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Caesars Reports Record Q1 Results

LAS VEGAS -- (PRESS RELEASE)-- Caesars Entertainment, Inc. (NYSE: CZR) today reported record financial results for the quarter ended March 31, 2004.

First quarter 2004 results

For the first quarter of 2004, the company reported record net income of $79 million, or $0.25 per fully diluted share. That represents a 93 percent increase from net income of $41 million, or $0.14 per fully diluted share, reported for the first quarter of 2003.

Adjusted net income for the first quarter of 2004 was a record $71 million, or $0.23 per diluted share, an increase of 73 percent from adjusted net income of $41 million, or $0.14 per diluted share, recorded in the first quarter of 2003.

Adjusted net income for the first quarter of 2004 excludes results from the Las Vegas Hilton. Las Vegas Hilton results are being treated as "discontinued operations" pending the sale of the property, which is expected to close in the second quarter of 2004. Adjusted net income for the first quarter of 2003 excludes results from the Las Vegas Hilton and $1 million in pre-opening expense associated with the debut of the Celine Dion show, "A New Day...." at The Colosseum at Caesars Palace.

Net revenue for the first quarter of 2004 was a record $1.196 billion, compared to $1.086 billion in the first quarter of 2003. First quarter EBITDA - earnings before interest, taxes, depreciation and amortization and other charges - was a record $312 million, up 17 percent from the $267 million in EBITDA reported for the first 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.)

Record first-quarter performance

"In our first quarter as Caesars Entertainment, we showed substantial strength in all of our regions," said Caesars Entertainment President and Chief Executive Officer Wallace R. Barr. "We posted record results in the West, and reported our second-best performance ever in the Mid-South. In the East, our results were significantly better than expected, given increased health care costs and the presence of new competition.

"Our performance demonstrates that our strategy is working. We're doing a better job of managing the resources that we have and we continue to make disciplined investments that are paying off for the company and our shareholders," Barr added.

First quarter highlights

-The Western Region reported record EBITDA of $149 million, up 42 percent from the $105 million reported for the first quarter of 2003. EBITDA margin for the region rose to 28 percent from 24 percent in the first quarter of 2003. Western Region results were driven by strong performances on the Las Vegas Strip, where EBITDA rose 48 percent. Caesars Palace reported a 74 percent increase in EBITDA, and at Paris Las Vegas, EBITDA rose 65 percent.

-In the Eastern Region, EBITDA was $87 million, compared to $88 million for the first quarter of 2003, despite the introduction of new competition from the Borgata Hotel Casino and Spa and increased taxes and health care costs. EBITDA margin was 25 percent, compared to 26 percent in the first quarter of 2003.

-The Mid-South Region recorded EBITDA of $67 million, the region's second best first-quarter performance. That compares to $62 million for the first quarter of 2003. EBITDA margin was 23 percent, even with the year ago-quarter. Improved results in the Mid-South largely were driven by a 36 percent year-over-year improvement at Grand Casino Biloxi and a 12 percent increase at Caesars Indiana.

-The company paid down an additional $138 million of indebtedness, reducing its total debt to $4.49 billion as of March 31, 2004. Since the beginning of 2002, the company has reduced debt balances by approximately $829 million. After the proceeds of the pending sale of the Las Vegas Hilton are allocated to debt repayment, pro forma debt reduction since the beginning of 2002 will increase to $1.1 billion.

-Elton John and his band opened a new show, "The Red Piano," to rave reviews at the 4,100-seat Colosseum at Caesars Palace on February 13. Elton John will perform more than 40 shows at the venue in 2004, alternating with Celine Dion's "A New Day..."

-Jimmy Buffett officially opened the Margaritaville cafe at the Flamingo Las Vegas with two crowd-pleasing performances, one inside the restaurant and a second staged on a sandy beach created for the event atop one of the resort's largest pools. Operating results for Margaritaville in the first quarter significantly exceeded expectations.

-The Big Sandy Band of Western Mono Indians signed a preliminary agreement that would enable the company to develop and manage a $200-million casino resort on tribal land near Fresno, California. The company previously announced that it is negotiating with the Pauma-Yuima Band of Luiseno Mission Indians to develop a Caesars-branded casino resort in northern San Diego County, California.

-The company launched the "Best Rate Plus Guarantee," a new program that gives guests greater incentives to book rooms directly through Caesars Entertainment web sites by guaranteeing them the lowest-available web price for a Caesars room.

-The James Beard Foundation in New York nominated Bradley Ogden's namesake restaurant at Caesars Palace as one of the five best new restaurants in the United States. Bradley Ogden was the only restaurant outside of New York City to be nominated for the national award.

Golf Magazine named Caesars Entertainment's luxury desert golf course, Cascata, as one of the top 20 golf courses built in the United States since 1959 and the best golf course built in Nevada during that period.

