 1, 2009 adoption of a recent accounting pronouncement, certain 2008 amounts have been recasted to conform to the 2009 presentation. |
See accompanying Notes to Consolidated Condensed Financial Statements.
4
HARRAHS ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Successor | Predecessor | |||||||||||||
(In millions) |
Six Months Ended June 30, 2009 |
January 28, 2008 Through June 30, 2008 |
January 1, 2008 Through January 27, 2008 |
|||||||||||
Cash flows from operating activities |
||||||||||||||
Net income/(loss) attributable to Harrahs Entertainment, Inc. |
$ | 2,156.3 | $ | (184.5 | ) | $ | (100.9 | ) | ||||||
Adjustments to reconcile net loss to cash flows from operating activities: |
||||||||||||||
Loss/(income) from discontinued operations, before income taxes |
0.3 | (140.8 | ) | (0.1 | ) | |||||||||
Income from insurance claims for hurricane damage |
| (185.4 | ) | | ||||||||||
(Gains)/losses on early extinguishments of debt |
(4,280.7 | ) | 211.3 | | ||||||||||
Depreciation and amortization |
571.0 | 489.3 | 104.9 | |||||||||||
Write-downs, reserves and recoveries |
306.1 | 32.6 | (0.1 | ) | ||||||||||
Other non-cash items |
29.6 | 120.6 | 34.4 | |||||||||||
Share-based compensation expense |
8.4 | 6.9 | 50.9 | |||||||||||
Deferred income taxes |
1,419.0 | (190.5 | ) | (19.0 | ) | |||||||||
Tax benefit from stock equity plans |
| | 42.6 | |||||||||||
Non-controlling interests share of net income/(loss) |
12.9 | (1.0 | ) | 1.6 | ||||||||||
Loss/(income) on interests in non-consolidated affiliates |
0.1 | (1.3 | ) | (0.5 | ) | |||||||||
Net change in insurance receivables for hurricane damage |
| 0.9 | | |||||||||||
Returns on investment in non-consolidated affiliates |
1.2 | 0.3 | 0.1 | |||||||||||
Insurance proceeds for hurricane losses |
| 97.9 | | |||||||||||
Net losses/(gains) from asset sales |
0.3 | 8.4 | (7.4 | ) | ||||||||||
Net change in long-term accounts |
(0.6 | ) | (94.8 | ) | 68.3 | |||||||||
Net change in working capital accounts |
(131.5 | ) | 558.6 | (167.6 | ) | |||||||||
Cash flows provided by operating activities |
92.4 | 728.5 | 7.2 | |||||||||||
Cash flows from investing activities |
||||||||||||||
Land, buildings, riverboats and equipment additions |
(277.1 | ) | (670.3 | ) | (117.4 | ) | ||||||||
Insurance proceeds for hurricane losses for discontinued operations |
| 83.3 | | |||||||||||
Insurance proceeds for hurricane losses for continuing operations |
| 98.1 | | |||||||||||
Payment for Merger |
| (17,490.2 | ) | | ||||||||||
Payments for businesses acquired, net of cash acquired |
| | 0.1 | |||||||||||
Investments in and advances to non-consolidated affiliates |
| (5.9 | ) | | ||||||||||
Proceeds from other asset sales |
34.1 | 3.6 | 3.1 | |||||||||||
(Decrease)/increase in construction payables |
(17.3 | ) | 49.1 | (8.2 | ) | |||||||||
Other |
(7.8 | ) | (24.2 | ) | (1.7 | ) | ||||||||
Cash flows used in investing activities |
(268.1 | ) | (17,956.5 | ) | (124.1 | ) | ||||||||
Cash flows from financing activities |
||||||||||||||
Proceeds from issuance of long-term debt, net of discounts |
1,323.1 | 20,354.6 | 11,316.3 | |||||||||||
Deferred financing costs |
(32.1 | ) | (510.1 | ) | | |||||||||
Borrowings under lending agreements, net of deferred financing costs |
1,550.0 | | | |||||||||||
Repayments under lending agreements |
(1,826.4 | ) | (5,815.5 | ) | (11,288.8 | ) | ||||||||
Early extinguishments of debt |
(480.7 | ) | (1,873.6 | ) | (87.7 | ) | ||||||||
Premiums paid on early extinguishments of debt |
| (238.0 | ) | | ||||||||||
Scheduled debt retirements |
(11.5 | ) | (6.5 | ) | | |||||||||
Equity contribution from buyout |
| 6,007.0 | | |||||||||||
Purchase of additional interest in subsidiary |
(31.9 | ) | | | ||||||||||
Non-controlling interests distributions, net of contributions |
(10.3 | ) | (1.2 | ) | (1.6 | ) | ||||||||
Proceeds from exercises of stock options |
| | 2.4 | |||||||||||
Excess tax benefit from stock equity plans |
| (50.5 | ) | 77.5 | ||||||||||
Other |
(8.2 | ) | 0.1 | (0.8 | ) | |||||||||
Cash flows provided by financing activities |
472.0 | 17,866.3 | 17.3 | |||||||||||
Cash flows from discontinued operations |
||||||||||||||
Cash flows from operating activities |
0.3 | (0.6 | ) | 0.5 | ||||||||||
Cash flows (used in)/provided by discontinued operations |
0.3 | (0.6 | ) | 0.5 | ||||||||||
Net increase/(decrease) in cash and cash equivalents |
296.6 | 637.7 | (99.1 | ) | ||||||||||
Cash and cash equivalents, beginning of period |
650.5 | 610.9 | 710.0 | |||||||||||
Cash and cash equivalents, end of period |
$ | 947.1 | $ | 1,248.6 | $ | 610.9 | ||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
5
HARRAHS ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS EQUITY/(DEFICIT) AND COMPREHENSIVE INCOME
(Notes 3, 5 and 6)
Common Stock | Capital Surplus |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Non-controlling interests |
Total | Comprehensive Income | ||||||||||||||||||||||
(In millions) |
Shares Outstanding |
Amount | ||||||||||||||||||||||||||
Successor Balance December 31, 2008 |
40.7 | $ | 0.4 | $ | 3,825.1 | $ | (5,096.3 | ) | $ | (139.6 | ) | $ | 49.6 | $ | (1,360.8 | ) | ||||||||||||
Net income |
2,156.3 | 12.9 | 2,169.2 | $ | 2,169.2 | |||||||||||||||||||||||
Share-based compensation expense |
8.4 | 8.4 | ||||||||||||||||||||||||||
Stock payouts |
(1.1 | ) | (1.1 | ) | ||||||||||||||||||||||||
Cumulative preferred stock dividends |
(177.3 | ) | (177.3 | ) | ||||||||||||||||||||||||
Debt exchange transaction, net of tax provision of $52.3 |
80.0 | 80.0 | ||||||||||||||||||||||||||
Pension adjustment, net of tax provision of $0.0 |
0.3 | 0.3 | 0.3 | |||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax provision of $8.7 |
22.3 | 22.3 | 22.3 | |||||||||||||||||||||||||
Fair market value of swap agreements, net of tax provision of $2.6 |
4.7 | 4.7 | 4.7 | |||||||||||||||||||||||||
Adjustment for FIN 48 tax implications |
(1.5 | ) | (1.5 | ) | ||||||||||||||||||||||||
Purchase of non-controlling interest in subsidiary |
(31.9 | ) | (31.9 | ) | ||||||||||||||||||||||||
Non-controlling interests distributions, net of contributions |
(6.3 | ) | (6.3 | ) | ||||||||||||||||||||||||
Fair market value of interest rate cap agreements on commercial mortgage backed securities, net of tax benefit of $12.0 |
21.3 | 21.3 | 21.3 | |||||||||||||||||||||||||
Reclassification of loss on derivative instrument from other comprehensive loss to net loss, net of tax provision of $0.1 |
0.3 | 0.3 | 0.3 | |||||||||||||||||||||||||
Other |
0.6 | (0.6 | ) | |||||||||||||||||||||||||
2009 Successor Comprehensive Income |
$ | 2,218.1 | ||||||||||||||||||||||||||
Successor Balance June 30, 2009 |
40.7 | $ | 0.4 | $ | 3,702.3 | $ | (2,940.6 | ) | $ | (90.7 | ) | $ | 56.2 | $ | 727.6 | |||||||||||||
See accompanying Notes to Consolidated Condensed Financial Statements.
6
HARRAHS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2009
(UNAUDITED)
Note 1Basis of Presentation and Organization
Harrahs Entertainment, Inc. (Harrahs Entertainment, the Company, we, our or us, and including our subsidiaries where the context requires) is a Delaware corporation. As of June 30, 2009, we own or manage 53 casinos, primarily under the Harrahs, Caesars and Horseshoe brand names in the United States. Our casino entertainment facilities include 34 land-based casinos, 12 riverboat or 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 34 land-based casinos include one in Uruguay, eleven in the United Kingdom, three 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, Harrahs 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 Harrahs 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 Loss for the six months ended June 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.
We have reclassified certain amounts for prior periods to conform to our 2009 presentation.
