# * *

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

## **Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Markone)**
| **ý**                                                                                                                                                                                           | **Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                 |                                                                                          |
| **For  the quarterly period ended September 30, 2003**                                                                                                                                               |
|                                                                                                                                                                                                 |                                                                                          |
| **OR**                                                                                                                                                                                               |
|                                                                                                                                                                                                 |
| **o**                                                                                                                                                                                                | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                                                                                 |
| **For the transition period from                 to             ** |
|                                                                                                                                                                                                 |
| **Commission file number 1-14573**                                                                                                                                                                   |

# * *

| **PARK PLACE ENTERTAINMENT  CORPORATION**                                            |
|--------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                              |
|                                                                                 |
| **Delaware**                                                                         |   | **88-0400631** |
| (State or other  jurisdiction of  incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                 |   |   |
| **3930 Howard Hughes ParkwayLas Vegas, Nevada**                                      |   | **89109** |
| (Address of principal  executive offices)                                            |   | (Zip code) |
|                                                                                 |   |   |
| **(702)  699-5000**                                                                  |
| (Registrant’s telephone  number, including area code)                      |
|                                                                                 |   |   |
| **N/A**                                                                              |
| (Former name, former  address, and former fiscal year, if changed since last report) |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  ý      No  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).  Yes  ý      No  o

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date:

 

| **Title of Each Class**                  |   | **Outstanding at November 3, 2003** |
|------------------------------------------|--------|-------------------------------------|
| Common Stock, par value  $0.01 per share |   | 303,072,345                         |

 

 

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**PARKPLACE ENTERTAINMENT CORPORATION**

**INDEX**

 
|           |                                                                                                      | **Page** |
|----------------|-----------------------------------------------------------------------------------------------------------|----------|
| **PART I.**    | **FINANCIAL INFORMATION**                                                                                 |     |
|           |                                                                                                      |     |
| Item  1.       | Unaudited  Condensed Consolidated Financial Statements                                                    |     |
|           |                                                                                                      |     |
|           | Condensed Consolidated Balance Sheets  September 30, 2003 and December 31, 2002                           | 3        |
|           |                                                                                                      |     |
|           | Condensed Consolidated  Statements of Operations  Three and nine months ended September 30, 2003 and 2002 | 4        |
|           |                                                                                                      |     |
|           | Condensed Consolidated  Statements of Cash Flows  Nine months ended September 30, 2003 and 2002           | 5        |
|           |                                                                                                      |     |
|           | Notes to Condensed Consolidated  Financial Statements                                                     | 6        |
|           |                                                                                                      |     |
| Item  2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations               | 12       |
|           |                                                                                                      |     |
| Item  3.       | Quantitative  and Qualitative Disclosures About Market Risk                                               | 24       |
|           |                                                                                                      |     |
| Item  4.       | Controls and Procedures                                                                                   | 24       |
|           |                                                                                                      |     |
| **PART II.**   | **OTHER INFORMATION**                                                                                     |     |
|           |                                                                                                      |     |
| Item 1         | Legal Proceedings                                                                                         | 25       |
|           |                                                                                                      |     |
| Item  4.       | Submission  of Matters to a Vote of Security Holders                                                      | 25       |
|           |                                                                                                      |     |
| Item 6.        | Exhibits and Reports  on Form 8-K                                                                         | 25       |
|           |                                                                                                      |     |
| **SIGNATURES** | 27                                                                                                        |

 

2

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**PARTI.****                       FINANCIAL INFORMATION**

**ITEM1****.****                        UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(dollarsin millions, except par value)**

**(unaudited)**

 
|                                                                                                                                                                      |   | **September 30,  2003** |       | **December 31,  2002** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|------------------------|------------|
|                                                                                                                                                                      |   |                    | ** ** |                   | ** ** |
| Assets                                                                                                                                                                    |   |                    | ** ** |                   | ** ** |
| Cash and  equivalents                                                                                                                                                     |   | $                       | 276        |                   | $          | 351 |   |
| Accounts  receivable, net                                                                                                                                                 |   | 172                     |       | 185                    |       |
| Inventory,  prepaids, and other                                                                                                                                           |   | 152                     |       | 138                    |       |
| Income taxes  receivable                                                                                                                                                  |   | —                  |       | 3                      |       |
| Deferred income  taxes                                                                                                                                                    |   | 102                     |       | 100                    |       |
| Total current  assets                                                                                                                                                     |   | 702                     |       | 777                    |       |
|                                                                                                                                                                      |   |                    |       |                   |       |
| Investments                                                                                                                                                               |   | 164                     |       | 143                    |       |
| Property and  equipment, net                                                                                                                                              |   | 7,556                   |       | 7,649                  |       |
| Goodwill                                                                                                                                                                  |   | 834                     |       | 834                    |       |
| Other assets                                                                                                                                                              |   | 289                     |       | 271                    |       |
| Total assets                                                                                                                                                              |   | $                       | 9,545      |                   | $          | 9,674 |   |
|                                                                                                                                                                      |   |                    |       |                   |       |
| Liabilities and  stockholders’ equity                                                                                                                                |   |                    |       |                   |       |
| Accounts payable  and accrued expenses                                                                                                                                    |   | $                       | 602        |                   | $          | 690 |   |
| Current  maturities of long-term debt                                                                                                                                     |   | 1                       |       | 325                    |       |
| Income taxes  payable                                                                                                                                                     |   | 1                       |       | —                 |       |
| Total current  liabilities                                                                                                                                                |   | 604                     |       | 1,015                  |       |
|                                                                                                                                                                      |   |                    |       |                   |       |
| Long-term debt,  net of current maturities                                                                                                                                |   | 4,647                   |       | 4,585                  |       |
| Deferred income  taxes, net                                                                                                                                               |   | 1,054                   |       | 1,023                  |       |
| Other  liabilities                                                                                                                                                        |   | 118                     |       | 94                     |       |
| Total  liabilities                                                                                                                                                        |   | 6,423                   |       | 6,717                  |       |
|                                                                                                                                                                      |   |                    |       |                   |       |
| Commitments and  contingencies                                                                                                                                            |   |                    |       |                   |       |
|                                                                                                                                                                      |   |                    |       |                   |       |
| Stockholders’  equity                                                                                                                                                |   |                    |       |                   |       |
| Common stock,  $0.01 par value, 400.0 million shares authorized, 325.9 million and 323.7  million shares issued at September 30, 2003 and December 31, 2002, respectively |   | 3                       |       | 3                      |       |
| Additional  paid-in capital                                                                                                                                               |   | 3,819                   |       | 3,801                  |       |
| Accumulated  deficit                                                                                                                                                      |   | (439                    | )          | (569                   | )          |
| Accumulated  other comprehensive income (loss)                                                                                                                            |   | 1                       |       | (16                    | )          |
| Common stock in  treasury at cost, 23.1 million shares at September 30, 2003 and December 31,  2002                                                                       |   | (262                    | )          | (262                   | )          |
| Total  stockholders’ equity                                                                                                                                          |   | 3,122                   |       | 2,957                  |       |
| Total  liabilities and stockholders’ equity                                                                                                                          |   | $                       | 9,545      |                   | $          | 9,674 |   |

 

See notes to condensedconsolidated financial statements

 

3

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**PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

**(inmillions, except per share amounts)**

**(unaudited)**

 
|                                                                                      |   | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|--------------------------------------|------------|
|                                                                                      |   | **2003**                              | ** ** | **2002**                             | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenues                                                                                  |   |                                  |       |                                 |       |   |   |   |   |
| Casino                                                                                    |   | $                                     | 864        |                                 | $          | 873 |   | $ | 2,507 |   | $ | 2,542 |   |
| Rooms                                                                                     |   | 148                                   |       | 138                                  |       | 445 |   | 422 |   |
| Food and  beverage                                                                        |   | 132                                   |       | 122                                  |       | 377 |   | 356 |   |
| Other revenue                                                                             |   | 76                                    |       | 78                                   |       | 221 |   | 226 |   |
|                                                                                      |   | 1,220                                 |       | 1,211                                |       | 3,550 |   | 3,546 |   |
| Expenses                                                                                  |   |                                  |       |                                 |       |   |   |   |   |
| Casino                                                                                    |   | 452                                   |       | 440                                  |       | 1,314 |   | 1,313 |   |
| Rooms                                                                                     |   | 53                                    |       | 51                                   |       | 149 |   | 140 |   |
| Food and  beverage                                                                        |   | 121                                   |       | 114                                  |       | 344 |   | 317 |   |
| Other expense                                                                             |   | 298                                   |       | 303                                  |       | 876 |   | 871 |   |
| Depreciation and  amortization                                                            |   | 114                                   |       | 116                                  |       | 347 |   | 352 |   |
| Pre-opening  expense                                                                      |   | —                                |       | 1                                    |       | 1 |   | 1 |   |
| Contract  termination fee and other                                                       |   | —                                |       | 10                                   |       | — |   | 10 |   |
| Corporate  expense                                                                        |   | 17                                    |       | 17                                   |       | 51 |   | 51 |   |
|                                                                                      |   | 1,055                                 |       | 1,052                                |       | 3,082 |   | 3,055 |   |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Equity in  earnings of unconsolidated affiliates                                          |   | 3                                     |       | 3                                    |       | 14 |   | 20 |   |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Operating income                                                                          |   | 168                                   |       | 162                                  |       | 482 |   | 511 |   |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Interest expense,  net of interest capitalized                                            |   | (83                                   | )          | (86                                  | )          | (253 | ) | (262 | ) |
| Interest  expense, net from unconsolidated affiliates                                     |   | (2                                    | )          | (2                                   | )          | (5 | ) | (7 | ) |
| Interest and  other income                                                                |   | 2                                     |       | 2                                    |       | 4 |   | 4 |   |
| Investment gain                                                                           |   | —                                |       | —                               |       | — |   | 44 |   |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Income before  income taxes, minority interest and cumulative effect of accounting change |   | 85                                    |       | 76                                   |       | 228 |   | 290 |   |
| Provision for  income taxes                                                               |   | 36                                    |       | 34                                   |       | 96 |   | 109 |   |
| Minority  interest, net                                                                   |   | 1                                     |       | 2                                    |       | 2 |   | 5 |   |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Income before  cumulative effect of accounting change                                     |   | 48                                    |       | 40                                   |       | 130 |   | 176 |   |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Cumulative  effect of accounting change                                                   |   | —                                |       | —                               |       | — |   | (979 | ) |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Net income  (loss)                                                                        |   | $                                     | 48         |                                 | $          | 40 |   | $ | 130 |   | $ | (803 | ) |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Basic earnings  (loss) per share                                                          |   |                                  |       |                                 |       |   |   |   |   |
| Income before  cumulative effect of accounting change                                     |   | $                                     | 0.16       |                                 | $          | 0.13 |   | $ | 0.43 |   | $ | 0.58 |   |
| Cumulative  effect of accounting change                                                   |   | —                                |       | —                               |       | — |   | (3.24 | ) |
| Net income  (loss)                                                                        |   | $                                     | 0.16       |                                 | $          | 0.13 |   | $ | 0.43 |   | $ | (2.66 | ) |
|                                                                                      |   |                                  |       |                                 |       |   |   |   |   |
| Diluted earnings (loss)  per share                                                        |   |                                  |       |                                 |       |   |   |   |   |
| Income before  cumulative effect of accounting change                                     |   | $                                     | 0.16       |                                 | $          | 0.13 |   | $ | 0.43 |   | $ | 0.58 |   |
| Cumulative  effect of accounting change                                                   |   | —                                |       | —                               |       | — |   | (3.22 | ) |
| Net income  (loss)                                                                        |   | $                                     | 0.16       |                                 | $          | 0.13 |   | $ | 0.43 |   | $ | (2.64 | ) |

