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Harrah's Reports Q3 Results

LAS VEGAS--(BUSINESS WIRE)--Harrah's Entertainment, Inc. (NYSE:HET ):

-Revenues rise 11 percent to third-quarter record $2.5 billion

-Property EBITDA climbs to third-quarter record $685 million, Adjusted EPS from Continuing Operations reaches 94 cents and same-store sales gain 8 percent despite temporary shutdown of Atlantic City casinos

-Strong cross-property visitation propels Las Vegas Region to record results

-The company essentially completed assembling land for its Las Vegas master plan with an agreement to acquire the Barbary Coast, a transaction that will give Harrah's control of three-quarters of the intersection of Flamingo and the Las Vegas Strip

-Harrah's reopens Grand Biloxi Hotel & Casino and opens new hotels in New Orleans and Metropolis, Illinois

Harrah's Entertainment, Inc. (NYSE:HET) today reported the following financial results for the 2006 third quarter:

HARRAH'S ENTERTAINMENT, INC.
COMPANY WIDE RESULTS
(in billions, except per share amounts)
                                              2006    2005   Percent
                                             Third   Third   Increase
                                            Quarter Quarter (Decrease)
                                            ------- ------- ----------

 Revenues                                   $2.51   $2.27     10.6%
 Property EBITDA                            $0.68   $0.66      4.5%
 Adjusted EPS from Continuing Operations    $0.94   $1.00     -6.0%

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, third-quarter income from operations was $442 million, an increase of 5 percent over the year-ago quarter. Income from continuing operations was $178 million, up 4 percent from $171 million in the 2005 third quarter. Diluted earnings per share from continuing operations were 96 cents, an increase of 4 percent from the 92 cents achieved in the year-ago quarter.

Third-quarter same-store sales at properties that Harrah's has operated for more than 12 months rose 8 percent from the year-ago quarter. The comparison includes properties acquired in the acquisition of Caesars Entertainment, Inc., but excludes properties closed for all or part of the periods due to hurricane damage sustained in the third quarter of 2005.

Highlights

On October 2, 2006, Harrah's announced that it had formed a Special Committee comprised of all non-management directors in connection with the receipt of a proposal from two private equity firms - Apollo Management and Texas Pacific Group - to acquire the company. There is no assurance that Harrah's will enter into an agreement with the private equity firms or any other transaction.

-Database marketing is driving strong cross-market play, particularly to the Las Vegas Region, where Harrah's properties posted record third-quarter results.

-Harrah's raised its bid to acquire London Clubs International to approximately $570 million and agreed to purchase Genting International plc's 29.6 percent stake in London Clubs. Harrah's offer for the remaining London Club shares has been extended to November 4, 2006. If the offer is successful the acquisition is expected to close in the 2006 fourth quarter.

"We posted third-quarter revenue and Property EBITDA records and an overall 8 percent increase in same-store sales," said Gary Loveman, chairman, chief executive officer and president of Harrah's Entertainment. "The Las Vegas Region in particular benefited from increased visitation and spending by members of the company's Total Rewards customer-loyalty program, and the successful World Series of Poker at the Rio.

"New Jersey's three-day shutdown of Atlantic City casinos due to a state budget impasse, competitive activities in the city and insufficient marketing initiatives on our part impacted our Atlantic City Region performance. Most other regions saw improved operating earnings and higher margins," Loveman said.

"During the third quarter, we opened our new 450-room luxury hotel in New Orleans, a new, smaller Grand Casino Biloxi Hotel & Spa in Mississippi and a 258-room hotel in Metropolis, Illinois. We also began live harness racing and simulcasting at Harrah's Chester Casino & Racetrack near Philadelphia," Loveman said. "We plan to open a casino with 2,750 slot machines at Chester in January 2007.

"We also continued to work on domestic and international expansion plans," Loveman said. "We initiated a campaign for voter support of a November ballot measure that would allow development of a casino in West Warwick, Rhode Island and are pursuing a slot-parlor license with our partners in Pittsburgh.

"We continued to refine our master plans for Atlantic City and Las Vegas, the latter of which will benefit from our agreement to acquire the Barbary Coast property in exchange for land we own at another location on the Las Vegas Strip," Loveman said. "This transaction will give us control of 350 acres at one of the most famous intersections in the world and considerably strengthens our ability to create a destination experience within the Las Vegas market."

Subject to regulatory approvals, the Barbary Coast transaction is expected to close in the 2007 first quarter.

"The London Clubs International acquisition will provide the company with an immediate presence in the growing UK gaming market and enhanced opportunities elsewhere in Europe. And we continue to pursue casino resort projects in other European countries, the Caribbean and Asia," Loveman said.

"Meanwhile, our organic-growth strategy continues to deliver strong results, and we are very enthusiastic about the many exciting opportunities on the horizon," Loveman said. "We remain focused on our efforts to increase shareholder value."