Note 2The Merger
The Merger was completed on January 28, 2008, and was financed by a combination of borrowings under the Companys new term loan facility due 2015, the issuance of Senior Notes due 2016 and Senior Toggle Notes due 2018, certain 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 Harrahs Entertainment stock were redeemed, with stockholders
receiving $90.00 in cash for each outstanding share of common stock.
As a result of the Merger, the issued and outstanding shares of non-voting common stock and non-voting preferred stock of Harrahs Entertainment are owned by entities affiliated with Apollo/TPG, certain co-investors and members of management, and the issued and outstanding shares of voting common stock of Harrahs Entertainment are owned by Hamlet Holdings LLC, which is owned by certain individuals affiliated with Apollo/TPG. As a result of the Merger, our stock is no longer publicly traded.
The following unaudited pro forma consolidated financial information assumes that the Merger was completed at the beginning of 2008.
(In millions) |
Six Months Ended June 30, 2008 |
|||
Net revenues |
$ | 5,202.7 | ||
Loss from continuing operations, net of tax (1) |
$ | (463.1 | ) | |
Net loss attributable to Harrahs Entertainment, Inc. |
$ | (375.4 | ) | |
(1) | Due to the January 1, 2009 adoption of a recent accounting pronouncement, certain 2008 amounts have been reclassified to conform to the 2009 presentation. |
7
For the six months ended June 30, 2008, pro forma results include $5.1 million of costs related to the Merger. Pro forma results for the six months ended June 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 $64.9 million of other costs related to the Merger.
The unaudited pro forma results are presented for comparative purposes only. The pro forma results are not necessarily indicative of what our actual results would have been had the Merger been completed at the beginning of the period, or of future results.
Note 3Stock-Based Employee Compensation
As of June 30, 2009, there was approximately $55.5 million of total unrecognized compensation cost related to stock option grants. In 2009, our share-based compensation expense consists primarily of time-based options and performance-based options that have been granted to management, other personnel and key service providers. The compensation cost that has been charged against income for stock option grants for the quarter and six months ended June 30, 2009, was approximately $4.3 million and $8.4 million, respectively. Of the total charged against income for the quarter ended June 30, 2009, $1.8 million is included in Corporate expense and $2.5 million is included in Property general, administrative and other in the Consolidated Condensed Statement of Operations. For the six months ended June 30, 2009, $3.2 million is included in Corporate expense and $5.2 million is included in Property general, administrative and other in the Consolidated Condensed Statement of Operations.
The compensation cost that was charged against income for stock option grants was approximately $5.2 million and $6.9 million for the quarter ended June 30, 2008, and for the Successor period January 28, 2008, through June 30, 2008, respectively. For the quarter ended June 30, 2008, $3.8 million was included in Corporate expense and $1.4 million was included in Property general, administrative and other in the Consolidated Condensed Statement of Operations and $5.1 million was included in Corporate expense and $1.8 million was included in Property general, administrative and other in the Consolidated Condensed Statement of Operations for the period January 28, 2008, through June 30, 2008.
There was no material award activity in the six months ended June 30, 2009.
In connection with the Merger, outstanding and unexercised stock options and stock appreciation rights, whether vested or unvested, and unvested restricted stock were cancelled and converted into the right to receive cash, accelerating the recognition of compensation costs of $82.8 million, which was included in Merger and integration costs in the Consolidated Condensed Statement of Operations in the period from January 1, 2008, through January 27, 2008 (Predecessor period).
Note 4Goodwill and Other Intangible Assets
The following table sets forth changes in our goodwill for the year ended June 30, 2009:
(In millions) |
||||
Balance at December 31, 2008 |
$ | 4,902.2 | ||
Additions or adjustments |
| |||
Impairments |
(255.1 | ) | ||
Balance at June 30, 2009 |
$ | 4,647.1 | ||
8
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets:
June 30, 2009 | December 31, 2008 | |||||||||||||||||||
(In millions) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount | ||||||||||||||
Amortizing intangible assets: |
||||||||||||||||||||
Trademarks |
$ | 7.8 | $ | (2.2 | ) | $ | 5.6 | $ | 7.8 | $ | (1.4 | ) | $ | 6.4 | ||||||
Gaming rights |
42.8 | (3.7 | ) | 39.1 | 42.8 | (2.4 | ) | 40.4 | ||||||||||||
Patented technology |
93.5 | (16.5 | ) | 77.0 | 93.5 | (10.7 | ) | 82.8 | ||||||||||||
Contract rights |
127.7 | (50.0 | ) | 77.7 | 128.8 | (33.2 | ) | 95.6 | ||||||||||||
Customer relationships |
1,454.5 | (178.0 | ) | 1,276.5 | 1,454.5 | (115.2 | ) | 1,339.3 | ||||||||||||
$ | 1,726.3 | $ | (250.4 | ) | $ | 1,475.9 | $ | 1,727.4 | $ | (162.9 | ) | $ | 1,564.5 | |||||||
Non-amortizing intangible assets: |
||||||||||||||||||||
Trademarks |
2,000.8 | 2,043.1 | ||||||||||||||||||
Gaming rights |
1,704.8 | 1,700.3 | ||||||||||||||||||
3,705.6 | 3,743.4 | |||||||||||||||||||
Total |
$ | 5,181.5 | $ | 5,307.9 | ||||||||||||||||
The aggregate amortization for the quarter and six months ended June 30, 2009, for those assets that are amortized under the provisions of Statement of Financial Accounting Standards (SFAS) No. 142 was $43.7 million and $87.5 million, respectively. Estimated annual amortization expense for those assets for the years ending December 31, 2009, 2010, 2011, 2012 and 2013 is $175.4 million, $159.4 million, $155.8 million, $154.4 million and $152.1 million, respectively.
The relative impact of weak economic conditions on certain properties in the Las Vegas market prompted us to perform an assessment of goodwill and certain intangible assets for impairment. Based on our assessment during the second quarter of 2009, we determined that, based on the revision of forecasted cash flows for certain properties, goodwill and other intangible assets related to those properties were impaired. As a result, we recognized an impairment charge of $297.1 million in our Consolidated Statement of Operations in the second quarter of 2009. Of the total charges recognized, $255.1 million related to goodwill and the remaining $42.0 million related to non-amortizing trademarks. We determine estimated fair value of a reporting unit as a function, or multiple, of earnings before interest, taxes, depreciation and amortization (EBITDA) or by using the discounted cash flows, common measures used to value and buy or sell cash-intensive businesses such as casinos. We determine the estimated fair values of our intangible assets by using the Relief From Royalty Method under the income approach. We will continue to monitor our intangible assets for impairment and will perform our annual assessment for impairment as of September 30, 2009.
Note 5Preferred and Common Stock
Preferred Stock
As of June 30, 2009, 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, our Board of Directors adopted a resolution authorizing the creation and issuance of a series of preferred stock known as the Non-Voting Perpetual Preferred Stock. The number of shares constituting such series was 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 the non-voting perpetual preferred stock are cumulative. As of June 30, 2009, such dividends in arrears are $475 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 has any voting rights.
9
Common Stock
As of June 30, 2009, 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 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, if, and as 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.
10
Note 6Debt
During second quarter 2009, we exchanged approximately $3.6 billion principal amount of new 10% second-priority senior secured notes due in 2018 for approximately $5.4 billion aggregate principal amount of outstanding debt with maturity dates ranging from 2010 to 2018, purchased approximately $1.3 billion principal amount of outstanding debt through tender offers or open market purchases, retired a portion of and amended the terms of our credit agreement and issued approximately $1.4 billion principal amount of senior secured notes due 2017. These events are discussed more fully below.
