---

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                 | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
|For the quarterly period ended September 30, 2002
|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

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PARK PLACE ENTERTAINMENT CORPORATION(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)               |  | 88-0400631(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------ |  | ----------------------------------------------
|3930 Howard Hughes Parkway Las Vegas, Nevada(Address of principal executive offices) |  | 89109(Zip code)                               
|(702) 699-5000(Registrant's telephone number, including area code)                  

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Title of Each Class

Outstanding at November 1, 2002Common Stock, par value $0.01 per share

300,550,859


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PARK PLACE ENTERTAINMENT CORPORATION  INDEX

|         |  |                                                                                                         |  | Page
|-------- |  | ------------------------------------------------------------------------------------------------------- |  | ----
|PART I.  |  | FINANCIAL INFORMATION                                                                                   |  |     
|Item 1.  |  | Unaudited Condensed Consolidated Financial Statements                                                   |  |     
|         |  | Condensed Consolidated Balance Sheets
September 30, 2002 and December 31, 2001                          |  | 3   
|         |  | Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2002 and 2001 |  | 4   
|         |  | Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2002 and 2001           |  | 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                                              |  | 21  
|Item 4.  |  | Controls and Procedures                                                                                 |  | 22  
|PART II. |  | OTHER INFORMATION                                                                                       |  |     
|Item 1.  |  | Legal Proceedings                                                                                       |  | 23  
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                        |  | 24  
|         |  | Signatures                                                                                              |  | 25  
|         |  | Certifications                                                                                          |  | 26  

2

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS  (dollars in millions, except par value)  (unaudited)

|                                     |                                                                                                                                                                         | September 30,
2002                         |   | December 31,
2001 |      
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ----------------- | -----
|Assets                               |                                                                                                                                                                         |                                            |   |                   |      
|                                     | Cash and equivalents                                                                                                                                                    |                                            | $ | 307               |      
|                                     | Accounts receivable, net                                                                                                                                                |                                            |   | 184               |      
|                                     | Inventory, prepaids, and other                                                                                                                                          |                                            |   | 155               |      
|                                     | Income taxes receivable                                                                                                                                                 |                                            |   |                  |      
|                                     | Deferred income taxes                                                                                                                                                   |                                            |   | 116               |      
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|                                     |                                                                                                                                                                         | Total current assets                       |   |                   | 762  
|                                     | Investments                                                                                                                                                             |                                            |   | 146               |      
|                                     | Property and equipment, net                                                                                                                                             |                                            |   | 7,652             |      
|                                     | Goodwill, net                                                                                                                                                           |                                            |   | 832               |      
|                                     | Other assets, net                                                                                                                                                       |                                            |   | 261               |      
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|                                     |                                                                                                                                                                         | Total assets                               |   | $                 | 9,653
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|Liabilities and stockholders' equity |                                                                                                                                                                         |                                            |   |                   |      
|                                     | Accounts payable and accrued expenses                                                                                                                                   |                                            | $ | 607               |      
|                                     | Current maturities of long-term debt                                                                                                                                    |                                            |   | 1                 |      
|                                     | Income taxes payable                                                                                                                                                    |                                            |   | 27                |      
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|                                     |                                                                                                                                                                         | Total current liabilities                  |   |                   | 635  
|                                     | Long-term debt, net of current maturities                                                                                                                               |                                            |   | 4,913             |      
|                                     | Deferred income taxes, net                                                                                                                                              |                                            |   | 1,038             |      
|                                     | Other liabilities                                                                                                                                                       |                                            |   | 92                |      
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|                                     |                                                                                                                                                                         | Total liabilities                          |   |                   | 6,678
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|Commitments and contingencies        |                                                                                                                                                                         |                                            |   |                   |      
|Stockholders' equity                 |                                                                                                                                                                         |                                            |   |                   |      
|                                     | Common stock, $0.01 par value, 400.0 million shares authorized, 323.6 million and 322.4 million shares issued at September 30, 2002 and December 31, 2001, respectively |                                            |   | 3                 |      
|                                     | Additional paid-in capital                                                                                                                                              |                                            |   | 3,799             |      
|                                     | Retained earnings (accumulated deficit)                                                                                                                                 |                                            |   | (548              | )    
|                                     | Accumulated other comprehensive loss                                                                                                                                    |                                            |   | (18               | )    
|                                     | Common stock in treasury at cost, 23.0 million and 21.1 million shares at September 30, 2002 and December 31, 2001, respectively                                        |                                            |   | (261              | )    
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|                                     |                                                                                                                                                                         | Total stockholders' equity                 |   |                   | 2,975
|                                     |                                                                                                                                                                         |                                            |   |                   |      
|                                     |                                                                                                                                                                         | Total liabilities and stockholders' equity |   | $                 | 9,653
|                                     |                                                                                                                                                                         |                                            |   |                   |      

See
notes to condensed consolidated financial statements

3

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PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (in millions, except per share amounts)  (unaudited)

