HARRAHS ENTERTAINMENT INC, 10-Q, 2000-08-14

HARRAHS ENTERTAINMENT INC
10-Q, 2000-08-14
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-Q

---------------

(MARK ONE)

<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2000
</TABLE>

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
</TABLE>

COMMISSION FILE NO. 1-10410

HARRAH'S ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

------------------------------

<TABLE>
<S> <C>
DELAWARE I.R.S. NO. 62-1411755
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>

5100 W. SAHARA AVENUE, SUITE 200
LAS VEGAS, NEVADA 89146

(Current address of principal executive offices)

(702) 579-2300

(Registrant's telephone number, including area code)

------------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

------------------------

At June 30, 2000, there were outstanding 116,672,553 shares of the Company's
Common Stock.

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Page 1 of 35
Exhibit Index Page 36
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited Consolidated Condensed Financial Statements of
Harrah's Entertainment, Inc., a Delaware corporation, have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and notes necessary for complete financial statements in conformity
with generally accepted accounting principles. The results for the periods
indicated are unaudited, but reflect all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation of operating results. Results of operations for interim periods are
not necessarily indicative of a full year of operations. See Note 2 to these
Consolidated Condensed Financial Statements regarding the completion of our
acquisition of Players International, Inc. on March 22, 2000. These Consolidated
Condensed Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in our 1999 Annual
Report to Stockholders.

2
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) ----------- ------------
<S> <C> <C>
ASSETS

Current assets
Cash and cash equivalents................................. $ 226,624 $ 233,581
Receivables, less allowance for doubtful accounts of
$45,659 and $44,086..................................... 108,445 121,186
Deferred income taxes..................................... 34,243 33,208
Prepayments and other..................................... 85,876 68,028
Inventories............................................... 28,708 30,666
----------- -----------
Total current assets.................................... 483,896 486,669
----------- -----------
Land, buildings, riverboats and equipment................... 4,490,244 3,983,754
Less: accumulated depreciation.............................. (1,002,461) (922,524)
----------- -----------
3,487,783 3,061,230
Goodwill, net of amortization of $62,620 and $54,346 (Note
2)........................................................ 671,875 505,217
Investments in and advances to nonconsolidated affiliates... 133,239 168,511
Deferred costs, trademarks and other........................ 298,560 545,220
----------- -----------
$ 5,075,353 $ 4,766,847
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable.......................................... $ 65,353 $ 81,200
Accrued expenses.......................................... 355,226 287,494
Short-term debt........................................... 169,982 -
Current portion of long-term debt......................... 3,211 2,877
----------- -----------
Total current liabilities............................... 593,772 371,571
Long-term debt.............................................. 2,707,466 2,540,268
Deferred credits and other.................................. 144,250 120,827
Deferred income taxes....................................... 206,146 228,955
----------- -----------
3,651,634 3,261,621
----------- -----------
Minority interests.......................................... 20,705 18,949
----------- -----------
Commitments and contingencies (Notes 5 and 7 through 9)
Stockholders' equity
Common stock, $0.10 par value, authorized 360,000,000
shares, outstanding 116,672,553 and 124,379,760 shares
(net of 18,856,723 and 9,286,772 shares held in
treasury)............................................... 11,667 12,438
Capital surplus........................................... 1,016,323 987,322
Retained earnings......................................... 392,394 512,539
Accumulated other comprehensive income.................... 21 (493)
Deferred compensation related to restricted stock......... (17,391) (25,529)
----------- -----------
1,403,014 1,486,277
----------- -----------
$ 5,075,353 $ 4,766,847
=========== ===========
</TABLE>

See accompanying Notes to Consolidated Condensed Financial Statements.

3
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------- -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Casino......................................... $721,057 $599,603 $1,354,814 $1,165,562
Food and beverage.............................. 120,877 105,387 231,145 208,540
Rooms.......................................... 68,824 63,802 133,018 126,438
Management fees................................ 16,269 18,275 33,490 34,995
Other.......................................... 37,557 33,718 71,118 63,969
Less: casino promotional allowances............ (85,403) (69,648) (160,790) (136,699)
-------- -------- ---------- ----------
Total revenues............................. 879,181 751,137 1,662,795 1,462,805
-------- -------- ---------- ----------
Operating expenses
Direct
Casino....................................... 377,195 314,397 711,628 615,923
Food and beverage............................ 59,157 55,449 113,029 112,243
Rooms........................................ 17,631 16,513 34,306 33,594
Depreciation and amortization.................. 61,934 49,971 112,505 96,201
Development costs.............................. 1,706 1,509 3,865 2,270
Write-downs, reserves and recoveries........... 627 (1,598) 640 (1,475)
Project opening costs.......................... 1,452 45 1,744 397
Other.......................................... 191,715 165,929 376,164 320,363
-------- -------- ---------- ----------
Total operating expenses................... 711,417 602,215 1,353,881 1,179,516
-------- -------- ---------- ----------
Operating profit......................... 167,764 148,922 308,914 283,289
Corporate expense.............................. (14,572) (13,492) (25,593) (21,423)
Headquarters relocation and reorganization
costs........................................ (917) (1,422) (2,713) (4,492)
Equity in losses of nonconsolidated
affiliates................................... (10,600) (6,153) (34,296) (12,821)
Venture restructuring costs.................... - - - 397
Amortization of goodwill and trademarks........ (5,337) (4,351) (9,874) (8,963)
-------- -------- ---------- ----------
Income from operations........................... 136,338 123,504 236,438 235,987
Interest expense, net of interest capitalized.... (58,126) (48,692) (108,585) (99,587)
Other income, including interest income.......... 1,178 4,404 4,794 6,570
-------- -------- ---------- ----------
Income before income taxes and minority
interests...................................... 79,390 79,216 132,647 142,970
Provision for income taxes....................... (28,632) (28,742) (47,278) (53,380)
Minority interests............................... (3,544) (2,551) (7,407) (4,322)
-------- -------- ---------- ----------
Income before extraordinary losses............... 47,214 47,923 77,962 85,268
Extraordinary losses, net of income tax benefit
of $388, $4,004, $388 and $5,768............... (716) (7,375) (716) (10,623)
-------- -------- ---------- ----------
Net income....................................... $ 46,498 $ 40,548 $ 77,246 $ 74,645
======== ======== ========== ==========
</TABLE>

4
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (CONTINUED)

(UNAUDITED)

See accompanying Notes to Consolidated Condensed Financial Statements.

5
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
2000 1999
(IN THOUSANDS) --------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 77,246 $ 74,645
Adjustments to reconcile net income to cash flows from
operating activities
Extraordinary losses, before income taxes............... 1,104 16,391
Depreciation and amortization........................... 130,448 110,443
Write-downs, reserves and recoveries.................... 625 -
Other noncash items..................................... 5,768 23,384
Minority interests' share of income..................... 7,407 4,322
Equity in losses of nonconsolidated affiliates.......... 34,296 12,821
Net losses (gains) from asset sales..................... 303 (1,714)
Net change in long-term accounts........................ (26,320) 11,591
Net change in working capital accounts.................. 25,269 (7,827)
--------- -----------
Cash flows provided by operating activities........... 256,146 244,056
--------- -----------
Cash flows from investing activities
Payment for purchases of acquisitions, net of cash
acquired................................................ (256,333) 22,025
Land, buildings, riverboats and equipment additions....... (191,762) (172,406)
Investments in and advances to nonconsolidated
affiliates.............................................. (73,065) (34,381)
(Decrease) increase in construction payables.............. (1,252) 7,387
Proceeds from sale of Star City management contract....... 131,475 -
Proceeds from other asset sales........................... 69,977 10,789
Sale of marketable equity securities for defeasance of
debt.................................................... 58,091 -
Purchase of minority interest in subsidiary............... - (26,000)
Other..................................................... (3,161) 10,215
--------- -----------
Cash flows used in investing activities............... (266,030) (182,371)
--------- -----------
Cash flows from financing activities
Net borrowings under long-term lending agreements, net of
deferred financing cost of $1,486 in 2000............... 246,514 960,651
Net short-term borrowings, net of deferred financing costs
of $460................................................. 148,522 -
Net repayments under retired revolving facility........... - (1,086,000)
Proceeds from issuance of senior notes, net of discount
and issue costs of $5,980............................... - 494,020
Purchases of treasury stock............................... (198,469) (3,180)
Early extinguishments of debt............................. (213,063) (408,904)
Proceeds from exercise of stock options................... 27,061 10,064
Scheduled debt retirements................................ (1,438) (3,866)
Premiums paid on early extinguishments of debt............ (1,104) (2,739)
Minority interests' distributions, net of contributions... (5,096) (4,400)
--------- -----------
Cash flows provided by (used in) financing
activities.......................................... 2,927 (44,354)
--------- -----------
Net (decrease) increase in cash and cash equivalents........ (6,957) 17,331
Cash and cash equivalents, beginning of period.............. 233,581 158,995
--------- -----------
Cash and cash equivalents, end of period.................... $ 226,624 $ 176,326
========= ===========
</TABLE>

See accompanying Notes to Consolidated Condensed Financial Statements.