The following table presents our debt as of June 30, 2009, and December 31, 2008:
Detail of Debt (dollars in millions) |
Maturity | Rate(s) at June 30, 2009 |
Balance at June 30, 2009 |
Balance at December 31, 2008 |
|||||||||
Credit Facilities and Secured Debt |
|||||||||||||
Term Loans |
2015 | 3.3%-4.09 | % | $ | 6,340.4 | $ | 7,195.6 | ||||||
Revolving Credit Facility |
2014 | 3.29%-3.47 | % | 1,111.8 | 533.0 | ||||||||
Senior Secured notes |
2017 | 11.25 | % | 1,323.4 | | ||||||||
CMBS financing |
2013 | 3.32 | % | 6,500.0 | 6,500.0 | ||||||||
Second-Priority Senior Secured Notes |
2018 | 10.0 | % | 1,925.8 | 542.7 | ||||||||
Second-Priority Senior Secured Notes |
2015 | 10.0 | % | 148.0 | 144.0 | ||||||||
6.0% Secured debt |
2010 | 6.0 | % | 25.0 | 25.0 | ||||||||
4.25%6.0% |
to 2035 | 4.25%-6.0 | % | 3.6 | 1.1 | ||||||||
Subsidiary-guaranteed debt |
|||||||||||||
10.75% Senior Notes due 2016, including senior interim loans (1) |
2016 | 10.75 | % | 478.5 | 4,542.7 | ||||||||
Senior PIK Toggle Notes, including senior interim loans (1) |
2018 | 10.75 | % | 8.9 | 1,150.0 | ||||||||
Unsecured Senior Debt |
|||||||||||||
7.5% |
2009 | 7.5 | % | 0.8 | 6.0 | ||||||||
5.5% |
2010 | 5.5 | % | 227.7 | 321.5 | ||||||||
8.0% |
2011 | 8.0 | % | 30.6 | 47.4 | ||||||||
5.375% |
2013 | 5.375 | % | 92.7 | 200.6 | ||||||||
7.0% |
2013 | 7.0 | % | 0.7 | 0.7 | ||||||||
5.625% |
2015 | 5.625 | % | 311.3 | 578.1 | ||||||||
6.5% |
2016 | 6.5 | % | 246.7 | 436.7 | ||||||||
5.75% |
2017 | 5.75 | % | 144.0 | 372.7 | ||||||||
Floating Rate Contingent Convertible Senior Notes |
2024 | Varied | 0.2 | 0.2 | |||||||||
Unsecured Senior Subordinated Notes |
|||||||||||||
7.875% |
2010 | 7.875 | % | 232.1 | 287.0 | ||||||||
8.125% |
2011 | 8.125 | % | 128.0 | 216.8 | ||||||||
Other Unsecured Borrowings |
|||||||||||||
LIBOR plus 4.5% |
2010 | L+4.5 | % | 17.0 | 23.5 | ||||||||
5.3% special improvement district bonds |
2035 | 5.3 | % | 68.7 | 69.7 | ||||||||
Other, various maturities |
Varied | Varied | 1.4 | 1.4 | |||||||||
Capitalized Lease Obligations |
|||||||||||||
5.77%10.0% |
to 2011 | 5.77%-10.0 | % | 10.3 | 12.5 | ||||||||
Total debt, net of unamortized discounts of $3,155.5 and premiums of $0.1 |
19,377.6 | 23,208.9 | |||||||||||
Current portion of long-term debt |
(31.9 | ) | (85.6 | ) | |||||||||
Long-term debt |
$ | 19,345.7 | $ | 23,123.3 | |||||||||
(1) | In connection with the exchange offer discussed below, the senior interim loans are no longer outstanding. |
11
At June 30, 2009, $0.8 million, face amount, of our 7.5% Senior Notes due September 1, 2009, and $237.9 million, face amount, of our 7.875% Senior Subordinated Notes due March 15, 2010, 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 under our revolving credit facility.
In July 2008, Harrahs Operating Company, Inc. (HOC), a wholly-owned subsidiary of Harrahs Entertainment, made the permitted election under the Indenture governing its 10.75%/11.5% Senior Toggle Notes due 2018 and the toggle portion of the Senior Unsecured Interim Loan Agreement (Interim Loan Agreement) dated January 28, 2008, to pay all interest due on January 28, and February 1, 2009, for the loan in-kind. A similar election was made in January 2009 to pay the interest due August 1, 2009, for the 10.75%/11.5% Senior Toggle Notes due 2018 in-kind, and in March 2009, the election was made to pay the interest due April 28, 2009, on the Interim Loan Agreement in-kind. In connection with the debt exchange detailed in the section below (Exchange Offer), the Interim Toggle Notes were no longer outstanding as of June 30, 2009.
Exchange Offer
On April 15, 2009, HOC completed private exchange offers to exchange approximately $3.6 billion aggregate principal amount of new 10.0% Second-Priority Senior Secured Notes due 2018 for approximately $5.4 billion principal amount of its outstanding debt due between 2010 and 2018. The new notes are guaranteed by Harrahs Entertainment and are secured on a second-priority lien basis by substantially all of HOCs and its subsidiaries assets that secure the senior secured credit facilities. In addition to the exchange offers, another subsidiary of Harrahs Entertainment paid approximately $97 million to purchase for cash certain notes of HOC with an aggregate principal amount of approximately $523 million maturing between 2015 and 2017. The notes purchased pursuant to this tender offer will remain outstanding for HOC but will reduce Harrahs Entertainments outstanding debt on a consolidated basis. Additionally, HOC paid approximately $4.8 million in cash to purchase notes of approximately $24 million aggregate principal amount from retail holders that were not eligible to participate in the exchange offers.
As a result of the exchange and tender offers, we recorded a pretax gain in the second quarter of 2009
of approximately
$4.1 billion arising from this early extinguishment of debt. As a result of the receipt of the requisite consent of lenders having loans made under the Interim Loan Agreement representing more than 50% of the sum of all loans
outstanding under the Interim Loan Agreement, waivers or amendments of certain provisions of the Interim Loan Agreement to permit HOC, from time to time, to buy back loans at prices below par from specific lenders in the form of voluntary
prepayments of the loans by HOC on a non-pro rata basis are now operative. Included in the exchanged debt discussed above are approximately $297 million of 10.0% Second-Priority Senior Secured Notes that were exchanged for approximately $442 million
principal amount of loans surrendered in the exchange offer for loans outstanding under the Interim Loan Agreement. As a result of these transactions, all loans outstanding under the Interim Loan Agreement have been retired.
Open Market Repurchases and Other Retirements
From time to time, we may retire portions of our outstanding debt in open market purchases, privately negotiated transactions or otherwise. These repurchases will be funded through available cash from operations and from our established debt programs. Such repurchases are dependent on prevailing market conditions, the Companys liquidity requirements, contractual restrictions and other factors.
In second quarter 2009, HOC completed open market purchases of notes, paying $261.0 million of cash for the following notes: (i) $20.0 million in aggregate principal amount at maturity of the 5.50% Senior Notes due 2010; (ii) $17.0 million in aggregate principal amount at maturity of the 7.875% Senior Subordinated Notes due 2010; (iii) $18.0 million in aggregate principal amount at maturity of the 8.0% Senior Notes due 2011; (iv) $49.7 million in aggregate principal amount at maturity of the 8.125% Senior Subordinated Notes due 2011; (v) $87.2 million in aggregate principal amount at maturity of the 5.375% Senior Notes due 2013; and (vi) $265.0 million in aggregate principal amount at maturity of the 10.75% Senior Notes due 2016.
Also during the second quarter, another subsidiary of Harrahs
Entertainment completed open market purchases paying
$116.7 million cash for the following notes: (i) $138.0 million in aggregate principal amount at maturity of the 5.625% Senior Notes due 2015: (ii) $24.0 million in aggregate
principal amount at maturity of the 6.50% Senior Notes due 2016, and (iii) $169.0 million in aggregate principal amount at maturity of the 5.75% Senior Notes due 2017. These notes purchased on the open market will remain outstanding for HOC but
will reduce Harrahs Entertainments outstanding debt on a consolidated basis.
12
The gains recognized in the second quarter and six months ended June 30, 2009 on the early extinguishments of notes purchased on the open market, referred to above, in addition to the gain on the extinguishment of debt through the exchange offer discussed in the preceding section, totaled $4.3 billion. We recognized a deferred tax liability of approximately $1.7 billion related to the gains.
Under the American Recovery and Reinvestment Act of 2009 (the Act), the Company will receive temporary tax relief under the Delayed Recognition of Cancellation of Debt Income (CODI) rules. The Act contains a provision that allows for a five-year deferral for tax purposes of CODI for debt reacquired in 2009, followed by recognition of CODI ratably over the succeeding five years. The provision applies for specified types of repurchases including the acquisition of a debt instrument for cash and the exchange of one debt instrument for another.
Credit Facility Amendment and Note Offering
On June 3, 2009, HOC entered into an amendment and waiver to its credit agreement to, among other things: (i) allow for one or more future issuances of additional secured notes or loans, including the $1.375 billion notes discussed below, which may include, in each case, indebtedness secured on a pari passu basis with the obligations under its senior secured credit facilities, so long as, in each case, among other things, an agreed amount of the net cash proceeds from any such issuance are used to prepay term loans and revolving loans under such senior secured credit facilities at par; (ii) exclude from the maintenance covenant under its senior secured credit facilities (a) notes secured with a first priority lien on the assets of HOC and its subsidiaries that secure the senior secured credit facilities that collectively result in up to $2 billion of net proceeds (provided that the aggregate face amount of all such notes shall not collectively exceed $2.2 billion) and (b) up to $250 million aggregate principal amount of consolidated debt of subsidiaries that are not wholly owned subsidiaries; (iii) subject to specified procedures, allow HOC to buyback loans from individual lenders at negotiated prices, which may be less than par and (iv) subject to the requirement to make such offers on a pro rata basis to all lenders, allow HOC to agree with certain lenders to extend the maturity of their term loans or revolving commitments, and for HOC to pay increased interest rates or otherwise modify the terms of their loans or revolving commitments in connection with such an extension.
On June 15, 2009, HOC issued $1.375 billion principal amount of 11.25% senior secured notes due 2017. These notes are secured with a first priority lien on the assets of HOC and the subsidiaries that secure the senior secured credit facilities. Proceeds from this issuance were used to pay a portion of HOCs outstanding terms loan and revolving loans under its senior secured credit facilities, of which approximately $0.2 billion was used to permanently reduce commitments under the revolving credit facility and approximately $0.8 billion was used to reduce amounts due on the term loan.