|                                                                                                |                                                             | Three months ended
September 30, |       | Nine months ended
September 30, |  
|----------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------------- | ----- | ------------------------------- | -
|
|Revenues                                                                                        |                                                             |                                  |       |                                 |  
|                                                                                                | Casino                                                      |                                  | $     | 873                             |  
|                                                                                                | Rooms                                                       |                                  |       | 138                             |  
|                                                                                                | Food and beverage                                           |                                  |       | 122                             |  
|                                                                                                | Other revenue                                               |                                  |       | 78                              |  
|                                                                                                |                                                             |                                  |       |                                 |  
|                                                                                                |                                                             |                                  | 1,211 |                                 |  
|                                                                                                |                                                             |                                  |       |                                 |  
|Expenses                                                                                        |                                                             |                                  |       |                                 |  
|                                                                                                | Casino                                                      |                                  |       | 440                             |  
|                                                                                                | Rooms                                                       |                                  |       | 51                              |  
|                                                                                                | Food and beverage                                           |                                  |       | 114                             |  
|                                                                                                | Other expense                                               |                                  |       | 303                             |  
|                                                                                                | Depreciation and amortization                               |                                  |       | 117                             |  
|                                                                                                | Pre-opening expense                                         |                                  |       | 1                               |  
|                                                                                                | Impairment losses and other, net                            |                                  |       | 10                              |  
|                                                                                                | Corporate expense                                           |                                  |       | 17                              |  
|                                                                                                |                                                             |                                  |       |                                 |  
|                                                                                                |                                                             |                                  | 1,053 |                                 |  
|                                                                                                |                                                             |                                  |       |                                 |  
|                                                                                                | Equity in earnings of unconsolidated affiliates             |                                  |       | 4                               |  
|                                                                                                |                                                             |                                  |       |                                 |  
|Operating income (loss)                                                                         |                                                             |                                  | 162   |                                 |  
|                                                                                                | Interest and dividend income                                |                                  |       | 2                               |  
|                                                                                                | Interest expense, net of interest capitalized               |                                  |       | (86                             | )
|                                                                                                | Interest expense, net from unconsolidated affiliates        |                                  |       | (2                              | )
|                                                                                                | Investment gain (loss)                                      |                                  |       |                                |  
|                                                                                                |                                                             |                                  |       |                                 |  
|Income (loss) before income taxes, minority interest and cumulative effect of accounting change |                                                             |                                  | 76    |                                 |  
|                                                                                                | Provision (benefit) for income taxes                        |                                  |       | 34                              |  
|                                                                                                | Minority interest, net                                      |                                  |       | 2                               |  
|                                                                                                |                                                             |                                  |       |                                 |  
|Income (loss) before cumulative effect of accounting change                                     |                                                             |                                  | 40    |                                 |  
|Cumulative effect of accounting change                                                          |                                                             |                                  |      |                                 |  
|                                                                                                |                                                             |                                  |       |                                 |  
|Net income (loss)                                                                               |                                                             | $                                | 40    |                                 | $
|                                                                                                |                                                             |                                  |       |                                 |  
|Basic earnings (loss) per share                                                                 |                                                             |                                  |       |                                 |  
|                                                                                                | Income (loss) before cumulative effect of accounting change |                                  | $     | 0.13                            |  
|                                                                                                | Cumulative effect of accounting change                      |                                  |       |                                |  
|                                                                                                |                                                             |                                  |       |                                 |  
|                                                                                                | Net income (loss) per share                                 |                                  | $     | 0.13                            |  
|                                                                                                |                                                             |                                  |       |                                 |  
|Diluted earnings (loss) per share                                                               |                                                             |                                  |       |                                 |  
|                                                                                                | Income (loss) before cumulative effect of accounting change |                                  | $     | 0.13                            |  
|                                                                                                | Cumulative effect of accounting change                      |                                  |       |                                |  
|                                                                                                |                                                             |                                  |       |                                 |  
|                                                                                                | Net income (loss) per share                                 |                                  | $     | 0.13                            |  
|                                                                                                |                                                             |                                  |       |                                 |  

See
notes to condensed consolidated financial statements

4

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PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in millions)  (unaudited)

|                                                  |                                                                                 | Nine Months Ended
September 30,        |                                          
|------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------- | -----------------------------------------
|
|Operating activities                              |                                                                                 |                                        |                                          
|                                                  | Net loss                                                                        |                                        | $                                        
|                                                  | Adjustments to reconcile net loss to net cash provided by operating activities: |                                        |                                          
|                                                  |                                                                                 | Depreciation and amortization          |                                          
|                                                  |                                                                                 | Investment (gain) loss                 |                                          
|                                                  |                                                                                 | Cumulative effect of accounting change |                                          
|                                                  |                                                                                 | Impairment losses and other, net       |                                          
|                                                  |                                                                                 | Change in working capital components   |                                          
|                                                  |                                                                                 | Change in deferred income taxes        |                                          
|                                                  |                                                                                 | Other                                  |                                          
|                                                  |                                                                                 |                                        |                                          
|                                                  |                                                                                 |                                        | Net cash provided by operating activities
|                                                  |                                                                                 |                                        |                                          
|Investing activities                              |                                                                                 |                                        |                                          
|                                                  | Capital expenditures                                                            |                                        |                                          
|                                                  | Proceeds from sale of investment                                                |                                        |                                          
|                                                  | Acquisition, net of cash acquired                                               |                                        |                                          
|                                                  | Other                                                                           |                                        |                                          
|                                                  |                                                                                 |                                        |                                          
|                                                  |                                                                                 |                                        | Net cash used in investing activities    
|                                                  |                                                                                 |                                        |                                          
|Financing activities                              |                                                                                 |                                        |                                          
|                                                  | Change in credit facilities and commercial paper                                |                                        |                                          
|                                                  | Payments on debt                                                                |                                        |                                          
|                                                  | Proceeds from issuance of notes                                                 |                                        |                                          
|                                                  | Purchases of treasury stock                                                     |                                        |                                          
|                                                  | Proceeds from exercise of stock options                                         |                                        |                                          
|                                                  | Other                                                                           |                                        |                                          
|                                                  |                                                                                 |                                        |                                          
|                                                  |                                                                                 |                                        | Net cash used in financing activities    
|                                                  |                                                                                 |                                        |                                          
|Decrease in cash and equivalents                  |                                                                                 |                                        | (21                                      
|Cash and equivalents at beginning of period       |                                                                                 |                                        | 328                                      
|                                                  |                                                                                 |                                        |                                          
|Cash and equivalents at end of period             |                                                                                 | $                                      | 307                                      
|                                                  |                                                                                 |                                        |                                          
|Supplemental Disclosures of Cash Flow Information |                                                                                 |                                        |                                          
|Cash paid for:                                    |                                                                                 |                                        |                                          
|                                                  | Interest, net of amounts capitalized                                            |                                        | $                                        
|                                                  |                                                                                 |                                        |                                          
|                                                  | Income taxes, net of refunds                                                    |                                        | $                                        
|                                                  |                                                                                 |                                        |                                          

See
notes to condensed consolidated financial statements

5

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PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)