6
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
(IN THOUSANDS) -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income............................................ $46,498 $40,548 $77,246 $74,645
------- ------- ------- -------

Other comprehensive income
Foreign currency translation adjustments, net of tax
provision of none, $2,247, $56, and $1,402........ - 3,035 90 2,288

Realization of foreign currency adjustments, net of
tax provision of $148............................. - - 191 -

Unrealized gains on available-for-sale securities,
net of tax provision of $35, $641, $143, and
$1,279............................................ 57 1,047 233 2,087
------- ------- ------- -------

Other comprehensive income...................... 57 4,082 514 4,375
------- ------- ------- -------
Comprehensive income.................................. $46,555 $44,630 $77,760 $79,020
======= ======= ======= =======
</TABLE>

7
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2000

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION

Harrah's Entertainment, Inc. ("Harrah's Entertainment", the "Company", "we",
"our" or "us", and including our subsidiaries where the context requires), a
Delaware corporation, is one of America's leading casino companies. Our casino
entertainment facilities, operating under the Harrah's, Rio, Showboat and
Players brand names, include casino hotels in Reno, Lake Tahoe, Las Vegas and
Laughlin, Nevada; two casino hotel properties in Atlantic City, New Jersey; and
riverboat and dockside casinos in Joliet and Metropolis, Illinois; East Chicago,
Indiana; Shreveport and Lake Charles, Louisiana; Tunica and Vicksburg,
Mississippi; and North Kansas City and St. Louis, Missouri. We also manage the
land-based casino in New Orleans, Louisiana, and casinos on Indian lands near
Phoenix, Arizona; Cherokee, North Carolina; and Topeka, Kansas. We discontinued
management of the Star City casino in Sydney, Australia, during first quarter
2000.

NOTE 2 - PLAYERS ACQUISITION

On March 22, 2000, we completed our acquisition of Players International,
Inc. ("Players"). Players operated a dockside riverboat casino on the Ohio River
in Metropolis, Illinois; two cruising riverboat casinos in Lake Charles,
Louisiana; two dockside riverboat casinos in Maryland Heights, Missouri, a
suburb of St. Louis; and a horse racetrack in Paducah, Kentucky. Players and the
Company jointly operated a landside hotel and entertainment facility at the
Maryland Heights property.

The operations of the Players facility in Maryland Heights were consolidated
with the adjacent Harrah's operation in second quarter 2000. The Lake Charles
and Metropolis casino operations will be converted to the Harrah's brand name
after capital improvements are completed.

We paid approximately $294 million in cash and assumed $150 million in
Players 10 7/8% Senior Notes due 2005 (the "Players Notes"). The acquisition was
funded by our Bank Facility (see Note 4) and is being accounted for as a
purchase. The purchase price is being allocated to the underlying assets and
liabilities based upon their estimated fair values at the date of acquisition.
We are determining the estimated fair values based on independent appraisals,
discounted cash flows, quoted market prices and estimates made by management.
The allocation of the purchase price will be completed within one year from the
date of the acquisition. To the extent that the purchase price exceeds the fair
value of the net identifiable tangible assets acquired, such excess will be
allocated to goodwill and amortized over 40 years. Until we complete the
purchase price allocation, our financial statements will include estimated
goodwill amortization expense. See Note 4 for a discussion of the retirement of
the Players Notes.

NOTE 3 - STOCKHOLDERS' EQUITY

In addition to its common stock, Harrah's Entertainment has the following
classes of authorized but unissued stock:

Preferred stock, $100 par value, 150,000 shares authorized

Special stock, $1.125 par value, 5,000,000 shares authorized

Series A Special Stock, 2,000,000 shares designated

In July 1999, our Board of Directors authorized the repurchase in open
market and other transactions of up to 10 million shares of the Company's common
stock. We acquired our shares from

8
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 3 - STOCKHOLDERS' EQUITY (CONTINUED)
time to time at prevailing market prices and at June 30, 2000, we had
repurchased all 10 million shares under the provisions of this plan.

In April 2000, our Board of Directors authorized the repurchase of an
additional 12.5 million shares of our common stock in open market and other
transactions as market conditions warrant. This plan will expire on
December 31, 2001. At June 30, 2000, we had repurchased approximately
5.0 million shares under the provisions of this plan.

NOTE 4 - DEBT

BANK FACILITY

In second quarter 2000, our revolving credit and letter of credit facilities
(collectively, the "Bank Facility") were amended to expand our borrowing
capacity from $1.6 billion to $1.9 billion. The five-year $1.3 billion revolving
credit and letter of credit facility maturing in 2004 was expanded to
$1.525 billion, and the $300 million revolving credit facility, which is
renewable annually at the borrower's and lenders' options, was expanded to $375
million. The amended Bank Facility provides the Company with increased financial
flexibility without changing any of the other terms of the agreement. At
June 30, 2000, we had $521.6 million of borrowing capacity available to us.

Currently, the Bank Facility bears interest based upon 80 basis points over
LIBOR for current borrowings under the five-year facility and 85 basis points
over LIBOR for the 364-day facility. In addition, there is a facility fee for
borrowed and unborrowed amounts which is currently 20 basis points on the
five-year facility and 15 basis points on the 364-day facility. The interest
rate and facility fee are based on our current debt ratings and leverage ratio
and may change as our debt ratings and leverage ratio change.

CREDIT AGREEMENT

In June 2000, we entered into a 364-day credit agreement (the "Credit
Agreement") with a lender whereby we borrowed $150 million to redeem the Players
Notes. Interest rates, facility fees and covenants in the Credit Agreement are
identical to those provisions contained in our Bank Facility.

COMMERCIAL PAPER

To provide the Company with cost-effective borrowing flexibility, we
established a $200 million Commercial Paper program that will be used to borrow
funds for general corporate purposes. Although the debt instruments are
short-term in tenor, they are classified in long-term debt because the
Commercial Paper is backed by our Bank Facility and we have committed to keep
available capacity under our Bank Facility in an amount equal to or greater than
amounts borrowed under this program. At June 30, 2000, $13.0 million was
outstanding under this program.

LINE OF CREDIT AGREEMENT

In a program designed for short-term borrowings at lower interest rates than
the rates paid under our Bank Facility, we have entered into uncommitted line of
credit agreements with two lenders

9
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 4 - DEBT (CONTINUED)
whereby we can borrow up to $65 million for periods of ninety days or less. At
June 30, 2000, we had borrowed $20 million under these agreements. These
agreements have no impact on and do not decrease our borrowing capacity under
our Bank Facility.

INTEREST RATE AGREEMENTS

Our interest rate swap agreements, which were entered into to manage the
relative mix of our debt between fixed and variable rate instruments, have
expired and were not renewed. We have no immediate plans to enter into new swap
agreements.

EARLY EXTINGUISHMENTS OF DEBT

Approximately $2.3 million of the Players Notes were retired on April 28,
2000, in connection with a change of control offer. On June 5, 2000, we
purchased approximately $13.1 million of the Players Notes in the open market
for the face amount plus accrued interest and a premium. The remaining Players
Notes were redeemed on June 30, 2000, for the face amount plus accrued interest
and a premium. We recorded liabilities assumed in the Players acquisition,
including the notes, at their fair value as of the date of consummation of the
acquisition. The difference between the consideration paid to the holders of the
Players Notes and the carrying value of the Notes on the dates of the
redemptions was recorded in the second quarter as an extraordinary loss of $0.7
million, net of tax. We retired the Players Notes using proceeds from our new
$150 million Credit Agreement and our Bank Facility.

We redeemed the Showboat, Inc. 9 1/4% First Mortgage Bonds on May 1, 2000,
the first call date. These bonds were defeased in 1998 by purchasing treasury
securities which were deposited with trustees to pay the scheduled interest
payments to the first call date and principal on the securities outstanding on
such date.

In second quarter 1999, we redeemed all $100 million of Rio Hotel & Casino,
Inc.'s ("Rio") 10 5/8% Senior Subordinated Notes due 2005 and all $125 million
of Rio's 9 1/2% Senior Subordinated Notes due 2007. An extraordinary loss of
$4.5 million, net of tax, was recorded. In first quarter 1999, we redeemed all
$140 million of our 99.55% owned subsidiary, Showboat Marina Casino
Partnership's, 13 1/2% First Mortgage Notes due 2003 and recorded an
extraordinary loss of $2.0 million, net of tax.

NOTE 5 - LEASES

In June 2000, we sold and leased back our corporate aircraft. The lease
agreement consists of an interim term of six months, a base term of one year and
annual renewal options. The aggregate of the interim term, the base term and the
renewal options will not exceed a total of five years. Our future minimum rental
commitments under the lease agreement as of June 30, 2000, were $1.7 million and
$6.6 million payable in the years ending December 31, 2000 and 2001,
respectively. At the end of the base term, or any renewal term, we can, at our
option, (a) renew the lease; (b) purchase the equipment subject to the lease; or
(c) sell the equipment on behalf of the Lessor under the terms provided for in
the lease agreement.

10
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 6 - SUPPLEMENTAL CASH FLOW DISCLOSURES

CASH PAID FOR INTEREST AND TAXES

The following table reconciles our interest expense, net of interest
capitalized, per the Consolidated Condensed Statements of Income, to cash paid
for interest:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Interest expense, net of amount capitalized................. $108,585 $99,587
Adjustments to reconcile to cash paid for interest:
Net change in accruals.................................... (11,461) (5,411)
Amortization of deferred finance charges.................. (1,931) (5,553)
Net amortization of discounts and premiums................ 168 1,313
-------- -------

Cash paid for interest, net of amount capitalized........... $ 95,361 $89,936
======== =======

Cash payments of income taxes, net of refunds............... $ 2,358 $12,743
======== =======
</TABLE>

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES

NEW ORLEANS CASINO

The Company has an approximate 43% beneficial ownership interest in JCC
Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively,
"JCC"). JCC owns and operates an exclusive land-based casino in New Orleans,
Louisiana (the "Casino"), which is managed by a subsidiary of the Company. The
Company has guaranteed certain obligations, made certain commitments, advanced
funds and deferred collection of fees and other receivables relative to JCC, as
summarized below:

- Guaranteed $100 million annual payment obligation of JCC owed to the State
of Louisiana gaming board (the "State Obligation")

- Guaranteed $166.5 million of a $236.5 million JCC bank credit facility

- Made $27.8 million, as of June 30, 2000, in subordinated loans to JCC to
finance construction and completion of the Casino

- Agreed to certain other contractual commitments and guarantees totaling
less than $20 million

- Agreed to defer collection of certain fees under certain circumstances

- Agreed to forbear from collection of certain payments and reimbursables
arising from existing agreements with JCC

Initially, the Company guaranteed the State Obligation for the period from
October 28, 1999 to October 28, 2000 (the "Initial State Guarantee"). In
accordance with an existing agreement, the Initial State Guarantee was replaced
with a new guarantee (the "Current State Guarantee"), pursuant to which the
Company has guaranteed the State Obligation for the period from April 1, 2000 to

11
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
March 31, 2001. JCC is required to make daily payments of approximately $273,973
to satisfy the State Obligation. The Current State Guarantee obligation is
reduced to the extent JCC makes such daily payments. Payments made to the State
by the Company pursuant to the Initial State Guarantee and the Current State
Guarantee are secured by a first priority collateral security interest in JCC's
assets.