 

See notes to condensedconsolidated financial statements

 

4

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**PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(inmillions)**

**(unaudited)**

 
|                                                                                      |   | **Nine months ended  September 30,** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                      |   | **2003**                             |   | **2002** |   |
| Operating  activities                                                                     |   |                                 |   |   |   |
| Net income  (loss)                                                                        |   | $                                    | 130    |   | $ | (803 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |   |                                 |   |   |   |
| Depreciation and  amortization                                                            |   | 347                                  |   | 352 |   |
| Investment gain                                                                           |   | —                               |   | (44 | ) |
| Cumulative  effect of accounting change                                                   |   | —                               |   | 979 |   |
| Change in  working capital components:                                                    |   |                                 |   |   |   |
| Accounts  receivable, net                                                                 |   | 13                                   |   | 38 |   |
| Inventory,  prepaids, and other                                                           |   | (11                                  | )      | (21 | ) |
| Accounts payable  and accrued expenses                                                    |   | (89                                  | )      | (22 | ) |
| Income taxes  payable/receivable                                                          |   | 4                                    |   | 36 |   |
| Change in  deferred income taxes                                                          |   | 29                                   |   | 3 |   |
| Other                                                                                     |   | 11                                   |   | 2 |   |
| Net cash  provided by operating activities                                                |   | 434                                  |   | 520 |   |
|                                                                                      |   |                                 |   |   |   |
| Investing  activities                                                                     |   |                                 |   |   |   |
| Capital  expenditures                                                                     |   | (237                                 | )      | (258 | ) |
| Proceeds from  sale of investment                                                         |   | —                               |   | 120 |   |
| Change in  investments                                                                    |   | (23                                  | )      | — |   |
| Other                                                                                     |   | 3                                    |   | 1 |   |
| Net cash used in  investing activities                                                    |   | (257                                 | )      | (137 | ) |
|                                                                                      |   |                                 |   |   |   |
| Financing  activities                                                                     |   |                                 |   |   |   |
| Change in Credit  Facilities                                                              |   | (265                                 | )      | (464 | ) |
| Payments on  notes                                                                        |   | (300                                 | )      | (300 | ) |
| Proceeds from  issuance of notes                                                          |   | 300                                  |   | 367 |   |
| Purchases of  treasury stock                                                              |   | —                               |   | (17 | ) |
| Proceeds from  exercise of stock options                                                  |   | 15                                   |   | 9 |   |
| Other                                                                                     |   | (2                                   | )      | 1 |   |
| Net cash used in  financing activities                                                    |   | (252                                 | )      | (404 | ) |
|                                                                                      |   |                                 |   |   |   |
| Decrease in cash  and equivalents                                                         |   | (75                                  | )      | (21 | ) |
| Cash and  equivalents at beginning of period                                              |   | 351                                  |   | 328 |   |
|                                                                                      |   |                                 |   |   |   |
| Cash and  equivalents at end of period                                                    |   | $                                    | 276    |   | $ | 307 |   |
|                                                                                      |   |                                 |   |   |   |
| Supplemental  Disclosures of Cash Flow Information                                        |   |                                 |   |   |   |
| Cash paid for:                                                                            |   |                                 |   |   |   |
| Interest, net of  amounts capitalized                                                     |   | $                                    | 266    |   | $ | 281 |   |
| Income taxes,  net of refunds                                                             |   | $                                    | 58     |   | $ | 55 |   |

 

See notes to condensedconsolidated financial statements

 

5

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**PARKPLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES**

## **NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

## **(UNAUDITED)**

 

### **Note 1.  The Company**

 

Park PlaceEntertainment Corporation (“Park Place” or the “Company”), a Delawarecorporation, was formed in June 1998. The Company is primarily engaged,through subsidiaries, in the ownership, operation, and development of gamingfacilities. The operations of the Company are currently conducted under theCaesars, Bally’s, Paris, Flamingo, Grand, Hilton, and Conrad brands. TheCompany, through subsidiaries, operates and consolidates seventeen wholly ownedcasino hotels located in the United States; of which eight are located inNevada; three are located in Atlantic City, New Jersey; five are located inMississippi; and one is in New Orleans, Louisiana. Additionally, the Companymanages and consolidates an 82 percent owned riverboat casino in HarrisonCounty, Indiana; manages the casino operations of Caesars Palace at Sea onthree cruise ships; and manages and consolidates two majority owned casinos inNova Scotia, Canada. The Company partially owns and manages two casinosinternationally, one located in Johannesburg, South Africa and one located inPunta del Este, Uruguay which are accounted for under the equity method. InWindsor, Canada, the Company has a 50 percent interest in a company thatprovides management services to the Casino Windsor. The Company also providesmanagement services to two casinos in Queensland, Australia and the slotoperations at the Dover Downs racetrack in Delaware. The Company views eachcasino property as an operating segment and all such operating segments havebeen aggregated into one reporting segment. Each casino property derives itsrevenues primarily from casino operations, room rental and food and beveragesales.

 

### **Note 2.  Basis of Presentation**

 

The condensedconsolidated financial statements include the accounts of the Company, itssubsidiaries, and investments in unconsolidated affiliates, which are 50percent or less owned, that are accounted for under the equity method.  The Company exercises significant influenceover those investments accounted for under the equity method due to ownershippercentages, board representation, and management agreements. All materialintercompany accounts and transactions are eliminated.

 

The condensedconsolidated financial statements included herein are unaudited and have beenprepared by the Company pursuant to the rules and regulations of the UnitedStates Securities and Exchange Commission. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been condensed or omitted pursuant to such rules and regulations, althoughthe Company believes that the disclosures are adequate to make the informationpresented not misleading.  In theopinion of management, all adjustments (which include normal recurringadjustments) necessary for a fair presentation of results for the interimperiods have been made. The results for the three and nine month periods endedSeptember 30, 2003 are not necessarily indicative of results to be expected forthe full fiscal year. These condensed consolidated financial statements shouldbe read in conjunction with the consolidated financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2002.

 

*Reclassifications*

 

The condensedconsolidated financial statements for prior periods reflect certainreclassifications to conform to classifications adopted in the current period.These reclassifications have no effect on previously reported net income(loss).

 

6

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*RecentlyIssued Accounting Pronouncement*

 

In May 2003, the Financial Accounting Standards Board issued Statementof Financial Accounting Standard (“SFAS”) No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities andEquity.”  SFAS No. 150 establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity and requiresthat an issuer classify a financial instrument that is within its scope as aliability (or an asset in some circumstances). The Company has determined that SFAS No. 150 will not have a materialimpact on its financial position and results of operations.

 

*Stock-Based Compensation*

 

The Company has stock incentive plans and applies Accounting PrinciplesBoard Opinion No. 25 and related interpretations in accounting for itsstock-based compensation plans using the intrinsic value method. Accordingly,no compensation expense is reflected in net income for stock options, as alloptions granted had an exercise price equal to the market value of theunderlying common stock on the date of grant. The compensation expense associated with the Supplemental RetentionPlan, which is described in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2002, was $2 million and $1 million for thenine months ended September 30, 2003 and 2002, respectively. For the threemonths ended September 30, 2003, $1 million of compensation expense wasrecorded and $0 in the prior year period. Had compensation cost for the Company’s Stock Incentive Plans beendetermined based on the fair value at the grant dates for awards under thoseplans consistent with the method of SFAS No. 123 “Accounting forStock-Based Compensation,” the Company’s net income (loss) and net income(loss) per share would have been reduced to the pro forma amounts as follows(in millions, except per share amounts, unaudited):

 
|                                                                                                                   |   | **Three  months ended********September  30,** |   | **Nine  months ended********September  30,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                   |   | **2003**                                      |   | **2002**                                     |   | **2003** |   | **2002** |   |
|                                                                                                                   |   |                                          |   |                                         |   |   |   |   |   |
| Net income (loss), as reported                                                                                         |   | $                                             | 48     |                                         | $      | 40 |   | $ | 130 |   | $ | (803 | ) |
| Add: Total stock-based employee  compensation expense included in reported net income, net of related taxes            |   | 1                                             |   | —                                       |   | 2 |   | 1 |   |
| Deduct: Total stock-based employee  compensation expense determined under the fair value method, net of related  taxes |   | (4                                            | )      | (3                                           | )      | (11 | ) | (11 | ) |
| Pro forma net income (loss)                                                                                            |   | $                                             | 45     |                                         | $      | 37 |   | $ | 121 |   | $ | (813 | ) |
|                                                                                                                   |   |                                          |   |                                         |   |   |   |   |   |
| Earnings (loss) per share:                                                                                             |   |                                          |   |                                         |   |   |   |   |   |
| Basic, as reported                                                                                                     |   | $                                             | 0.16   |                                         | $      | 0.13 |   | $ | 0.43 |   | $ | (2.66 | ) |
| Basic, pro forma                                                                                                       |   | $                                             | 0.15   |                                         | $      | 0.12 |   | $ | 0.40 |   | $ | (2.69 | ) |
|                                                                                                                   |   |                                          |   |                                         |   |   |   |   |   |
| Diluted, as reported                                                                                                   |   | $                                             | 0.16   |                                         | $      | 0.13 |   | $ | 0.43 |   | $ | (2.64 | ) |
| Diluted, pro forma                                                                                                     |   | $                                             | 0.15   |                                         | $      | 0.12 |   | $ | 0.40 |   | $ | (2.67 | ) |

 

### **Note 3.  Goodwill and OtherIntangible Assets**

 

Under SFAS No.142, “Goodwill and Other Intangible Assets,” goodwill and indefinite-livedintangible assets are no longer amortized but are reviewed at least annuallyfor impairment.  Separable intangibleassets that are not deemed to have an indefinite life will continue to beamortized over their useful lives.

