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Harrah's Reports Q2 Results

LAS VEGAS, Nevada --(PRESS RELEASE) -- Harrah's Entertainment, Inc. today reported the following financial results for the second quarter of 2006:

COMPANYWIDE RESULTS
(in billions, except per share
 amounts)
                                      2006        2005      Percent
                                     Second      Second     Increase
                                     Quarter     Quarter   (Decrease)
                                   ------------ --------- ------------

Revenues                               $2.37(a)    $1.42         66.8%
Property EBITDA                         0.67(a)     0.40         70.0%
Adjusted EPS from Continuing
 Operations                            $0.95(a)    $0.86         10.5%

(a) Represents quarterly record.

Property EBITDA and Adjusted EPS from Continuing Operations are not Generally Accepted Accounting Principles measurements but are commonly used in the gaming industry as measures of performance and as bases for valuation of gaming companies. In addition, analysts' per-share earnings estimates for gaming companies are comparable to Adjusted EPS from Continuing Operations. Reconciliations of Adjusted EPS from Continuing Operations to GAAP EPS and Property EBITDA to income from operations are attached to this release.

On a GAAP basis, second-quarter income from operations was $432 million, nearly double the year-ago quarter. Net income was $129 million, up 22 percent from $106 million in the 2005 second quarter. Diluted earnings per share from continuing operations were 69 cents, an increase of 6 percent from the 65 cents achieved in the year-ago quarter.

Second-quarter same-store sales at properties that Harrah's has operated for more than 12 months rose 5 percent from the year-ago quarter, while cross-market play increased 13 percent; the comparisons exclude properties closed for all or part of the period due to hurricane damage sustained in the third quarter of 2005, as well as properties acquired from Caesars Entertainment on June 13, 2005.

Strategic updates

• Harrah's operating businesses are strategically positioned and performing well. Most businesses delivered excellent performance while those in the Indiana/Illinois region were challenged by higher taxes in Illinois and road construction near Horseshoe Hammond. Customer visitation and spending in the quarter remained strong.
• Properties acquired from Caesars Entertainment performed well during the quarter. Illustrating the ongoing success of the Caesars acquisition, Harrah's recorded $118 million in synergies in its first full year of ownership.
• Acquisitions made by the company in recent years, particularly that of Caesars Entertainment, have provided the company a number of options for pursuing long-term growth. Harrah's development pipeline is growing steadily, and is enhanced by the company's portfolio of brands. During the quarter, Harrah's invested in future growth by increasing its spending on Master Planning and Development activities, including those in Las Vegas, Atlantic City, Biloxi and internationally.

"Our healthy, broad-based growth in the second quarter demonstrates that our overall operations remain strong," said Gary Loveman, chairman, chief executive officer and president of Harrah's Entertainment. "Our core business -- particularly in Las Vegas and Atlantic City -- remains robust, and customer visitation and spending remains healthy across the country."

"We are particularly pleased with the performance of the Caesars Entertainment legacy properties," Loveman said. "With our tools and capabilities now in place, we expect continued strong performances from the Caesars legacy operations. Strategic acquisitions have given us a clear platform toward long-term, controllable growth."

"During the quarter we incurred higher project development and master planning costs, reflecting the great importance we place on the prudent investment of our stockholders' capital," Loveman said. "We are pursuing attractive capital investments in the United States, Europe, the Caribbean and elsewhere. We are investing considerable resources to carefully plan these developments -- and will continue to do so in the coming quarters -- in order to ensure that these projects will generate the level of return on capital our stockholders have come to expect."

"One of our most significant projects is our master planning for the Las Vegas Strip," Loveman said. "While our plans for Las Vegas have yet to be finalized, one thing is certain -- we will invest prudently and cost-effectively, as we have consistently done in the past."

Second-quarter news summaries

• In May, a Harrah's subsidiary signed a definitive agreement to acquire the remaining assets of Casino Magic Biloxi from Pinnacle Entertainment. The agreement also calls for the sale of two Harrah's subsidiaries that own businesses in Lake Charles, La., to a Pinnacle subsidiary. Harrah's intends to use the 18-acre Casino Magic site to pursue long-term development opportunities on the Mississippi Gulf Coast. The transaction is expected to close in the fourth quarter of 2006, subject to the receipt of required regulatory approvals.
• The company completed the sale of the Flamingo Laughlin hotel-casino and an undeveloped land parcel in Atlantic City; and, separately, the sale of the Reno Hilton hotel-casino.
• Play in the 37th annual World Series of Poker, which covers 45 events, began June 25 at the Rio, and will continue through the conclusion of the Main Event on August 10. Extending national exposure of this brand, a Harrah's subsidiary entered into an agreement with ESPN to extend the network's television coverage of the WSOP through 2010.

Regional Results

Summaries of results by region follow below. Results for the second quarter of 2005 include 17 days of operations of the Caesars Entertainment properties, acquired on June 13, 2005.