Subject to the satisfaction of certain cash flow tests and other conditions
each year, the Company is required to provide a new guarantee to the State for
each of the 12-month periods ending March 31, 2002, 2003 and 2004. For the
period ending March 31, 2002, the requirement to provide a new guarantee is
conditioned upon, among other things, JCC producing net cash flow, as defined,
of at least $15 million for the 12-month period ending November 30, 2000. Based
on results to date, it appears unlikely that JCC will satisfy this cash flow
test. In the event that JCC does not in fact satisfy this cash flow test, the
Company will not be required to guarantee the State Obligation for the 12-month
period ending March 31, 2002. If in such event the Company elects not to
voluntarily guarantee the State Obligation, and JCC cannot find a substitute
guarantor, JCC could lose its State gaming license.

Commencing February 28, 2000, JCC ceased making its daily payment in respect
of the State Obligation. On February 29, 2000, the State made a demand to the
Company pursuant to the Initial State Guarantee and the Company began making the
daily payment to the State on that date. The Company paid $9.6 million to the
State pursuant to the Initial State Guarantee. The Company's remaining
obligations pursuant to the Initial State Guarantee expired when the Company
provided the Current State Guarantee. The Company's obligations pursuant to the
Current State Guarantee for the 12-month period ending March 31, 2001 are
limited to $100 million. The Company commenced making payments in respect of the
State Obligation pursuant to the Current State Guarantee on April 1, 2000, made
payments totaling $30.4 million through July 20, 2000, and ceased making
payments on July 21, 2000, at which time JCC resumed making the payments.

Subject to certain conditions, which are presently being satisfied, JCC's
bank credit facility permits the Company to pay up to an aggregate of $40
million pursuant to the Initial State Guarantee and Current State Guarantee
without a default under that facility. The Company has agreed until March 31,
2001, to defer the collection from JCC of amounts paid pursuant to the Initial
State Guarantee and Current State Guarantee to the extent that such payments do
not exceed $40 million in the aggregate.

JCC has exercised its right, pursuant to agreements entered into at the time
of its emergence from bankruptcy in October 1998, to defer the payment of
certain management fees, credit support fees, guarantee obligations, and
interest on subordinated debt due to the Company. Such deferred payments totaled
approximately $12.6 million as of June 30, 2000. Separately, the Company and
certain Company affiliates have agreed, until December 31, 2000, to forbear from
the collection of certain fees, lease payments and reimbursable costs arising
from existing agreements with JCC that accrued through July 31, 2000. These
amounts totaled approximately $13.1 million as of June 30, 2000. Certain of
these costs accruing on or after August 1, 2000, are due and payable by JCC
pursuant to the terms of the respective underlying agreements.

12
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
structures. A reduction of the State Obligation and/or a relaxation of
operational restrictions require action by the State of Louisiana. There is no
assurance that the State will consider or take such action. Similarly, there is
no assurance that JCC will successfully restructure any or all of its
obligations in a timely and sufficient manner. Management believes that a
failure by JCC to successfully restructure its obligations in a timely and
sufficient fashion would have a material adverse effect on JCC and could result
in the loss by JCC of its State gaming license. Such failure, whether total or
in part, to timely and sufficiently restructure any or all of its obligations,
and/or such loss by JCC of its State gaming license, could result in (i) an
impairment of the Company's investment in JCC; (ii) the inability of the Company
to collect all or any of the advances made to and/or fees, rents, and
assessments owed by JCC; and/or (iii) the requirement that the Company perform
under one or more of its guarantees of JCC's debt and/or other contractual
commitments related to the Company's investment in JCC.

The Company is also aware that JCC has failed to satisfy a financial
covenant in its bank credit facility. Although the lenders have granted JCC
relief from this covenant default for a limited period, the lenders have
restricted JCC's borrowing capacity under its working capital facility. There is
no assurance that the lenders will provide continued relief from this default
without imposing additional restrictions on JCC, or at all. Discussion with the
lenders concerning these issues have commenced. In the event a default is
declared by the lenders under JCC's bank credit facility, the lenders have a
right to require the Company to perform under its guarantee of $166.5 million of
the $236.5 million JCC bank facility ($141.8 million of which was outstanding as
of June 30, 2000). Such default could materially adversely affect JCC's business
prospects and results of operations, which could result in an impairment of the
Company's investment in JCC and/or the inability of the Company to collect all
or any of the advances made to and/or fees, rents, and assessments owed by JCC.

Given the actions being undertaken by JCC described above and the many
variables involved in bringing these matters to a resolution, management is
currently unable to estimate the losses the Company would incur, individually or
in the aggregate, if JCC is partially or totally unsuccessful in such efforts.
At June 30, 2000, the Company's total investment in JCC was approximately $109
million consisting of its net equity investment and various receivables, and its
total potential liability for contingent obligations was approximately $260
million, which contingent liability includes approximately $75 million of
unfunded amounts under the Current State Guarantee as of June 30, 2000. This
unfunded sum may be reduced, as described above, and is presently being reduced.

CONTRACTUAL COMMITMENTS

We continue to pursue additional casino development opportunities that may
require, individually and in the aggregate, significant commitments of capital,
up-front payments to third parties, guarantees by the Company of third party
debt and development completion guarantees. Excluding guarantees and commitments
for the New Orleans casino discussed above, as of June 30, 2000, we had
guaranteed third party loans and leases of $91.6 million, which are secured by
certain assets, and had commitments of $182.8 million for construction-related
and other obligations.

During second quarter 1999, we performed under our guarantee of the Upper
Skagit Tribe's development financing and purchased its receivable from the
lender for $11.4 million. Under the terms of our agreement with the Tribe, it
has agreed to fund the retirement of this debt. The Tribe is

13
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
attempting to secure new financing; however, there is no assurance that its
efforts will be successful and that the receivable will be collected.

The agreements under which we manage casinos on Indian lands contain
provisions required by law, which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund this payment, we must pay the shortfall to the tribe.
Such advances, if any, would be repaid to us in future periods in which
operations generate cash flow in excess of the required minimum payment. These
commitments will terminate upon the occurrence of certain defined events,
including termination of the management contract. As of June 30, 2000, the
aggregate monthly commitment pursuant to these contracts, which extend for
periods of up to 54 months from June 30, 2000, was $1.1 million.

SEVERANCE AGREEMENTS

As of June 30, 2000, we have severance agreements with 37 of our senior
executives, which provide for payments to the executives in the event of their
termination after a change in control, as defined. These agreements provide,
among other things, for a compensation payment of 1.5 to 3.0 times the
executive's average annual compensation, as defined, as well as for accelerated
payment or accelerated vesting of any compensation or awards payable to the
executive under any of our incentive plans. The estimated amount, computed as of
June 30, 2000, that would be payable under the agreements to these executives
based on earnings and stock options aggregated approximately $55.7 million.

TAX SHARING AGREEMENTS

In connection with the 1995 spin-off of certain hotel operations (the "PHC
Spin-off") to Promus Hotel Corporation ("PHC"), we entered into a Tax Sharing
Agreement with PHC wherein each company is obligated for those taxes associated
with their respective businesses. Additionally, we are obligated for all taxes
for periods prior to the PHC Spin-off date which are not specifically related to
PHC operations and/or PHC hotel locations. Our obligations under this agreement
are not expected to have a material adverse effect on our consolidated financial
position or results of operations.

SELF-INSURANCE

We are self-insured for various levels of general liability, workers'
compensation and employee medical coverage. We also have stop loss coverage to
protect against unexpected claims. Insurance claims and reserves include
accruals of estimated settlements for known claims, as well as accruals of
actuarial estimates of incurred but not reported claims.

NOTE 8 - LITIGATION

We are involved in various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, we believe that the final outcome of these matters will not have
a material adverse effect upon our consolidated financial position or our
results of operations.

14
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 9 - NONCONSOLIDATED AFFILIATES

Summarized balance sheet and income statement information of nonconsolidated
affiliates as of June 30, 2000 and December 31, 1999, and for the second
quarters and six months ended June 30, 2000 and 1999, is included in the
following tables.

<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
2000 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Combined Summarized Balance Sheet Information
Current assets............................................ $ 75,800 $ 73,560
Land, buildings and equipment, net........................ 398,649 570,204
Other assets.............................................. 128,506 130,889
--------- ---------
Total assets............................................ 602,955 774,653
--------- ---------
Current liabilities....................................... 130,465 100,336
Long-term debt............................................ 494,758 437,756
--------- ---------
Total liabilities....................................... 625,223 538,092
--------- ---------
Net assets............................................ $ (22,268) $ 236,561
========= =========
</TABLE>

15
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 9 - NONCONSOLIDATED AFFILIATES (CONTINUED)

<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Combined Summarized Statements of Operations
Revenues.......................................... $133,236 $ 99,073 $246,386 $187,656
======== ======== ======== ========

Operating loss.................................... $(16,347) $(12,593) $(58,804) $(16,012)
======== ======== ======== ========

Net loss.......................................... $(30,662) $(12,997) $(83,841) $(27,287)
======== ======== ======== ========
</TABLE>

Our share of nonconsolidated affiliates' combined net operating results are
reflected in the accompanying Consolidated Condensed Statements of Income as
Equity in losses of nonconsolidated affiliates.