 

In accordance withthe initial adoption of SFAS No. 142 in January 2002, each property with

 

7

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assigned goodwill wasvalued as an operating entity.  TheCompany engaged an independent company to assist in the valuation of propertieswith a significant amount of assigned goodwill.  The fair value of the operating entities was determined using acombination of a discounted cash flow model, a guideline company method usingvaluation multiples and similar transactions method.  Based on this analysis and the tests noted above, the Companycompleted its implementation analysis of goodwill arising from prioracquisitions and recorded an impairment charge of $979 million as a cumulative effect ofaccounting change in the first quarter of 2002.  The Company will perform the annual impairment testing asrequired by SFAS No. 142, during the fourth quarter of 2003.

### ** **

### **Note 4.  Earnings (Loss) Per Share**

 

Basic earnings(loss) per share (“EPS”) is calculated by dividing net income (loss) by theweighted-average number of common shares outstanding for the period.  The basic weighted-average number of commonshares outstanding for the three months ended September 30, 2003 and 2002 was302 million and 301 million, respectively, and 301 million and302 million for the nine months ended September 30, 2003 and 2002,respectively.  Diluted EPS reflects theeffect of assumed stock option exercises. The dilutive effect of the assumed exercise of stock options increasedthe weighted-average number of common shares by 2 million for all periodspresented. For the three months and nine months ended September 30, 2003,15 million shares and 17 million shares would have been included inthe calculation of diluted EPS, however the exercise price of those optionsexceeded the average market price.  Forthe three months and nine months ended September 30, 2002, 16 millionshares and 12 million shares were excluded from the calculation of dilutedEPS for the same reasons noted above.

### ** **

### **Note 5. Comprehensive Income (Loss)**

 

Comprehensiveincome (loss) is the total of net income (loss) and all other non-stockholderchanges in equity.  Comprehensive income(loss) for the three months and nine months ended September 30, 2003 and2002 is as follows (in millions, unaudited):

 
|                             |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|----------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                             |   | **2003**                               |   | **2002**                              |   | **2003** |   | **2002** |   |
| Net income (loss)                |   | $                                      | 48     |                                  | $      | 40 |   | $ | 130 |   | $ | (803 | ) |
| Currency  translation adjustment |   | —                                 |   | (5                                    | )      | 17 |   | 17 |   |
| Comprehensive  income (loss)     |   | $                                      | 48     |                                  | $      | 35 |   | $ | 147 |   | $ | (786 | ) |

 

### **Note 6. Long-Term Debt**

 

Long-term debt is as follows (in millions, unaudited):

 
|                                                                                                                             |   | **September  30,  2003** |   | **December  31,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Senior and senior  subordinated notes, net of unamortized discount of $4 million and $5 million  for 2003 and 2002, respectively |   | $                        | 3,471  |                    | $      | 3,470 |   |
| Credit  facilities                                                                                                               |   | 1,170                    |   | 1,435                   |   |
| Other                                                                                                                            |   | 4                        |   | 5                       |   |
|                                                                                                                             |   | 4,645                    |   | 4,910                   |   |
| Less current  maturities                                                                                                         |   | (1                       | )      | (325                    | )      |
| Market value of  interest rate swaps                                                                                             |   | 3                        |   | —                  |   |
| Net long-term  debt                                                                                                              |   | $                        | 4,647  |                    | $      | 4,585 |   |

 

As of September 30, 2003, the Company has twoprincipal credit facilities, collectively known as the “CreditFacilities.”  The first is a 364-dayrevolving facility expiring in August 2004, with total

 

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availability of $493 million. The second facility is a $2.318 billion five-year revolvingfacility, expiring in December 2003, with a $1.741 billion two-yearextension upon expiration or termination of the existing five-year revolvingfacility.  Approximately $700 million ofthe $1.741 billion two-year extension is a term loan.  If prepaid, the availability of the termloan is permanently reduced.  As ofSeptember 30, 2003, $1.170 billion was outstanding under the five-yearrevolving facility and no amounts were outstanding under the 364-day revolvingfacility.

 

The Credit Facilities contain financial covenants including a maximumleverage ratio (total debt to ebitda, as defined in the Credit Facilities) of5.25 to 1.00 and a minimum interest coverage ratio (ebitda, as defined in theCredit Facilities, to interest expense) of 2.75 to 1.00 as of September 30,2003.  The maximum leverage ratio remainsat 5.25 to 1.00 for the quarterly testing periods ending December 31, 2003through June 30, 2004, and then adjusts to 5.00 to 1.00 for the quarterlytesting periods ending September 30, 2004 through March 31, 2005,4.75 to 1.00 for the quarterly testing period ending June 30, 2005, and 4.50 to1.00 thereafter.  The interest coverageratio remains 2.75 to 1.00 for all quarterly testing periods.  The Company is required to compute itsactual leverage and interest coverage ratios on a rolling twelve-month basis asof the end of each calendar quarter. If the Company is not in compliance withthe required covenant ratios, an event of default would occur, which if notcured could cause the entire outstanding borrowings under the Credit Facilitiesto become immediately due and payable as well as trigger the cross defaultprovisions of other debt issues. As of September 30, 2003, the Company was incompliance with the applicable covenants.

 

Borrowings under the Credit Facilities bear interest at a floating rateand may be obtained, at the Company’s option, as LIBOR advances for varyingperiods, or as base rate advances, each adjusted for an applicable margin (asfurther described in the Credit Facilities). The Company has historically borrowed using LIBOR advances and expectsto continue doing so for the foreseeable future.  The Company pays a margin over LIBOR witch is a function of bothits leverage ratio and its credit rating. This margin is adjusted quarterly. Prior to September 2003, the Company’s senior debt rating from Moody’swas Ba1 and from Standard & Poor’s was BBB-.  In September 2003, Standard & Poor’s announced its decisionto lower Park Place’s senior debt credit rating to BB+.  As a result of this action, the Company’seffective all-in borrowing cost of LIBOR advances under the Credit Facilitiesincreased to LIBOR plus 152.5 basis points from 127.5 basis points.

 

The condensed consolidated balance sheet as of September 30, 2003,excludes from current maturities $325 million of 7.0 percent senior notesdue July 2004.  This amount is classifiedas long-term because the Company has both the intent and the ability torefinance these notes using availability under the long-term portion of theCredit Facilities.

 

In April 2003, the Company issued $300 million of 7.0 percent seniornotes due 2013 through a private placement offering to institutionalinvestors.  These notes weresubsequently exchanged for notes registered under the Securities Act of 1933,as amended.  The notes are redeemable atany time prior to their maturity at the redemption prices described in theindenture governing such notes.  Thenotes are unsecured obligations, rank equal with the Company’s other seniorindebtedness and are senior to all the Company’s junior indebtedness.  Proceeds from this offering were initiallyused to reduce borrowings under the Credit Facilities.

 

In August 2003, $300 million of 7.95 percent senior notes matured andwere retired using borrowings under the Credit Facilities.

 

*InterestRate Swaps*

 

Pursuant to the Company’srisk management policy, management may engage in actions to manage theCompany’s interest rate risk position. In September 2003, the Company entered into two interest rate swapsrepresenting $150 million notional amount with members of its bank group tomanage interest expense.  The interest rate swaps have converted a portionof the Company’s fixed-rate debt to a

 

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floatingrate (“fair value hedges”).  Under the agreements, the Company receives afixed interest rate of 7 percent and pays a variable interest rate based on amargin above LIBOR on $150 million notional amount.  The interest rate swaps mature in2013.  The net effect of the interest rate swaps resulted in a reductionin interest expense of $0.2 million for the three and nine months endedSeptember 30, 2003.

 

These interest rate swapsmeet the shortcut criteria under SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” which permits the assumption of noineffectiveness in the hedging relationship between the swap and the underlyinghedged asset or liability.  As such, there is no income statement impactfrom changes in the fair value of the hedging instruments.  Instead, thefair value of the instrument is recorded as an asset or liability on the Company’sbalance sheet with an offsetting adjustment to the carrying value of therelated debt.  In accordance with SFAS No. 133, the Company recordedother long-term assets of $3 million as of September 30, 2003,representing the fair value of the interest rate swaps and a correspondingincrease in long-term debt, as these interest rate swaps are considered highlyeffective under the criteria established by SFAS No. 133.

 

**Note7.  Commitments and Contingencies**

 

*Litigation*

 

The Company and itssubsidiaries are involved in various legal proceedings relating to itsbusinesses. The Company believes that all the actions brought against it or itssubsidiaries are without merit and will continue to vigorously defend againstthem. While any proceeding or litigation has an element of uncertainty, theCompany believes that the final outcome of these matters is not likely to havea material adverse effect upon its results of operations or financial position.

 

*U.S. Attorney Subpoenas*

 

The U.S. Attorney’s Officein Orlando, Florida has served grand jury subpoenas on the Company and CaesarsPalace.  These subpoenas were served inconnection with an investigation by the U.S. Attorney’s Office which theCompany believes is focusing on possible money laundering in connection withcertain cash transactions engaged in by a former customer of CaesarsPalace.  The Company has been advisedthat neither the Company nor Caesars Palace are targets of the grand juryinvestigation.  The Company is complyingwith the subpoenas and cooperating with the U.S. Attorney’s Office.