Credit Agreement
As of June 30, 2009, our senior secured credit facilities (the Credit Facilities) provide for senior secured financing of up to $8.1 billion, consisting of (i) senior secured term loan facilities in an aggregate principal amount of up to $6.3 billion maturing on January 28, 2015 and (ii) a senior secured revolving credit facility in an aggregate principal amount of $1.8 billion, maturing January 28, 2014, including both a letter of credit sub-facility and a swingline loan sub-facility. During the second quarter of 2009, the terms loans were reduced by approximately $0.8 billion and the revolving credit facility was reduced by approximately $0.2 billion as a result of debt retirements, and the mandatory quarterly payment obligation on the term loans decreased from $18.125 million to $5.0 million. A total of $7.5 billion in borrowings were outstanding under the Credit Facilities as of June 30, 2009, with an additional $172 million committed to letters of credit that were issued under the Credit Facilities. After consideration of these borrowings and letters of credit, $485 million of additional borrowing capacity was available to the Company under the Credit Facilities as of June 30, 2009. The Credit Facilities also allow us to 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.
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 June 30, 2009, the Credit Facilities bore interest based upon 300 basis points over LIBOR for the term loans and a portion of the revolver loan and 200 basis points over the alternate base rate for the remainder of the revolver loan and bore a commitment fee for unborrowed amounts of 50 basis points.
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 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
13
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. Our derivatives are recorded at their fair values, adjusted for the credit rating of the counterparty, if the derivative is an asset, or the Company, if the derivative is a liability.
We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of June 30, 2009, 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 June 30, 2009 |
Next Reset Date | Maturity Date | ||||||||
(In millions) | |||||||||||||
April 25, 2007 |
$ | 200 | 4.898 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | |||||
April 25, 2007 |
200 | 4.896 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | ||||||
April 25, 2007 |
200 | 4.925 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | ||||||
April 25, 2007 |
200 | 4.917 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | ||||||
April 25, 2007 |
200 | 4.907 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | ||||||
September 26, 2007 |
250 | 4.809 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | ||||||
September 26, 2007 |
250 | 4.775 | % | 1.092 | % | July 27, 2009 | April 25, 2011 | ||||||
April 25, 2008 |
1,000 | 4.172 | % | 1.092 | % | July 27, 2009 | April 25, 2012 | ||||||
April 25, 2008 |
2,000 | 4.276 | % | 1.092 | % | July 27, 2009 | April 25, 2013 | ||||||
April 25, 2008 |
2,000 | 4.263 | % | 1.092 | % | July 27, 2009 | April 25, 2013 |
Until February 15, 2008, our interest rate swap agreements were not 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 cash flow hedging instruments and on April 1, 2008, the remaining swap agreements were designated as cash flow hedging instruments. Upon designation as cash flow hedging instruments, only any measured
ineffectiveness is recognized in earnings in the period of change. There was no measured ineffectiveness recognized in earnings for the second quarter and six months ended June 30, 2009, compared with a credit of $40.9 million and a net charge
of $68.5 million, respectively, for the second quarter and six months ended June 30, 2008, due to changes in the fair values of swap agreements. Due to current interest rate levels, interest rates swaps increased interest expense $54.5
million and $97.6 million for the second quarter and six months ended June 30, 2009, respectively, compared to
$20.1 million and $23.8 million, respectively, for the second quarter and six months ended June 30, 2008. The variable rate
did not materially change as a result of the July 27, 2009, reset.
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 financing. 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 cash flow hedging instrument on May 1, 2008. The change in the fair value of the interest rate cap did not impact interest expense for the second quarter and six months ended June 30, 2009, whereas, for the quarter and six months ended June 30, 2008, a credit of $20.1 million and a net charge of $12.3 million, respectively, representing the change in the fair value, are included in Interest expense in our Consolidated Condensed Statement of Operations.
Note 7Fair 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.
Financial Accounting Standards Board (FASB) Staff Position 157-2, Effective Date of FASB Statement No. 157, deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at estimated fair value in an
14
entitys financial statements on a recurring basis (at least annually). We adopted the provisions of SFAS No. 157 for non-recurring measurements made for non-financial assets and non-financial liabilities on January 1, 2009. Goodwill and certain other non-amortizing intangible assets were tested for impairment during fourth quarter 2008. As a result of that testing, goodwill and certain other non-amortizing intangible assets were adjusted to their estimated fair values; however, we did not apply the provisions of SFAS No. 157 to these non-financial assets in accordance with the delayed adoption date for FASB Staff Position 157-2 at that time. Subsequently, in the second quarter of 2009, the relative impact of weak economic conditions on certain properties in the Las Vegas market prompted us to perform an assessment of goodwill and certain intangible assets for impairment. The impairment analysis on goodwill and certain intangible assets includes an assessment using various Level 2 (EBITDA multiples and discount rate) and Level 3 (forecasted cash flows) inputs. See Note 4 Goodwill and Other Intangible Assets for more information on the application of SFAS No. 157 on goodwill and other intangible assets.
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.
Items Measured at Fair Value on a Recurring Basis
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 June 30, 2009.
(In millions) |
Balance at June 30, 2009 |
Level 1 | Level 2 | Level 3 | ||||||||||
Assets: |
||||||||||||||
Cash equivalents |
$ | 34.8 | $ | 34.8 | $ | | $ | | ||||||
Derivative instruments |
65.1 | | 65.1 | | ||||||||||
Investments |
62.8 | 62.8 | | | ||||||||||
Liabilities: |
||||||||||||||
Derivative instruments |
(328.0 | ) | | (328.0 | ) | |
The following section describes the valuation methodologies used to estimate or measure fair value, key inputs, and significant assumptions:
Cash equivalents Cash equivalents are investments in money market accounts and utilize Level 1 inputs to determine fair value.
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 Deferred costs and other and Deferred credits and other in our Consolidated Condensed Balance Sheets. See Note 6 for more information on our derivative instruments.
Investments Investments are primarily debt and equity securities that are traded in active markets, have readily determined market values and utilize Level 1 inputs. These investments are included in Prepayments and other in the Consolidated Condensed Balance Sheets.
Items Disclosed at Fair Value
Long-Term Debt The fair value of the Companys debt has been calculated based on the borrowing rates available as of June 30, 2009, for debt with similar terms and maturities and market quotes of our publicly traded debt. As of June 30, 2009, the Companys outstanding debt had a fair value of $18,721.7 million and a carrying value of $19,377.6 million. The Companys interest rate swaps used for hedging purposes had a fair value and carrying value of $(328.0) million, and our interest rate cap agreement had a fair value and carrying value of $65.1 million at June 30, 2009.
15
Note 8Supplemental 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 | Successor | Predecessor | ||||||||||||
(In millions) |
Six months Ended June 30, 2009 |
January 28, 2008 Through June 30, 2008 |
January 1, 2008 Through January 27, 2008 |
|||||||||||
Interest expense, net of interest capitalized |
$ | 960.2 | $ | 935.9 | $ | 89.7 | ||||||||
Adjustments to reconcile to cash paid for interest: |
||||||||||||||
Net change in accruals |
235.0 | (367.5 | ) | 8.7 | ||||||||||
Amortization of deferred finance charges |
(68.8 | ) | (42.0 | ) | (0.8 | ) | ||||||||
Net amortization of discounts and premiums |
(65.6 | ) | (57.7 | ) | 2.9 | |||||||||
Amortization of other comprehensive income |
(1.0 | ) | (0.4 | ) | (0.1 | ) | ||||||||
Rollover of PIK interest into principal |
(79.1 | ) | | | ||||||||||
Change in accrual (related to PIK) |
(39.6 | ) | | | ||||||||||
Change in fair value of interest rate swaps |
| (41.6 | ) | (39.2 | ) | |||||||||
Cash paid for interest, net of amount capitalized |
$ | 941.1 | $ | 426.7 | $ | 61.2 | ||||||||
Cash payments of income taxes, net |
$ | 5.2 | $ | 16.4 | $ | 1.0 | ||||||||
Non-cash transactions are described in Notes 5, 6, and 14.
Note 9Commitments 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 53 months from June 30, 2009, 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 June 30, 2009, we had commitments and contingencies of $1,464.9 million, including construction-related commitments.
Severance Agreements
As of June 30, 2009, we have severance agreements with 14 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 executives average annual compensation, as defined. The estimated amount, computed as of June 30, 2009, that would be payable under the agreements to these executives aggregated approximately $36.2 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. These severance agreements terminate February 1, 2010.
16
Employment Agreements
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 executives average annual compensation, as defined. The estimated amount, computed as of June 30, 2009, that would be payable under the agreement to the executive based on the compensation payment aggregated approximately $15.8 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, employee medical and other 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 10Litigation
Certain of our legal proceedings are reported in our Annual Report on Form 10-K for the year ended December 31, 2008, with material developments since that report described below.
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 CBICs 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 Baha Mar Development allege that CBIC wrongfully terminated the Subscription Agreement and that CBIC wrongfully failed to make capital contributions under the Joint Venture 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 Harrahs Baha Mar Joint Venture Guaranty, dated January 12, 2007. 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 CBICs Complaint. CBIC and HOC have each answered, denying all allegations of wrongdoing. During the quarter ended June 30, 2009, both sides have filed motions for summary judgment which are currently pending with the court.
