Exhibit 12
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(In thousands, except ratio amounts)
1997(A) 1996(B) 1995(C) 1994(D) 1993
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RETURN ON REVENUES-CONTINUING
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Revenues...................................... 1,619,210 1,586,020 1,578,795 1,349,941 1,020,645
Return...................................... 6.6% 6.2% 5.0% 3.7% 7.3%
RETURN ON AVERAGE INVESTED CAPITAL
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Add: Interest expense after tax............... 48,233 43,187 56,650 46,993 43,848
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$ 155,755 $ 142,084 $ 135,460 $ 96,977 $ 118,715
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Average invested capital...................... $ 1,815,869 $ 1,619,880 $ 1,377,354 $ 1,229,524 $ 1,060,641
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Return...................................... 8.6% 8.8% 9.8% 7.9% 11.2%
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RETURN ON AVERAGE EQUITY(E)
Income before extraordinary items and
cumulative effect of change in accounting
policy...................................... $ 107,522 $ 98,897 $ 78,846 $ 86,303 $ 91,793
Average equity................................ 722,298 682,489 618,778 606,009 474,733
Return...................................... 14.9% 14.5% 12.7% 14.2% 19.3%
CURRENT RATIO
Current assets................................ $ 212,310 $ 201,587 $ 188,836 $ 171,835 $ 139,842
Current liabilities........................... 210,950 204,642 201,566 295,083 188,258
Ratio....................................... 1.0 1.0 0.9 0.6 0.7
RATIO OF BOOK EQUITY TO DEBT(E)
Book equity as of December 31................. $ 735,503 $ 719,746 $ 585,549 $ 623,427 $ 536,037
Total debt(f)................................. 926,234 891,379 755,743 919,727 841,964
Ratio....................................... 0.8 0.8 0.8 0.7 0.6
RATIO OF MARKET EQUITY TO DEBT(E)
Market equity as of December 31............... $ 1,907,053 $ 2,046,523 $ 2,489,840 $ 3,161,681 $ 4,678,304
Total debt(f)................................. 926,234 891,379 755,743 919,727 841,964
Ratio....................................... 2.1 2.3 3.3 3.4 5.6
EXHIBIT 12 (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
1997(A) 1996(B) 1995(C) 1994(D) 1993
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COMPUTATION OF ADJUSTED EBITDA
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Add/(less):
Income tax provision........................ 68,746 67,316 60,677 75,391 59,394
Interest expense............................ 79,071 69,968 73,890 76,363 73,080
Depreciation and amortization............... 122,396 102,338 95,388 86,644 70,207
Deferred finance charge amortization........ (3,021) (3,151) (3,626) (2,844) (3,261)
Amortization of debt discounts and
premiums.................................. (12) (21) (53) (176) (172)
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Earnings before interest, taxes, depreciation
and amortization............................ 374,702 335,347 305,086 285,362 274,115
Add/(less):
Write-downs and reserves.................... 13,806 52,188 93,348 - -
Project opening costs....................... 19,518 5,907 450 15,313 -
Venture restructuring costs................. 6,944 14,601 - - -
Gains on sales of equity interests in New
Zealand subsidiary........................ (37,388) - (11,773) - -
Provision for settlement of litigation and
related costs............................. - - - 53,449 400
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Adjusted EBITDA(g)............................ $ 377,582 $ 408,043 $ 387,111 $ 354,124 $ 274,515
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COMPUTATION OF ADJUSTED EBITDA TO
INTEREST PAID
Adjusted EBITDA............................... $ 377,582 $ 408,043 $ 387,111 $ 354,124 $ 274,515
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Interest expense.............................. $ 79,071 $ 69,968 $ 73,890 $ 76,363 $ 73,080
Add/(less):
Deferred finance charge amortization........ (3,021) (3,151) (3,626) (2,844) (3,261)
Amortization of debt discounts and
premiums.................................. (12) (21) (53) (176) (172)
Capitalized interest........................ 6,860 11,025 3,636 3,764 3,107
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Interest paid................................. $ 82,898 $ 77,821 $ 73,847 $ 77,107 $ 72,754