Note 1.    The Company

Park Place Entertainment Corporation ("Park Place" or the "Company"), a Delaware corporation, was formed in June 1998. The Company is primarily engaged in
the ownership, operation, and development of gaming facilities. The operations of the Company currently are conducted under the Caesars, Bally's, Paris, Flamingo, Grand, Hilton, and Conrad brands. The
Company operates and consolidates seventeen wholly owned casino/hotels located in the United States; of which eight are located in Nevada; four are located in Atlantic City, New Jersey; and five are
located in Mississippi. Additionally, the Company operates and consolidates an 82 percent owned and managed riverboat casino in Harrison County, Indiana, a 49.9 percent owned and managed
riverboat casino in New Orleans, Louisiana, the casino operations of Caesars Palace at Sea on two cruise ships, and two partially owned and managed casinos in Nova Scotia, Canada. The Company
partially owns and manages two casinos internationally, one located in Johannesburg, South Africa and one located in Punta del Este, Uruguay which are accounted for under the equity method. In
Windsor, Canada, the Company has a 50 percent interest in a company that provides management services to the Casino Windsor. The Company also provides management services to two casinos in
Queensland, Australia and the slot operations at the Dover Downs racetrack in Delaware. The Company views each casino property as an operating segment and all such operating segments have been
aggregated into one reporting segment. Each casino property derives its revenues from services such as casino operations, room rental and food and beverage sales.

Note 2.    Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and investments in unconsolidated affiliates that are
accounted for under the equity method. The Company exercises significant influence over those investments accounted for under the equity method. All material intercompany accounts and transactions are
eliminated.

The
condensed consolidated financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. The results
for the three and nine month periods are not necessarily indicative of results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and the Company's
Quarterly Report on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002.

Reclassifications

The condensed consolidated financial statements for prior periods reflect certain reclassifications to conform to classifications adopted in the current period.
These reclassifications have no effect on previously reported net income.

Emerging
Issues & Task Force Issue No. 00-14 ("EITF 00-14") "Accounting for Certain Sales Incentives," which was effective January 1, 2002,
focuses on the accounting for, and presentation of, discounts, coupons, and rebates. EITF 00-14 requires that cash or equivalent amounts provided or

6

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returned to customers as part of a transaction should not be shown as an expense but should be recorded as an offset to the related revenue. The Company's casinos offer cash inducements and
match-play coupons to customers to encourage visitation and play at the casinos. The Company adopted the provisions of EITF 00-14 for 2001 year-end
reporting.

With
the adoption of the new standard, the prior-year periods have been reclassified to conform to the new presentation. This resulted in a reduction of casino revenues (and
a corresponding reduction in casino expenses) of $33 million and $100 million for the three and nine months ended September 30, 2001, respectively. The requirements of EITF
00-14 did not have an impact on previously reported operating income or net income.

Beginning
with the quarter ended September 30, 2002, the Company has reclassified its presentation of equity in earnings from unconsolidated affiliates. The Company previously
reported equity in earnings from unconsolidated affiliates as a component of other revenues. The Company will report the results of its unconsolidated affiliates as a separate component of operating
income (loss) on its statements of operations under a separate caption titled "Equity in Earnings of Unconsolidated Affiliates." This reclassification has no impact on operating income (loss), net
income (loss), or earnings (loss) per
share as reflected on its consolidated statements of operations and no impact on its consolidated balance sheets or statements of cash flows.

Note 3.    Goodwill and Other Intangible AssetsAdoption of Statement of Financial Accounting Standards No. 142

On January 1, 2002, the Company adopted the provisions of SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets." Under SFAS
No. 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives (but with no maximum life).

As
of January 1, 2002, the Company had approximately $1.8 billion of unamortized goodwill. Approximately two-thirds of the total related to the acquisition of
the Bally's properties in 1996, while the remainder related primarily to the Caesars acquisition in December 1999. In accordance with the initial adoption of SFAS No. 142, each property
with assigned goodwill is to be valued as an operating entity. If the fair value of the operating entity is greater than the book value, including assigned goodwill, no further testing is required.
However, if the book value, including goodwill, is greater than the fair value of the operating entity, the assets and liabilities of the operating entity will need to be valued. The difference
between the fair value of the operating entity and the fair value of the assets is the implied fair value of goodwill. To the extent that the implied fair value of goodwill is less than the book value
of goodwill, an impairment charge will be recognized as a cumulative effect of a change in accounting upon adoption.

The
Company engaged an independent company to assist in the valuation of properties with a significant amount of assigned goodwill. The fair value of the operating entities was
determined using a combination of a discounted cash flow model, a guideline company method using valuation multiples and similar transactions method. Based on this analysis and the tests noted above,
the Company completed its implementation analysis of goodwill arising from prior acquisitions and recorded an impairment charge of $979 million which has been recorded as a cumulative effect of
accounting change in the first quarter of 2002. There were no other additions or adjustments to goodwill during the nine months ended September 30, 2002.

For
the three and nine months ended September 30, 2001, the Company recorded goodwill amortization of $12 million and $37 million, respectively. If SFAS
No. 142 had been in effect for the

7

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three and nine months ended September 30, 2001, the Company would have reported the following (in millions, except per share amounts):

Three months ended
September 30, 2001

Nine months ended
September 30, 2001Net loss as reported

$
(101
)
$
(8
)Add back: Goodwill amortization


12


37Adjusted net income (loss)

$
(89
)
$
29Net loss per share as reportedBasic and Diluted

$
(0.34
)
$
(0.03
)Adjusted net income (loss) per shareBasic and Diluted

$
(0.30
)
$
0.10


Note 4.    Stock Repurchase

The Board of Directors of the Company has approved an aggregate of 40 million shares under a common stock repurchase program. For the three months and nine
months ended September 30, 2002, the Company repurchased 1.6 million shares at a cost of $14 million and 1.9 million shares at a cost of $17 million, respectively.
Cumulatively, through September 30, 2002, the Company has repurchased a total of 23 million shares of its common stock at an average cost of $11.37 per share, resulting in
17 million shares remaining available under the stock repurchase program.

Note 5.    Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period.
The basic weighted-average number of common shares outstanding for the three months ended September 30, 2002 and 2001 was 301 million and 299 million, respectively, and
302 million and 298 million for the nine months ended September 30, 2002 and 2001, respectively. Diluted EPS reflects the effect of assumed stock option exercises. The dilutive
effect of the assumed exercise of stock options increased the weighted-average number of common shares by 2 million for both the three and nine months ended September 30, 2002,
respectively. For the three and nine months ended September 30, 2001, the assumed exercise of stock options would
have increased the weighted-average shares by 3 million and 4 million, respectively; however, the additional shares were excluded from the EPS calculations because of the net losses from
continuing operations experienced during those periods.