Third-quarter news summaries

-The 37th annual World Series of Poker at the Rio All-Suite Hotel & Casino ended in August when Californian Jamie Gold outlasted a record field of 8,773 players to win the No-Limit Hold 'Em World Championship, a gold and jewel-encrusted bracelet and $12 million in cash. The 48-day, 46-event World Series of Poker generated a gross prize pool of $171 million, making it the richest sporting competition on the planet.

-In early August, Charles L. Atwood was appointed vice chairman of the company, with responsibility for development, design and construction efforts, as well as strategic sourcing, internal audit, enterprise risk management and security, surveillance and investigations. Harrah's senior vice president and treasurer, Jonathan S. Halkyard, was appointed chief financial officer, succeeding Atwood.

-Harrah's increased the borrowing capacity under its bank-credit facilities from $4 billion to $5 billion.

Regional Results

Summaries of results by region follow below. Results for 2005 include the operations of the Caesars Entertainment properties, subsequent to their acquisition on June 13, 2005.

LAS VEGAS REGION
(in millions)

                                         2006     2005     Percent
                                         Third    Third    Increase
                                         Quarter  Quarter  (Decrease)
                                        -------- -------- -----------

  Total revenues                         $812.4   $670.1        21.2%
  Income from operations                  192.1    146.3        31.3%
  Property EBITDA                         243.0    193.9        25.3%

LAS VEGAS REGION
(in millions)
                                         2006      2005
                                         First     First    Percent
                                         Nine      Nine     Increase
                                         Months    Months   (Decrease)
                                       --------- --------- -----------

  Total revenues                       $2,441.4  $1,235.0        97.7%
  Income from operations                  635.9     295.6       115.1%
  Property EBITDA                         796.5     381.3       108.9%

Las Vegas Region properties include Harrah's Las Vegas, Rio, Bally's Las Vegas, Paris, Flamingo Las Vegas, Caesars Palace and Imperial Palace.

Las Vegas Region revenues rose 21 percent and Property EBITDA increased 25 percent, thanks to gains at Caesars Palace and a record performance at the Rio - host property for the 2006 World Series of Poker. The gains were driven by strong growth in cross-market and cross-property play and higher spend per visitor. The 2006 third-quarter results include the Imperial Palace, which was acquired in the fourth quarter of 2005.

OTHER NEVADA
(in millions)

                                            2006    2005
              2006     2005     Percent     First   First   Percent
              Third    Third    Increase    Nine    Nine    Increase
              Quarter  Quarter  (Decrease)  Months  Months  (Decrease)
             -------- -------- ----------- ------- ------- -----------

 Total
  revenues    $183.4   $186.2        -1.5% $494.8  $471.6         4.9%
 Income from
  operations    41.3     50.4       -18.1%   90.3    87.3         3.4%
 Property
  EBITDA        54.5     60.5        -9.9%  130.0   123.0         5.7%

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

Other Nevada revenues declined slightly and Property EBITDA was off 10 percent from results of the 2005 third quarter due to a lower hold percentage at Lake Tahoe.

ATLANTIC CITY REGION
(in millions)

                                         2006     2005     Percent   -
                                         Third    Third    Increase
                                         Quarter  Quarter  (Decrease)
                                        -------- -------- ------------

  Total revenues                         $560.2   $562.1        -0.3%
  Income from operations                  136.2    150.5        -9.5%
  Property EBITDA                         186.6    199.7        -6.6%

ATLANTIC CITY REGION
(in millions)
                                         2006      2005
                                         First     First    Percent
                                         Nine      Nine     Increase
                                         Months    Months   (Decrease)
                                       --------- --------- -----------

  Total revenues                       $1,571.4  $1,004.3        56.5%
  Income from operations                  356.3     257.0        38.6%
  Property EBITDA                         496.9     354.7        40.1%

Atlantic City Region properties include Harrah's Atlantic City, Showboat Atlantic City, Caesars Atlantic City, Bally's Atlantic City and Harrah's Chester.

Atlantic City Region revenues were flat and Property EBITDA declined 7 percent due to both the state government's three-day shutdown of all Atlantic City casinos and competitive activities in the market. The company is adjusting its own Atlantic City promotional efforts to increase the effectiveness and efficiency of its operations there.

LOUISIANA/MISSISSIPPI REGION
(in millions)

                                         2006     2005     Percent   -
                                         Third    Third    Increase
                                         Quarter  Quarter  (Decrease)
                                        -------- -------- ------------

  Total revenues                         $376.1   $326.5        15.2%
  Income from operations                   73.7     46.4        58.8%
  Property EBITDA                          96.0     77.6        23.7%

LOUISIANA/MISSISSIPPI REGION
(in millions)
                                          2006     2005
                                          First    First   Percent
                                          Nine     Nine    Increase
                                          Months   Months  (Decrease)
                                        --------- ------- -----------

  Total revenues                        $1,019.4  $830.9        22.7%
  Income from operations                   201.7   128.6        56.8%
  Property EBITDA                          265.1   192.5        37.7%

Louisiana/Mississippi Region properties include Harrah's New Orleans, Horseshoe Bossier City, Louisiana Downs, Horseshoe Tunica, Grand Casino Tunica, Sheraton Tunica and Grand Casino Biloxi.

