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Caesars Entertainment Q2 Results Up

LAS VEGAS -- (PRESS RELEASE) -- Caesars Entertainment, Inc. (NYSE: CZR) today reported financial results for the quarter and half-year ended June 30, 2004.

Second quarter 2004 results

For the second quarter of 2004, Caesars Entertainment reported net income of $148 million, or $0.47 per fully diluted share. That compares to net income of $41 million, or $0.14 per fully diluted share, for the second quarter of 2003. Net income for the second quarter of 2004 included a one-time gain of $87 million, net of taxes, associated with the sale of the Las Vegas Hilton (subject to adjustment for changes to working capital).

Adjusted net income for the second quarter of 2004 was $60 million, or $0.19 per diluted share. That compares to adjusted net income of $43 million, or $0.14 per diluted share, in the second quarter of 2003.

Adjusted net income for the second quarter of 2004 excludes the $87 million gain from the sale of the Las Vegas Hilton and $3 million of the hotel's operating results (both included in discontinued operations); a $3 million investment gain associated with the sale of the company's interest in an office building in Las Vegas; $3 million in pre-opening expense for the "We Will Rock You" musical at Paris Las Vegas and the Roman Plaza at Caesars Palace; and $2 million related to executive contract terminations. Adjusted net income for the second quarter of 2003 excludes $2 million of discontinued operations related to operating results for the Las Vegas Hilton.

Net revenue for the second quarter of 2004 was $1.161 billion, compared to $1.136 billion for the second quarter of 2003. Second quarter EBITDA - earnings before interest, taxes, depreciation and amortization and non-recurring gains and charges - was $292 million, compared to $275 million in EBITDA in the second quarter of 2003.

-(Throughout this press release, results from the Las Vegas Hilton are treated as "discontinued operations" for the current and comparative year-ago periods. That means Las Vegas Hilton results are excluded from such financial measures as net revenue, EBITDA, operating income, interest expense and other items.)

First half 2004 results

For the first half of 2004, Caesars Entertainment reported net income of $219 million - or $0.70 per diluted share. That compares to net income of $82 million - or $0.27 per diluted share - for the six month period that ended on June 30, 2003.

Adjusted net income for the first half of 2004 was $130 million, or $0.42 per diluted share, compared to adjusted net income of $84 million, or $0.28 per diluted share, for the first half of 2003.

Adjusted net income for the first half of 2004 excludes the $87 million gain from the sale of the Las Vegas Hilton and $11 million of the hotel's operating results; the $3 million investment gain associated with the sale of the company's interest in the Las Vegas office building; the $3 million in pre-opening expense; the $2 million related to contract terminations; and $7 million related to prior-year corporate income tax expense in Indiana. Adjusted net income for the first half of 2003 excludes $1 million in operating results from the Las Vegas Hilton and $1 million in pre-opening expense associated with the premier of "A New Day...." starring Celine Dion at Caesars Palace.

Net revenue for the first half of 2004 was $2.357 billion, up from $2.222 billion for the first half of 2003. EBITDA for the first half of 2004 was $604 million, up from $542 million for the first half of 2003.

Strong EBITDA growth, significant margin improvement

"We had a strong second quarter, reporting record net income before gains, six percent growth in EBITDA and significant margin improvement," said Caesars President and Chief Executive Officer Wallace R. Barr. "Continuing strength in the Las Vegas market drove an overall increase of 35 percent in our income from continuing operations."

Second quarter financial highlights

-The Western Region reported EBITDA of $124 million, an increase of 39 percent from $89 million in EBITDA in the second quarter of 2003. The company's four Las Vegas Strip resorts reported a 39 percent increase in EBITDA, driven by strong room rates, higher occupancy and increased slot win.

-In the Eastern Region, EBITDA was $102 million, down 16 percent from the $122 million reported for the second quarter of 2003. Despite a strong April, the market experienced weakness in May and June.

-The Mid-South Region recorded EBITDA of $63 million, even with the results for the second quarter of 2003.