Note 6.    Comprehensive Income (Loss)

Comprehensive income (loss) is the total of net income (loss) and all other non-stockholder changes in equity. Comprehensive income (loss) for the
three and nine months ended September 30, 2002 and 2001 is as follows (in millions):

Three months ended
September 30,

Nine months ended
September 30,2002

2001

2002

2001Net income (loss)

$
40

$
(101
)
$
(803
)
$
(8
)Currency translation adjustment


5


(3
)

(17
)

(6
)Comprehensive income (loss)

$
45

$
(104
)
$
(820
)
$
(14
)


8

---

Note 7.    Long-Term Debt

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

September 30,
2002

December 31,
2001Senior and senior subordinated notes, net of unamortized discount of $6 million and $7 million, respectively

$
3,469

$
3,393Credit facilities


1,440


1,904Other


5


114,914


5,308Less current maturities


(1
)

(7
)Net long-term debt

$
4,913

$
5,301


In
March 2002, the Company issued $375 million of 7.875% Senior Subordinated Notes due 2010 through a private placement offering to institutional investors. The Company has
completed an exchange of these notes for notes registered under the Securities Act of 1933, as amended. The notes are redeemable at any time prior to their maturity at the "Make-Whole"
premiums described in the indenture governing such notes. The notes are unsecured obligations, rank equal with the Company's other senior subordinated indebtedness and are junior to all the Company's
senior indebtedness. Proceeds from this offering were used to reduce borrowings under the credit facilities.

The
Company has two principal credit facilities. The first is a 364-day revolving credit facility expiring in August 2003 (the "364-day Facility") with
total availability to the Company of $700 million. As of September 30, 2002, the Company had $0 drawn against the 364-day Facility. The second facility (the
"Multi-year Facility"), structured in two parts, provides for aggregate availability to the Company as of September 30, 2002, of $2.0 billion. At December 31, 2003,
availability to the Company under the Multi-year Facility will be reduced by $600 million; the remaining $1.4 billion of availability expires on
December 31, 2005. As of September 30, 2002, the Company had $1.44 billion drawn under the Multi-year Facility.

The
credit facilities contain financial covenants including a maximum leverage ratio (total debt to ebitda, as defined) of 5.25 to 1.00 as of September 30, 2002 which adjusts to
5.00 to 1.00 as of December 31, 2002, and 4.75 to 1.00 for each of the quarterly testing periods ending March 31, 2003 and June 30, 2003, and 4.50 to 1.00, thereafter. The minimum
interest coverage ratio (ebitda, as defined, to interest expense) is 2.50 to 1.00 for the period ended September 30, 2002 and adjusts to 2.75 to 1.00 for each of the quarterly testing periods
thereafter. As of September 30, 2002, the Company was in compliance with the applicable covenants.

The
Company's $300 million 7.95% Senior Notes, due August 2003, are included in long-term debt as of September 30, 2002 as the Company intends to
refinance with either (1) a new note issue with maturity greater than one year or (2) borrowings under its Multi-year Facility.

Note 8.    Commitments and Contingencies

Baluma Holdings, S.A.

Over the past several years, the Company has provided 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 Conrad Punta del Este (the "Resort"), in Punta del Este, Uruguay). Two promissory notes (the "Baluma Loans"), aggregating $80 million in
principal, matured on July 31, 2002; the principal, together with certain accrued and unpaid interest, was not repaid. The Baluma Loans are secured by a first priority lien on all of the assets
comprising the Resort and on the stock of Baluma. The Company and Holdings are currently negotiating a restructuring of the Baluma Loans. In the event that the Company is unable to negotiate a
restructuring acceptable to all affected parties, it may consider

9

---

exercising its rights as secured creditor. The Company intends to continue to operate the Resort pursuant to the Management Agreement. As described elsewhere in this report, the Resort is currently
suffering the adverse effects of the economic turmoil in Argentina, Brazil and Uruguay.

Litigation

Park Place and its subsidiaries are party to various legal proceedings incidental to their business. The Company believes that all of the actions brought against
it are without merit and will continue to vigorously defend against them. While any proceeding or litigation has an element of uncertainty, the Company believes that the final outcome of any one of
these matters is not likely to have a material adverse effect upon the Company's results of operations or financial position. For a discussion of certain material litigation to which the Company and
its subsidiaries are a party, see the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2002 and June 30, 2002.

In
the matter captionedCatskill Development, L.L.C., et al. v. Park Place Entertainment Corporation, et al.,which was previously
detailed in the Company's Form 10-K for the year ended December 31, 2001, and Form 10-Q for the quarter ended June 30, 2002, on August 22,
2002, the United States District Court for the Southern District of New York granted the Company's motion for summary judgment dismissing plaintiffs' remaining two claims for tortuous interference
with contractual relations and tortuous interference with prospective business relations. On May 14, 2001, the Court had dismissed plaintiffs' other two claims. On August 26, 2002, the
Court dismissed plaintiffs' complaint in its entirety. Plaintiffs have appealed the dismissal of the compliant and various other rulings of the Court.

In
the matter captionedScutti Enterprises, L.L.C. v. Park Place Entertainment Corporation, which was previously detailed in the Company's
Form 10-K for the year ended December 31, 2001, and Form 10-Q for the quarter ended June 30, 2002, plaintiff's complaint was dismissed with
prejudice on March 13, 2002 by the United States District Court for the District of New York. Plaintiffs have appealed the Court's dismissal of the action and have also moved to vacate the
Court's dismissal of its claim for tortuous interference with contractual relations.

In
the matter captionedPark Place Entertainment Corporation, et al. v. Arquette, et al., which was previously detailed in the Company's
Form 10-K for the year ended December 31, 2001, and Form 10-Q for the quarter ended June 30, 2002, on September 9, 2002, the Supreme Court of
the State of New York, County of Franklin, denied both the Company's motion to dismiss defendants' counterclaim and defendants' cross-motion to dismiss the complaint.