-The company announced that Paris Las Vegas will be the site of the North American debut this coming August of the hit rock musical "We Will Rock You," based on the music of the legendary British band Queen.

"We had strong operating results in all of our regions," said Caesars Entertainment Executive Vice President and Chief Financial Officer Harry C. Hagerty. "We also benefited from a better-than-normal table hold percentage in all of our domestic regions. But even without the favorable hold, results were significantly better than our initial expectations."

Western Region

EBITDA for the Western Region's seven casino resorts was $149 million in the first quarter of 2004, up 42 percent from $105 million in the year-ago quarter. The regional EBITDA margin rose to 28 percent from 24 percent in the first quarter of 2003.

At Caesars Palace, net revenue in the quarter rose 41 percent, to a record $172 million, from $122 million in the first quarter of 2003. EBITDA was a record $47 million, an increase of 74 percent from the $27 million reported for the year-ago quarter. EBITDA margin at the property rose five points, to 27 percent.

Caesars Palace turned in a strong performance in other key categories. Table volumes in the first quarter rose 20 percent on a year-over-year basis, while slot volumes increased 31 percent. Table win rose 32 percent, while slot win was up by 46 percent. RevPAR rose 15 percent, driven by significantly higher occupancy and higher room rates.

Construction of the Roman Plaza, which will add new restaurant and entertainment attractions as well as a direct access point from the corner of Las Vegas Boulevard and Flamingo Road, is scheduled to be completed in July. The 175,000-square-foot expansion of the Forum Shops at Caesars is set to open in October. And work continues on the new 949-room tower and meeting space, which will debut in the second half of 2005.

At Paris Las Vegas, first quarter EBITDA was $43 million, up 65 percent from $26 million in the first quarter of 2003. The increase was due to a 38 percent increase in gaming win, which occurred despite a two percent decline in gaming volume. EBITDA margin rose to 37 percent from 27 percent in the first quarter of 2003. RevPAR rose nine percent from the year-ago period, largely due to higher room rates. The average paying rate rose 13 percent.

Bally's Las Vegas reported EBITDA of $21 million, compared to $18 million in the year-ago quarter, due largely to increased room revenues. EBITDA margin increased three points to 28 percent. Gaming volume and win declined nine percent and two percent, respectively. RevPAR rose 13 percent, primarily driven by an 11 percent increase in room rates. The average paying rate increased 15 percent.

At the Flamingo Las Vegas, first quarter EBITDA was $30 million, compared to $24 million in the first quarter of 2003. Results were driven by a 14 percent increase in slot win and a 12 percent increase in RevPAR, based on stronger room rates. The average paying rate increased 12 percent. Gaming win rose 10 percent on increased gaming volume of two percent.

Other Nevada properties -- the Reno Hilton, Caesars Tahoe and Flamingo Laughlin -- recorded combined EBITDA of $8 million in the first quarter, down from $10 million in the first quarter of 2003. (Because financial results of the Las Vegas Hilton currently are classified as "discontinued operations," they are not included in either year's figures. The Las Vegas Hilton would have contributed $14 million to Western Region EBITDA in the first quarter of 2004 and $7 million in the year-ago quarter.)

Eastern Region

EBITDA from Caesars' three Atlantic City casino resorts and management fees from its Dover Downs slot operation was $87 million, compared to $88 million in the first quarter of 2003. Reflecting new competition in the market from The Borgata Hotel Casino and Spa, the first quarter of 2004 saw a decline of four percent in gaming volumes, compared to the year-ago period. Slot win was up slightly more than one percent.

At Bally's Atlantic City, first quarter EBITDA was $38 million, up slightly from $37 million in the first quarter of 2003. Despite declines in table and slot volumes of five percent and two percent, respectively, total gaming win essentially was even with the first quarter of 2003.

Bally's reported a six percent increase in RevPAR. The average paying rate increased 31 percent.

EBITDA for Caesars Atlantic City was $37 million, even with the first quarter of 2003. A six percent decline in table win, largely due to reduced volume, was offset by a four percent increase in slot win.

At the Atlantic City Hilton, EBITDA for the first quarter was $11 million, down from $13 million in the first quarter of 2003. Table win and slot win were off four percent and three percent, respectively, largely due to lower volumes.

Mid-South Region

Caesars Entertainment's seven casino resorts in Indiana, Mississippi and Louisiana reported first quarter EBITDA of $67 million. That compares to $62 million reported in the first quarter of 2003. EBITDA margin for the region was 23 percent, even with the year-ago quarter.

Caesars Indiana reported first quarter EBITDA of $19 million, up 12 percent from the $17 million recorded in the first quarter of 2003. RevPAR increased 26 percent, to $82, due to higher occupancy and a 21 percent increase in room rates. Increased slot volume drove a 13 percent increase in slot win. Table game win rose five percent on a slight increase in volume.