Our investments in and advances to nonconsolidated affiliates are reflected
in the accompanying Consolidated Condensed Balance Sheets as follows:

<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
2000 1999
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Investments in and advances to nonconsolidated affiliates
Accounted for under the equity method..................... $127,014 $167,828
Accounted for at historical cost.......................... 5,166 -
Equity securities available-for-sale and recorded at
market value............................................ 1,059 683
-------- --------
$133,239 $168,511
======== ========
</TABLE>

With the acquisition of Players in March 2000, we increased our ownership
interest in the St. Louis shoreside facilities joint venture to 100% and began
consolidating that operation with our St. Louis operations upon the closing of
the acquisition.

In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", we adjust the carrying value of certain marketable equity
securities to include unrealized gains and losses. A corresponding adjustment is
recorded in our stockholders' equity and deferred income tax accounts.

NOTE 10 - SUMMARIZED FINANCIAL INFORMATION

Harrah's Operating Company, Inc. ("HOC") is a wholly-owned subsidiary and
the principal asset of Harrah's Entertainment. HOC is the issuer of certain debt
securities that have been guaranteed by Harrah's Entertainment. Due to the
comparability of HOC's consolidated financial information with that of Harrah's
Entertainment, complete separate financial statements and other disclosures
regarding HOC have not been presented. Management has determined that such
information is not material to holders of HOC's debt securities. Summarized
financial information of HOC as of June 30, 2000 and

16
<PAGE>
HARRAH'S ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(UNAUDITED)

NOTE 10 - SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
December 31, 1999, and for the second quarters and six months ended June 30,
2000 and 1999, prepared on the same basis as Harrah's Entertainment, was as
follows:

<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
2000 1999
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Current assets.............................................. $ 481,861 $ 481,437

Land, buildings, riverboats and equipment, net.............. 3,487,783 3,061,230
Goodwill.................................................... 671,875 505,217
Other assets................................................ 421,717 713,649
---------- ----------
5,063,236 4,761,533
---------- ----------

Current liabilities......................................... 565,410 353,534
Long-term debt.............................................. 2,707,466 2,540,268
Other liabilities........................................... 354,696 349,782
Minority interests.......................................... 20,705 18,949
---------- ----------
3,648,277 3,262,533
---------- ----------

Net assets.............................................. $1,414,959 $1,499,000
========== ==========
</TABLE>

<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
--------------------- -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues......................................... $879,065 $751,012 $1,662,595 $1,462,597
======== ======== ========== ==========

Income from operations........................... $134,830 $124,444 $ 234,916 $ 236,856
======== ======== ========== ==========

Income before extraordinary losses............... $ 46,234 $ 48,534 $ 76,973 $ 85,834
======== ======== ========== ==========

Net income....................................... $ 45,518 $ 41,159 $ 76,257 $ 75,211
======== ======== ========== ==========
</TABLE>

Certain of our debt guarantees contain covenants, which, among other things,
place limitations on HOC's ability to pay dividends and make other restricted
payments, as defined, to Harrah's Entertainment. The amount of HOC's restricted
net assets, as defined, computed in accordance with the most restrictive of
these covenants regarding restricted payments, was approximately $1.41 billion
at June 30, 2000.

17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of the financial position and
operating results of Harrah's Entertainment, Inc. (referred to in this
discussion, together with its consolidated subsidiaries where appropriate, as
"Harrah's Entertainment", "Company", "we", "our" and "us") for second quarter
and first six months of 2000 and 1999, updates, and should be read in
conjunction with, Management's Discussion and Analysis of Financial Position and
Results of Operations presented in our 1999 Annual Report.

We are the leading consumer marketing company in the gaming industry,
operating casinos in more markets than any other casino company. We seek to
differentiate ourselves through a unique strategy aimed at building loyalty to
our brands from our guests. To accomplish this objective, we focus on continued
investment and emphasis on marketing, technology and database programs, a
commitment to service and a broadened national appeal. We begin our review with
a discussion of an acquisition that positions our Company to continue its
progress toward achieving our strategic objectives.

PLAYERS ACQUISITION

We paid approximately $294 million in cash and assumed $150 million in
Players 10 7/8% Senior Notes due 2005 (the "Players Notes"). The acquisition was
funded by our Bank Facility (see DEBT AND LIQUIDITY) and is being accounted for
as a purchase. The purchase price is being allocated to the underlying assets
and liabilities based upon their estimated fair values at the date of
acquisition. We are determining the estimated fair values based on independent
appraisals, discounted cash flows, quoted market prices and estimates made by
management. The allocation of the purchase price will be completed within one
year from the date of the acquisition. To the extent that the purchase price
exceeds the fair value of the net identifiable tangible assets acquired, such
excess will be allocated to goodwill and amortized over 40 years. Until we
complete the purchase price allocation, our financial statements will include
estimated goodwill amortization expense. See DEBT AND LIQUIDITY for a discussion
of the retirement of the Players Notes.

OPERATING RESULTS AND DEVELOPMENT PLANS

OVERALL

Second quarter 2000 revenues increased 17.0% over second quarter 1999, and
net income increased 14.7% from the same period last year. The primary factors
contributing to the increase in revenues and net income were inclusion of the
Players properties for the first full quarter since their acquisition and
improved performances at our Harrah's brand properties. Partially offsetting
these increases was the impact of a low table games hold percentage at the Rio
Hotel & Casino ("Rio") in Las Vegas, Nevada.

Second quarter gaming revenues at owned and managed properties, which were
in our system during second quarter 2000 and second quarter 1999, grew 7.2% over
the same period last year.

18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Excluding properties acquired or opened since June 1998, company-owned and
managed properties generated same-store gaming revenue growth of 11.7% over
second quarter 1999.

Revenues for the six months ended June 30, 2000, were up 13.7% over revenues
for the same period last year and net income was up 3.5%. These results reflect
the impact of the March 2000 Players acquisition and the low table-games hold
percentage experienced by Rio during the first half of 2000.

WESTERN REGION

<TABLE>
<CAPTION>
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE
------------------- INCREASE/ ------------------- INCREASE/
2000 1999 (DECREASE) 2000 1999 (DECREASE)
(IN MILLIONS) -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues.................... $168.0 $175.7 (4.4)% $340.0 $352.8 (3.6)%
Total revenues..................... 273.6 283.0 (3.3)% 549.0 565.4 (2.9)%
Operating profit................... 25.0 43.9 (43.1)% 48.7 88.8 (45.2)%
Operating margin................... 9.1% 15.5% (6.4)pts 8.9% 15.7% (6.8)pts
</TABLE>

The declines in second quarter 2000 revenues and operating income from the
same period last year were primarily due to a well-below-average table games
hold percentage at Rio, where second quarter revenues were 19.6% below second
quarter 1999, and an operating loss of $9.5 million was reported compared to
operating income of $16.1 million for the same period last year. In addition to
the revenue shortfalls, operating margin at the Rio declined due to the
increased marketing and promotional costs incurred by the property in an effort
to maintain its competitive position in the market and due to increased
entertainment costs. Despite higher entertainment costs, the new theater at Rio
has not yet attracted a significant increase in entertainment revenues.

Our Southern Nevada Harrah's properties posted record second quarter
revenues, increased operating income 14.6% and increased operating margin 1.3
points over the same period last year. Northern Nevada revenues were also a
second quarter record, up 8.2% over the same period last year. Operating income
in Northern Nevada was 36.7% higher than the same period last year resulting
from successful marketing programs and cost savings efforts at Harrah's Reno and
increased visitation at Lake Tahoe driven by the introduction of Total Rewards,
our nationwide customer rewards program. A renovation program was completed
during the quarter at Lake Tahoe and a new events plaza opened during the
quarter at Reno.

In second quarter 2000, Rio opened its new $32 million showroom complex,
which includes a 1,500 seat, state-of-the-art theater with balcony; a
three-level lobby with hospitality center; and a theater promenade with
approximately 10,000 square feet of retail space. The showroom complex is
located adjacent to the Pavilion, Rio's 110,000 square foot
entertainment/convention complex, which opened in March 1999.

For the six months ended June 30, 2000, revenues increased 5.1% in Northern
Nevada and 7.1% at Harrah's Southern Nevada properties, but declined 15.7% at
the Rio. The impact of the low table-games hold percentage and increased costs
at the Rio during the first six months of 2000 more than offset improved
operating profit at the Harrah's properties, causing Western Region operating
profit to decline 45.2% from the same six month period last year.

19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
During first quarter 2000, we completed the sale for cash of the Showboat
Las Vegas property, which was acquired in our June 1998 acquisition of Showboat,
Inc. No gain or loss resulted from the sale of this nonstrategic asset.

EASTERN REGION

<TABLE>
<CAPTION>
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE
------------------- INCREASE/ ------------------- INCREASE/
2000 1999 (DECREASE) 2000 1999 (DECREASE)
(IN MILLIONS) -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues......................... $190.3 $183.1 3.9% $364.6 $350.9 3.9%
Total revenues.......................... 202.4 196.8 2.8% 387.8 375.8 3.2%
Operating profit........................ 49.3 45.4 8.6% 87.5 81.5 7.4%
Operating margin........................ 24.4% 23.1% 1.3pts 22.6% 21.7% 0.9pts
</TABLE>

Eastern Region results were driven by Harrah's Atlantic City's record
revenues and operating profit for the quarter. While Showboat Atlantic City's
revenues were basically level compared to second quarter 1999, operating income
declined 7.2% due to increased marketing and promotional costs. We believe that
the above-market growth achieved by Harrah's Atlantic City is due to the
successful execution by the property of strategic marketing programs utilizing
the available technological tools offered by our WINet customer database and
Total Rewards program. Showboat Atlantic City was integrated into the Total
Rewards customer-loyalty program in late June 2000.

For the first six months of 2000, the Eastern Region's increases in revenues
and operating profits were due to the strength of Harrah's Atlantic City's
operations, where revenues increased 6.6% and operating profit increased 24.3%.