Litigation Related to the December 2008 Exchange Offer
On January 9, 2009, S. Blake Murchison and Willis Shaw filed a purported class action lawsuit in the United Stated District Court for the District of Delaware, Civil Action No. 09-00020-SLR, against Harrahs Entertainment, Inc. and its board of directors, and Harrahs Operating Company, Inc. The lawsuit was amended on March 4, 2009, alleging that the bond exchange offer which closed on December 24, 2008, wrongfully impaired the rights of bondholders. The amended complaint alleges, among others, breach of the bond indentures, violation of the Trust Indenture Act of 1939, equitable rescission, and liability claims against the members of the board. The amended complaint seeks, among other relief, class certification of the lawsuit, declaratory relief that the alleged violations occurred, unspecified damages to the class, and attorneys fees. On April 30, 2009 the defendants filed a motion to dismiss the amended complaint. Prior to responding to the motion to dismiss, the defendants stipulated to the plaintiffs request to dismiss the lawsuit, without prejudice, which the court entered on June 18, 2009. Both sides have reserved the right to request the court to award attorneys fees.
17
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 11Income 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 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 IRSs Compliance Assurance Program for the 2008 tax year. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Our 2006 federal income tax return is currently being examined by the IRS in a traditional audit process. Our 2004, 2005, and 2007 federal income tax years have reached the IRS appeals stage of the 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 FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN 48), reserve amounts relate to any uncertain tax position, as well as potential interest or penalties associated with those items. For the quarter ended June 30, 2009, we recorded an increase in gross unrecognized tax benefit (UTB) of $80 million. The increase in gross UTB related to the cancellation of indebtedness events and other uncertain tax positions identified during the quarter. The total amount of the increase in gross UTB that, if recognized, would affect the effect tax rate, is $80 million.
Note 12Insurance 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 the 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, (Loss)/income from discontinued operations, for properties included in discontinued operations. We recorded $185.4 million in the Successor period from January 28, 2008 through June 30, 2008, for insurance proceeds included in Write-downs, reserves and recoveries and $141.1 million in the Successor period from January 28, 2008 through June 30, 2008, and $0.1 million in the Predecessor period from January 1, 2008 through January 27, 2008, for insurance proceeds included in Discontinued operations in our Consolidated Condensed Statements of Operations.
Note 13Subsequent Events
Subsequent to June 30, 2009, Chester Downs and Marina LLC (Chester Downs), a majority-owned subsidiary of HOC, entered into an agreement to borrow under a senior secured term loan in the amount of approximately $230 million. The proceeds will be used to pay off intercompany debt due to HOC and to purchase interests from other owners of Chester Downs, upon receipt of regulatory approvals. After the purchase, HOC will own approximately 95% of Chester Downs.
18
In second quarter 2009, we adopted the provisions of SFAS No. 165, Subsequent Events. SFAS No. 165 establishes general standards for accounting for and disclosing events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. We have evaluated subsequent events through August 13, 2009, which represents the date these financial statements are issued.
Note 14Related Party Transactions
In connection with the Merger, Apollo/TPG and their affiliates entered into a services agreement with Harrahs 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 was included in the overall purchase price of the Merger. In addition, we pay a monitoring fee for management services and advice. Fees for the quarter and six months ended June 30, 2009, were $7.1 million and $14.4 million, respectively. For quarter ended June 30, 2008, fees were $7.5 million. For the period from January 28, 2008, through June 30, 2008, these fees totaled $12.8 million, which are included in Corporate expense in our Consolidated Condensed Statements of Operations for the applicable Successor periods. We also reimburse Apollo/TPG for expenses that they incur related to the management services.
In connection with our debt exchange in April 2009, certain debt held by Apollo/TPG was exchanged for new debt and the related party gain on that exchange totaling $80.0 million, net of deferred tax, has been recorded to stockholders equity.
During the second quarter ended June 30, 2009, our sponsors completed their own tender offer and purchased some of our Second Lien Notes.
Note 15Consolidating Financial Information of Guarantors and Issuers
As of June 30, 2009, HOC is the issuer of certain debt securities that have been guaranteed by Harrahs Entertainment and certain subsidiaries of HOC. The following consolidating schedules present condensed financial information for Harrahs Entertainment, the parent and guarantor; HOC, the subsidiary issuer; guarantor subsidiaries of HOC; and non-guarantor subsidiaries of Harrahs Entertainment and HOC, which includes the CMBS properties, as of June 30, 2009, and December 31, 2008, and for the Successor companies for the quarter and six months ended June 30, 2009, and the quarter ended June 30, 2008, and the period January 28, 2008, through June 30, 2008, and for the Predecessor companies for the period from January 1, 2008, through January 27, 2008.
In connection with the CMBS financing for the Merger, HOC spun off to Harrahs Entertainment the following casino properties and related operating assets: Harrahs Las Vegas, Rio, Flamingo Las Vegas, Harrahs Atlantic City, Showboat Atlantic City, Harrahs Lake Tahoe, Harveys Lake Tahoe and Bills Lake Tahoe. Upon receipt of regulatory approvals that were requested prior to the closing of the Merger, in May 2008, Paris Las Vegas and Harrahs Laughlin and their related operating assets were spun out of HOC to Harrahs Entertainment and Harrahs Lake Tahoe, Harveys Lake Tahoe, Bills Lake Tahoe and Showboat Atlantic City and their related operating assets were transferred to HOC from Harrahs Entertainment. We refer to the May spin-off and transfer as the Post-Closing CMBS Transaction. The financial information included in this section reflects ownership of the CMBS properties pursuant to the spin-off and transfer of the Post-Closing CMBS Transaction.
In lieu of providing separate unaudited financial statements for the guarantor subsidiaries, we have included the accompanying consolidating condensed financial statements based on our understanding of the Securities and Exchange Commissions interpretation and application of Rule 3-10 of the Securities and Exchange Commissions Regulation S-X and Staff Accounting Bulletin No. 53. Management does not believe that separate financial statements of the guarantor subsidiaries are material to our investors. Therefore, separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented.