-The company completed the sale of the Las Vegas Hilton for $286 million to an affiliate of Colony Capital, LLC of Los Angeles. The sale resulted in an after-tax gain of $87 million, which is included in discontinued operations. Last week, the company used the $267 million in net proceeds from the sale to pay down additional debt, bringing pro forma total debt reduction since the beginning of 2002 to more than $1 billion.

-The company closed a new $2-billion, five-year, senior credit facility. The proceeds from the facility were used to replace commitments under the company's existing credit facilities and refinance borrowings outstanding under those credit facilities.

-The company sold $375 million in Floating Rate Contingent Convertible Senior Notes due 2024 and used the proceeds to repay a portion of the amounts outstanding under its existing credit facilities. The convertible notes bear interest at a per annum rate of three-month LIBOR, adjusted quarterly.

-The Roman Plaza, the new gateway to Caesars Palace, opened in early July at the corner of Las Vegas Boulevard and Flamingo Road. The elegant piazza features a new restaurant, retail space and an amphitheater for concerts and sporting events.

-Construction proceeded on schedule and on budget for the new 949-room hotel tower at Caesars Palace, scheduled for completion in the summer of 2005. The project, which will bring total room capacity to nearly 3,400, is the final component of the master plan to renovate Caesars Palace.

-Construction began on The Pier at Caesars, a $145 million luxury retail, dining and entertainment complex, that is scheduled to open on the Atlantic City Boardwalk in the summer of 2005. Developed and financed by an affiliate of The Gordon Group, The Pier at Caesars will feature Gucci, Hugo Boss, Louis Vuitton, Armani A/X, Bebe, Burberry and other elite retailers and restaurants and will be connected directly to Caesars Atlantic City by a sky bridge.

-Bradley Ogden, the new restaurant opened last year at Caesars Palace by the famed Bay Area celebrity chef, was named Best New Restaurant in the nation by the James Beard Foundation in New York. It is the first restaurant in Las Vegas to ever win this award and in 2003 the only restaurant outside of New York to be nominated.

-The Simon Group announced a late October opening for the 175,000-square-foot expansion of The Forum Shops at Caesars Palace, one of the highest-yielding shopping venues in North America.

-In an effort to increase the participation of minority and women-owned vendors, the company launched www.caesarsdiversity.com, a new web site intended to make it easier for minority and women-owned firms to do business with one of the world's leading gaming companies.

-The company opened the Caesars Entertainment LifeStrides Pharmacy Center, the company's first on-site pharmacy, at Bally's Las Vegas. The pharmacy offers more than 250 covered generic drugs to the company's 15,000 Las Vegas health plan participants at no out-of-pocket cost.

-The New Jersey Casino Control Commission, acting on the recommendation of the state Division of Gaming Enforcement, unanimously renewed the casino licenses for Caesars Entertainment's three Atlantic City resorts - the Atlantic City Hilton, Bally's Atlantic City and Caesars Atlantic City.

Western Region

EBITDA for the Western Region's seven casino resorts was $124 million in the second quarter of 2004, up 39 percent from $89 million in the year-ago quarter. The increase was driven by strong room rates, higher occupancy and increased slot win on the Las Vegas Strip. Revenue Per Available Room (RevPAR) for Strip resorts rose 12 percent and slot win on the Strip increased 22 percent in the quarter.

At Caesars Palace, net revenue in the quarter rose to $139 million from $132 million in the second quarter of 2003. EBITDA was $30 million, even with results for the second quarter of 2003. Overall gaming volumes at Caesars Palace rose eight percent, while gaming win declined six percent because of lower baccarat volume and hold. RevPAR rose six percent, due to improved occupancy and a four percent increase in the average cash room rate.

In early July, Caesars Palace opened its new Roman Plaza, which provides a direct entrance to the property from the pedestrian bridges that span Flamingo Road and Las Vegas Boulevard. The 175,000 square-foot expansion of The Forum Shops at Caesars is scheduled to open in late October, and the resort's new 949-room, luxury hotel tower is on schedule for completion in the summer of 2005.

