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Exhibit 12
HARRAH'S ENTERTAINMENT, INC.
COMPUTATION OF RATIOS
(In thousands, except ratio amounts)
| 2002(a) | 2001(b) | 2000(c) | 1999(d) | 1998(e) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Return on Revenues-Continuing | |||||||||||||||||
Income (loss) from continuing operations | $ | 324,643 | $ | 208,351 | $ | (11,344 | ) | $ | 219,503 | $ | 121,717 | ||||||
Revenues | 4,136,393 | 3,689,789 | 3,329,796 | 2,894,125 | 1,907,892 | ||||||||||||
Return | 7.8 | % | 5.6 | % | (0.3 | )% | 7.6 | % | 6.4 | % | |||||||
Return on Average Invested Capital | |||||||||||||||||
Income (loss) from continuing operations | $ | 324,643 | $ | 208,351 | $ | (11,344 | ) | $ | 219,503 | $ | 121,717 | ||||||
Add: Interest expense after tax | 149,417 | 159,236 | 141,394 | 121,846 | 72,707 | ||||||||||||
$ | 474,060 | $ | 367,587 | $ | 130,050 | $ | 341,349 | $ | 194,424 | ||||||||
Average invested capital | $ | 5,536,426 | $ | 5,036,891 | $ | 4,488,288 | $ | 4,231,789 | $ | 2,426,028 | |||||||
Return | 8.6 | % | 7.3 | % | 2.9 | % | 8.1 | % | 8.0 | % | |||||||
Return on Average Equity | |||||||||||||||||
Income (loss) from continuing operations | $ | 324,643 | $ | 208,351 | $ | (11,344 | ) | $ | 219,503 | $ | 121,717 | ||||||
Average equity | 1,458,941 | 1,347,257 | 1,431,255 | 1,416,591 | 793,492 | ||||||||||||
Return | 22.3 | % | 15.5 | % | (0.8 | )% | 15.5 | % | 15.3 | % | |||||||
Ratio of Earnings to Fixed Charges(f) | |||||||||||||||||
Income (loss) from continuing operations | $ | 324,643 | $ | 208,351 | $ | (11,344 | ) | $ | 219,503 | $ | 121,717 | ||||||
Add: | |||||||||||||||||
Provision for income taxes | 197,292 | 126,393 | 15,415 | 128,914 | 74,600 | ||||||||||||
Interest expense | 240,220 | 255,801 | 227,139 | 193,407 | 117,270 | ||||||||||||
Interest included in rental expense | 27,878 | 21,226 | 15,819 | 10,801 | 9,718 | ||||||||||||
Amortization of capitalized interest | 1,244 | 1,422 | 1,595 | 1,359 | 1,444 | ||||||||||||
(Income) loss from equity investments | (4,094 | ) | (148 | ) | 314,958 | 33,042 | 4,709 | ||||||||||
Adjustment to include 100% of nonconsolidated, majority-owned affiliate(g) | – | – | – | – | 12,254 | ||||||||||||
Earnings as defined | $ | 787,183 | $ | 613,045 | $ | 563,582 | $ | 587,026 | $ | 341,712 | |||||||
Fixed charges: | |||||||||||||||||
Interest expense | $ | 240,220 | $ | 255,801 | $ | 227,139 | $ | 193,407 | $ | 117,270 | |||||||
Capitalized interest | 3,537 | 9,309 | 7,960 | 13,118 | 2,526 | ||||||||||||
Interest included in rental expense | 27,878 | 21,226 | 15,819 | 10,801 | 9,718 | ||||||||||||
Adjustment to include 100% of nonconsolidated, majority-owned affiliate(g) | – | – | – | – | 12,071 | ||||||||||||
Total fixed charges | $ | 271,635 | $ | 286,336 | $ | 250,918 | $ | 217,326 | $ | 141,585 | |||||||
Ratio of earnings to fixed charges | 2.9 | 2.1 | 2.2 | 2.7 | 2.4 | ||||||||||||
Computation of Property EBITDA(h) | |||||||||||||||||
Income from operations | $ | 780,041 | $ | 579,982 | $ | 282,738 | $ | 481,037 | $ | 287,846 | |||||||
Add/(less): | |||||||||||||||||
Depreciation and amortization | 306,011 | 284,356 | 236,082 | 193,599 | 142,879 | ||||||||||||
Write-downs, reserves and recoveries | 5,031 | 22,498 | 226,106 | 2,235 | 7,474 | ||||||||||||
Project opening costs | 1,816 | 13,105 | 8,258 | 2,276 | 8,103 | ||||||||||||
Corporate expense | 56,626 | 52,746 | 50,472 | 42,748 | 37,890 | ||||||||||||
Headquarters relocation and reorganization costs | – | – | 2,983 | �� | 10,274 | – | |||||||||||
Equity in (income)/losses of nonconsolidated affiliates | (4,094 | ) | (148 | ) | 57,935 | 43,467 | 14,989 | ||||||||||
Venture restructuring costs | – | 2,524 | 400 | (322 | ) | 6,013 | |||||||||||
Amortization of intangible assets | 4,493 | 24,965 | 21,540 | 17,617 | 7,450 | ||||||||||||
Property EBITDA | $ | 1,149,924 | $ | 980,028 | $ | 886,514 | $ | 792,931 | $ | 512,644 | |||||||
- (a)
- 2002 includes $5.0 million in pretax charges for write-downs, reserves and recoveries and a $6.1 million charge for our exposure under a letter of credit issued on behalf of National Airlines, Inc., and a charge of $91.2 million, net of tax benefits of $2.8 million, related to a change in accounting principle. 2002 also includes the financial results of Jazz Casino Company LLC from the date of our acquisition of a majority ownership interest on June 7, 2002.