In
the matter captionedStratosphere Litigation, L.L.C. v. Grand Casinos, Inc., a Minnesota Corporation, which was previously
detailed in the Company's Form 10-K for the year ended December 31, 2001, on April 4, 2001, the United States District Court entered a judgment in favor of Grand on
all counts. On August 13, 2002, that judgment was affirmed by the Ninth Circuit Court of Appeals.

In
the identical matters captionedDalton, et al. v. Pataki et al.andKarr v. Pataki, et
al.,which were previously detailed in the Company's Form 10-K for the year ended December 31, 2001, and the Form 10-Q for the
quarter ended June 30, 2002, the Supreme Court of the State of New York, County of
Albany, on October 30, 2002, denied the Company's motion to dismiss the first three causes of action and consolidated the matters.

Note 9.    Impairment Losses and Other

During the third quarter of 2002, the Company recognized $10 million in non-recurring items related to the cancellation of an energy contract
with Enron Corporation and damage caused by tropical storms in the Gulf Coast. The voluntary termination of the Enron contract resulted in a one-time charge of approximately
$7.5 million. In addition, tropical storms in the Gulf Coast caused

10

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$2.5 million in damage to our properties there. The Company will be unable to seek reimbursement for such losses because they do not exceed the deductibles applicable under the Company's
various insurance policies.

During
the third quarter of 2001, the Company recognized impairment losses on the Las Vegas Hilton and the sale of the Flamingo Reno totaling $143 million.

Note 10.    Investment Gain (Loss)

In April 2002, the Company completed the sale of its 19.9 percent equity interest in Jupiters Limited and received total gross proceeds of
approximately $120 million. As a result of this transaction, the Company recorded a one-time pre-tax gain of $44 million in April 2002. This gain has been
recorded as an investment gain in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2002. Although the Company has sold its equity interest
in Jupiters Limited, it continues to manage Jupiters' two Queensland casino hotels.

During
the third quarter of 2001, the Company recognized impairment losses on investments totaling $32 million primarily related to senior discount notes of Aladdin Gaming
Holdings, LLC.

11

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

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

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

---

12

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Comparison of Three and Nine Months Ended September 30, 2002 and 2001

A summary of our consolidated net revenue and earnings for the three and nine months ended September 30, 2002 and 2001 is as follows (in millions, except
per share amounts):

Three months ended
September 30,

Nine months ended
September 30,2002

2001

2002

2001Net revenue

$
1,211

$
1,177

$
3,546

$
3,479Operating income (loss)


162


(18
)

511


345Income (loss) before cumulative effect of accounting change


40


(101
)

176


(8
)Net income (loss)


40


(101
)

(803
)

(8
)Basic and diluted earnings (loss) per share before cumulative effect of accounting change


0.13


(0.34
)

0.58


(0.03
)Basic earnings (loss) per share


0.13


(0.34
)

(2.66
)

(0.03
)Diluted earnings (loss) per share


0.13


(0.34
)

(2.64
)

(0.03
)Other operating data:Cash provided by operating activities


n/a


n/a

$
520

$
493Cash used in investing activities


n/a


n/a


(137
)

(401
)Cash used in financing activities


n/a


n/a


(404
)

(168
)EBITDA(1)


290


259


879


884


---

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

Casino
revenue is derived primarily from patrons wagering on slot machines, table games and other gaming activities. Table games generally include Blackjack or Twenty One, Craps,
Baccarat and Roulette. Other gaming activities 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 total amounts wagered. "Table game volume," "table game drop" (terms which are used interchangeably), and "slot handle" are casino industry specific terms that are used to identify the
amount wagered by patrons for a casino table game or slot machine. "Table game hold" and "slot hold" represent the percentage of the total amount wagered by patrons that the casino has won. Hold is
derived by dividing the amount won by the casino by the amount wagered by patrons. Casino revenue is recognized at the end of each gaming day.

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

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

We
recorded net income of $40 million and diluted earnings per share of $0.13 for the three months ended September 30, 2002, compared with a net loss of $101 million
and diluted loss per share of $0.34 for the three months ended September 30, 2001. The current period includes $10 million of non-recurring expenses, including an
$7.5 million charge related to the cancellation of an energy contract with Enron Corporation and $2.5 million in damage costs caused by tropical storms to our Gulf Coast properties. The
prior-period results were negatively impacted by write-downs totaling $175 million ($117 million net of tax or $0.39 per share) associated with the Las Vegas Hilton asset impairment, the
loss on sale of the Flamingo Reno, and the write-down of our investment in the Aladdin Gaming Holdings, LLC senior discount notes. In addition, prior year revenues declined significantly
due to the impact on travel and leisure spending resulting from the events of September 11, 2001.

We
recorded income before a cumulative effect of accounting change of $176 million and diluted earnings per share of $0.58 for the nine months ended September 30, 2002
compared with a net loss of $8 million and diluted loss per share of $0.03 for the nine months ended September 30, 2001. With the adoption of SFAS No. 142, "Accounting for
Goodwill and Other Intangible Assets," we recognized an impairment charge of $979 million as a cumulative effect of an accounting change in the first quarter of 2002. Including the cumulative
effect of accounting change, we reported a net loss of $803 million or a diluted loss per share of $2.64 for the nine months ended September 30, 2002. The 2001 results for the nine month
period include the $175 million ($117 million net of tax or $0.39 per share) in asset impairments noted above.

Our
adoption of SFAS No. 142, on January 1, 2002, requires that we no longer amortize goodwill. Results for the third quarter of 2001 include $12 million of goodwill
amortization. For comparative purposes, the net loss for the third quarter of 2001 would have been $89 million, or a diluted loss per share of $0.30, excluding this goodwill amortization.
Results for the nine months ended September 30, 2001 include $37 million of goodwill amortization. For comparative purposes, net income for the nine months ended September 30,
2001 would have been $29 million, and $0.10 per diluted share, excluding this goodwill amortization.