Las Vegas Region

LAS VEGAS REGION
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Harrah's
 Properties
 Total
  revenues    $246.8  $238.3        3.6%   $501.9   $487.1        3.0%
 Income from
  operations    61.0    64.0       -4.7%    131.0    133.8       -2.1%
 Property
  EBITDA        79.6    80.2       -0.7%    167.7    165.6        1.3%
Acquired
 Properties
 Total
  revenues     556.5    77.8        N/M   1,127.1     77.8        N/M
 Income for
  operations   148.7    15.5        N/M     312.8     15.5        N/M
 Property
  EBITDA       185.8    21.8        N/M     385.8     21.8        N/M
Total Las
 Vegas Region
 Total
  revenues    $803.3  $316.1      154.1% $1,629.0   $564.9      188.4%
 Income from
  operations   209.7    79.5      163.8%    443.8    149.3      197.3%
 Property
  EBITDA       265.4   102.0      160.2%    553.5    187.4      195.4%

Harrah's Properties include Harrah's Las Vegas, Rio and in 2005,
Horseshoe Las Vegas.

Acquired Properties include Bally's Las Vegas, Paris, Flamingo Las
Vegas, Caesars Palace and Imperial Palace.

The addition of the acquired properties was the primary driver of growth in the Las Vegas region. Strong visitation to the Las Vegas market, cross-property play by Total Rewards members at our Las Vegas properties and the addition of the Augustus Tower at Caesars Palace contributed to higher results. Harrah's legacy properties in Las Vegas reported a slight decline as the company expanded its Las Vegas cross-property marketing strategy to include Bally's, Caesars Palace, Flamingo and Paris.

Other Nevada Region

OTHER NEVADA
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Total Other
 Nevada
 Total
  revenues    $158.5  $146.7        8.0%   $311.4   $285.4        9.1%
 Income from
  operations    25.7    21.3       20.7%     49.1     36.9       33.1%
 Property
  EBITDA        39.2    33.9       15.6%     75.5     62.5       20.8%

Other Nevada Properties include Harrah's Reno, Harrah's Lake Tahoe,
Bill's Casino and Harrah's Laughlin.

Increases in the Other Nevada region were driven by strong visitation volumes at the company's properties in Northern Nevada and Laughlin.

Atlantic City Region

ATLANTIC CITY REGION
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Harrah's
 Properties
 Total
  revenues    $220.3  $205.4        7.3%   $429.8   $388.6       10.6%
 Income from
  operations    53.6    52.9        1.3%    101.6     95.6        6.3%
 Property
  EBITDA        75.5    77.4       -2.5%    143.5    140.4        2.2%
Acquired
 Properties
 Total
  revenues     300.7    53.6        N/M     581.4     53.6        N/M
 Income for
  operations    70.6    10.9        N/M     118.4     10.9        N/M
 Property
  EBITDA        94.5    14.6        N/M     166.9     14.6        N/M
Total
 Atlantic
 City Region
 Total
  revenues    $521.0  $259.0      101.2% $1,011.2   $442.2      128.7%
 Income from
  operations   124.2    63.8       94.7%    220.0    106.5      106.6%
 Property
  EBITDA       170.0    92.0       84.8%    310.4    155.0      100.3%

Harrah's Properties include Harrah's Atlantic City and Showboat
Atlantic City.

Acquired Properties include Caesars Atlantic City and Bally's Atlantic
City.

Results rose because of the addition of two Caesars legacy properties in Atlantic City. Favorable weather and strong visitation to the region also contributed to higher results, which were partially offset by construction-related disruptions on the casino floors at Caesars, Harrah's and Showboat.

Louisiana/Mississippi Region

LOUISIANA/MISSISSIPPI REGION
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Harrah's
 Properties
 Total
  revenues    $251.9  $242.9        3.7%   $466.6   $480.6       -2.9%
 Income from
  operations    49.9    37.6       32.7%     96.6     78.9       22.4%
 Property
  EBITDA        64.4    52.9       21.7%    126.6    108.9       16.3%
Acquired
 Properties
 Total
  revenues      85.6    23.8        N/M     176.6     23.8        N/M
 Income for
  operations    12.9     3.3        N/M      31.4      3.3        N/M
 Property
  EBITDA        19.5     6.0        N/M      42.5      6.0        N/M
Total
 Louisiana/
 Mississippi
 Region
 Total
  revenues    $337.5  $266.7       26.5%   $643.2   $504.4       27.5%
 Income from
  operations    62.8    40.9       53.5%    128.0     82.2       55.7%
 Property
  EBITDA        83.9    58.9       42.4%    169.1    114.9       47.2%

Harrah's Properties include Harrah's New Orleans, Horseshoe Bossier
City, Louisiana Downs and Horseshoe Tunica.

Acquired Properties include Grand Casino Tunica, Sheraton Tunica and
Grand Casino Biloxi.

The addition of Grand Casino Tunica and the Sheraton Tunica contributed to gains in the Louisiana/Mississippi region. Regional results also benefited from particularly strong performances at Harrah's New Orleans and the Horseshoe properties in Bossier City and Tunica.