In April 2000, we announced plans for a 450-room expansion at Harrah's
Atlantic City, increasing the hotel's capacity to more than 1,600 rooms. The
expansion is expected to cost approximately $110 million and is scheduled to be
completed in first quarter 2002. The expansion is subject to regulatory
approvals.

CENTRAL REGION

<TABLE>
<CAPTION>
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE
------------------- INCREASE/ ------------------- INCREASE/
2000 1999 (DECREASE) 2000 1999 (DECREASE)
(IN MILLIONS) -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Casino revenues......................... $362.6 $240.7 50.6% $619.0 $461.9 34.0%
Total revenues.......................... 382.0 252.6 51.2% 683.5 485.6 40.8%
Operating profit........................ 83.1 50.8 63.6% 151.9 92.0 65.1%
Operating margin........................ 21.8% 20.1% 1.7pts 22.2% 18.9% 3.3pts
</TABLE>

CHICAGOLAND/ILLINOIS - Second quarter revenues increased 43.3% at Harrah's
Joliet and operating profit increased 64.6% compared to the same period last
year. These results are attributable to the mid-1999 elimination of cruise
scheduling and ticketing and the fourth quarter opening of the new hotel at this
property. Subject to regulatory approvals, we plan to convert the casino in
Joliet from cruising riverboats to barges and are considering our options for
utilizing the riverboats, which we will remove from service in Joliet, to
upgrade existing casino products at other riverboat properties. Harrah's East
Chicago revenues increased 18.1% over second quarter 1999 and operating income

20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
increased 27.0%. We believe that these results were driven by the March 1999
re-branding of this property to the Harrah's brand and the successful execution
of the Company's loyalty strategy in East Chicago. On August 1, 2000 we
announced plans to construct a 292-room hotel at the East Chicago property. This
project is expected to cost approximately $47.0 million and is targeted for
completion in fourth quarter 2001. This project is subject to regulatory
approvals.

For the six months ended June 30, 2000, Harrah's Joliet's revenues increased
51.3% and operating income increased 91.2%. Revenues at Harrah's East Chicago
increased 28.2% over the comparable six-month period last year and operating
income increased 68.9% compared to the first six months of 1999.

Players Metropolis contributed $29.0 million in revenues and $9.0 million in
operating income for second quarter 2000, which was the first full quarter
reported since our March 22, 2000, acquisition of Players. Results at this
property benefited from the mid-1999 change in regulations to allow dockside
gaming in Illinois. Metropolis is expected to be converted to the Harrah's brand
in the second half of 2001.

LOUISIANA - Harrah's Shreveport's revenues and operating profit for the
second quarter and first six months decreased from the same periods last year
due to an on-going construction program and costs of promotions mounted to
sustain business during construction activities. Construction began in May 1999
on a 514-room hotel with almost 18,000 square feet of convention center space.
The new hotel and amenity expansion is expected to cost $146.6 million, of which
$70.2 million had been spent through June 30, 2000. Weather related delays have
pushed the expected completion date on the expansion to first quarter 2001.

Players Lake Charles contributed $38.6 million in revenues and $7.2 million
in operating income during second quarter 2000. We are currently investing
approximately $40 million to upgrade the slot product and infrastructure of the
Lake Charles property. This capital expenditure includes the cost of replacing
one of the existing Players boats with a renovated riverboat that we purchased
in 1998. We plan to rebrand this property to Harrah's by the end of 2000.

MISSISSIPPI - Combined second quarter revenues by our Mississippi properties
increased 4.2% over second quarter 1999 and operating profit increased 33.2%
over the same quarter last year. For the first six months of 2000, revenues
increased 6.6% and operating profit increased 24.4% compared with the comparable
period last year.

MISSOURI - Second quarter revenues at our Missouri properties increased
37.8% and operating profit increased 34.9% over the comparable period in 1999.
Revenue increases are primarily attributable to Harrah's St. Louis, where
revenues were 92.3% higher than in second quarter last year due principally to
the integration of Players St. Louis and the Harrah's/Players jointly-owned
shoreside facilities into the Harrah's St. Louis operations. Harrah's North
Kansas City posted record second quarter revenues and increased operating profit
by 23.4% over the same quarter last year. Missouri properties' revenues
increased 26.6% and operating profit increased 39.6% for the first six months of
2000 compared to the same period last year. The Missouri properties' revenues
have benefited from the elimination in the second half of 1999 of restricted
boarding schedules, but operating profit was affected by higher admission taxes.

The St. Louis shoreside facilities were owned jointly with Players prior to
our March 22, 2000, acquisition of that company. Our pro rata share of the 2000
operating losses of the joint venture through the date of the Players
acquisition was $2.4 million. These losses are included in Equity in

21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
losses of nonconsolidated affiliates in the Consolidated Condensed Statements of
Income (see Other Factors Affecting Net Income). Subsequent to the Players
acquisition, results of the shoreside facilities, as well as for Players St.
Louis operations, are combined with Harrah's St. Louis' operating results.

In May 2000, we announced plans for facilities enhancements to Harrah's
North Kansas City, including approximately 28,000 square feet of additional
gaming space. The enhancements are expected to cost approximately $44.1 million
and are expected to be completed in second quarter 2001. The expansion is
subject to regulatory approvals. Upon completion of this project, the North Star
riverboat may be deployed to another property.

MANAGED AND OTHER CASINOS

Our managed and other casinos results reflect the addition of fees from
Harrah's New Orleans, which opened in fourth quarter 1999 and the impact on our
management fee percentages of recent renewal and extension agreements for two of
the Indian-owned facilities that we manage. See DEBT AND LIQUIDITY - Guarantees
of Third Party Debt and Other Commitments for a discussion of our agreements to
defer collection of fees from New Orleans.

During first quarter 2000 we signed a definitive agreement with the Rincon
San Luiseno Band of Mission Indians to build and manage a $110 million casino
and hotel on Rincon tribal land 25 miles north of San Diego. This location
provides convenient access to metropolitan San Diego, La Jolla, Del Mar,
Escondido and Orange County, California.

The Tribe plans to construct a temporary casino facility, which is expected
to begin operations in fourth quarter 2000. We have committed to provide up to
$14.6 million to finance this development and to provide the Tribe technical
service related to the development and operation of the temporary casino, but we
will not manage the temporary facility. The permanent facility, the cost of
which is to be funded by a third-party loan that we expect to guarantee, is
expected to open in fourth quarter 2001. We expect to manage the permanent
facility for a fee. The operation of the permanent casino project is subject to
various approvals, including approvals of the National Indian Gaming Commission.

See DEBT AND LIQUIDITY for further discussion of Harrah's guarantees of debt
related to Indian projects.

We ceased management of the Star City casino in Sydney, Australia, in
January 2000 upon the completion of the buy-out of our management contract by
another company. No material gain or loss was recognized on the sale of this
management contract.

22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OTHER FACTORS AFFECTING NET INCOME

<TABLE>
<CAPTION>
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE
---------------------- INCREASE/ ---------------------- INCREASE/
2000 1999 (DECREASE) 2000 1999 (DECREASE)
(IN MILLIONS) -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
(INCOME)/EXPENSE
Development costs................... $ 1.7 $ 1.5 13.3% $ 3.9 $ 2.3 69.6%
Write-downs, reserves and
recoveries........................ 0.6 (1.6) N/M 0.4 (1.5) N/M
Project opening costs............... 1.5 - N/M 1.7 0.4 N/M
Corporate expense................... 14.6 13.5 8.1% 25.6 21.4 19.6%
Headquarters relocation and
reorganization expense............ 0.9 1.4 (35.7)% 2.7 4.5 (40.0)%
Equity in losses of nonconsolidated
affiliates........................ 10.6 6.2 71.0% 34.3 12.8 168.0%
Venture restructuring costs......... - - - - (0.4) N/M
Amortization of goodwill and
trademarks........................ 5.3 4.4 20.5% 9.9 9.0 10.0%
Interest expense, net............... 58.1 48.7 19.3% 108.6 99.6 9.0%
Other income, including interest
income............................ (1.2) (4.4) (72.7)% (4.8) (6.6) (27.3)%
Effective tax rate.................. 36.1% 36.3% (0.2)pts 35.6% 37.3% (1.7)pts
Minority interests.................. $ 3.5 $ 2.6 34.6% $ 7.4 $ 4.3 72.1%
Extraordinary loss, net of income
taxes............................. 0.7 7.4 (90.5)% 0.7 10.6 (93.4)%
</TABLE>

Development costs for second quarter 2000 increased slightly from the same
period last year. However, development activities were limited in both periods
due to the limited number of new markets opening for development.

Corporate expense increased for second quarter and the first six months of
2000 from the prior year, but were only 1.7% and 1.5% of revenues for the second
quarter and six months ended June 30, 2000, respectively, compared to 1.8% and
1.5%, respectively, for the same periods last year. Costs related to the
relocation of the Company's headquarters to Las Vegas, Nevada, declined in 2000
as relocation activity began to subside.

The increase in Equity in losses of nonconsolidated affiliates for second
quarter 2000 reflects the increase in losses from Harrah's New Orleans, which
began operations subsequent to second quarter 1999. Second quarter 1999
reflected losses from our share of National Airlines, Inc.'s ("NAI") preopening
costs and our pro rata share of the losses from the St. Louis shoreside
facilities. In second quarter 2000, NAI reported net income for the first time,
of which our pro rata share was $0.4 million. With the acquisition of Players in
March 2000, the St. Louis shoreside facilities are included in our St. Louis
operations. For the six months ended June 30, 2000, the increase in Equity in
losses of nonconsolidated affiliates reflects the increase in losses from
Harrah's New Orleans and NAI and our pro rata share of the losses from the St.
Louis shoreside facilities through the date of the Players acquisition.

Amortization of goodwill and trademarks increased for the second quarter and
six months from the same periods last year due to the Players acquisition in
March 2000. Until such time as the Players purchase price allocation is
finalized, amortization expense includes estimates for amortization related to
the Players acquisition.