Casino

Consolidated casino revenues increased $19 million to $873 million for the three months ended September 30, 2002, compared to
$854 million recorded for the three months ended September 30, 2001. The Mid-South Region contributed $13 million of this increase primarily due to results at Caesars
Indiana. The increase at Caesars Indiana is attributable to increased volume in tables and slots related to the initiation of dockside gaming on August 1, 2002, and the benefit of the
500-room luxury hotel which opened in August 2001. The Eastern Region showed a 2.6 percent increase in casino revenues over prior year due to increased slot and table win at
Bally's Atlantic City and Caesars Atlantic City. The Western Region showed a 1.4 percent decrease in casino revenue. This decline principally relates to an abnormally low hold percentage on
table games and reduced volumes at Caesars Palace Las Vegas as a result of continued construction disruptions, and the disposition of the Flamingo Reno in the fourth quarter of 2001, offset by
increased table win at Paris Las Vegas. The Western Region experienced reduced slot handle and table game drop, but benefited from increased table game and slot hold percentages. The table game hold
percentage for the Western Region was 15.1 percent for the three months ended September 30, 2002 compared to 13.2 percent for the comparable period of 2001.

Our
consolidated casino operating margin increased to 49.6 percent for the three months ended September 30, 2002 compared to 45.8 percent for the three months ended
September 30, 2001. The

14

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increase in casino margin was primarily attributable to the Western Region and our continued focus on managing expenses as well as the affects of September 11, 2001 on the prior period
results.

Casino
revenues for the nine months ended September 30, 2002 were $2.542 billion compared to $2.457 billion for the nine months ended September 30, 2001. The
Eastern Region and Caesars Indiana were the primary contributors to the increased revenue. The Eastern Region benefited from the addition of the Claridge Casino Hotel in June 2001 and Caesars
Indiana experienced higher gaming volumes as a result of the initiation of dockside gaming in August 2002 and the opening of their hotel in August 2001. Those increases were offset by a
decrease in the Western Region which was principally due to decreases in the first quarter of 2002 following the events of September 11, 2001, the sale of the Flamingo Reno, and the decrease in
casino revenues at Caesars Palace Las Vegas.

Rooms

|                     |  | Average Daily Rate |    | Occupancy Percentage |  
|-------------------- |  | ------------------ | -- | -------------------- | -
|
|
|Western Region       |  | $                  | 83 |                      | $
|Eastern Region       |  | $                  | 97 |                      | $
|Mid-South Region     |  | $                  | 61 |                      | $
|International Region |  | $                  | 78 |                      | $

Consolidated
room revenues increased 5.3 percent to $138 million for the three months ended September 30, 2002 compared to $131 million recorded for the three
months ended September 30, 2001. The increase is mainly attributable to the additional room revenues from Caesars Indiana which opened its hotel in August 2001 and increased occupancy
and average daily rates at Paris Las Vegas. The average daily rate in the Western Region remained constant at $83 for the three months ended September 30, 2002, when compared to the same period
of last year. However, the Western Region benefited from an increase in occupancy percentage from 90 percent to 92 percent for the three months ended September 30, 2002. The
Western Region has experienced steady increases in occupancy and average daily rates after September 11, 2001, but the region has continued to experience lower total visitation for the nine
months ended September 30, 2002 when compared to the same period of 2001.

The
consolidated room operating margin for the quarter ended September 30, 2002 was 63.0 percent compared to 63.4 percent for the quarter ended September 30,
2001. With the exception of the Western Region, all regions posted a slight increase in the room department's operating margin, which reflects our continued focus on managing expenses.

Room
revenues for the nine months ended September 30, 2002 were $422 million compared to $435 million for the corresponding prior-year period. The
decrease was mainly attributable to lower average daily rates and occupancy in the Western Region. The decrease was slightly offset by the Mid-South Region which increased over prior year
primarily due to nine months of operations at Caesars Indiana's 500-room hotel which opened in August 2001.

Food and Beverage

Consolidated food and beverage revenues increased $6 million to $122 million for the three months ended September 30, 2002. The increase is
attributable to a 5 percent increase in the Western Region and a 13 percent increase in the Mid-South Region. Caesars Palace Las Vegas contributed to

15

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the increase due to increased banquets and catering and the prior year period included cancellations due to the events of September 11, 2001. Caesars Indiana increased their food and beverage
revenues 29 percent over the prior year's quarter.

For
the nine months ended September 30, 2002, consolidated food and beverage revenues increased to $356 million from $350 million in prior year's comparable period.
That increase is primarily due to Caesars Indiana's full year of increased visitation due to the hotel which opened in August 2001.

Other

Consolidated other revenues include retail sales, entertainment sales, telephone, management fee income and other miscellaneous income at our casino/hotels.

Consolidated
other revenues increased slightly to $78 million for the three months ended September 30, 2002 as compared to $76 million for the three months ended
September 30, 2001. The increase is principally due to increases in entertainment revenues, offset by reduced management fee income at the Conrad Punta del Este Resort and Casino in Uruguay.

Consolidated
other revenues decreased $11 million to $226 million for the nine months ended September 30, 2002, compared to $237 million for the nine months
ended September 30, 2001. The decreases experienced for the nine month period are primarily attributable to the Western Region and reduced management fee income at the Conrad Punta del Este
Resort and Casino.

Consolidated
other expenses include costs associated with selling, general, administrative, property operations, retail, entertainment, telephone and other miscellaneous costs at our
casino/hotels. Consolidated other expenses increased $6 million and $23 million for the three and nine months ended September 30, 2002 compared to the three and nine months ended
September 30, 2001. The increase for the nine months ended September 30, 2002 was mainly attributable to the addition of the Claridge Casino Hotel. For the third quarter 2002, other
expenses increased slightly in each region.

Corporate Expense

Corporate expense increased $2 million to $17 million for the three months ended September 30, 2002. Corporate expense increased
$11 million for the nine months ended September 30, 2002 when compared to the prior year period. The addition of programs and key personnel were the primary components of the increase.

Depreciation and Amortization

Consolidated depreciation and amortization expense decreased to $117 million and $357 million for the three and nine months ended
September 30, 2002 compared to $133 million and $394 million for comparable periods of 2001. This decrease was primarily due to goodwill amortization of $12 million and
$37 million for the three and nine months ended September 30, 2001, respectively, that we no longer recognize in accordance with SFAS No. 142, offset by a slight increase in
depreciation expense related to new capital projects. The quarter ended September 30, 2002 also decreased due to the asset write-down at the Las Vegas Hilton in the third quarter of
2001.