- (b)
- 2001 includes $22.5 million in pretax charges for write-downs, reserves and recoveries and $26.2 million of income from dispositions of nonstrategic assets and the settlement of a contingency related to a former affiliate. 2001 also includes the
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financial results of Harveys Casino Resorts from its July 31, 2001, date of acquisition. 2001 results have been reclassified to reflect Harveys Colorado as discontinued operations.
- (c)
- 2000 includes $220.0 million in pretax reserves for receivables not expected to be recovered from JCC Holding Company and its subsidiary, Jazz Casino Company, LLC, $6.1 million in pretax charges for other write-downs, reserves and recoveries, and $39.4 million in pretax write-offs and reserves for our investment in, loans to and net estimated exposure under letters of credit issued on behalf of National Airlines, Inc. 2000 also includes the financial results of Players International, Inc. from its March 22, 2000, date of acquisition.
- (d)
- 1999 includes $2.2 million in pretax charges for write-downs, reserves and recoveries and $59.8 million of gains from sales of our equity interests in nonconsolidated affiliates. 1999 also includes the financial results of Rio Hotel & Casino, Inc. from its January 1, 1999, date of acquisition.
- (e)
- 1998 includes $7.5 million in pretax charges for write-downs and reserves and a $13.2 million gain on the sale of equity interests in a nonconsolidated restaurant subsidiary. 1998 also includes the financial results of Showboat, Inc. from its June 1, 1998, date of acquisition.
- (f)
- As discussed in Note 13 to the Consolidated Financial Statements in the 2002 Harrah's Entertainment Annual Report, the Company has guaranteed certain third-party loans in connection with its casino development activities. The above ratio computation excludes estimated fixed charges associated with these guarantees as follows: 2002, $7.0 million; 2001, $4.4 million; 2000, $5.7 million; 1999, $6.2 million; and 1998, $7.9 million.
- (g)
- For purposes of computing this ratio, "earnings" consist of income before income taxes plus fixed charges (excluding capitalized interest) and minority interests (relating to subsidiaries whose fixed charges are included in the computation), excluding equity in undistributed earnings of less than 50% owned investments. "Fixed charges" include interest whether expensed or capitalized, amortization of debt expense, discount or premium related to indebtedness and such portion of rental expense that we deem to be representative of interest. As required by the rules which govern the computation of this ratio, both earnings and fixed charges are adjusted where appropriate to include the financial results for the Company's nonconsolidated majority-owned subsidiaries. Accordingly, 1998 has been adjusted to include the financial results and fixed charges of the East Chicago partnership from its June 1, 1998, date of acquisition.
- (h)
- EBITDA consists of earnings before interest, taxes, depreciation and amortization. Property EBITDA consists of Income from operations before depreciation and amortization, write-downs, reserves and recoveries, project opening costs, corporate expense, headquarters relocation and reorganization costs, equity in (income)/losses of nonconsolidated affiliates, venture restructuring costs and amortization of intangible assets. Property EBITDA is a supplemental financial measure used by management, as well as industry analysts, to evaluate our operations. However, Property EBITDA should not be construed as an alternative to Income from operations (as an indicator of our operating performance) or to Cash flows from operating activities (as a measure of liquidity) as determined in accordance with generally accepted accounting principles and presented in the accompanying Consolidated Financial Statements. All companies do not calculate EBITDA in the same manner. As a result, Property EBITDA as presented by our Company may not be comparable to similarly titled measures presented by other companies.
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HARRAH'S ENTERTAINMENT, INC. COMPUTATION OF RATIOS (In thousands, except ratio amounts)