The Louisiana/Mississippi Region posted a 15 percent gain in revenues and a 24 percent increase in Property EBITDA due mainly to a strong performance at Harrah's New Orleans. Grand Biloxi was closed for most of the 2006 third quarter due to Hurricane Katrina and Grand Biloxi and New Orleans were closed for one month in the year-ago period.

ILLINOIS/INDIANA REGION
(in millions)

                                            2006    2005
              2006     2005     Percent     First   First   Percent
              Third    Third    Increase    Nine    Nine    Increase
              Quarter  Quarter  (Decrease)  Months  Months  (Decrease)
             -------- -------- ----------- ------- ------- -----------

 Total
  revenues    $314.4   $292.9         7.3% $926.6  $722.8        28.2%
 Income from
  operations    56.3     52.3         7.6%  172.7   138.3        24.9%
 Property
  EBITDA        72.9     65.4        11.5%  216.3   168.8        28.1%

Illinois/Indiana Region properties include Horseshoe Hammond, Harrah's Joliet, Harrah's Metropolis, and Caesars Indiana.

Revenues rose 7 percent and Property EBITDA increased 12 percent in the Illinois/Indiana Region due primarily to the opening of the company's new hotel at Metropolis, Illinois, and strong results at Harrah's Joliet.

IOWA/MISSOURI REGION
(in millions)

                                            2006    2005
              2006     2005     Percent     First   First   Percent
              Third    Third    Increase    Nine    Nine    Increase
              Quarter  Quarter  (Decrease)  Months  Months  (Decrease)
             -------- -------- ----------- ------- ------- -----------

 Total
  revenues    $206.4   $184.2        12.1% $607.0  $548.9        10.6%
 Income from
  operations    33.8     30.1        12.3%   99.2    92.6         7.1%
 Property
  EBITDA        53.7     49.0         9.6%  162.4   149.1         8.9%

Iowa/Missouri Region properties include Harrah's St. Louis, Harrah's Council Bluffs, Horseshoe Council Bluffs and Harrah's North Kansas City.

Strong performances at the Horseshoe Council Bluffs more than offset declines at the Council Bluffs riverboat in Iowa and gains at Harrah's St. Louis led to a 12 percent increase in revenues and a 10 percent rise in Property EBITDA in the Iowa/Missouri Region.

MANAGED/INTERNATIONAL/
OTHER
(in millions)

                                            2006    2005
              2006     2005     Percent     First   First   Percent
              Third    Third    Increase    Nine    Nine    Increase
              Quarter  Quarter  (Decrease)  Months  Months  (Decrease)
             -------- -------- ----------- ------- ------- -----------

 Total
  revenues      59.6     50.4        18.3%  182.7   101.5        80.0%
 Losses from
  operations   (39.6)    (5.9)        N/M   (69.5)  (19.7)        N/M
 Property
  EBITDA       (22.0)     9.3         N/M   (19.7)   24.7         N/M

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 nonconsolidated subsidiaries.

Third-quarter development and master-planning expenses were higher than in the year-ago quarter as the company continued its pursuit of domestic and international growth opportunities, especially costs in support of a ballot initiative in Rhode Island.

Other Items

Third-quarter corporate expenses rose to $48 million from $32 million in the 2005 third quarter due primarily to the addition of stock-based compensation expense.

The amortization of intangible assets decreased from the 2005 third quarter, when estimates were used pending completion of the Caesars purchase-price allocation.

Interest expense increased 10 percent year-over-year due primarily to higher interest rates.

The third-quarter effective income tax rate, after minority interest, was 35.1 percent, compared with a 36.4 percent third-quarter 2005 tax rate. The effective tax rate for the first nine months of 2006 was 36.6 percent, compared to 37.8 percent in the prior year period. The 2006 effective tax rates reflect the impact of certain income-tax benefits identified as the company completed its 2005 tax returns. Excluding the impact of these benefits from the tax-rate calculation, the effective tax rates for third-quarter and first nine months of 2006 were 39 percent and 38 percent, respectively.

Discontinued Operations for third quarter 2006 include the financial results of Harrah's Lake Charles, and 2005 results were restated to reflect the results of Harrah's Lake Charles in Discontinued Operations. Discontinued Operations for the 2005 third quarter also included the operating results of Reno Hilton, Flamingo Laughlin and the Grand Gulfport subsequent to their acquisition.

Weighted average common and common equivalent shares outstanding for the third quarter were 186.3 million shares, compared to 185.1 million in the 2005 third quarter.

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