23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Interest expense increased for the second quarter and the first six months
of 2000 due to increased borrowings for the Players acquisition and our stock
repurchase program.

Other income decreased in the second quarter and the first half of 2000 due
to lower income earned on the cash surrender value of company owned life
insurance policies.

The effective tax rates for both periods are higher than the federal
statutory rate primarily due to state income taxes and the portion of our
goodwill amortization that is not deductible for tax purposes.

Minority interests reflects joint venture partners' share of income, which
increased in 2000 from the prior year as a result of higher earnings from those
ventures.

The extraordinary losses reported in both years were due to the early
extinguishments of debt and include premiums paid to the holders of the debt
retired and the write-off of related unamortized deferred finance charges. (See
DEBT AND LIQUIDITY - Extinguishments of Debt.)

CAPITAL SPENDING AND DEVELOPMENT

In addition to the specific development and expansion projects discussed in
OPERATING RESULTS AND DEVELOPMENT PLANS, we perform on-going refurbishment and
maintenance at our casino entertainment facilities in order to maintain the
Company's quality standards. We also continue to pursue development and
acquisition opportunities for additional casino entertainment facilities that
meet our strategic and return on investment criteria. Prior to the receipt of
necessary regulatory approvals, the costs of pursuing development projects are
expensed as incurred. Construction-related costs incurred after the receipt of
necessary approvals are capitalized and depreciated over the estimated useful
life of the resulting asset. Project opening costs are expensed as incurred.

Our planned development projects, if they go forward, will require,
individually and in the aggregate, significant capital commitments and, if
completed, may result in significant additional revenues. The commitment of
capital, the timing of completion and the commencement of operations of casino
entertainment development projects are contingent upon, among other things,
negotiation of final agreements and receipt of approvals from the appropriate
political and regulatory bodies. Cash needed to finance projects currently under
development, as well as additional projects pursued, is expected to be made
available from operating cash flows, bank borrowings (see DEBT AND LIQUIDITY),
joint venture partners, specific project financing, guarantees of third party
debt and, if necessary, additional debt and/or equity offerings. Our capital
spending for the first six months of 2000 totaled approximately $268.0 million.
Estimated total capital expenditures for 2000 are expected to be between $430
million and $500 million, excluding the acquisition of Players.

DEBT AND LIQUIDITY

FINANCING ACTIVITIES

BANK FACILITY - In second quarter 2000, our revolving credit and letter of
credit facilities (collectively, the "Bank Facility") were amended to expand our
borrowing capacity from $1.6 billion to $1.9 billion. The five-year $1.3 billion
revolving credit and letter of credit facility maturing in 2004 was expanded to
$1.525 billion, and the $300 million revolving credit facility, which is
renewable annually at the borrower's and lenders' options, was expanded to $375
million. The amended Bank Facility provides the Company with increased financial
flexibility without changing any of the other terms of the agreement. At
June 30, 2000, we had $521.6 million of borrowing capacity available to us.

24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Currently, the Bank Facility bears interest based upon 80 basis points over
LIBOR for current borrowings under the five-year facility and 85 basis points
over LIBOR for the 364-day facility. In addition, there is a facility fee for
borrowed and unborrowed amounts, which is currently 20 basis points on the
five-year facility and 15 basis points on the 364-day facility. The interest
rate and facility fee are based on our current debt ratings and leverage ratio
and may change as our debt ratings and leverage ratio change.

CREDIT AGREEMENT - On June 25, 2000, we entered into a 364-day credit
agreement with a lender whereby we borrowed $150 million to redeem the Players
Notes. Interest rates, facility fees and covenants in the credit agreement are
identical to those provisions contained in our Bank Facility.

COMMERCIAL PAPER - To provide the Company with cost-effective borrowing
flexibility, we established a $200 million Commercial Paper program that will be
used to borrow funds for general corporate purposes. Although the debt
instruments are short-term in tenor, they are classified in long-term debt
because the Commercial Paper is backed by our Bank Facility and we have
committed to keep available capacity under our Bank Facility in an amount equal
to or greater than amounts borrowed under this program. At June 30, 2000, we had
borrowed $13.0 million under this program.

LINE OF CREDIT AGREEMENT - In a program designed for short-term borrowings
at lower interest rates than the rates paid under our Bank Facility, we have
entered into uncommitted line of credit agreements with two lenders whereby we
can borrow up to $65 million for periods of ninety days or less. At June 30,
2000, we had borrowed $20 million under these agreements. These agreements have
no impact on and do not decrease our borrowing capacity under our Bank Facility.

SYNTHETIC LEASE AGREEMENTS

In June 2000 we sold and leased back our corporate aircraft. The lease
agreement consists of an interim term of six months, a base term of one year and
annual renewal options. The aggregate of the interim term, the base term and the
renewal options will not to exceed a total of five years. At the end of the base
term, or any renewal, term we can, at our option, (a) renew the lease;
(b) purchase the equipment subject to the lease; or (c) sell the equipment on
behalf of the Lessor under the terms provided for in the Lease Agreement.

EQUITY REPURCHASE PROGRAM

Under plans authorized by our Board of Directors in July 1999 and
April 2000, we have repurchased 9.4 million shares of the Company's stock in the
open market this year. Spending for these repurchases has totaled approximately
$198.5 million for the six months ended June 30, 2000. The repurchases were
funded through available operating cash and borrowings from our Bank Facility.
Shares purchased during second quarter 2000 completed the plan approved by our
Board of Directors in July 1999 for the repurchase of 10 million shares. Another
7.5 million shares may be purchased under the April 2000 plan, which will expire
December 31, 2001.

INTEREST RATE AGREEMENTS

25
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RETIREMENT OF DEBT

We redeemed Showboat, Inc.'s 9 1/4% First Mortgage Bonds on May 1, 2000, the
first call date. These bonds were defeased in 1998 by purchasing treasury
securities which were deposited with trustees to pay the scheduled interest
payments to the first call date and principal on the securities outstanding on
such date.

In second quarter 1999, we redeemed all $100 million of Rio's 10 5/8% Senior
Subordinated Notes due 2005 and all $125 million of Rio's 9 1/2% Senior
Subordinated Notes due 2007. An extraordinary loss of $4.5 million, net of tax,
was recorded. In first quarter 1999, we redeemed all $140 million of our 99.55%
owned subsidiary, Showboat Marina Casino Partnership's, 13 1/2% First Mortgage
Notes due 2003 and recorded an extraordinary loss of $2.0 million, net of tax.

GUARANTEES OF THIRD PARTY DEBT AND OTHER COMMITMENTS

JCC HOLDING COMPANY - The Company has an approximate 43% beneficial
ownership interest in JCC Holding Company and its subsidiary, Jazz Casino
Company, LLC (collectively, "JCC"). JCC owns and operates an exclusive
land-based casino in New Orleans, Louisiana (the "Casino"), which is managed by
a subsidiary of the Company. The Company has guaranteed certain obligations,
made certain commitments, advanced funds and deferred collection of fees and
other receivables relative to JCC, as summarized below:

- Guarantee of $100 million annual payment obligation of JCC owed to the
State of Louisiana gaming board (the "State Obligation")

- Guaranteed $166.5 million of a $236.5 million JCC bank credit facility

- Made $27.8 million, as of June 30, 2000, in subordinated loans to JCC to
finance construction and completion of the Casino

- Agreed to certain other contractual commitments and guarantees totaling
less than $20 million

- Agreed to defer collection of certain fees under certain circumstances

- Agreed to forbear from collection of certain payments and reimbursables
arising from existing agreements with JCC

26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Obligation. The Current State Guarantee obligation is reduced to the extent JCC
makes such daily payments. Payments made to the State by the Company pursuant to
the Initial State Guarantee and the Current State Guarantee are secured by a
first priority collateral security interest in JCC's assets.

Commencing February 28, 2000, JCC ceased making its daily payment in respect
of the State Obligation. On February 29, 2000, the State made a demand to the
Company pursuant to the Initial State Guarantee and the Company began making the
daily payment to the State on that date. The Company paid $9.6 million to the
State pursuant to the Initial State Guarantee. The Company's remaining
obligations pursuant to the Initial State Guarantee expired when the Company
provided the Current State Guarantee. The Company's obligations pursuant to the
Current State Guarantee for the 12-month period ending March 31, 2001, are
limited to $100 million. The Company commenced making payments in respect of the
State Obligation pursuant to the Current State Guarantee on April 1, 2000, made
payments totaling $30.4 million through July 20, 2000, and ceased making
payments on July 21, 2000, at which time JCC resumed making the payments.

Subject to certain conditions, which are presently being satisfied, JCC's
bank credit facility permits the Company to pay up to an aggregate of $40
million pursuant to the Initial State Guarantee and the Current State Guarantee
without a default under that facility. The Company has agreed until March 31,
2001, to defer the collection from JCC of amounts paid pursuant to the Initial
State Guarantee and Current State Guarantee to the extent that such payments do
not exceed $40 million in the aggregate.

The Company is aware that, given liquidity issues facing JCC, JCC is
exploring alternatives to restructure its obligations. Possible alternatives
include requesting a reduction of the State Obligation, seeking relaxation of
certain operational restrictions, and pursuing adjustments to its debt and
capital structures. A reduction of the State Obligation and/or a relaxation of
operational restrictions require action by the State of Louisiana. There is no
assurance that the State will consider or take such action. Similarly, there is
no assurance that JCC will successfully restructure any or all of its
obligations in a timely and sufficient manner. Management believes that a
failure by JCC to successfully restructure its obligations in a timely and
sufficient fashion would have a material adverse effect on JCC and could

27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
result in the loss by JCC of its State gaming license. Such failure, whether in
total or in part, to timely and sufficiently restructure any or all of its
obligations, and/or such loss by JCC of its State gaming license, could result
in (i) an impairment of the Company's investment in JCC; (ii) the inability of
the Company to collect all or any of the advances made to and/or fees, rents,
and assessments owed by JCC; and/or (iii) the requirement that the Company
perform under one or more of its guarantees of JCC's debt and/or other
contractual commitments related to the Company's investment in JCC.