 

*Mohawk Litigation*

 

On January 29, 2002,two substantially identical actions were filed in the Supreme Court of theState of New York, County of Albany, challenging legislation that, among otherthings, authorized the Governor of the State of New York to executetribal-state gaming compacts, approved the use of slot machines as “games ofchance,” approved the use of video lottery terminals at racetracks andauthorized the participation of New York State in a multi-state lottery. Thematters are captioned Dalton, et al.v. Pataki, et al. and Karr v.Pataki, et al.  Plaintiffs seek adeclaratory judgment declaring the legislation unconstitutional and enjoiningthe implementation thereof. The Company intervened in the actions and moved todismiss the first three causes of action thereof (relating to plaintiffs’claims to invalidate the Legislature’s authorization of Indian gamingcompacts). The State of New York moved to dismiss the actions in theirentirety, while other defendants moved to dismiss certain causes of action. OnOctober 30, 2002, the Court denied the motions to dismiss filed by theCompany and all other defendants, and consolidated the two matters. The courthas set a briefing schedule for cross-motions for summary judgment.  On July 17, 2003, the State of New YorkSupreme Court (the trial court) upheld the constitutionality of the legislationthat, among other matters, authorized the Governor of the State of New York to executetribal-state gaming compacts.  Theplaintiffs have filed an appeal of the decision to the Appellate Division andthe Company has responded to the appeal.

 

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*Reno Hilton Litigation*

 

In *Verderbervs. Reno Hilton, et al.,* a class action lawsuit in Nevada StateCourt, the plaintiffs sought damages based on the outbreak of a Norwalk, orNorwalk-like, virus at the Reno Hilton in May and June of 1996.  In 2002, the jury awarded individualjudgments against the Company, its subsidiary FHR Corporation, and Reno HiltonResort Corporation for (i) compensatory damages to five of the eightrepresentative class plaintiffs ranging from $2,011 to $9,822 each and (ii)punitive damages for the entire class of plaintiffs in the amount of $25.2million.  The Company believes the awardof punitive damages, and the amount thereof, is not supportable in either lawor in fact and has filed a special writ in the Nevada Supreme Court seekingrelief prior to determination of the unnamed class members’ claims.

 

*Baluma Holdings,S.A.*

 

Over the past several years, the Company hasprovided capital (in the form of loans) to Baluma Holdings, S.A. (“Holdings”),the ultimate parent of Baluma, S.A. (“Baluma,” the entity that owns the ConradPunta del Este (the “Resort”), in Punta del Este, Uruguay). Two promissorynotes (the “Baluma Loans”), aggregating $80 million in principal, matured onJuly 31, 2002. The principal, together with certain accrued and unpaidinterest, was not repaid. The Baluma Loans are secured by a first priority lienon all the assets comprising the Resort and on the stock of Baluma.  Baluma is heavily indebted, and arestructuring of Baluma’s debt is needed. In October 2003, the Board of Directors of Baluma agreed to restructurethe indebtedness owed to Park Place by exchanging the Baluma Loans togetherwith accrued and unpaid interest for 7 percent convertible preferred stock ofBaluma.  Such restructuring isconditioned upon, among other things, holders of Baluma’s $50 million ofpublicly-traded subordinated notes agreeing to extend the maturity of suchnotes and certain other amendments.  Inaddition, after the restructuring, Park Place will have five of the seven seatson Baluma’s Board of Directors.  TheCompany intends to continue to operate the Resort pursuant to the managementagreement.  If the restructuring occursas proposed, Park Place will have the ability to exercise significant influenceover the management of Baluma, and accordingly would be required to consolidateBaluma’s results of operations.  Theproposed restructuring is expected to be completed in the first quarter of2004,

 

As a result of the proposed restructuring,the Company will compare the current value of its investment in therestructured Baluma to its historical carrying cost.  It is possible that as a result of such comparison the Companymay recognize an impairment loss.  Thenet amount of the Company’s investments in Baluma at September 30, 2003, was$86 million.  The Company believes thatany potential impairment losses would not have a material adverse impact on itsconsolidated financial condition, liquidity or credit availability.

 

**Note8.  Contract Termination Fee and Other**

 

In September 2002, theCompany recognized a $7.5 million charge related to the voluntary cancellationof an energy contract with Enron Corporation. Also in September 2002, tropical storms in the Gulf Coast caused $2.5million in damage to the Grand Biloxi and Grand Gulfport properties.  The Company was unable to seek reimbursementfor such losses because they did not exceed the deductibles applicable underthe Company’s various insurance policies.

 

**Note9.  Investment Gain**

 

In April 2002, the Companycompleted the sale of its 19.9 percent equity interest in Jupiters Limited andreceived total gross proceeds of approximately $120 million.  As a result of this transaction, the Companyrecorded a gain of $44 million in April 2002. The gain has been recorded as an investment gain in the accompanyingcondensed consolidated statement of operations for the nine months endedSeptember 30, 2002.  Although theCompany has sold its equity interest in Jupiters Limited, it continues tomanage Jupiters’ two Queensland casino hotels.

 

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**ITEM 2.****                            ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

### **RESULTS OF OPERATIONS**

 

Our results of operations include the following properties whoseoperations are fully consolidated except as noted:

 
| **Western Region**     |   | **Eastern  Region**        |   | **Mid-South  Region**      |   | **International  Region**  |
|------------------------|--------|----------------------------|--------|----------------------------|--------|----------------------------|
| Caesars Palace         |   | Bally’s Atlantic City |   | Grand Casino Biloxi        |   | Casino Nova Scotia Halifax |
| Paris Las Vegas        |   | Caesars Atlantic City      |   | Grand Casino Gulfport      |   | Casino Nova Scotia Sydney  |
| Bally’s Las Vegas |   | Atlantic City Hilton       |   | Grand Casino Tunica        |   | Conrad Punta del Este(2)   |
| Flamingo Las Vegas     |   | Dover Downs (1)            |   | Sheraton Casino Hotel      |   | Casino Windsor (3)         |
| Las Vegas Hilton       |   |                       |   | Bally’s Casino Tunica |   | Caesars Gauteng(2)         |
| Caesars Tahoe          |   |                       |   | Caesars Indiana            |   | Conrad Jupiters (1)        |
| Reno Hilton            |   |                       |   | Bally’s New Orleans   |   | Conrad Treasury(1)         |
| Flamingo Laughlin      |   |                       |   |                       |   | Caesars Palace at Sea (4)  |

 

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| (1)    |   | These are properties from  which our sole source of income is management fees.                                                                                                                                                                                                                               |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                         |
| (2)    |   | These are properties which  we manage and in which we have a 50 percent or less ownership interest.  They are accounted for under the equity  method.  We exercise significant  influence over these properties due to our ownership percentages, board  representation and management agreements. |
|   |   |                                                                                                                                                                                                                                                                                                         |
| (3)    |   | This is a property in which  we own 50 percent of a company that manages the casino hotel complex and our  investment in that management company is accounted for under the equity  method.                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                         |
| (4)    |   | Caesars Palace at Sea  casinos operate on three cruise ships: the S.S. Crystal Symphony, the S.S.  Crystal Harmony and the S.S. Crystal Serendipity.                                                                                                                                                         |

 

*Comparisonof Three and Nine Months Ended September 30, 2003 and 2002*

 

A summary of ourconsolidated net revenues and earnings for the three and nine months endedSeptember 30, 2003 and 2002 is as follows (in millions, except per shareamounts, unaudited):

 
|                                                              |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|-------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                                              |   | **2003**                               |   | **2002**                              |   | **2003** |   | **2002** |   |
| Net revenues                                                      |   | $                                      | 1,220  |                                  | $      | 1,211 |   | $ | 3,550 |   | $ | 3,546 |   |
| Operating income                                                  |   | 168                                    |   | 162                                   |   | 482 |   | 511 |   |
| Income before  cumulative effect of accounting change             |   | 48                                     |   | 40                                    |   | 130 |   | 176 |   |
| Cumulative  effect of accounting change – goodwill           |   | —                                 |   | —                                |   | — |   | (979 | ) |
| Net income  (loss)                                                |   | 48                                     |   | 40                                    |   | 130 |   | (803 | ) |
| Earnings per  share before cumulative effect of accounting change |   |                                   |   |                                  |   |   |   |   |   |
| Basic and  Diluted                                                |   | 0.16                                   |   | 0.13                                  |   | 0.43 |   | 0.58 |   |
| Earnings (loss)  per share                                        |   |                                   |   |                                  |   |   |   |   |   |
| Basic                                                             |   | 0.16                                   |   | 0.13                                  |   | 0.43 |   | (2.66 | ) |
| Diluted                                                           |   | 0.16                                   |   | 0.13                                  |   | 0.43 |   | (2.64 | ) |
|                                                                   |        |                                        |        |                                       |        |  |  |  |  |  |  |  |  |

 

We are in the business of operating casino hotels.  Our primary sources of revenue consist ofcasino operations, room rentals, and food and beverage sales.

 

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Casino revenues are derived primarily from patrons wagering on slotmachines, table games and other gaming activities.  Table games generally include Blackjack (or Twenty One), Craps,Baccarat and Roulette.  Other gamingactivities include Keno, Poker and Race and Sports.  Casino revenue is defined as the win from gaming activities,computed as the difference between gaming wins and losses, not the totalamounts wagered. “Table game volume,” “table game drop” (terms which are usedinterchangeably), and “slot handle” are casino industry specific terms that areused to identify the amount wagered by patrons on a casino table game or slot machine.  “Table game hold” and “slot hold” representthe percentage of the total amount wagered by patrons that the casino haswon.  Hold is derived by dividing theamount won by the casino by the amount wagered by patrons.  Casino revenues are recognized at the end ofeach gaming day.

 

Room revenues are derived from rooms and suites rented to guests.  “Average daily rate” is an industry specificterm used to define the average amount of revenue per rented room per day.  “Occupancy percentage” defines the totalpercentage of rooms occupied, and is computed by dividing the number of roomsoccupied by the total number of rooms available.  Room revenues are recognized at the time the room is provided tothe guest.