Net Interest Expense

Consolidated net interest expense decreased $10 million to $86 million for the three months ended September 30, 2002 compared to the three
months ended September 30, 2001. For the nine months ended September 30, 2002, net interest expense decreased $29 million from the same period last year to $265 million.
The decrease in net interest expense was due primarily to a decline in the rates paid on variable-rate debt and a reduction in average long-term debt outstanding, partially
offset by changes

16

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in the mix of fixed-rate and variable-rate debt. Capitalized interest was $3 million for the three months ended September 30, 2002 and $4 million for the
third quarter of 2001. For the nine months ended September 30, 2002 and 2001, capitalized interest was $7 million and $11 million, respectively.

Impairment Losses and Other, Net

During the third quarter of 2002, the Company recognized $10 million in non-recurring items related to the cancellation of an energy contract
with Enron Corporation and damage caused by tropical storms in the Gulf Coast. The voluntary termination of the Enron contract resulted in a one-time charge of approximately
$7.5 million, which the Company expects will be more than offset by future energy cost savings. In addition, tropical storms in the Gulf Coast caused $2.5 million in damage to our
properties which will be charged against the Company's insurance deductible.

During
the third quarter of 2001, the Company recognized impairment losses on the Las Vegas Hilton and the sale of the Flamingo Reno totaling $143 million.

Equity in Earnings of Unconsolidated Affiliates

Beginning with the third quarter of 2002, we have reclassified our presentation of equity in earnings from unconsolidated affiliates. We previously reported
equity in earnings from unconsolidated affiliates as a component of other revenues. We now report the results of our unconsolidated affiliates as a separate component of operating income (loss) on our
statements of operations under a separate caption titled "Equity in Earnings of Unconsolidated Affiliates." This reclassification has no impact on operating income (loss), net income (loss), or
earnings (loss) per share as reflected on our consolidated statements of operations and no impact on our consolidated balance sheets or statements of cash flows.

The
decrease in equity in earnings of unconsolidated affiliates for both the quarter and nine months ended September 30, 2002, primarily relates to the sale of our equity interest
in Jupiters Limited in April 2002. In addition, Casino Windsor and Conrad Punta del Este Resort and Casino experienced significantly reduced volumes in both table and slot play. Casino Windsor
continues to be negatively affected by competition from the casinos in Detroit as well as by a decline in cross-border traffic that began after September 11, 2001. The Punta del Este property
has been affected by the economic turmoil in Argentina and Brazil, from which it draws most of its customers.

Investment Gain (Loss)

In April 2002, we sold our 19.9 percent equity interest in Jupiters Limited, received total gross proceeds of approximately $120 million and
recorded a one-time gain of $44 million. Although we have sold our equity interest in Jupiters Limited, we continue to manage Jupiters' two Queensland casino hotels.

During
the third quarter of 2001, the Company recognized impairment losses on investments totaling $32 million primarily related to senior discount notes of Aladdin Gaming
Holdings, LLC.

Income Taxes

The effective income tax rates for the three and nine months ended September 30, 2002 were 44.7 percent and 37.6 percent, respectively.
Excluding the sale of our equity interest in Jupiters Limited and other non-recurring items our effective income tax rate for the three and nine months ended September 30, 2002 was
43.7 percent and 42.0 percent, respectively. The decrease in our effective income tax rate is primarily due to the impact of the capital loss carryforward used to offset the gain on the
sale of our equity interest in Jupiters Limited and goodwill no longer being amortized in accordance with SFAS No. 142. The effective income tax rates for the three and nine months ended
September 30, 2001 were a benefit of 30.8 percent and tax of 131.6 percent, respectively. These

17

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effective tax rates were impacted by the net losses experienced during these periods compounded by the non-deductible amortization of goodwill. Our effective income tax rate is determined
by the level and composition of pretax income subject to varying foreign, state, and local taxes.

Competition

Current and potential competitors have commenced expansion and new development plans for the Las Vegas Strip. Any new hotel and/or casino capacity would intensify
competition in the Las Vegas marketplace and/or broaden Las Vegas' appeal to an expanded customer base. We cannot predict if these projects or other projects will be completed or how any additional
capacity would affect our future operating results. In addition, the proliferation of Native American gaming in western states, especially California and Arizona, could have an adverse effect on our
operating results in Nevada and has had, and will continue to have, an adverse effect on our Laughlin and Northern Nevada properties.

Certain
competitors have begun construction on a 2,000-room casino/hotel project in Atlantic City with an announced completion date in summer 2003. Another competitor has
recently completed an expansion with new rooms and casino space. Other competitors have announced or begun expansion projects with expected completion dates in 2002 and beyond. Such new casino/hotel
capacity would intensify competition in the Atlantic City marketplace and/or broaden Atlantic City's appeal to an expanded customer base. In addition, a proliferation of Native American gaming in New
York or the legalization or expansion of casino gaming in jurisdictions located near our existing casino/hotels would have an adverse effect on our operating results in Atlantic City. We cannot
predict if these projects or other projects will be completed or how any additional capacity would affect our future operating results.

Not
only has Native American gaming become an emerging competitor, but the proliferation of video lottery terminals or slot machines at racetracks in several states would increase
competition in the jurisdictions in which we operate and could have an adverse effect on the results of such properties.

Other Developments

Caesars Indiana began dockside gaming on August 1, 2002 in consideration of paying a higher graduated wagering tax. Caesars Indiana has experienced
increased revenues from dockside gaming which to date have more than offset the effect of the higher tax.

During
the second quarter, we announced a project to redevelop the Ocean One Mall in Atlantic City and connect it to Caesars Atlantic City. The Gordon Group, one of our partners in the
Forum Shops in Las Vegas, will develop and finance the project. At Caesars Palace Las Vegas, we agreed to proceed with Forum Shops III to be developed and financed by the Simon Group.

"A
New Day," starring Celine Dion and created by Franco Dragone, is expected to premiere in March 2003 at the Colosseum at Caesars Palace Las Vegas.

Baluma Holdings, S.A.