19
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2009
(UNAUDITED)
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | |||||||||||||
Assets |
|||||||||||||||||||
Current assets |
|||||||||||||||||||
Cash and cash equivalents |
$ | 128.3 | $ | 166.3 | $ | 340.6 | $ | 311.9 | $ | | $ | 947.1 | |||||||
Receivables, net of allowance for doubtful accounts |
| 6.9 | 203.5 | 106.2 | | 316.6 | |||||||||||||
Deferred income taxes |
| 47.2 | 69.4 | 34.6 | | 151.2 | |||||||||||||
Income tax receivable |
| 0.9 | 3.4 | 4.7 | | 9.0 | |||||||||||||
Prepayments and other |
| 12.1 | 119.7 | 117.5 | | 249.3 | |||||||||||||
Inventories |
| 0.9 | 36.3 | 19.1 | | 56.3 | |||||||||||||
Intercompany receivables |
0.2 | 278.4 | 219.3 | 259.3 | (757.2 | ) | | ||||||||||||
Total current assets |
128.5 | 512.7 | 992.2 | 853.3 | (757.2 | ) | 1,729.5 | ||||||||||||
Land, buildings, riverboats and equipment, net of accumulated depreciation |
| 245.1 | 11,055.5 | 6,924.1 | | 18,224.7 | |||||||||||||
Assets held for sale |
| | 7.3 | | | 7.3 | |||||||||||||
Goodwill |
| | 2,737.2 | 1,909.9 | | 4,647.1 | |||||||||||||
Intangible assets |
| 6.6 | 4,407.5 | 767.4 | | 5,181.5 | |||||||||||||
Investments in and advances to non-consolidated affiliates |
3,022.5 | 16,265.6 | 5.0 | 51.4 | (19,314.0 | ) | 30.5 | ||||||||||||
Deferred costs and other |
| 388.1 | 255.5 | 248.2 | | 891.8 | |||||||||||||
Intercompany receivables |
| 1,285.2 | 1,687.7 | 1,771.7 | (4,744.6 | ) | | ||||||||||||
$ | 3,151.0 | $ | 18,703.3 | $ | 21,147.9 | $ | 12,526.0 | $ | (24,815.8 | ) | $ | 30,712.4 | |||||||
Liabilities and Stockholders Equity |
|||||||||||||||||||
Current liabilities |
|||||||||||||||||||
Accounts payable |
$ | | $ | 69.3 | $ | 125.6 | $ | 70.3 | $ | | $ | 265.2 | |||||||
Interest payable |
| 189.3 | 1.6 | 9.7 | | 200.6 | |||||||||||||
Accrued expenses |
12.3 | 248.2 | 533.2 | 422.9 | | 1,216.6 | |||||||||||||
Current portion of long-term debt |
| 20.0 | 5.2 | 6.7 | | 31.9 | |||||||||||||
Intercompany payables |
| 29.7 | 385.5 | 342.0 | (757.2 | ) | | ||||||||||||
Total current liabilities |
12.3 | 556.5 | 1,051.1 | 851.6 | (757.2 | ) | 1,714.3 | ||||||||||||
Long-term debt |
| 13,300.8 | 103.4 | 6,510.8 | (569.3 | ) | 19,345.7 | ||||||||||||
Deferred credits and other |
| 495.5 | 165.6 | 57.1 | | 718.2 | |||||||||||||
Deferred income taxes |
| 1,689.5 | 2,515.6 | 1,536.2 | | 5,741.3 | |||||||||||||
Intercompany notes |
2.0 | 98.1 | 1,973.4 | 2,101.8 | (4,175.3 | ) | | ||||||||||||
14.3 | 16,140.4 | 5,809.1 | 11,057.5 | (5,501.8 | ) | 27,519.5 | |||||||||||||
Preferred stock |
2,465.3 | | | | | 2,465.3 | |||||||||||||
Harrahs Entertainment, Inc. stockholders equity |
671.4 | 2,562.9 | 15,338.8 | 1,412.3 | (19,314.0 | ) | 671.4 | ||||||||||||
Non-controlling interests |
| | | 56.2 | | 56.2 | |||||||||||||
Total equity |
671.4 | 2,562.9 | 15,338.8 | 1,468.5 | (19,314.0 | ) | 727.6 | ||||||||||||
$ | 3,151.0 | $ | 18,703.3 | $ | 21,147.9 | $ | 12,526.0 | $ | (24,815.8 | ) | $ | 30,712.4 | |||||||
20
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2008
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||
Assets |
||||||||||||||||||||||
Current assets |
||||||||||||||||||||||
Cash and cash equivalents |
$ | 0.1 | $ | 7.1 | $ | 318.3 | $ | 325.0 | $ | | $ | 650.5 | ||||||||||
Receivables, net of allowance for doubtful accounts |
0.1 | 8.1 | 271.5 | 114.3 | | 394.0 | ||||||||||||||||
Deferred income taxes |
| 56.5 | 79.4 | 21.7 | | 157.6 | ||||||||||||||||
Income tax receivable |
| | 1.0 | 4.5 | | 5.5 | ||||||||||||||||
Prepayments and other |
| 12.9 | 100.6 | 102.9 | | 216.4 | ||||||||||||||||
Inventories |
| 1.2 | 42.0 | 19.5 | | 62.7 | ||||||||||||||||
Intercompany receivables |
0.2 | 261.6 | 161.5 | 168.0 | (591.3 | ) | | |||||||||||||||
Total current assets |
0.4 | 347.4 | 974.3 | 755.9 | (591.3 | ) | 1,486.7 | |||||||||||||||
Land, buildings, riverboats and equipment, net of accumulated depreciation |
| 252.0 | 10,992.0 | 6,996.4 | 26.7 | 18,267.1 | ||||||||||||||||
Assets held for sale |
| 35.0 | 14.3 | | | 49.3 | ||||||||||||||||
Goodwill |
| | 2,737.2 | 2,165.0 | | 4,902.2 | ||||||||||||||||
Intangible assets |
| 7.0 | 4,506.2 | 794.7 | | 5,307.9 | ||||||||||||||||
Investments in and advances to non-consolidated affiliates |
728.2 | 15,879.1 | 4.1 | 26.3 | (16,607.3 | ) | 30.4 | |||||||||||||||
Deferred costs and other |
| 524.1 | 249.4 | 231.5 | | 1,005.0 | ||||||||||||||||
Intercompany receivables |
160.6 | 1,256.9 | 1,687.7 | 1,202.4 | (4,307.6 | ) | | |||||||||||||||
$ | 889.2 | $ | 18,301.5 | $ | 21,165.2 | $ | 12,172.2 | $ | (21,479.5 | ) | $ | 31,048.6 | ||||||||||
Liabilities and Stockholders (Deficit)/Equity |
||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||
Accounts payable |
$ | 0.5 | $ | 156.8 | $ | 153.6 | $ | 71.4 | $ | | $ | 382.3 | ||||||||||
Interest payable |
| 400.0 | 1.8 | 15.9 | | 417.7 | ||||||||||||||||
Accrued expenses |
7.7 | 224.4 | 508.8 | 374.1 | | 1,115.0 | ||||||||||||||||
Current portion of long-term debt |
| 72.5 | 6.3 | 6.8 | | 85.6 | ||||||||||||||||
Intercompany payables |
| 18.9 | 298.2 | 274.2 | (591.3 | ) | | |||||||||||||||
Total current liabilities |
8.2 | 872.6 | 968.7 | 742.4 | (591.3 | ) | 2,000.6 | |||||||||||||||
Long-term debt |
| 16,503.2 | 102.6 | 6,517.5 | | 23,123.3 | ||||||||||||||||
Deferred credits and other |
| 480.6 | 131.5 | 57.0 | | 669.1 | ||||||||||||||||
Deferred income taxes |
| 358.5 | 2,551.8 | 1,416.7 | | 4,327.0 | ||||||||||||||||
Intercompany notes |
2.0 | 258.7 | 1,973.4 | 2,073.5 | (4,307.6 | ) | | |||||||||||||||
10.2 | 18,473.6 | 5,728.0 | 10,807.1 | (4,898.9 | ) | 30,120.0 | ||||||||||||||||
Preferred stock |
2,289.4 | | | | | 2,289.4 | ||||||||||||||||
Harrahs Entertainment, Inc. stockholders (deficit)/equity |
(1,410.4 | ) | (172.1 | ) | 15,437.2 | 1,315.5 | (16,580.6 | ) | (1,410.4 | ) | ||||||||||||
Non-controlling interests |
| | | 49.6 | | 49.6 | ||||||||||||||||
Total (deficit)/equity |
(1,410.4 | ) | (172.1 | ) | 15,437.2 | 1,365.1 | (16,580.6 | ) | (1,360.8 | ) | ||||||||||||
$ | 889.2 | $ | 18,301.5 | $ | 21,165.2 | $ | 12,172.2 | $ | (21,479.5 | ) | $ | 31,048.6 | ||||||||||
21
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2009
(UNAUDITED)
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Casino |
$ | | $ | 21.7 | $ | 1,188.7 | $ | 600.2 | $ | | $ | 1,810.6 | ||||||||||||
Food and beverage |
| 4.6 | 209.8 | 162.5 | | 376.9 | ||||||||||||||||||
Rooms |
| 5.0 | 152.1 | 114.5 | | 271.6 | ||||||||||||||||||
Management fees |
| 2.5 | 23.5 | 0.6 | (11.4 | ) | 15.2 | |||||||||||||||||
Other |
| 12.0 | 84.6 | 81.4 | (29.1 | ) | 148.9 | |||||||||||||||||
Less: casino promotional allowances |
| (6.0 | ) | (220.9 | ) | (124.9 | ) | | (351.8 | ) | ||||||||||||||
Net revenues |
| 39.8 | 1,437.8 | 834.3 | (40.5 | ) | 2,271.4 | |||||||||||||||||
Operating expenses |
||||||||||||||||||||||||
Direct |
||||||||||||||||||||||||
Casino |
| 11.8 | 635.6 | 329.7 | | 977.1 | ||||||||||||||||||
Food and beverage |
| 2.4 | 79.5 | 72.5 | | 154.4 | ||||||||||||||||||
Rooms |
| 0.5 | 28.7 | 24.9 | | 54.1 | ||||||||||||||||||
Property general, administrative and other |
| 10.0 | 326.8 | 193.1 | (29.6 | ) | 500.3 | |||||||||||||||||
Depreciation and amortization |
| 1.9 | 117.2 | 49.7 | | 168.8 | ||||||||||||||||||
Write-downs, reserves and recoveries |
| 1.5 | 13.7 | 11.7 | | 26.9 | ||||||||||||||||||
Impairment of intangible assets |