The Company is also aware that JCC has failed to satisfy a financial
covenant in its bank credit facility. Although the lenders have granted JCC
relief from this covenant default for a limited period, the lenders have
restricted JCC's borrowing capacity under its working capital facility. There is
no assurance that the lenders will provide continued relief from this default
without imposing additional restrictions on JCC, or at all. Discussions with the
lenders concerning these issues have commenced. In the event a default is
declared by the lenders under JCC's bank credit facility, the lenders have a
right to require the Company to perform under its guarantee of $166.5 million of
the $236.5 million JCC bank facility ($141.8 million of which was outstanding as
of June 30, 2000). Such default could materially adversely affect JCC's business
prospects and results of operations, which could result in an impairment of the
Company's investment in JCC and/or the inability of the Company to collect all
or any of the advances made to and/or fees, rents and assessments owed by JCC.

INDIAN AGREEMENTS - The agreements under which we manage

casinos on Indian lands contain provisions required by law, which provide
that a minimum monthly payment be made to the tribe. That obligation has
priority over scheduled repayments of borrowings for development costs. In the
event that insufficient cash flow is generated by the operations to fund this
payment, we must pay the shortfall to the tribe. Such advances, if any, would be
repaid to us in future periods in which operations generate cash flow in excess
of the required minimum payment. These commitments will terminate upon the
occurrence of certain defined events, including termination of the management
contract. Our aggregate monthly commitment pursuant to the contracts for the
three Indian-owned facilities now open, which extend for periods of up to 54
months from June 30, 2000, is $1.1 million.

We may guarantee all or part of the debt incurred by Indian tribes with
which we have entered a management contract to fund development of casinos on
the Indian lands. For all existing guarantees of Indian debt, we have obtained a
first lien on certain personal property (tangible and intangible) of the casino
enterprise. There can be no assurance, however, the value of such property would
satisfy our obligations in the event these guarantees were enforced.
Additionally, we have received limited waivers from the Indian tribes of their
sovereign immunity to allow us to pursue our rights under the contracts between
the parties and to enforce collection efforts as to any assets in which a
security interest is taken. The aggregate outstanding balance of such debt as of
June 30, 2000, was $65.3 million.

28
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NAI - We have provided $10 million in loans to NAI at June 30, 2000. In
addition, we have provided letters of credit on behalf of NAI totaling $21
million dollars. $16 million in letters of credit serve as collateral to credit
card processors in order to enable NAI to receive proceeds from the credit card
processors for advance ticket sales. The remaining $5 million serves as
collateral to enable NAI to secure space in airport terminals. We entered into
an agreement with another investor of NAI whereby that investor will reimburse
to us approximately sixty percent of any amount that we might pay in response to
demands on the letters of credit.

EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS

COMPETITIVE PRESSURES

Due to the limited number of new markets opening for development, many
casino operators are investing in existing markets in an effort to attract new
customers, thereby increasing competition in those markets. With the exception
of the additional supply being added in Las Vegas, the amount of supply change
in the long-established gaming markets of Nevada and New Jersey has represented
a smaller percentage change than that experienced in some riverboat markets. In
riverboat markets, the additions to supply had a more noticeable impact, due to
the fact that competition was limited in the early stages of many of these
markets. As companies have completed expansion projects, supply has typically
grown at a faster pace than demand in some markets and competition has increased
significantly. Furthermore, several operators, including Harrah's, have
announced plans for additional developments or expansions in some markets. In
the Las Vegas market, four new "mega" facilities have opened since October 1998,
and others are planned and under development, including one scheduled to open in
third quarter 2000. The impact that the additional supply will have on our
operations cannot be determined at this time.

Although the short-term effect of these competitive developments on the
Company has been negative, we are not able to determine the long-term impact,
whether favorable or unfavorable, that these trends and events will have on our
current or future markets. We believe that the geographic diversity of our
operations; our focus on multi-market customer relationships; our service
training, measurements and rewards programs; and our continuing efforts to
establish our brands as premier brands have well-positioned us to face the
challenges present within the industry. In 1997, we introduced WINet, a
sophisticated nationwide customer database, and our Total Gold Card, a
nationwide reward and recognition card, both of which we believe provide
competitive advantages, particularly with players who visit more than one
market. During 1999, we implemented the next stage of our strategy with the
launch of the tiered customer loyalty card program - Total Diamond, Total
Platinum and Total Gold - to reward customers for choosing Harrah's
Entertainment casinos. During second quarter 2000, we launched our new customer
loyalty program - Total Rewards - which offers significant enhancements to Total
Gold and provides our customers with a simpler understanding of exactly how to
earn the cash, comps and other benefits they want. The Rio and Showboat
properties are expected to be integrated into the Total Rewards program during
2000.

INDUSTRY CONSOLIDATION

As evidenced by the number of recent public announcements by casino
entertainment companies of plans to acquire or be acquired by other companies,
including our acquisitions of Showboat, Rio and Players, consolidation in the
gaming industry continues. We believe we are well-positioned to, and may from
time to time, pursue additional strategic acquisitions to further enhance our
distribution,

29
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
strengthen our access to target customers and leverage our technological and
centralized services infrastructure.

POLITICAL UNCERTAINTIES

The casino entertainment industry is subject to political and regulatory
uncertainty. In 1996, the U.S. government formed a federal commission to study
gambling in the United States, including the casino gaming industry. The
commission issued its report in June 1999. In September 1999, the State of
California and approximately 60 Indian tribes executed Class III Gaming
Compacts, which other California tribes can join. The Compacts, when effective,
will allow each tribe to operate, on tribal trust lands, two casinos with up to
2,000 slot machines per tribe and unlimited house-banked card games. At this
time, the ultimate impacts that the National Gaming Impact Study Commission
report and the California Compacts may have on the industry or on our Company
are uncertain. From time to time, individual jurisdictions have also considered
legislation or referendums that could adversely impact our operations, and the
likelihood or outcome of similar legislation and referendums in the future is
difficult to predict.

The casino entertainment industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate. From time to
time, various state and federal legislators and officials have proposed changes
in tax laws, or in the administration of such laws, which would affect the
industry. It is not possible to determine with certainty the scope or likelihood
of possible future changes in tax laws or in the administration of such laws. If
adopted, such changes could have a material adverse effect on our financial
results.

INTERCOMPANY DIVIDEND RESTRICTION

Certain of our debt guarantees require us to abide by covenants, which,
among other things, limit HOC's ability to pay dividends and make other
restricted payments, as defined, to Harrah's Entertainment. The amount of HOC's
restricted net assets, as defined, computed in accordance with these covenants
regarding restricted payments was approximately $1.41 billion at June 30, 2000.
Harrah's Entertainment's principal asset is the stock of HOC, a wholly-owned
subsidiary, which holds, directly and through subsidiaries, the principal assets
of our businesses. Given this ownership structure, these restrictions should not
impair our ability to conduct our business through our subsidiaries or to pursue
our development plans.

PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission ("SEC") (as well as information included in
oral statements or other written statements made or to be made by or on behalf
of the Company) includes statements that are forward looking. These
forward-looking statements generally can be identified by phrases such as the
Company "believes," "expects," "anticipates," "foresees," "forecasts,"
"estimates," " intends," "plans," "seeks," or other words or phrases of similar
import. These include statements relating to the following activities, among
others: (A) operations and expansions of existing properties, including future
performance, anticipated scope, and opening dates of expansions; (B) planned
development of casinos and hotels that would be owned or managed by the Company
and the pursuit of strategic acquisitions; (C) planned capital expenditures for
2000 and beyond; (D) the impact of the WINet, Total Gold Card, and Total Rewards
Programs; and (E) any future impact of the

30
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Showboat or Players acquisitions, the Rio merger, or the Rincon development.
Similarly, such statements herein that describe, generally or specifically, the
Company's business strategy, outlook, objectives, plans, intentions, or goals
are also forward-looking statements. All such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those expressed in any forward looking statements made by
or on behalf of the Company. These include, but are not limited to, the
following factors as well as other factors described from time to time in the
Company's reports filed with the SEC: construction factors, including zoning
issues, environmental restrictions, soil conditions, weather and other hazards,
site access matters and building permit issues; access to available and feasible
financing; regulatory, licensing and other government approvals, third party
consents and approvals, and relations with partners, owners and other third
parties; conditions of credit markets and other business and economic
conditions, including international and national economic problems; litigation,
judicial actions and political uncertainties, including gaming legislative
action, referenda, and taxation; abnormal gaming holds; and the effects of
competition, including locations of competitors and operating and marketing
competition. Any forward-looking statements are made pursuant to the Private
Securities Litigation Reform Act of 1995, speak only as of the date made, and
are qualified in their entirety by this and other cautionary statements herein,
in our Annual Report on Form 10-K, and in our other filings with the Securities
and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our debt. We attempt to limit our exposure to interest rate risk
by managing the mix of our debt between fixed rate and variable rate
obligations. We do not currently utilize derivative transactions to hedge our
exposure to interest rate changes. We do not hold or issue derivative financial
instruments for trading purposes and do not enter into derivative transactions
that would be considered speculative positions.

We sold our management contract for a casino in a foreign country in
January 2000. As a result, we no longer have any ownership interest in
businesses in foreign countries and, therefore, are not subject to material
foreign currency exchange rate risk.

We hold investments in various available-for-sale equity securities,
however, our exposure to price risk arising from the ownership of these
investments is not material to our consolidated financial position, results of
operations or cash flows.