 

Food and beverage revenues are derived from food and beverage sales inthe food outlets of our casino hotels, including restaurants, room service andbanquets.  Food and beverage revenuesare recognized at the time the food and/or beverage are provided to the guest.

 

We recorded netincome of $48 million and diluted earnings per share of $0.16 for the threemonths ended September 30, 2003, compared with net income of $40 millionand diluted earnings per share of $0.13 for the three months ended September30, 2002.  The prior period resultsinclude $10 million in expenses related to the cancellation of an energypurchase contract and damages caused by tropical storms at our Gulf Coastproperties.

 

We recorded netincome of $130 million and diluted earnings per share of $0.43 for the ninemonths ended September 30, 2003 compared to income before a cumulative effectof accounting change of $176 million and diluted earnings per share of $0.58for the nine months ended September 30, 2002. The results for the first nine months of 2002 include $10 million in expensesrelated to the cancellation of an energy purchase contract and damages causedby tropical storms at our Gulf Coast properties, and a $44 million gain on thesale of our equity interest in Jupiters Limited.  In connection with the implementation of SFAS No. 142,“Accounting for Goodwill and Other Intangible Assets,” on January 1, 2002, weno longer amortize goodwill and we recognized an impairment charge of $979million as a cumulative effect of an accounting change in the first quarter of2002.  Including this cumulative effectof accounting change, we reported a net loss of $803 million or a dilutedloss per share of $2.64 for the nine months ended September 30, 2002.

 

*Casino*

 

Consolidatedcasino revenues decreased $9 million to $864 million for the threemonths ended September 30, 2003, compared to $873 million recorded for thethree months ended September 30, 2002. Casino revenues in the Eastern Regiondecreased $10 million offset by an increase in the Western Region of$1 million for the quarter. The decline in the Eastern Region wasprimarily attributable to a reduction in table game volumes as a result of theopening of a new casino resort in Atlantic City in July 2003.  The Western Region saw improved performanceat Caesars Palace, which reported significant increases in gaming volumes and amore normal table hold which were partially offset by decreased gaming volumeat Paris/Bally’s.  The Mid-South Regionexperienced a slight increase in gaming volumes which was offset by a decreasedhold for both table games and slots.

 

Our consolidatedcasino operating margin was 48 percent for the three months endedSeptember 30, 2003 compared to 50 percent for the three months endedSeptember 30, 2002.  Casino revenues forthe quarter decreased 1.0 percent while expenses increased in the EasternRegion due to

 

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promotional expenses andat Caesars Indiana due to an increase in gaming taxes that became effective inAugust 2002.

 

Consolidatedcasino revenues for the nine months ended September 30, 2003 were$2.507 billion compared to $2.542 billion for the nine months endedSeptember 30, 2002.  The decreaseconsisted of a $19 million decline in the Western Region, a $9 milliondecline in the Eastern Region, and an $8 million decline in the Mid-SouthRegion.  The decrease in the WesternRegion was primarily due to lower table game drop and hold for the nine monthsended September 30, 2003 compared to same period in the prior year. In theEastern Region, table game volumes were down which was attributable to theopening of a new casino resort in Atlantic City.  Table game drop decreased in the Mid-South Region, but wasslightly offset by an increase in slot volumes at Caesars Indiana.

 

Our consolidatedcasino operating margin was 48 percent for the each of the nine months endedSeptember 30, 2003 and 2002.  While thetaxes in Indiana increased, such costs were offset by a reduction in expensesdue to cost containment programs during the nine months ended September 30, 2003.

 

*Rooms*

 
|             |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|             |   | **Average Daily  Rate**                |   | **Occupancy  Percentage**             |   | **Average Daily  Rate** |   | **Occupancy  Percentage** |   |
|             |   | **2003**                               |   | **2002**                              |   | **2003** |   | **2002** |   | **2003** |   | **2002** |   | **2003** |   | **2002** |   |
| Western Region   |   | $                                      | 89     |                                  | $      | 83 |   | 93 | % | 92 | % | $ | 93 |   | $ | 90 |   | 91 | % | 90 | % |
| Eastern Region   |   | $                                      | 96     |                                  | $      | 97 |   | 99 | % | 99 | % | $ | 88 |   | $ | 89 |   | 97 | % | 97 | % |
| Mid-South Region |   | $                                      | 64     |                                  | $      | 61 |   | 92 | % | 91 | % | $ | 61 |   | $ | 60 |   | 90 | % | 90 | % |

 

Consolidated roomrevenues increased to $148 million for the three months ended September 30,2003 compared to $138 million recorded for the three months ended September 30,2002.  The most significant improvementscame from increased average daily rates at Paris/Bally’s Las Vegas and theFlamingo Las Vegas as well as increased occupancy and average daily rates atCaesars Palace and the Las Vegas Hilton.

 

The consolidatedroom operating margin for the quarter ended September 30, 2003 was64 percent, compared to 63 percent for the quarter ended September 30,2002.

 

For the ninemonths ended September 30, 2003, we recorded $445 million in consolidated roomrevenues, a $23 million increase from the $422 million recorded for thenine months ended September 30, 2002. The year-over-year increase is attributable to a $24 million increase inthe Western Region due to improved average daily room rates and occupancypercentages in the Las Vegas market.

 

The consolidatedroom operating margin was 67 percent for the first nine months of 2003 andthe same period in 2002.

 

*Food and Beverage*

 

Consolidated foodand beverage revenues increased $10 million to $132 million for the threemonths ended September 30, 2003. The increase is primarily attributable to theWestern Region where Paris/Bally’s Las Vegas opened a new restaurant andnightclub during the year and experienced increased banquet revenues.  New restaurant outlets also opened duringthe year at Caesars Palace. Additionally, during the third quarter of 2003, the Flamingo Las Vegasopened new restaurant outlets which replaced restaurants that were closed tomake room for Margaritaville Café, a joint venture with Jimmy Buffet, whichwill open in December 2003.

 

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The consolidatedfood and beverage operating margin for the quarter ended September 30, 2003 was8 percent compared to 7 percent for the quarter ended September 30,2002.

 

For the ninemonths ended September 30, 2003, consolidated food and beverage revenuesincreased $21 million to $377 million when compared to the priorperiod. This improvement is mainly attributable to our Las Vegas propertieswhere banquet revenues increased over the prior year and new restaurants openedat Caesars Palace, Paris/Bally’s Las Vegas and the Flamingo Las Vegas.

 

The consolidatedfood and beverage operating margin for the first nine months of 2003 was9 percent compared to 11 percent for 2002.  The year-over-year decrease is primarily due to increasedsalaries and benefits and new union benefits effective in 2003 at our Las Vegasproperties.

 

*Other*

 

Consolidated otherrevenues include retail sales, entertainment sales, telephone, management feeincome and other miscellaneous income at our casino hotels.  Consolidated other revenues remainedrelatively flat at $76 million for the three months ended September 30,2003 as compared to the three months ended September 30, 2002.  For the nine month period, consolidatedother revenues decreased $5 million due to a decrease in entertainmentrevenues.

 

Consolidated otherexpenses include selling, general, administrative, property operations, retail,entertainment, telephone and other expenses at our casino hotels.  Consolidated other expenses decreased$5 million for the three months ended September 30, 2003 compared to thethree months ended September 30, 2002. The decrease over prior year is primarily attributable to reducedadvertising and marketing expenses during the third quarter.

 

For the first nine months of the year, consolidatedother expenses increased $5 million when compared to the prior year. Theincrease is primarily attributed to advertising and marketing during the firsthalf of the year at our Las Vegas properties.

 

*Pre-opening Expense*

 

Pre-openingexpense of $1 million for the nine months ended September 30, 2003 was relatedto the opening of “A New Day...,” a show featuring Celine Dion which opened inThe Colosseum at Caesars Palace in March 2003. There was also $1 millionof pre-opening expense in the quarter and nine months ended September 30, 2002.

 

*Corporate Expense*

 

Corporate expenseremained consistent at $17 million and $51 million for the three months andnine months ended September 30, 2003 as compared to the three months and ninemonths ended September 30, 2002.

 

*Depreciation and Amortization*

 

Consolidateddepreciation and amortization expense decreased to $114 million for the threemonths ended September 30, 2003 compared to $116 million for comparable periodof 2002.  Consolidated depreciation andamortization expense decreased to $347 million for the nine months endedSeptember 30, 2003 compared to $352 million for comparable period of 2002. The year over year decline is due to certainshort lived equipment becoming fully depreciated before it is replaced.

 

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*ContractTermination Fee and Other*

 

In September 2002, werecognized a $7.5 million charge related to the voluntary cancellation of anenergy contract with Enron Corporation. Also in September 2002, tropical storms in the Gulf Coast caused $2.5million in damage to the Grand Biloxi and Grand Gulfport properties.  We were unable to seek reimbursement forsuch losses because they did not exceed the deductibles applicable under ourvarious insurance policies.

 

*Net Interest Expense*

 

Consolidated netinterest expense decreased $3 million to $83 million for the three monthsended September 30, 2003 compared to the three months ended September 30, 2002.For the nine months ended September 30, 2003, consolidated net interest expensedecreased $11 million to $254 million when compared to the prior year.  The decrease in net interest expense wasattributable to lower debt balances and lower average interest rates on ourborrowings. Capitalized interest was $1 million and $3 million for the threemonths ended September 30, 2003 and 2002, respectively.  For the nine months ended September 30, 2003and 2002, capitalized interest was $4 million and $7 million, respectively.

 

*InvestmentGain*

 

In April 2002, we completedthe sale of our 19.9 percent equity interest in Jupiters Limited and receivedtotal gross proceeds of approximately $120 million.  As a result of this transaction, we recorded a gain of $44million in April 2002.  The gain hasbeen recorded as an investment gain in the accompanying condensed consolidatedstatement of operations for the nine months ended September 30, 2002.  Although we have sold our equity interest inJupiters Limited, we continue to manage Jupiters’ two Queensland casino hotels.