On the Gulf Coast, Grand Casino Biloxi reported a 36 percent increase in EBITDA, to $15 million from $11 million in the first quarter of 2003. Gaming win rose 11 percent on a 10 percent increase in volume. The property reported a nine percent increase in RevPAR, the result of a higher room rates. The average paying rate rose 24 percent.

First quarter EBITDA at Grand Casino Gulfport was $11 million, even with the year ago quarter. Gaming win increased eight percent as a result of a three percent increase in gaming volume and an increase in table hold percentage. The average paying rate was 12 percent higher than a year ago in the first quarter driving a two percent increase in RevPAR.

In Northern Mississippi, Grand Casino Tunica reported EBITDA of $10 million, compared to $11 million in the first quarter of 2003. RevPAR declined five percent, due to lower occupancy. EBITDA at the company's other two Tunica properties totaled $13 million, up from $12 million in the first quarter of 2003.

International

The company's ten international properties reported combined EBITDA of $20 million, even with the first quarter of 2003.

Capital expenditures

The company invested $78 million of capital during the first quarter of 2004. Maintenance capital expenditures were $44 million and investments in growth projects were $34 million.

The current capital expenditure budget for 2004 is $700 million, including $304 million for maintenance related projects. The growth capital budget includes $197 million for the new room tower and meeting space at Caesars Palace; $41 million for the garage adjacent to Caesars Atlantic City; $21 million for the Roman Plaza project at Caesars Palace; and $55 million related to development of the Mohawk Mountain Casino Resort in New York State. Other significant new capital investments are an additional $24 million for selected projects at Caesars Palace; $13 million at Paris; $15 million at Caesars Atlantic City and $10 million related to the Caesars Pauma project in Southern California.

Other items

Depreciation and Amortization in the first quarter was $109 million, compared to $111 million in the first quarter of 2003.

Corporate expense in the first quarter was $11 million, compared to $8 million in the first quarter of 2003, largely due to higher fees related to development activity. Beginning with the first quarter of 2004, the company allocated to its properties certain expenses, such as Information Technology, Internal Audit and Risk Management, which historically were considered corporate expenses. Results for 2003 periods have been reclassified to reflect the allocation of corporate expense.

Equity in earnings of unconsolidated affiliates primarily consists of earnings from the company's share of ownership in Conrad Punta del Este in Uruguay, Caesars Gauteng near Johannesburg, South Africa and Casino Windsor in Windsor, Canada. For the first quarter, this item was $8 million, compared to $9 million in the first quarter of 2003.

Net interest expense in the quarter was $78 million, down from $82 million in the first quarter of 2003, due to lower debt balances, reduced borrowing costs and interest rate swaps executed in the third and fourth quarters of 2003. Capitalized interest was $1 million in the first quarter, down from $2 million in the year-ago quarter. Quarterly interest income was $1 million, down from $2 million in the first quarter of 2003. The effective tax rate in the first quarter was 40.7 percent, compared to 42.3 percent in the first quarter of 2003.

There were no share repurchases in the quarter.

Balance sheet

As of March 31, 2004, the company had a cash balance of $254 million. The company paid down $138 million of indebtedness in the quarter, resulting in a debt balance of $4.49 billion on March 31, 2004.

The company had $1.2 billion available on its credit facilities, subject to covenant restrictions. The number of diluted shares outstanding was 310 million at the end of the first quarter.

Other events

On April 19, 2004, the Indiana Tax Court ruled in the case of Aztar Indiana Gaming Corporation v. Indiana Department of State Revenue that gaming taxes paid to the state of Indiana based on casino revenues are not deductible for the purpose of Indiana corporate income tax. The company understands that the affected party intends to seek judicial review of the decision in Indiana courts.

The company's preliminary estimate is that the decision, if upheld, could have a cumulative negative impact on net income, through the first quarter of 2004, of up to $9 million (after the federal income tax benefit and before any penalties or interest). Once the company completes a more detailed analysis of the financial impact of the court decision, it will report its estimate in a press release and on Form 10-Q.

Guidance

The company is providing the following guidance based on the current competitive, economic, regulatory, tax and political environment and current expectations for Caesars Entertainment property performance. Changes in any of these factors as well as other factors that may or may not be currently known to management will affect this guidance.

Guidance will be revised when management becomes aware that financial results have been affected and reasonably believes that the company will no longer achieve the guidance range outlined below.

The guidance for adjusted earnings per share is a non-GAAP financial measure. This measure excludes items considered non-recurring from an operating perspective.

In the past, examples of non-recurring items that have not been included in adjusted earnings per share are pre-opening expenses, asset impairments and write-downs, investment gains and losses, discontinued operations, contract and litigation settlements and other non-recurring items.

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