At Paris Las Vegas, second quarter net revenue rose 15 percent, to $105 million, from the year-ago quarter. Second quarter EBITDA was $35 million, up 75 percent from $20 million reported in the second quarter of 2003. The increase was due largely to higher gaming win and room revenues. RevPAR increased 12 percent, driven by higher cash room rates.

At Bally's, net revenue in the second quarter rose 12 percent, to $74 million, from the second quarter of 2003. EBITDA was $19 million, up 73 percent from the second quarter of 2003. Gaming win rose 10 percent due to higher slot win. RevPAR rose 13 percent, driven by higher occupancy and room rates.

At the Flamingo Las Vegas, net revenue for the second quarter was $97 million, up 26 percent from the year-ago quarter. EBITDA rose 43 percent, to $33 million, from the second quarter of 2003. The results were driven by a 23 percent increase in slot win, a 17 percent increase in RevPAR and the inclusion of results from the new Margaritaville cafe, which held its grand opening in January of this year.

Other Nevada properties - the Reno Hilton, Caesars Tahoe and Flamingo Laughlin - recorded combined EBITDA of $7 million in the second quarter, up from $5 million in the second quarter of 2003. (Because financial results of the Las Vegas Hilton are classified as "discontinued operations," they are not included in either year's figures.)

Eastern Region

Second quarter EBITDA from Caesars' three Atlantic City casino resorts and management fees from its Dover Downs slot operation was $102 million, down 16 percent from the $122 million reported for the second quarter of 2003, reflecting competition from The Borgata Hotel Casino and Spa.

At Caesars Atlantic City, second quarter net revenue declined nine percent, to $122 million. EBITDA was $38 million, compared to $48 million in the second quarter of 2003. The decline was due largely to a 25 percent reduction in table win, attributable to decreases in volume and hold.

At Bally's Atlantic City, net revenue was $163 million, compared to $177 million for the second quarter of 2003. EBITDA for the second quarter was $47 million, down from $54 million in the year-ago quarter. The declines were due to lower gaming volumes. Table game win declined 15 percent, primarily as a result of an 11 percent drop in volume. Slot win declined five percent because of a six percent drop in volume. RevPAR rose six percent, due to an 18 percent increase in the average cash room rate.

At the Atlantic City Hilton, second quarter net revenue was $71 million, down from $79 million in the second quarter of 2003. Second quarter EBITDA was $15 million, down from $19 million in the second quarter of 2003. Table and slot win declined 10 percent and eight percent, respectively, primarily because of lower gaming volumes.

Mid-South Region

Caesars Entertainment's seven casino resorts in Indiana, Mississippi and Louisiana reported second quarter EBITDA of $63 million, even with results for the second quarter of 2003.

Caesars Indiana reported second quarter net revenue of $78 million, up from $75 million in the second quarter of 2003. EBITDA was $19 million, even with results for the second quarter of 2003. The property reported a four percent increase in gaming win and a 29 percent rise in RevPAR, driven by higher occupancy.

On the Gulf Coast, net revenue at Grand Casino Biloxi was $60 million, up from $55 million in the year-ago quarter. EBITDA was $16 million, up 45 percent from the $11 million recorded in the second quarter of 2003. Gaming win rose eight percent, resulting from increases in both table and slot win.

Second quarter net revenue at Grand Casino Gulfport was $49 million, up from $47 million in the second quarter of 2003. EBITDA was $12 million, even with the prior year's second quarter. Gaming win rose three percent, while higher room rates and improved occupancy drove a 17 percent increase in RevPAR.

In Northern Mississippi, Grand Casino Tunica reported net revenue of $48 million, compared to $54 million in the second quarter of last year. EBITDA was $6 million, down 50 percent from $12 million in the second quarter of 2003. Gaming win declined 15 percent as a result of lower table game hold and lower slot volume.