 

*Equity in Earnings of UnconsolidatedAffiliates*

 

Equity in earningsof unconsolidated affiliates was $3 million for the third quarter of 2003,equal to the third quarter of 2002.  Forthe first nine months of 2003 and 2002, equity in earnings of unconsolidatedaffiliates was $14 million and $20 million, respectively.  The decrease in equity in earnings ofunconsolidated affiliates for the nine months ended September 30, 2003,primarily relates to the sale of our equity interest in Jupiters Limited inApril 2002.  Prior to the sale ofour equity interest in Jupiters Limited, we recognized equity in earnings ofJupiters Limited.

 

*Income Taxes*

 

The effective income tax rates for the three months ended September 30,2003 and 2002 were 42.4 percent and 44.7 percent, respectively.  For the nine months ended September 30, 2003and 2002, the effective income tax rates were 42.1 percent and37.6 percent, respectively.  Theincrease in our effective income tax rate for the nine month period isprimarily due to the tax impact of the gain on the sale of our equity interestin Jupiters Limited and increases in permanent book-tax differences and stateincome taxes.  Excluding the sale of ourequity interest in Jupiters Limited our effective income tax rate for the ninemonths ended September 30, 2002 was 42.3 percent.  Our effective income tax rate is determined by the level and compositionof pretax income subject to varying foreign, state, and local taxes.

### ** **

*OtherDevelopments*

 

We believe that our operating results reflect the impact of reducedconsumer spending and, to a lesser extent, the military operations in Iraqwhich began in the first quarter of 2003. The Eastern Region was also impacted by the opening of a new casinoresort in Atlantic City in July 2003. We expect the impact to continue into the fourth quarter of 2003.  We continue to closely examine our coststructure though our “Work Smart” cost reduction program.  Since the program was started last year, wehave 

 

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reducedcosts in targeted categories by about $80 million.  Those operational savings were offset by increased expenses inother areas such as gaming taxes and insurance costs.  We are hoping for economic improvement, but we are not expectinga recovery in consumer sentiment or discretionary spending for the balance of 2003.  Substantial economic issues still remainrelated to the economy, consumer confidence, and continued competition from theexpansion of Indian gaming in California and the July 2003 opening of the firstnew resort in Atlantic City since 1990.

 

*New JerseyTaxes*

 

The State of New Jersey recently enacted new tax legislation, effectiveJuly 2003, which includes new taxes on casino net income, complimentaries,parking and rooms.  For the quarterended September 30, 2003, we incurred $4 million related to the newlyenacted taxes (before any federal tax benefit).  Of that amount, approximately $3 million was included inoperating expenses and the balance was included in the provision for incometaxes.

 

*NevadaTaxes*

 

The State of Nevada recently enacted legislation, effective August2003, that will increase taxes on the gaming industry. For the quarter endedSeptember 30, 2003, we incurred $1 million related to the newlyenacted taxes (before any federal tax benefit).  The increased taxes are included in operating expenses.

 

*New Towerat Caesars Palace*

 

In September 2003, we announced plans for a new 949-room, 26-storyluxury hotel tower as the latest project in the ongoing program to renovateCaesars Palace.  The hotel toweraddition also includes a fourth large swimming pool, the upgrading and expansionof existing hotel registration areas, a VIP lounge, wedding chapels, new retailspace, and new dining and restaurant facilities.  The hotel tower will be the centerpiece of a $376 millionexpansion that includes additional convention and meeting facilities andrelated enhancements.  Completion of thehotel tower is scheduled for 2005.

 

*Pauma-YuimaBand of Mission Indians*

 

In September 2003, we announced that the Pauma-Yuima Band of MissionIndians has selected us to exclusively negotiate agreements to develop andmanage a Caesars-branded casino on tribal lands in Pauma Valley in SouthernCalifornia.  Those agreements must beexecuted before construction can begin, and the management contract is subjectto approval by the National Indian Gaming Commission and other regulators.  Preliminary plans call for a 500-room hoteland casino complex, with more than 100,000 square feet of gaming space, nearTemecula northeast of San Diego.  Thecasino could open as early as 2005.

 

*AtlanticCity Parking Garage*

 

In September 2003, we announced plans to construct an 11-story,3,189-space parking garage adjacent to Caesars Atlantic City in AtlanticCity.  The new $75 million parkinggarage, designed to meet the demand for additional parking, will be locatednear the center of the historic Boardwalk. Construction on the parking garage is scheduled to begin in early 2004,with a completion targeted for the second quarter of 2005.

 

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### **LIQUIDITY AND CAPITAL RESOURCES**

 

*Liquidity*

 

As of September30, 2003, we had cash and cash equivalents of $276 million, which isprimarily cash in our casinos used to fund our daily operations.  In addition, at September 30, 2003,approximately $1.6 billion was undrawn under our credit facilities.  We expect to finance our operations andcapital expenditures through cash flows from current operations, existing cashbalances, borrowings under our credit facilities, and capital markettransactions.

 

*OperatingActivities*

 

As of September30, 2003 we had cash and equivalents of $276 million which is primarilycash in our casinos used to fund our daily operations.  Net cash provided by operating activitiesfor the nine months ended September 30, 2003 was $434 million compared to$520 million in the prior year’s period. Cash provided by operating activities reflect amounts we earned duringour normal course of operations.  Thedecrease between periods is related to the current period payments ofsignificant accrued expenses from December 31, 2002, including the Roski andBelle settlements as discussed in our prior year Annual Report on Form10-K.  We use our cash flows fromoperating activities to fund our investing activities, including maintenance,refurbishments, and new projects at our existing properties, new developmentopportunities and to reduce our outstanding debt balances.

 

*Investing Activities*

 

For the nine months ended September 30, 2003, net cash used ininvesting activities was $257 million, consisting principally of$237 million of capital expenditures and $23 million of additionalinvestments which include the Las Vegas Monorail project and the MargaritavilleCafé joint venture. Our capital expenditures include maintenance capitalexpenditures which are those long-lived assets required to maintain ourproperties in good operating condition. Such capital items include new gaming equipment, room and restaurantrefurbishments, computer hardware, furniture and office equipment, and othersimilar items.  Additionally, ourcapital expenditures for the first nine months of 2003 include a new restaurantand nightclub at Paris/Bally’s, new restaurants at Flamingo Las Vegas, andadditional attractions and amenities at Caesars Palace as we continue toenhance the gaming and entertainment experience for our guests.  We currently expect to spend approximately$424 million on capital investments in 2003, largely on maintenance projectsthroughout the Company and on the completion of projects underway at CaesarsPalace.

 

*Financing Activities*

 

During the ninemonths ended September 30, 2003, we reduced our aggregate debt by$265 million, net of the $3 million increase related to the market valueof the interest rate swaps.

 

As of September30, 2003, we have twoprincipal credit facilities, collectively known as the “Credit Facilities.”  The first is a 364-day revolving facilityexpiring in August 2004, with total availability of $493 million.  Thesecond facility is a $2.318 billion five-year revolving facilityexpiring in December 2003 with a $1.741 billion two-year extension uponexpiration or termination of the existing five-year revolving facility.  Approximately $700 million of the$1.741 billion two-year extension is a term loan.  If prepaid, the availability of the termloan is permanently reduced.  As of September 30, 2003, we had $1.170billion drawn under the five-year revolving facility and no amounts outstandingunder the 364-day revolving facility.

 

The Credit Facilities contain financial covenants including a maximumleverage ratio (total debt to ebitda, as defined in the Credit Facilities) of5.25 to 1.00 and a minimum interest coverage ratio (ebitda, as defined in theCredit Facilities, to interest expense) of 2.75 to 1.00 as of September 30,2003.

 

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Themaximum leverage ratio remains at 5.25 to 1.00 for the quarterly testingperiods ending December 31, 2003 through June 30, 2004, and then adjuststo 5.00 to 1.00 for the quarterly testing periods ending September 30, 2004through March 31, 2005, 4.75 to 1.00 for the quarterly testing period endingJune 30, 2005, and 4.50 to 1.00 thereafter. The interest coverage ratio remains 2.75 to 1.00 for all quarterlytesting periods.  We are required tocompute our actual leverage and interest coverage ratios on a rollingtwelve-month basis as of the end of each calendar quarter. If we are not incompliance with the required covenant ratios, an event of default would occur,which if not cured could cause the entire outstanding borrowings under theCredit Facilities to become immediately due and payable as well as trigger thecross default provisions of other debt issues. As of September 30, 2003, we were in compliance with the applicablecovenants.

 

Borrowings under the Credit Facilities bear interest at a floating rateand may be obtained, at our option, as LIBOR advances for varying periods, oras base rate advances, each adjusted for an applicable margin (as furtherdescribed in the Credit Facilities).  Wehave historically borrowed using LIBOR advances and expect to continue doing sofor the foreseeable future.  We pay amargin over LIBOR which is a function of both our leverage ratio and our creditrating.  This margin is adjustedquarterly.  Prior to September 2003, oursenior debt rating from Moody’s was Ba1 and from Standard & Poor’s wasBBB-.  In September 2003, Standard &Poor’s announced its decision to lower our senior debt credit rating toBB+.  As a result of this action, oureffective all-in borrowing cost of LIBOR advances under the Credit Facilitiesincreased to LIBOR plus 152.5 basis points from 127.5 basis points.

 

The condensed consolidated balance sheet as of September 30, 2003,excludes from current maturities $325 million of 7.0 percent senior notesdue July 2004.  This amount isclassified as long-term because we have both the intent and the ability torefinance these notes using availability under the long-term portion of theCredit Facilities.

 

In April 2003, we issued the $300 million of 7.0 percent senior notesdue 2013 through a private placement offering to institutional investors.  These notes were subsequently exchanged fornotes registered under the Securities Act of 1933, as amended.  The notes are redeemable at any time priorto their maturity at the redemption prices described in the indenture governingsuch notes.  The notes are unsecuredobligations, rank equal with our other senior indebtedness and are senior toall our junior indebtedness.  Proceedsfrom this offering were initially used to reduce borrowings under the Credit Facilities.

 

In August 2003, the $300 million 7.95 percent senior notes matured andwere retired using borrowings under the Credit Facilities.