| | 42.0 | 255.1 | | 297.1 | ||||||||||||||||||
Project opening costs |
| | 0.7 | (0.1 | ) | | 0.6 | |||||||||||||||||
Corporate expense |
15.6 | 22.1 | 4.1 | 10.6 | (10.7 | ) | 41.7 | |||||||||||||||||
Merger and integration costs |
| 0.1 | | | | 0.1 | ||||||||||||||||||
(Income)/losses on interests in non-consolidated affiliates |
(2,299.1 | ) | (120.8 | ) | (18.4 | ) | (0.7 | ) | 2,439.3 | 0.3 | ||||||||||||||
Amortization of intangible assets |
| 0.1 | 28.5 | 15.1 | | 43.7 | ||||||||||||||||||
Total operating expenses |
(2,283.5 | ) | (70.4 | ) | 1,258.4 | 961.6 | 2,399.0 | 2,265.1 | ||||||||||||||||
Income/(loss) from operations |
2,283.5 | 110.2 | 179.4 | (127.3 | ) | (2,439.5 | ) | 6.3 | ||||||||||||||||
Interest expense, net of interest capitalized |
| (411.8 | ) | (40.0 | ) | (99.9 | ) | 88.3 | (463.4 | ) | ||||||||||||||
Gains on early extinguishments of debt |
| 3,931.7 | | 347.8 | | 4,279.5 | ||||||||||||||||||
Other income, including interest income |
0.1 | 28.9 | 27.8 | 42.1 | (88.3 | ) | 10.6 | |||||||||||||||||
Income from continuing operations before income taxes |
2,283.6 | 3,659.0 | 167.2 | 162.7 | (2,439.5 | ) | 3,833.0 | |||||||||||||||||
Benefit/(provision) for income taxes |
5.4 | (1,343.3 | ) | (58.7 | ) | (139.6 | ) | | (1,536.2 | ) | ||||||||||||||
Income from continuing operations |
2,289.0 | 2,315.7 | 108.5 | 23.1 | (2,439.5 | ) | 2,296.8 | |||||||||||||||||
Discontinued operations |
||||||||||||||||||||||||
Loss from discontinued operations |
| | (0.2 | ) | | | (0.2 | ) | ||||||||||||||||
Benefit for income taxes |
| | 0.1 | | | 0.1 | ||||||||||||||||||
Loss from discontinued operations, net |
| | (0.1 | ) | | | (0.1 | ) | ||||||||||||||||
Net income |
2,289.0 | 2,315.7 | 108.4 | 23.1 | (2,439.5 | ) | 2,296.7 | |||||||||||||||||
Net income attributable to non-controlling interests |
| | | (7.7 | ) | | (7.7 | ) | ||||||||||||||||
Net income attributable to Harrahs Entertainment, Inc. |
$ | 2,289.0 | $ | 2,315.7 | $ | 108.4 | $ | 15.4 | $ | (2,439.5 | ) | $ | 2,289.0 | |||||||||||
22
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2008
(UNAUDITED)
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Casino |
$ | | $ | 23.8 | $ | 1,353.8 | $ | 679.9 | $ | | $ | 2,057.5 | ||||||||||||
Food and beverage |
| 5.5 | 241.4 | 184.4 | | 431.3 | ||||||||||||||||||
Rooms |
| 5.1 | 183.9 | 146.9 | | 335.9 | ||||||||||||||||||
Management fees |
| 2.4 | 16.4 | 0.4 | (2.1 | ) | 17.1 | |||||||||||||||||
Other |
| 10.0 | 124.2 | 77.0 | (42.5 | ) | 168.7 | |||||||||||||||||
Less: casino promotional allowances |
| (6.8 | ) | (265.5 | ) | (136.1 | ) | | (408.4 | ) | ||||||||||||||
Net revenues |
| 40.0 | 1,654.2 | 952.5 | (44.6 | ) | 2,602.1 | |||||||||||||||||
Operating expenses |
||||||||||||||||||||||||
Direct |
||||||||||||||||||||||||
Casino |
| 14.9 | 726.6 | 389.5 | | 1,131.0 | ||||||||||||||||||
Food and beverage |
| 3.0 | 95.5 | 85.2 | | 183.7 | ||||||||||||||||||
Rooms |
| 0.6 | 33.9 | 29.6 | | 64.1 | ||||||||||||||||||
Property general, administrative and other |
| 11.0 | 383.2 | 220.2 | (37.1 | ) | 577.3 | |||||||||||||||||
Depreciation and amortization |
| 1.8 | 116.8 | 57.6 | | 176.2 | ||||||||||||||||||
Write-downs, reserves and recoveries |
| 1.1 | 6.5 | 42.5 | | 50.1 | ||||||||||||||||||
Project opening costs |
| | 4.8 | 2.4 | | 7.2 | ||||||||||||||||||
Corporate expense |
7.5 | 23.8 | 4.1 | 8.7 | (7.5 | ) | 36.6 | |||||||||||||||||
Merger and integration costs |
| 5.1 | | | | 5.1 | ||||||||||||||||||
Losses/(income) on interests in non-consolidated affiliates |
93.5 | 61.6 | (6.6 | ) | (0.8 | ) | (148.2 | ) | (0.5 | ) | ||||||||||||||
Amortization of intangible assets |
| 0.2 | 31.6 | 16.4 | | 48.2 | ||||||||||||||||||
Total operating expenses |
101.0 | 123.1 | 1,396.4 | 851.3 | (192.8 | ) | 2,279.0 | |||||||||||||||||
(Loss)/income from operations |
(101.0 | ) | (83.1 | ) | 257.8 | 101.2 | 148.2 | 323.1 | ||||||||||||||||
Interest expense, net of interest capitalized |
| (389.3 | ) | (49.3 | ) | (111.0 | ) | | (468.0 | ) | ||||||||||||||
Other income, including interest income |
1.1 | 24.2 | 34.0 | 26.1 | | 3.8 | ||||||||||||||||||
(Loss)/income from continuing operations before income taxes (1) |
(99.9 | ) | (448.2 | ) | 242.5 | 16.3 | 148.2 | (141.1 | ) | |||||||||||||||
Benefit/(provision) for income taxes |
2.3 | 142.7 | (79.6 | ) | (21.9 | ) | | 43.5 | ||||||||||||||||
(Loss)/income from continuing operations (1) |
(97.6 | ) | (305.5 | ) | 162.9 | (5.6 | ) | 148.2 | (97.6 | ) | ||||||||||||||
Discontinued operations |
||||||||||||||||||||||||
Loss from discontinued operations |
| | (0.2 | ) | | | (0.2 | ) | ||||||||||||||||
Benefit for income taxes |
| | 0.6 | | | 0.6 | ||||||||||||||||||
Loss from discontinued operations, net |
| | 0.4 | | | 0.4 | ||||||||||||||||||
Net (loss)/income (1) |
(97.6 | ) | (305.5 | ) | 163.3 | (5.6 | ) | 148.2 | (97.2 | ) | ||||||||||||||
Net income attributable to non-controlling interests |
| | | (0.4 | ) | | (0.4 | ) | ||||||||||||||||
Net income/(loss) attributable to Harrahs Entertainment, Inc. |
$ | (97.6 | ) | $ | (305.5 | ) | $ | 163.3 | $ | (6.0 | ) | $ | 148.2 | $ | (97.6 | ) | ||||||||
(1) | Due to the January 1, 2009 adoption of a recent accounting pronouncement, certain 2008 amounts have been reclassified to conform to the 2009 presentation. |
23
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Casino |
$ | | $ | 37.9 | $ | 2,391.1 | $ | 1,193.8 | $ | | $ | 3,622.8 | ||||||||||||
Food and beverage |
| 8.6 | 420.3 | 318.9 | | 747.8 | ||||||||||||||||||
Rooms |
| 8.6 | 304.7 | 233.0 | | 546.3 | ||||||||||||||||||
Management fees |
| 4.1 | 48.5 | 0.6 | (24.6 | ) | 28.6 | |||||||||||||||||
Other |
| 18.6 | 168.9 | 153.0 | (52.1 | ) | 288.4 | |||||||||||||||||
Less: casino promotional allowances |
| (10.9 | ) | (445.6 | ) | (251.3 | ) | | (707.8 | ) | ||||||||||||||
Net revenues |
| 66.9 | 2,887.9 | 1,648.0 | (76.7 | ) | 4,526.1 | |||||||||||||||||
Operating expenses |
||||||||||||||||||||||||
Direct |
||||||||||||||||||||||||
Casino |
| 23.1 | 1,289.2 | 658.1 | | 1,970.4 | ||||||||||||||||||
Food and beverage |
| 4.8 | 154.7 | 138.7 | | 298.2 | ||||||||||||||||||
Rooms |
| 0.9 | 54.7 | 50.5 | | 106.1 | ||||||||||||||||||
Property general, administrative and other |
| 17.1 | 668.2 | 380.5 | (61.2 | ) | 1,004.6 | |||||||||||||||||
Depreciation and amortization |
| 4.6 | 237.5 | 99.1 | | 341.2 | ||||||||||||||||||
Write-downs, reserves and recoveries |
| 2.1 | 30.2 | 22.0 | | 54.3 | ||||||||||||||||||
Impairment of intangible assets |
| | 42.0 | 255.1 | | 297.1 | ||||||||||||||||||
Project opening costs |
| | 1.6 | 1.0 | | 2.6 | ||||||||||||||||||
Corporate expense |
22.8 | 41.4 | 7.9 | 15.4 | (15.5 | ) | 72.0 | |||||||||||||||||
Merger and integration costs |
| 0.3 | | | | 0.3 | ||||||||||||||||||
(Income)/losses on interests in non-consolidated affiliates |
(2,170.9 | ) | (304.5 | ) | (31.2 | ) | 0.4 | 2,506.3 | 0.1 | |||||||||||||||
Amortization of intangible assets |
| 0.3 | 56.9 | 30.3 | | 87.5 | ||||||||||||||||||
Total operating expenses |
(2,148.1 | ) | (209.9 | ) | 2,511.7 | 1,651.1 | 2,429.6 | 4,234.4 | ||||||||||||||||
Income/(loss) from operations |
2,148.1 | 276.8 | 376.2 | (3.1 | ) | (2,506.3 | ) | 291.7 | ||||||||||||||||
Interest expense, net of interest capitalized |
| (843.1 | ) | (78.2 | ) | (199.0 | ) | 160.1 | (960.2 | ) | ||||||||||||||
Gains on early extinguishments of debt |
