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Rod Smith

Analysts Herald Turnaround for Caesars

27 May 2004

NEW YORK -- Capping what Wall Street is calling a remarkable turnaround year for Caesars Entertainment, company President Wally Barr mapped out a plan for shareholders Wednesday that will increase revenues, cut costs and reduce debt for the casino giant.

Wall Street was generally bullish on the company's plans and on its accomplishments in the past year, even while it was insistent that more needs to be done and that the company needs a more stable management team.

Merrill Lynch analyst David Anders, in an advisory to investors, hailed Caesars for completing construction on the Strip side of Caesars Palace.

He said this is the first time in three years there will be no construction in front of the casino, eliminating a major source of the disruption that has tarnished the company's reputation.

Work is wrapping up on the first new porte cochere and entry area at Caesars Palace since 1979, and final touches are being put on the Roman Forum gateway to the property at the corner of the Strip and Flamingo Road.

Anders also said that with the new, 950-room tower coming out of the ground and set for opening in late 2005, Caesars Entertainment can be expected to generate accelerating cash flow growth.

Eric Hausler, gaming analyst for Susquehanna Financial Group, said Caesars Entertainment under Barr, who was promoted to president in November 2002, has set a course that has been successful with patrons and investors.

"They're getting it together. Investors have waited for several years since Arthur Goldberg passed away for some leadership out of the company, and now we're getting it," he said. "They're cutting costs, deploying capital where it needs to be and selling off underperforming assets, and I'm sure there will be more of that."

Barr said after the annual shareholders meeting that he expects license applications for Colony Capital, which is buying the Las Vegas Hilton for $280 million, to be considered by Nevada gaming regulators in June and for the sale to close immediately after that.

Caesars plans to use the $265 million in net proceeds from the sale to further reduce debt. The company already has cut its debt by $1.1 billion since 2002 to about $4.2 billion.

With regard to the sale of other properties in Reno, Laughlin and the Gulf of Mexico area, Barr said the company continues to get offers, but is not in serious negotiations with possible buyers.

Barr also said the selection of an executive to succeed him as chief operating officer, which he cited as a priority when he was promoted, is unlikely to happen soon.

"The world has changed a lot with (the) Sarbanes-Oxley (corporate reform legislation). Company presidents and CEOs have to be more hands on. I came from the operation side and have put more control in regional managers rather than have another level of management," he said.

However, Barr said that when a chief operating officer is named, it will be a clear signal that the person named will be his successor and heir apparent.

He also said he expects to appoint a successor to Harry Hagerty as chief financial officer within the next week.

Deutsche Bank analyst Marc Falcone said Wall Street would welcome these steps to strengthen the senior management team at Caesars Entertainment.

"They've definitely turned the corner and are heading in the right direction. The Street needs to see continued results, improvements in the balance sheet and the sale of more problem properties," he said.

But most of all, Falcone and other analysts said, investors want to see a stronger and more stable management team after several years of tumult at the top.

And Hausler said although the list of developments generally is positive, investors remain skeptical even though analysts remain convinced the company is moving in the right direction.

Caesars shares closed Wednesday at $13.50, up 7 cents, or 0.52 percent. Over the past year, Caesars shares have increased 90 percent.