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Ratio of Adjusted EBITDA to interest paid... 4.6 5.2 5.2 4.6 3.8
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RATIO OF DEBT TO ADJUSTED EBITDA
Total debt.................................... $ 926,234 $ 891,379 $ 755,743 $ 728,529 $ 666,161
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Adjusted EBITDA(g)............................ $ 377,582 $ 408,043 $ 387,111 $ 354,124 $ 274,515
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Ratio of total debt to Adjusted EBITDA...... 2.5 2.2 2.0 2.1 2.4
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EXHIBIT 12 (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
1997(A) 1996(B) 1995(C) 1994(D) 1993
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RATIO OF EARNINGS TO FIXED CHARGES (H)
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Add:
Provision for income taxes.................. 68,746 67,316 60,677 75,391 59,394
Interest expense............................ 79,071 69,968 73,890 76,363 73,080
Interest included in rental expense......... 7,692 7,663 6,738 5,244 7,207
Amortization of capitalized interest........ 606 763 580 628 892
(Income) or loss from equity investments.... (473) (473) - - (89)
Adjustment to include 100% of
nonconsolidated, majority-owned
subsidiary(i)............................. - - (34,775) (7,438) -
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Earnings as defined........................... $ 263,164 $ 244,134 $ 185,920 $ 200,172 $ 215,351
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Fixed charges:
Interest expense............................ $ 79,071 $ 69,968 $ 73,890 $ 76,363 $ 73,080
Capitalized interest........................ 6,860 11,025 3,636 3,764 3,107
Interest included in rental expense......... 7,692 7,663 6,738 5,244 7,207
Adjustment to include 100% of
nonconsolidated, majority-owned
subsidiary(i)............................. - - 56,652 17,069 -
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Total fixed charges........................... $ 93,623 $ 88,656 $ 140,916 $ 102,440 $ 83,394
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Ratio of earnings to fixed charges.......... 2.8 2.8 1.3 2.0 2.6
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- --------------------------
(a) 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 New Zealand subsidiary.
(b) 1996 includes $52.2 million in pretax charges for write-downs and reserves.
(c) 1995 includes $93.3 million in pretax charges for write-downs.
(d) 1994 includes a $53.4 million provision for settlement of all claims and
related cost related to the Merger Agreement and Tax sharing Agreement
arising from the 1990 spin-off of the Company and acquisition of the Holiday
Inn business by Bass PLC.
(e) Amounts for periods prior to the June 30, 1995, dividend of PHC common stock
to the Company's stockholders reflect the impact of the financial position
and results of operations for the discontinued hotel business in those
periods.
(f) For purposes of computing these ratios, total debt includes debt allocated
to discontinued hotel operations for periods prior to the PHC Spin-off.
(g) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) consists of Income from continuing operations before
write-downs and reserves, project opening costs, venture restructuring
costs, gains on sales of equity interests in New Zealand subsidiary and
provision for settlement of litigation and related costs, plus interest
expense, taxes, depreciation and amortization. EBITDA is a supplemental
financial measurement used by management, as well as by industry analysts,
to evaluate Harrah's operations. However, 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.
(h) As discussed in Note 12 to the Consolidated Financial Statements in the 1997
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: 1997, $7.8 million; 1996, $5.2 million; 1995,
$6.8 million; 1994, $5.5 million; and 1993, $3.1 million.
(i) Prior to November 1995, the Company owned a majority interest in Harrah's
Jazz Company. However, voting control was shared equally among three
partners. As a result, Harrah's Jazz was not consolidated into the Company's
financial statements. As required by Item 503(d)(2), the Company's ratio of
earnings to fixed charges ratio computation for 1995 and 1994 has been
adjusted to include Harrah's Jazz financial results as if this entity were
consolidated.