Illinois/Indiana Region

ILLINOIS/INDIANA REGION
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Harrah's
 Properties
 Total
  revenues    $215.4  $210.8        2.2%   $439.9   $416.3        5.7%
 Income from
  operations    39.0    42.5       -8.2%     86.8     83.7        3.7%
 Property
  EBITDA        49.1    50.7       -3.2%    104.0     99.8        4.2%
Acquired
 Properties
 Total
  revenues      85.1    13.6        N/M     172.3     13.6        N/M
 Income for
  operations    15.1     2.3        N/M      29.6      2.3        N/M
 Property
  EBITDA        18.6     3.6        N/M      39.4      3.6        N/M
Total
 Illinois/
 Indiana
 Region
 Total
  revenues    $300.5  $224.4       33.9%   $612.2   $429.9       42.4%
 Income from
  operations    54.1    44.8       20.8%    116.4     86.0       35.3%
 Property
  EBITDA        67.7    54.3       24.7%    143.4    103.4       38.7%

Harrah's Properties include Horseshoe Hammond, Harrah's Joliet and
Harrah's Metropolis.

Acquired Properties include Caesars Indiana.

New taxes assessed by Illinois against Harrah's Joliet, as well as major road construction disruption near Horseshoe Hammond, impacted results. These factors were more than offset by the addition of Caesars Indiana to regional operations. The addition of a 258-room hotel at Harrah's Metropolis in July is expected to contribute to growth at that property in future quarters.

Iowa/Missouri

IOWA/MISSOURI REGION
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Total Iowa/
 Missouri
 Region
 Total
  revenues    $199.5  $181.5        9.9%   $400.6   $364.7        9.8%
 Income from
  operations    33.8    28.8       17.4%     65.4     62.5        4.6%
 Property
  EBITDA        54.7    48.7       12.3%    108.7    100.1        8.6%

Harrah's Properties include Harrah's St. Louis, Harrah's Council
Bluffs, Horseshoe Council Bluffs and Harrah's North Kansas City.

Recent expansions and renovations in this region, particularly the rebranding and expansion of Horseshoe Council Bluffs, are boosting the company's market share in this region. Harrah's St. Louis also reported strong results for the quarter.

Managed/International and Other

MANAGED/INTERNATIONAL/
OTHER
(in millions)

              2006    2005    Percent     2006      2005     Percent
             Second  Second   Increase  First Six First Six  Increase
             Quarter Quarter (Decrease)   Months    Months  (Decrease)
             ------- ------- ---------- --------- --------- ----------
Total
 revenues       53.6    29.0       84.8%    123.2     51.1      141.1%
Income from
 operations    (26.5)  (16.9)     -56.8%    (29.9)   (13.6)    -119.9%
Property
 EBITDA         (8.2)    5.7        N/M       2.3     15.4      -85.1%

Managed, international and other results include income from our
managed properties, results of our international properties and
certain marketing and administrative expenses, including development
costs, and income from our non-consolidated subsidiaries.

Results were significantly affected by the company's pursuit of additional development opportunities, including Rhode Island, the Bahamas, Spain, Slovenia and Singapore, and the on-going master planning activities for Las Vegas and Atlantic City. Development and master planning expenses were $18 million in second quarter 2006 compared to $7 million in last year's second quarter. The company anticipates that development spending will continue at similar levels through the end of 2006.

Other Items

Second-quarter corporate expenses more than doubled from the year-ago quarter, to $46 million, due largely to the addition of option expense and corporate activities assumed in the Caesars transaction.

The company recorded $6 million in costs during the quarter related to the integration of Caesars.

The amortization of intangible assets increased over the prior year due to the addition of the amortization expense for intangible assets acquired in the Caesars transaction.

The company reported $12 million of project opening costs and other items, compared to $26 million reported in the prior year second quarter. The second quarter 2006 charges included project opening costs incurred in connection with the opening of the re-branded Horseshoe Casino in Council Bluffs and the on-going development of Harrah's Chester, as well as demolition costs incurred related to various remodeling and refurbishment projects. The second quarter of 2005 included a $10 million endowment to the Harrah's Foundation, a non-profit corporation that provides charitable contributions to qualifying organizations in communities served by Harrah's; a $6 million charge related to the settlement of on-going litigation arising from a construction project; and a $3 million charge for the buyout of a lease contract at Showboat Atlantic City.

Interest expense increased 82 percent year-over-year due to increased debt levels from the Caesars acquisition as well as somewhat higher interest rates. The company incurred charges of $61 million due to the early extinguishments of debt during the second quarter.

The second-quarter effective income tax rate, after minority interest, was 37.7 percent, compared with a 39.7 percent second-quarter 2005 tax rate.

Discontinued Operations for 2006 include the financial results of the Grand Casino Gulfport, Reno Hilton and Flamingo Laughlin prior to their sales and of Harrah's Lake Charles. 2005 results were restated to reflect the results of Harrah's Lake Charles in Discontinued Operations. Discontinued Operations for the 2005 second quarter also included the operating results of Harrah's East Chicago and Harrah's Tunica, which were sold in April 2005, and results of Reno Hilton and Flamingo Laughlin subsequent to their acquisition.

Weighted average shares outstanding for the second quarter were 187.1 million shares, compared to 125.3 million in the 2005 second quarter. The increase is due primarily to the shares issued in June 2005 in connection with the Caesars acquisition.

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