EXHIBIT 12
HARRAH'S ENTERTAINMENT, INC.
COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995 (e)
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RETURN ON REVENUES-CONTINUING
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Revenues.............................................. 3,024,428 2,004,015 1,619,210 1,586,020 1,578,795
Return.............................................. 7.3% 6.1% 6.6% 6.2% 5.0%
RETURN ON AVERAGE INVESTED CAPITAL
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Add: Interest expense after tax....................... 121,846 72,707 48,233 43,187 56,650
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$ 341,349 $ 194,424 $ 155,755 $ 142,084 $ 135,460
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Average invested capital.............................. $4,231,789 $2,426,028 $1,815,869 $1,619,880 $1,377,354
========= ========= ========= ========= =========
Return.............................................. 8.1% 8.0% 8.6% 8.8% 9.8%
========= ========= ========= ========= =========
RETURN ON AVERAGE EQUITY (f)
Income before extraordinary items..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,846
Average equity........................................ 1,416,591 793,492 722,298 682,489 618,778
Return.............................................. 15.5% 15.3% 14.9% 14.5% 12.7%
RATIO OF EARNINGS TO FIXED CHARGES (g)
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Add:
Provision for income taxes.......................... 128,914 74,600 68,746 67,316 60,677
Interest expense.................................... 193,407 117,270 79,071 69,968 73,890
Interest included in rental expense................. 10,801 9,718 7,692 7,663 6,738
Amortization of capitalized interest................ 1,359 1,444 606 763 580
(Income) or loss from equity investments............ 33,042 4,709 (473) (473) --
Adjustment to include 100% of nonconsolidated,
majority-owned affiliate (h)...................... -- 12,254 -- -- (34,775)
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Earnings as defined................................... $ 587,026 $ 341,712 $ 263,164 $ 244,134 $ 185,920
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Fixed charges:
Interest expense.................................... $ 193,407 $ 117,270 $ 79,071 $ 69,968 $ 73,890
Capitalized interest................................ 13,118 2,526 6,860 11,025 3,636
Interest included in rental expense................. 10,801 9,718 7,692 7,663 6,738
Adjustment to include 100% of nonconsolidated,
majority-owned affiliate (h).................... -- 12,071 -- -- 56,652
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Total fixed charges................................... $ 217,326 $ 141,585 $ 93,623 $ 88,656 $ 140,916
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Ratio of earnings to fixed charges.................. 2.7 2.4 2.8 2.8 1.3
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COMPUTATION OF EBITDA AND ADJUSTED EBITDA
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Add/(less):
Income tax provision................................ 128,914 74,600 68,746 67,316 60,677
Interest expense.................................... 193,407 117,270 79,071 69,968 73,890
Depreciation and amortization....................... 218,299 159,183 122,396 102,338 95,388
Amortization of deferred finance charge............. (4,459) (4,866) (3,021) (3,151) (3,626)
Amortization of debt discounts and premiums......... 543 74 (12) (21) (53)
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Earnings before interest, taxes, depreciation and
amortization (EBITDA)(i)............................ 756,207 467,978 374,702 335,347 305,086
Add/(less):
Write-downs and reserves............................ 2,235 7,474 13,806 52,188 93,348
Project opening costs............................... 19,961 11,066 19,518 5,907 450
Venture restructuring costs......................... (322) 6,013 6,944 14,601 --
Gains on sales of ownership interests in
nonconsolidated affiliates........................ (59,824) (13,155) (37,388) -- (11,773)
Gain on sale of land................................ -- (6,607) -- -- --
Cancellation of management contract................. -- (10,254) -- -- --
Costs in connection with Missouri initiative........ 56 4,994 -- -- --
--------- --------- --------- --------- ---------
Adjusted EBITDA (i)................................... $ 718,313 $ 467,509 $ 377,582 $ 408,043 $ 387,111
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(a) 1999 includes $2.2 million in pretax charges for write-downs and reserves
and $59.8 million gains on the sales of equity interests in nonconsolidated
subsidiaries. 1999 also includes the financial results of Rio Hotel &
Casino, Inc., from its January 1, 1999, date of acquistion.
HARRAH'S ENTERTAINMENT, INC.
COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
(b) 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 subsidiary. 1998 also includes the financial results of
Showboat, Inc., from its June 1, 1998, date of acquisition.
(c) 1997 includes $13.8 million in pretax charges for write-downs and reserves
and a $37.4 million gain on the sale of equity in a New Zealand subsidiary.
(d) 1996 includes $52.2 million in pretax charges for write-downs and reserves,
primarily related to write-downs of impaired long-lived assets and reserves
for contingent liability exposure.
(e) 1995 includes $93.3 million in pretax charges for write-downs, primarily
related to our New Orleans casino development project.
(f) Amounts for the period prior to the June 30, 1995, dividend of Promus Hotel
Corporation common stock to the Company's stockholders reflect the impact of
the financial position and results of operations for the discontinued hotel
business in that period.
(g) As discussed in Note 12 to the Consolidated Financial Statements in the 1999
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: 1999, $6.2 million; 1998, $7.9 million; 1997,
$7.8 million; 1996, $5.2 million; and 1995, $6.8 million.
(h) 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, 1994 and 1995 have
been adjusted to include the financial results and fixed charges for
Harrah's Jazz Company. For 1998, the computation of the ratio has been
adjusted to include the financial results and fixed charges of the East
Chicago partnership from its June 1, 1998, date of acquisition.
(i) Adjusted EBITDA consists of EBITDA (earnings before interest, taxes,
depreciation and amortization) before write-downs, reserves and recoveries,
project opening costs, venture restructuring costs, gains on sales of equity
interests and nonoperating assets and provisions for settlement of
litigation and related costs. EBITDA and adjusted EBITDA are supplemental
financial measures used by management, as well as by industry analysts, to
evaluate Harrah's operations. However, EBITDA and adjusted EBITDA should not
be construed as an alternative to Income from operations (as an indicator of
Harrah's 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 Company's Consolidated
Financial Statements. All companies do not calculate EBITDA in the same
manner. As a result, EBITDA as presented by our Company, may not be
comparable to similarly titled measures presented by other companies.