 

*InterestRate Swaps*

 

Pursuant to our riskmanagement policy, management may engage in actions to manage our interest raterisk position.  In September 2003, weentered into two interest rate swaps representing $150 million notionalamount with members of our bank group to manage interest expense.  Theinterest rate swaps have converted a portion of our fixed-rate debt to afloating rate (“fair value hedges”).  Under the agreements, we receive afixed interest rate of 7 percent and pay a variable interest rate based on amargin above LIBOR on $150 million notional amount.  The interest rate swaps mature in2013.  The net effect of the interest rate swaps resulted in a reductionin interest expense of $0.2 million for the three and nine months endedSeptember 30, 2003.

 

These interest rate swapsmeet the shortcut criteria under SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” which permits the assumption of noineffectiveness in the hedging relationship between the swap and the underlyinghedged asset or liability.  As such, there is no income statement impactfrom changes in the fair value of the hedging instruments.  Instead, thefair value of the instrument is recorded as an asset or liability on ourbalance sheet with an offsetting adjustment to the carrying value of therelated debt.  In accordance with SFAS No. 133, we recorded

 

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otherlong-term assets of $3 million as of September 30, 2003, representing thefair value of the interest rate swaps and a corresponding increase in long-termdebt, as these interest rate swaps are considered highly effective under thecriteria established by SFAS No. 133.

 

**SAINT REGISMOHAWK TRIBE**

 

We entered into an agreement in April 2000 with the Saint Regis MohawkTribe in Hogansburg, New York in which we paid $3 million for the exclusiverights to develop a Class II or Class III casino project with the Tribe in theState of New York.  In November 2001,the parties entered into a seven-year definitive management agreement for ParkPlace to manage a casino to be located at Kutsher’s Country Club in Thompson,New York, which agreement was subject to the approval of the National IndianGaming Commission (the “NIGC”). The NIGC gave comments to the Tribe and theCompany regarding the management agreement’s conformity with federal laws,regulations and policies pertaining to such agreements.  As a result of these comments and in orderto further the approval process of NIGC, the Company and the Tribe entered intoon November 10, 2003, a First Amended and Restated Management Agreement and aFirst Amended and Restated Development Agreement (the “AmendedAgreements”).  The Amended Agreementsprovide, among other things, that the Company will manage the casino for sevenyears for a management fee equal to 30 percent of Net Total Revenue, asdefined, and that the exclusive right for casino development in the State ofNew York has been modified to provide for mutual non-compete protections withina 125 mile zone from the Sullivan County location.  Additionally, the Company will receive a development fee of $15million for its services in developing and constructing the casino facility andthe Tribe will assume the funding of the parking garage construction, which isestimated to cost approximately $40 million, which was previously an obligationof the Company.  The Amended Agreementsare subject to final approval by the NIGC.

 

We have entered into adefinitive agreement, as amended, to acquire approximately 66 acres of theKutsher’s Resort Hotel and Country Club in Sullivan County, New York, forapproximately $10 million, with an option to purchase the remaining 1,400acres for $40 million.  Upon approval ofthe Bureau of Indian Affairs (the “BIA”), approximately 66 acres will betransferred to be held in trust for the Saint Regis Mohawk Tribe.

 

All of the agreements andplans relating to the development and management of this project are contingentupon various regulatory and governmental approvals, including execution of acompact between the Saint Regis Mohawk Tribe and the State of New York, andreceipt of approvals from the BIA, NIGC and local planning and zoningboards.  There is no guarantee that therequisite regulatory approvals will be received.

 

On May 12, 2003, the SaintRegis Mohawk Tribe and the Governor of the State of New York signed amemorandum of understanding which outlined the terms under which the Tribe isauthorized to proceed with the casino development.  The Saint Regis Mohawk Tribe recently announced that it wouldwithdraw from the memorandum of understanding and continue to negotiate withthe State of New York to reach an agreement on the subjects contained in thememorandum of understanding.

 

The Company is party tonumerous lawsuits regarding its involvement in the Saint Regis Mohawk project,which lawsuits seek various monetary and other damages against theCompany.  Additionally, there are twolawsuits challenging the constitutionality of the legislation that, among otherthings, authorized the Governor of the State of New York to execute tribalstate gaming compacts and approved the use of slot machines as “games ofchance.”  While the Company believesthat it will prevail on these various litigations, there can be no assurancethat it will and, if it does not prevail, there can be no assurance that thedamages assessed against the Company would be immaterial to the Company.

 

On January 29, 2002,two substantially identical actions were filed in the Supreme Court of theState of New York, County of Albany, challenging legislation that, among otherthings, authorized the

 

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Governor of the State of New York to execute tribal-state gamingcompacts, approved the use of slot machines as “games of chance,” approved theuse of video lottery terminals at racetracks and authorized the participationof New York State in a multi-state lottery. The matters are captioned Dalton, et al. v. Pataki, et al. and Karr v. Pataki, et al.  Plaintiffs seek a declaratory judgmentdeclaring the legislation unconstitutional and enjoining the implementationthereof. The Company intervened in the actions and moved to dismiss the firstthree causes of action thereof (relating to plaintiffs’ claims to invalidatethe Legislature’s authorization of Indian gaming compacts). The State of NewYork moved to dismiss the actions in their entirety, while other defendantsmoved to dismiss certain causes of action. On October 30, 2002, the Courtdenied the motions to dismiss filed by the Company and all other defendants,and consolidated the two matters. The court has set a briefing schedule for cross-motionsfor summary judgment.  On July 17, 2003,the State of New York Supreme Court (the trial court) upheld theconstitutionality of the legislation that, among other matters, authorized theGovernor of the State of New York to execute tribal-state gaming compacts.  The plaintiff’s have filed an appeal of thedecision to the Appellate Division and the Company has responded to the appeal.

 

These lawsuits are detailed in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2002, and suchsummaries will be updated as warranted.

 

**BALUMA HOLDINGS, S.A.**

 

Over the past several years, we have providedcapital (in the form of loans) to Baluma Holdings, S.A. (“Holdings”), theultimate parent of Baluma, S.A. (“Baluma,” the entity that owns the ConradPunta del Este (the “Resort”), in Punta del Este, Uruguay). Two promissorynotes (the “Baluma Loans”), aggregating $80 million in principal, matured onJuly 31, 2002. The principal, together with certain accrued and unpaidinterest, was not repaid. The Baluma Loans are secured by a first priority lienon all the assets comprising the Resort and on the stock of Baluma.  Baluma is heavily indebted, and arestructuring of Baluma’s debt is needed. In October 2003, the Board of Directors of Baluma agreed to restructurethe indebtedness owed to Park Place by exchanging the Baluma Loans togetherwith accrued and unpaid interest for 7 percent convertible preferred stock ofBaluma.  Such restructuring isconditioned upon, among other things, holders of Baluma’s $50 million ofpublicly-traded subordinated notes agreeing to extend the maturity of suchnotes and certain other amendments.  Inaddition, after the restructuring, we will have five of the seven seats onBaluma’s Board of Directors.  We intendto continue to operate the Resort pursuant to the management agreement.  If the restructuring occurs as proposed, wewill have the ability to exercise significant influence over the management ofBaluma, and accordingly would be required to consolidate Baluma’s results ofoperations.  The proposed restructuringis expected to be completed in the first quarter of 2004,

 

As a result of the proposed restructuring, we will compare the currentvalue of our investment in the restructured Baluma to its historical carryingcost.  It is possible that as a resultof such comparison we may recognize an impairment loss.  The net amount of our investments in Balumaat September 30, 2003, was $86 million. We believe that any potential impairment losses would not have a materialadverse impact on our consolidated financial condition, liquidity or creditavailability.

 

**SIGNIFICANT ACCOUNTING POLICIES**

 

A description ofthe Company’s significant accounting policies and estimates can be found inItem 7 of the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002. There have been no material changes to these policies orestimates as of September 30, 2003.

 

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**RECENTLYISSUED ACCOUNTING PRONOUNCEMENT**

 

In May 2003, the Financial Accounting Standards Board issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity.”  SFAS No. 150establishes standards for how an issuer classifies and measures certainfinancial instruments with characteristics of both liabilities and equity andrequires that an issuer classify a financial instrument that is within itsscope as a liability (or an asset in some circumstances).  The Company has determined that SFAS No. 150will not have a material impact on its financial position and results ofoperations.

 

**FORWARD-LOOKING STATEMENTS**

 

**Factorsthat May Affect Future Results**

(Cautionary Statements Under the Private Securities Litigation ReformAct of 1995)

 

Certaininformation included in this Form 10-Q and other materials filed or to be filedby the Company with the United States Securities and Exchange Commission (aswell as information included in oral statements or other written statementsmade or to be made by the Company or its representatives) contains or maycontain forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended.  Thesestatements can be identified by the fact that they do not relate strictly tohistorical or current facts.  We havebased these forward-looking statements on our current expectations about futureevents.  The forward-looking statementsinclude statements that reflect management’s beliefs, plans, objectives, goals,expectations, anticipations, and intentions with respect to the financialcondition, results of operations, future performance and business of theCompany including:

 

•                  statements relating to our businessstrategy; and

 

•                  our current and future developmentplans.

 

Further,statements that include the words “may,” “could,” “should,” “would,” “believe,”“expect,” “anticipate,” “estimate,” “intend,” “plan,” or other words orexpressions of similar meaning may identify forward-looking statements.  These statements reflect our judgment on thedate they are made and we undertake no duty to update such statements in thefuture.  Such statements includeinformation relating to plans for future expansion and other businessdevelopment activities as well as capital spending, financing sources and theeffects of regulation (including gaming and tax regulation) andcompetition.  From time to time, oral orwritten forward-looking statements are included in the Company’s periodicreports on Forms 10-K, 10-Q and 8-K, press releases and other materialsreleased to the public.

 

Although webelieve that the expectations in these forward-looking statements arereasonable, any or all of the forward-looking statements in this report and inany other public statements that are made may prove to be incorrect.  This may occur as a result of inaccurateassumptions or as a consequence of known or unknown risks and uncertainties.Many factors will be important in determining the Company’s futureperformance.  Consequently, actualresults may differ materially from those that might be anticipated fromforward-looking statements.  In light ofthese and other uncertainties, you should not regard the inclusion of aforward-looking statement in this report or other public communications that wemight make as a representation by us that our plans and objectives will beachieved, and you should not place undue reliance on such forward-lookingstatements.