| 3,932.9 | | 347.8 | | 4,280.7 | ||||||||||||||||||
Other income, including interest income |
0.3 | 55.0 | 56.0 | 67.9 | (160.1 | ) | 19.1 | |||||||||||||||||
Income from continuing operations before income taxes |
2,148.4 | 3,421.6 | 354.0 | 213.6 | (2,506.3 | ) | 3,631.3 | |||||||||||||||||
Benefit/(provision) for income taxes |
7.9 | (1,198.8 | ) | (121.1 | ) | (149.9 | ) | | (1,461.9 | ) | ||||||||||||||
Income from continuing operations |
2,156.3 | 2,222.8 | 232.9 | 63.7 | (2,506.3 | ) | 2,169.4 | |||||||||||||||||
Discontinued operations |
||||||||||||||||||||||||
Loss from discontinued operations |
| | (0.3 | ) | | | (0.3 | ) | ||||||||||||||||
Benefit for income taxes |
| | 0.1 | | | 0.1 | ||||||||||||||||||
Loss from discontinued operations, net |
| | (0.2 | ) | | | (0.2 | ) | ||||||||||||||||
Net income |
2,156.3 | 2,222.8 | 232.7 | 63.7 | (2,506.3 | ) | 2,169.2 | |||||||||||||||||
Net income attributable to non-controlling interests |
| | | (12.9 | ) | | (12.9 | ) | ||||||||||||||||
Net income attributable to Harrahs Entertainment, Inc. |
$ | 2,156.3 | $ | 2,222.8 | $ | 232.7 | $ | 50.8 | $ | (2,506.3 | ) | $ | 2,156.3 | |||||||||||
24
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 28, 2008 THROUGH JUNE 30, 2008
(UNAUDITED)
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Casino |
$ | | $ | 41.1 | $ | 2,330.1 | $ | 1,151.9 | $ | | $ | 3,523.1 | ||||||||||||
Food and beverage |
| 9.3 | 409.7 | 313.6 | | 732.6 | ||||||||||||||||||
Rooms |
| 8.3 | 314.7 | 254.5 | | 577.5 | ||||||||||||||||||
Management fees |
| 4.0 | 29.6 | 0.6 | (5.0 | ) | 29.2 | |||||||||||||||||
Other |
| 20.0 | 211.0 | 129.2 | (79.7 | ) | 280.5 | |||||||||||||||||
Less: casino promotional allowances |
| (11.2 | ) | (453.5 | ) | (235.6 | ) | | (700.3 | ) | ||||||||||||||
Net revenues |
| 71.5 | $ | 2,841.6 | 1,614.2 | (84.7 | ) | 4,442.6 | ||||||||||||||||
Operating expenses |
||||||||||||||||||||||||
Direct |
||||||||||||||||||||||||
Casino |
| 24.9 | 1,237.6 | 645.2 | | 1,907.7 | ||||||||||||||||||
Food and beverage |
| 5.2 | 160.5 | 142.3 | | 308.0 | ||||||||||||||||||
Rooms |
| 1.0 | 58.9 | 54.6 | | 114.5 | ||||||||||||||||||
Property general, administrative and other |
| 20.8 | 668.9 | 366.5 | (69.0 | ) | 987.2 | |||||||||||||||||
Depreciation and amortization |
| 3.3 | 199.2 | 98.0 | (0.1 | ) | 300.4 | |||||||||||||||||
Write-downs, reserves and recoveries |
| 3.2 | (163.8 | ) | 51.9 | | (108.7 | ) | ||||||||||||||||
Project opening costs |
| | 5.1 | 4.9 | | 10.0 | ||||||||||||||||||
Corporate expense |
12.8 | 39.0 | 10.0 | 15.2 | (15.7 | ) | 61.3 | |||||||||||||||||
Merger and integration costs |
| 22.1 | | | | 22.1 | ||||||||||||||||||
Losses/(income) on interests in non-consolidated affiliates |
176.1 | (198.6 | ) | (12.8 | ) | (1.3 | ) | 35.3 | (1.3 | ) | ||||||||||||||
Amortization of intangible assets |
| 0.3 | 51.7 | 28.5 | | 80.5 | ||||||||||||||||||
Total operating expenses |
188.9 | (78.8 | ) | 2,215.3 | 1,405.8 | (49.5 | ) | 3,681.7 | ||||||||||||||||
(Loss)/income from operations |
(188.9 | ) | 150.3 | 626.3 | 208.4 | (35.2 | ) | 760.9 | ||||||||||||||||
Interest expense, net of interest capitalized |
| (748.4 | ) | (105.3 | ) | (229.0 | ) | 146.8 | (935.9 | ) | ||||||||||||||
Loss on early extinguishment of debt |
| (211.3 | ) | | | | (211.3 | ) | ||||||||||||||||
Other income, including interest income |
2.0 | 49.6 | 62.9 | 43.8 | (146.8 | ) | 11.5 | |||||||||||||||||
(Loss)/income from continuing operations before income taxes |
(186.9 | ) | (759.8 | ) | 583.9 | 23.2 | (35.2 | ) | (374.8 | ) | ||||||||||||||
Benefit/(provision) for income taxes |
2.4 | 325.7 | (202.6 | ) | (23.8 | ) | | 101.7 | ||||||||||||||||
(Loss)/income from continuing operations, net of tax (1) |
(184.5 | ) | (434.1 | ) | 381.3 | (0.6 | ) | (35.2 | ) | (273.1 | ) | |||||||||||||
Discontinued operations |
||||||||||||||||||||||||
Income from discontinued operations |
| | 140.8 | | | 140.8 | ||||||||||||||||||
Provision for income taxes |
| | (53.2 | ) | | | (53.2 | ) | ||||||||||||||||
Income from discontinued operations |
| | 87.6 | | 87.6 | |||||||||||||||||||
Net (loss)/income |
(184.5 | ) | (434.1 | ) | 468.9 | (0.6 | ) | (35.2 | ) | (185.5 | ) | |||||||||||||
Net loss attributable to non-controlling interests |
| | | 1.0 | | 1.0 | ||||||||||||||||||
Net (loss)/income attributable to Harrahs Entertainment, Inc. |
$ | (184.5 | ) | $ | (434.1 | ) | $ | 468.9 | $ | 0.4 | $ | (35.2 | ) | $ | (184.5 | ) | ||||||||
(1) | Due to the January 1, 2009 adoption of a recent accounting pronouncement, certain 2008 amounts have been reclassified to conform to the 2009 presentation. |
25
HARRAHS ENTERTAINMENT, INC.
(PREDECESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD
JANUARY 1, 2008 THROUGH JANUARY 27, 2008
(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 non-consolidated 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 |
(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 | ||||||||||||||||
(Loss)/income from continuing operations, net of tax (1) |
(100.9 | ) | (156.8 | ) | 42.9 | 12.5 | 102.9 | (99.4 | ) | |||||||||||||||
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 (1) |
(100.9 | ) | (156.8 | ) | 43.0 | 12.5 | 102.9 | (99.3 | ) | |||||||||||||||
Net income attributable to non-controlling interests |
| | | (1.6 | ) | | (1.6 | ) | ||||||||||||||||
Net (loss)/income attributable to Harrahs Entertainment, Inc. |
$ | (100.9 | ) | $ | (156.8 | ) | $ | 43.0 | $ | 10.9 | $ | 102.9 | $ | (100.9 | ) | |||||||||
(1) | Due to the January 1, 2009 adoption of a recent accounting pronouncement, certain 2008 amounts have been reclassified to conform to the 2009 presentation. |
26
HARRAHS ENTERTAINMENT, INC.
(SUCCESSOR ENTITY)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(UNAUDITED)
(In millions) |
HET (Parent) |
Subsidiary Issuer |
Guarantors | Non- Guarantors |
Consolidating/ Eliminating Adjustments |
Total | |||||||||||||||||
Cash flows (used in)/provided by operating activities |
$ | (2.0 | ) | $ | (642.8 | ) | $ | 486.6 | $ | 250.6 | $ | | $ | 92.4 | |||||||||
Cash flows from investing activities |
|||||||||||||||||||||||
Land, buildings, riverboats and equipment additions |
| (2.7 | ) | (257.8 | ) | (16.6 | ) | | (277.1 | ) | |||||||||||||
Proceeds from other asset sales |
| 33.5 | 0.6 | | | 34.1 | |||||||||||||||||
Decrease in construction payables |
| (2.2 | ) | (9.8 | ) | (5.3 | ) | | (17.3 | ) | |||||||||||||
Other |
| | (6.1 | ) | (1.7 | ) | | (7.8 | ) | ||||||||||||||
Cash flows provided by/(used in) investing activities |
| 28.6 | (273.1 | ) | (23.6 | ) | | (268.1 | ) | ||||||||||||||
Cash flows from financing activities |
|||||||||||||||||||||||
Proceeds from issuance of long-term debt, net of discounts |
| 1,323.1 | | | | 1,323.1 | |||||||||||||||||
Deferred financing costs |
| (32.1 | ) | | | | (32.1 | ) | |||||||||||||||
Borrowings under lending agreements |
| 1,550.0 | | | | 1,550.0 | |||||||||||||||||
Repayments under lending agreements |
| (1,826.4 | ) | | | | (1,826.4 | ) | |||||||||||||||
Early extinguishments of debt |
| (267.3 | ) | | | | (267.3 | ) | |||||||||||||||
Purchase of HOC debt |
| | | (213.4 | ) | | (213.4 | ) | |||||||||||||||
Scheduled debt retirement |
| (5.0 | ) | | (6.5 | ) | | (11.5 | ) | ||||||||||||||
Purchase of interest in subsidiary |
| | | (31.9 | ) | | (31.9 | ) | |||||||||||||||
Non-controlling interests contributions, net of distributions |
| |