Net revenue at the company's other two Tunica properties totaled $35 million, up from $33 million in the second quarter of last year. EBITDA was $10 million, even with the year-ago quarter.

International

The company's nine international properties reported combined net revenue of $25 million, up from $23 million in the second quarter of 2003. EBITDA was $14 million, up 40 percent from the $10 million recorded in the second quarter of last year. The results reflected improved performance at Nova Scotia, South Africa and Australia.

Capital expenditures

The company invested $141 million of capital during the second quarter of 2004. Maintenance capital expenditures were $56 million and investments in growth projects were $85 million. In the first half of 2004, the company has invested $219 million of capital - $100 million for maintenance and $119 million for growth projects. The company currently expects to spend $671 million on capital investments in 2004. This includes maintenance capital investments of $276 million and growth capital of $395 million.

The 2004 budget for growth capital includes $197 million for the luxury room tower and meeting space addition at Caesars Palace; $41 million for the garage at Caesars Atlantic City, $22 million for the Roman Plaza project at Caesars Palace; and $59 million related to development of the Mohawk Mountain Casino Resort in New York State.

The remaining budget for growth projects includes $18 million for selected projects at Caesars Palace; $9 million related to "We Will Rock You" at Paris Las Vegas; $12 million at Caesars Atlantic City, principally for a facade renovation and construction of the bridge connecting the second floor of the casino to the Pier at Caesars; and $10 million related to the development of a Caesars-branded casino with the Pauma-Yuima Band of Luiseno Mission Indians in northern San Diego County, California.

Other items

Depreciation and amortization in the second quarter was $112 million, compared to $114 million in the second quarter of 2003.

Pre-opening expense in the quarter was $3 million, related to the scheduled premiere of "We Will Rock You" at Paris Las Vegas and the opening of the Roman Plaza at Caesars Palace.

In the quarter, the company paid $2 million related to executive contract terminations.

Corporate expense in the second quarter was $11 million, compared to $9 million in the second quarter of 2003. The increase is primarily related to development activity.

Equity in earnings of unconsolidated affiliates primarily consists of earnings from the company's ownership interests in Conrad Punta del Este in Uruguay, Caesars Gauteng near Johannesburg, South Africa and Casino Windsor in Windsor, Canada. For the second quarter, this item was $3 million, up from $2 million in the second quarter of 2003.

Net interest expense in the quarter was $75 million, compared to $86 million in the second quarter of 2003. Capitalized interest was $2 million in the second quarter, compared to $1 million in the year-ago quarter.

The investment gain recorded in the quarter of $3 million was related to the disposition of the company's interest in a Las Vegas office building.

The effective tax rate in the second quarter was 41.2 percent, compared to 41.9 percent in the second quarter of 2003.

Balance sheet

As of June 30, 2004, the company had a cash balance of $663 million and a debt balance of $4.5 billion.

The company had $1.3 billion available on its credit facility, subject to covenant restrictions. Its leverage ratio, as defined by its credit facility was 4.1 times EBITDA.

The number of diluted shares outstanding was 313 million at the end of the second quarter.

Other events

Subsequent to quarter end, the company utilized a portion of its cash on hand to retire a $325 million, seven percent senior note issue due July 15. As a result of this action, the company's debt balance on July 15 was $4.2 billion and its debt leverage ratio was 3.8 times EBITDA.

On July 14, 2004, the company, Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc., a wholly-owned subsidiary of Harrah's, entered into an Agreement and Plan of Merger, providing for the merger of Caesars with and into Harrah's Operating Company, Inc., which would be the surviving corporation. Following the approval and adoption of the Agreement and Plan of Merger by the stockholders of Caesars and Harrah's and upon the receipt of all necessary gaming and other approvals, and the satisfaction or waiver of all other conditions precedent, each outstanding share of common stock of Caesars will be exchanged for either $17.75 in cash or 0.3247 shares of Harrah's common stock, at the election of each Caesars stockholder, subject to pro-ration as provided for in the Agreement and Plan of Merger.

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