 

We undertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events orotherwise.  However, any furtherdisclosures made on related subjects in our subsequent reports filed with theSecurities and Exchange Commission on Forms 10-K, 10-Q and 8-K should beconsulted. The following discussion of risks, uncertainties and possibleinaccurate assumptions relevant to the Company’s business includes factors thatmanagement believes could

 

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causePark Place’s actual results to differ materially from expected and historicalresults. This discussion is provided as permitted by the Private SecuritiesLitigation Reform Act of 1995.

 

•                  We believe that our operating results reflectthe impact of reduced consumer spending and will continue to do so in thefuture.  Our operations are affected bychanges in local and national general economic and market conditions in thelocations where our operations are conducted and where customers live.

 

•                  Our ability to meet our debt serviceobligations will depend on our future performance, which will be subject tomany factors that are beyond our control.

 

•                  Our Nevada properties are adversely affectedby disruptions in air travel.

 

•                  We operate in very competitive environments,particularly Las Vegas, Atlantic City and Mississippi.  Our Atlantic City properties have beenimpacted by the opening of the Borgata Casino Resort in Atlantic City in June2003, and our properties may continue to be impacted in the future.Additionally, the establishment of new large-scale gaming operations on NativeAmerican lands in the states of New York and California could adversely affectthe operations of our properties in Atlantic City and Nevada.

 

•                  Our gaming operations are highly regulated bygovernmental authorities, which operations are reviewed and enforced by suchgovernmental authorities. We will also become subject to regulation in anyother jurisdiction where we conduct gaming in the future.

 

•                  Our properties face a variety of risks whichmay result in loss.  Specifically,several of our properties are located in areas that are subject to adverseweather.  In addition, all of ourproperties could be considered at risk for criminal acts and/or terrorist orother hostile acts.  Although we endeavorto obtain and maintain insurance covering extraordinary events that wouldaffect our properties, conditions in the marketplace have made it prohibitivefor us to maintain insurance against losses and interruptions caused byterrorist acts and acts of war.

 

•                  Changes in applicable laws or regulationscould have a significant effect on our operations. Our ability to comply withgaming regulatory requirements, as well as possible changes in governmental andpublic acceptance of gaming could materially adversely affect our business.

 

•                  The gaming industry represents a significantsource of tax revenues to the state, county and local jurisdictions in whichgaming is conducted. Specifically, the states of Indiana, Nevada, and NewJersey have imposed new and/or increased taxes on our operations. Such taxesand any future taxes have impacted our cash flows and will continue to impactour cash flows. From time to time, various state and federal legislators andofficials have proposed changes in tax laws, or in the administration of thelaws affecting the gaming industry, which if enacted, would impact our cashflows and could impact our ability to meet debt service requirements and,depending on the level of taxation, would materially adversely affect ourbusiness.

 

•                  Claims have been brought against us invarious legal proceedings, and additional legal and/or regulatory claims mayarise from time to time and judgments have been rendered against us and oursubsidiaries. While we believe that the ultimate disposition of current matterswill not have a material impact on our financial condition or results ofoperations, it is possible that our cash flows and results of operations couldbe affected from time to time by the resolution of one or more of thesecontingencies.

 

•                  While we from time to time communicate withsecurities analysts, it is against our policy to disclose to them any materialnon-public information or other confidential business information. It shouldnot be assumed that we agree with any statement or report issued by anyanalysts, irrespective of the

 

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content of the statement orreport.

 

### **ITEM 3.**                             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK

 

Market risk is therisk of loss arising from changes in market rates and prices, such as interestrates, foreign currency exchange rates, and commodity prices.  We are exposed to market risk in the form ofchanges in interest rates and the potential impact such change may have on ouroutstanding debt.  We attempt to limitthe impact of changes in interest rates by balancing the mix of our borrowingspursuant to our credit facilities and our long-term fixed-rate debt.  Based on our $1.2 billion of outstandingdebt under the credit facilities at September 30, 2003, a hypothetical 100basis point (1 percent) change in interest rates would result in an annualinterest expense change of approximately $12 million.

 

In September 2003,we entered into two interest rate swap agreements representing $150 million notionalamount with members of our bank group to manage our interest rate risk.  The interest rate swaps have converted aportion of our fixed-rate debt to a floating rate and qualify for hedgeaccounting as permitted by SFAS No. 133. The net effect of the interest rate swaps resulted in a reduction ininterest expense of $0.2 million for the three and nine months ended September30, 2003.  Also, in accordance with SFASNo. 133, we recorded other long-term assets and a corresponding increase inlog-term debt of $3 million as of September 30, 2003.

 

**ITEM 4.****                            ****CONTROLS AND PROCEDURES**

 

(a)  Disclosure Controls and Procedures.  The Company’s management, with theparticipation of the Company’s Chief Executive Officer and Chief FinancialOfficer, has evaluated the effectiveness of the Company’s disclosure controlsand procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theend of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer andChief Financial Officer have concluded that, as of the end of such period, theCompany’s disclosure controls and procedures are effective.

 

(b)  Internal Control OverFinancial Reporting.  There have notbeen any changes in the Company’s internal control over financial reporting (assuch term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)during the fiscal quarter to which this report relates that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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### **PART II.**                        OTHER INFORMATION

**ITEM 1.****                             LEGAL PROCEEDINGS**

 

The Company and itssubsidiaries are involved in various legal proceedings relating to itsbusinesses. The Company believes that all the actions brought against it or itssubsidiaries are without merit and will continue to vigorously defend againstthem. While any proceeding or litigation has an element of uncertainty, theCompany believes that the final outcome of these matters is not likely to havea material adverse effect upon its results of operations or financial position.

 

*U.S. Attorney Subpoenas*

 

The U.S. Attorney’s Officein Orlando, Florida has served grand jury subpoenas on the Company and CaesarsPalace.  These subpoenas were served inconnection with an investigation by the U.S. Attorney’s Office which we believeis focusing on possible money laundering in connection with certain cash transactionsengaged in by a former customer of Caesars Palace.  We have been advised that neither the Company nor Caesars Palaceare targets of the grand jury investigation. We are complying with the subpoenas and are cooperating with the U.S.Attorney’s Office.

 

*Mohawk Litigation*

 

On January 29, 2002,two substantially identical actions were filed in the Supreme Court of theState of New York, County of Albany, challenging legislation that, among otherthings, authorized the Governor of the State of New York to executetribal-state gaming compacts, approved the use of slot machines as “games ofchance,” approved the use of video lottery terminals at racetracks andauthorized the participation of New York State in a multi-state lottery. Thematters are captioned Dalton, et al.v. Pataki, et al. and Karr v.Pataki, et al.  Plaintiffs seek adeclaratory judgment declaring the legislation unconstitutional and enjoiningthe implementation thereof. The Company intervened in the actions and moved todismiss the first three causes of action thereof (relating to plaintiffs’claims to invalidate the Legislature’s authorization of Indian gamingcompacts). The State of New York moved to dismiss the actions in theirentirety, while other defendants moved to dismiss certain causes of action. OnOctober 30, 2002, the Court denied the motions to dismiss filed by theCompany and all other defendants, and consolidated the two matters. The courthas set a briefing schedule for cross-motions for summary judgment.  On July 17, 2003, the State of New YorkSupreme Court (the trial court) upheld the constitutionality of the legislationthat, among other matters, authorized the Governor of the State of New York toexecute tribal-state gaming compacts. The plaintiffs have filed an appeal of the decision to the AppellateDivision and the Company has responded to the appeal.

 

**ITEM4.****                             SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

The Company’s Special Meeting of Stockholders was held on September 10,2003.  Approximately 285,921,028 of theeligible 301,515,162 shares of the Company’s common stock were represented atthe meeting.  Stockholders approved theamendment of the Company’s Amended and Restated Certificate of Incorporation tochange the Company’s name to “Caesars Entertainment, Inc.” based upon thefollowing number of votes cast:

 
|           |   | **FOR**     |   | **AGAINST** |   | **ABSTAIN** |   |
|----------------|--------|-------------|--------|-------------|--------|-------------|--------|
| Change of Name |   | 284,484,299 |   | 1,226,660   |   | 210,069     |   |

 

**ITEM 6.****                             EXHIBITS AND REPORTS ON FORM 8-K**

 

**(a)****                      Exhibits**

 
| 4.1    |   | First Amended and Restated Multi-Year Credit  Agreement a/k/a Bolt on Credit Agreement dated as of August 12, 2003 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                               |
| 4.2    |   | Amendment No. 6 to Five Year Credit Agreement dated  as of August 12, 2003                                         |

 

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| 4.3    |   | Short-Term Credit Agreement dated as of August 12,  2003                                                                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                             |
| 31.1   |   | Certification of the Chief Executive Officer of Park  Place Entertainment Corporation pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                                 |
|   |   |                                                                                                                                                                                             |
| 31.2   |   | Certification of the Chief Financial Officer of Park  Place Entertainment Corporation pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                                 |
|   |   |                                                                                                                                                                                             |
| 32.1   |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the  Chief Executive Officer of Park Place Entertainment Corporation. |
|   |   |                                                                                                                                                                                             |
| 32.2   |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the  Chief Financial Officer of Park Place Entertainment Corporation. |

 

### **(b)**                     Reports on Form 8-K

### ** **

On July 23, 2003, theCompany filed a Form 8-K, dated July 22, 2003. This Form 8-K contains our press release announcing that the Board ofDirectors increased the number of directors from nine to ten and the electionof Ralph C. Ferrara to the Board of Directors.

 

On July 24, 2003, theCompany filed a Form 8-K, dated July 24, 2003, wherein we furnished ourearnings release for the three and six months ended June 30, 2003.

 

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### **SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this Report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

**PARKPLACE ENTERTAINMENT CORPORATION**

(Registrant)

 
| Date: November 13, 2003        |
|--------------------------------|
|                           |
|                           |
| /s/ HARRY C. HAGERTY, III      |   |
| Harry C. Hagerty, III          |
| Executive Vice President,      |
| Chief Financial Officer        |
| (Principal Accounting Officer) |

 

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