31
<PAGE>
PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual stockholders meeting on April 27, 2000. The
following matters were voted upon at the meeting:

1. ELECTION OF CLASS I DIRECTORS

<TABLE>
<CAPTION>
VOTES CAST
------------------------
AGAINST OR
NAME OF DIRECTOR ELECTED FOR WITHHELD
------------------------ ----------- ----------
<S> <C> <C>
Joe M. Henson......................................... 111,107,307 770,054
R. Brad Martin........................................ 108,191,058 3,686,303
Colin V. Reed......................................... 108,198,869 3,678,492
Eddie N. Williams..................................... 111,088,650 788,711
</TABLE>

<TABLE>
<CAPTION>
NAME OF EACH OTHER DIRECTOR WHOSE TERM OF
OFFICE AS DIRECTOR CONTINUED AFTER THE MEETING
----------------------------------------------
<S> <C> <C>
Susan Clark-Johnson
James B. Farley
Ralph Horn
J. Kell Houssels III
Gary W. Loveman
Robert G. Miller
Walter J. Salmon
Philip G. Satre
Boake A. Sells
</TABLE>

<TABLE>
<CAPTION>
AGAINST
OR
FOR WITHHELD ABSTENTIONS
--- -------- -----------
<S> <C> <C> <C> <C>
2. ADOPTION OF THE COMPANY'S SENIOR EXECUTIVE 107,081,578 4,246,266 549,517
INCENTIVE PLAN
</TABLE>

<TABLE>
<CAPTION>
AGAINST
OR
FOR WITHHELD ABSTENTIONS
--- -------- -----------
<S> <C> <C> <C> <C>
3. APPROVAL OF AN AMENDMENT ADDING SHARES TO 92,221,284 19,083,187 572,890
THE COMPANY'S STOCK OPTION PLAN
</TABLE>

<TABLE>
<CAPTION>
AGAINST
OR
FOR WITHHELD ABSTENTIONS
--- -------- -----------
<S> <C> <C> <C> <C>
4. RATIFICATION OF ARTHUR ANDERSEN LLP AS 111,320,078 128,150 429,133
THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE 2000 CALENDAR YEAR
</TABLE>

32
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<C> <S>
*EX-4.1 364-Day Credit Agreement, dated as of June 26, 2000, among
Harrah's Operating Company, Inc., as Borrower, Harrah's
Entertainment, Inc., as Guarantor, and Citibank, N.A., as
Lender.

*EX-4.2 Guaranty, dated as of June 26, 2000, by Harrah's
Entertainment, Inc., as Guarantor, in favor of Citibank,
N.A., as Lender.

*EX-4.3 First Amendment, dated as of April 3, 2000, to the Five Year
Loan Agreement among Harrah's Entertainment, Inc., as
Guarantor, Harrah's Operating Company, Inc. and Marina
Associates, as Borrowers, The Lenders, Syndication Agent,
Document Agents and Co-Documentation Agents and Bank of
America National Trust and Savings Association, as
Administrative Agent.

*EX-4.4 First Amendment, dated as of April 3, 2000, to the Short
Term Loan Agreement among Harrah's Entertainment, Inc., as
Guarantor, Harrah's Operating Company, Inc. and Marina
Associates, as Borrowers, The Lenders, Syndication Agent,
Document Agents and Co-Documentation Agents and Bank of
America, N.A. (under its former name, Bank of America
National Trust and Savings Association), as Administrative
Agent; Request for Extension to the Short Term Loan
Agreement.

*EX-4.5 Issuing and Paying Agent Agreement, dated as of May 19,
2000, among Harrah's Operating Company, Inc., as Issuer,
Harrah's Entertainment, Inc., as Guarantor, and Bank One,
National Association, as issuing an paying agent; Corporate
Commercial Paper Master Note in favor of Cede & Co., as
nominee of The Depository Trust Company, by Harrah's
Operating Company, Inc., as Issuer, and Bank One, N.A., as
Paying Agent.

*EX-4.6 Commercial Paper Dealer Agreement, dated as of May 3, 2000,
among Harrah's Operating Company, Inc., as Issuer, Harrah's
Entertainment, Inc., as Guarantor, and Banc of America
Securities LLC, as Dealer.

*EX-4.7 Commercial Paper Dealer Agreement, dated as of May 3, 2000,
among Harrah's Operating Company, Inc., as Issuer, Harrah's
Entertainment, Inc., as Guarantor, and Credit Suisse First
Boston Corporation, as Dealer.

*EX-10.1 Harrah's Entertainment, Inc. Senior Executive Incentive Plan
approved by the Stockholders on April 27, 2000, following
approval by the Company's Human Resources Committee of the
Board of Directors on February 23, 2000, and the Board of
Directors on February 24, 2000.

*EX-10.2 Amendment to Harrah's Entertainment, Inc. 1990 Stock Option
Plan, dated as of February 23, 2000.

*EX-10.3 Time Accelerated Restricted Stock Award Plan II (TARSAP II)
approved by the Human Resources Committee of the Board of
Directors on April 26, 2000.

*EX-10.4 Amendment to Employment Agreement, dated April 26, 2000,
between Harrah's Entertainment, Inc. and Gary W. Loveman.

*EX-10.5 Amendment to Severance Agreement, dated April 26, 2000,
between Harrah's Entertainment, Inc. and Gary W. Loveman.

*EX-10.6 Severance Agreement, dated April 27, 2000, between Harrah's
Entertainment, Inc. and Richard Mirman.
</TABLE>

33
<PAGE>
<TABLE>
<C> <S>
*EX-11 Computation of per share earnings.

*EX-27 Financial Data Schedule.

EX-99.1 Press Release dated April 13, 2000-Harrah's Estimates
First-Quarter Earnings at 24 to 26 Cents Per Share; Low Hold
Percentage at Rio Impacted Per-Share Earning by 9 Cents
(Incorporated by reference from the Company's Current Report
on Form 8-K, filed April 17, 2000, File No. 1-10410).

EX-99.2 Press Release dated May 30, 2000-Harrah's Entertainment
Calls Players International Notes for Redemption
(Incorporated by reference from the Company's Current Report
on Form 8-K, filed June 13, 2000, File No. 1-10410).
</TABLE>

------------------------

* Filed herewith.

(b) A Form 8-K was filed by the Company on April 17, 2000, reporting the
estimates of first-quarter earnings. A Form 8-K was filed by the Company on
June 13, 2000, calling for the redemption of the Players International, Inc.
10 7/8% Senior Notes due 2005.

34
<PAGE>
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

<TABLE>
<S> <C> <C>
HARRAH'S ENTERTAINMENT, INC.

August 14, 2000 BY: /s/ COLIN V. REED
-----------------------------------------
Colin V. Reed
CHIEF FINANCIAL OFFICER AND
OFFICE OF THE PRESIDENT
</TABLE>

35
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<C> <S> <C>
EX-4.1 364-Day Credit Agreement, dated as of June 26, 2000, among
Harrah's Operating Company, Inc., as Borrower, Harrah's
Entertainment, Inc., as Guarantor, and Citibank, N.A., as
Lender.

EX-4.2 Guaranty, dated as of June 26, 2000, by Harrah's
Entertainment, Inc., as Guarantor, in favor of Citibank,
N.A., as Lender.

EX-4.3 First Amendment, dated as of April 3, 2000, to the Five Year
Loan Agreement among Harrah's Entertainment, Inc., as
Guarantor, Harrah's Operating Company, Inc. and Marina
Associates, as Borrowers, The Lenders, Syndication Agent,
Document Agents and Co-Documentation Agents and Bank of
America National Trust and Savings Association, as
Administrative Agent.

EX-4.4 First Amendment, dated as of April 3, 2000, to the Short
Term Loan Agreement among Harrah's Entertainment, Inc., as
Guarantor, Harrah's Operating Company, Inc. and Marina
Associates, as Borrowers, The Lenders, Syndication Agent,
Document Agents and Co-Documentation Agents and Bank of
America, N.A. (under its former name, Bank of America
National Trust and Savings Association), as Administrative
Agent; Request for Extension to the Short Term Loan
Agreement.

EX-4.5 Issuing and Paying Agent Agreement, dated as of May 19,
2000, among Harrah's Operating Company, Inc., as Issuer,
Harrah's Entertainment, Inc., as Guarantor, and Bank One,
National Association, as issuing an paying agent; Corporate
Commercial Paper Master Note in favor of Cede & Co., as
nominee of The Depository Trust Company, by Harrah's
Operating Company, Inc., as Issuer, and Bank One, N.A., as
Paying Agent.

EX-4.6 Commercial Paper Dealer Agreement, dated as of May 3, 2000,
among Harrah's Operating Company, Inc., as Issuer, Harrah's
Entertainment, Inc., as Guarantor, and Banc of America
Securities LLC, as Dealer.

EX-4.7 Commercial Paper Dealer Agreement, dated as of May 3, 2000,
among Harrah's Operating Company, Inc., as Issuer, Harrah's
Entertainment, Inc., as Guarantor, and Credit Suisse First
Boston Corporation, as Dealer.

EX-10.1 Harrah's Entertainment, Inc. Senior Executive Incentive Plan
approved by the Stockholders on April 27, 2000, following
approval by the Company's Human Resources Committee of the
Board of Directors on February 23, 2000, and the Board of
Directors on February 24, 2000.

EX-10.2 Amendment to Harrah's Entertainment, Inc. 1990 Stock Option
Plan, dated as of February 23, 2000.

EX-10.3 Time Accelerated Restricted Stock Award Plan II (TARSAP II)
approved by the Human Resources Committee of the Board of
Directors on April 26, 2000.

EX-10.4 Amendment to Employment Agreement, dated April 26, 2000,
between Harrah's Entertainment, Inc. and Gary W. Loveman.

EX-10.5 Amendment to Severance Agreement, dated April 26, 2000,
between Harrah's Entertainment, Inc. and Gary W. Loveman.
</TABLE>

36
<PAGE>

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<C> <S> <C>
EX-10.6 Severance Agreement, dated April 27, 2000, between Harrah's
Entertainment, Inc. and Richard Mirman.

EX-11 Computation of per share earnings.

EX-27 Financial Data Schedule.