Over the past several years, we have provided 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 Conrad Punta del Este (the "Resort"), in Punta del Este, Uruguay). Two promissory notes (the "Baluma Loans"), aggregating $80 million in
principal, matured on July 31, 2002; the principal, together with certain accrued and unpaid interest, was not repaid. The Baluma Loans are secured by a first priority lien on all of the assets
comprising the Resort and on the stock of Baluma. We and Holdings are currently negotiating a restructuring of the Baluma Loans. In the event that we are unable to negotiate a restructuring acceptable
to all affected parties, we may consider exercising our rights as secured creditor. We intend to continue to operate the Resort pursuant to the Management

18

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Agreement. As described elsewhere in this report, the Resort is currently suffering the adverse effects of the economic turmoil in Argentina, Brazil and Uruguay.

Adoption of SFAS No. 142 "Accounting for Goodwill and Other Intangible Assets"

On January 1, 2002, we adopted the provisions of SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets." Under SFAS No. 142,
goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Separable intangible assets that are not deemed to have an indefinite life
will continue to be amortized over their useful lives (but with no maximum life).

As
of January 1, 2002, we had approximately $1.8 billion of unamortized goodwill. Approximately two-thirds of the total related to the acquisition of the
Bally's properties in 1996, while the remainder related primarily to the Caesars acquisition in December 1999. During the first quarter of 2002, we engaged an independent company to assist in
the valuation of properties with a significant amount of assigned goodwill. The fair value of the operating entities was determined using a combination of a discounted cash flow model, a guideline
company method using valuation multiples and similar transactions method. Based on this analysis, we recorded an impairment charge of $979 million which has been recorded as a cumulative effect
of an accounting change in the first quarter of 2002.

The
new accounting standard does not allow for the restatement of prior-period results to adjust for this change in accounting principle. However, it does require that pro forma results
be presented to disclose what the results would have been had the new rules been in effect in the prior periods. The
pro forma amounts for the prior year are presented in Note 3 of the Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As of September 30, 2002, we had cash and cash equivalents of $307 million, which is primarily cash in our casinos used to fund our daily
operations. In addition, at September 30, 2002, approximately $1.3 billion was undrawn under our credit facilities. We expect to finance our operations and capital expenditures through
cash flows from operations, existing cash balances, borrowings under our credit facilities, and new issuances in the public bond markets.

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2002 was $520 million. Cash provided by operating activities
reflects amounts we earned during our normal course of operations. The amount can be computed by starting with the net loss of $803 million and adding back: depreciation and amortization of
$357 million, change in working capital components of $31 million, change in deferred income taxes of $3 million and cumulative effect of accounting change of $979 million
and deducting the gain on sale of investment of $44 million and other items of $3 million.

Investing Activities

For the nine months ended September 30, 2002, net cash used in investing activities was $137 million, consisting principally of $258 million
of capital expenditures offset by proceeds of $120 million from the sale of our equity investment in Jupiters Limited. Our capital expenditures include maintenance capital expenditures which
are those long-lived assets required to maintain our properties in good operating condition. Such capital items include new gaming equipment, room and restaurant refurbishments, computer
hardware, furniture and office equipment, vehicles, and other

19

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similar items. Additionally, our capital expenditures include major expansion projects funded during the period, which are primarily the performing arts Colosseum at Caesars Palace and The Gateway, a
connector bridge linking the Claridge Casino Hotel and Bally's Atlantic City. In the second quarter of 2002, we completed The Gateway, a new retail, dining and convention complex, which now links over
400,000 square feet of casino space, 3,700 rooms, numerous shops, restaurants, spas and attractions covering five city blocks.

During
2002, we intended to spend approximately $475 million on capital expenditures for maintenance projects and selective expansion or improvement investments at certain of our
existing properties. We currently expect that capital expenditures for 2002 will total approximately $450 million with the remaining $25 million to be spent in 2003. The expansion and
improvement projects include the addition of a golf course for Caesars Indiana, the connector bridge between the Claridge Casino Hotel and Bally's Atlantic City, a new strip entrance restaurant and
night club complex at Paris Las Vegas, and master plan projects at Caesars Palace, including the "Colosseum."

Financing Activities

During the nine months ended September 30, 2002, we reduced our aggregate debt by $394 million.

We
have two principal credit facilities. The first is a 364-day revolving credit facility expiring in August 2003 (the "364-day Facility") with total
availability to us of $700 million. As of September 30, 2002, we had no amounts drawn against the 364-day Facility. The second facility (the "Multi-year
Facility"), structured in two parts, provides for aggregate availability to us as of September 30, 2002, of $2.0 billion. At December 31, 2003, availability to us under the
Multi-year Facility will be reduced by $600 million; the remaining $1.4 billion of availability expires on December 31, 2005. As of September 30, 2002, we had
$1.44 billion drawn under the Multi-year Facility.

The
credit facilities contain financial covenants including a maximum leverage ratio (total debt to ebitda, as defined in the credit facility) of 5.25 to 1.00 and a minimum interest
coverage ratio (ebitda, as defined in the credit facility, to interest expense) of 2.50 to 1.00 as of September 30, 2002. We are required to compute our actual leverage and interest coverage
ratios on a rolling twelve-month basis as of the end of each calendar quarter. If we are not in compliance with the required covenant ratios, an event of default would occur, which if not cured could
cause the entire outstanding borrowings under the credit facilities to become immediately due and payable. The maximum leverage ratio covenant adjusts to 5.00 to 1.00 as of December 31, 2002,
and 4.75 to 1.00 for each of the quarterly testing periods ending March 31, 2003 and June 30, 2003, and 4.50 to 1.00, thereafter. The minimum interest coverage ratio adjusts to 2.75 to
1.00 for each of the quarterly testing periods beginning December 31, 2002. As of September 30, 2002, the Company was in compliance with the applicable covenants.

Borrowings
under the credit facilities bear interest at a floating rate and may be obtained, at our option, as LIBOR advances for varying periods, or as base rate advances, each adjusted
for an applicable margin (as further described in the credit facilities), or as competitive bid loans. The applicable interest rate is based upon the leverage ratio noted above as well as our credit
rating and may be adjusted quarterly. At September 30, 2002, LIBOR advances under the multi-year credit facility bear an all-in interest of LIBOR plus 135 basis points.

In
March 2002, we issued $375 million of 7.875% Senior Subordinated Notes due 2010 through a private placement offering to institutional investors. We have completed an
exchange of these notes for notes registered under the Securities Act of 1933, as amended. The notes are redeemable at any time prior to their maturity at the redemption prices described in the
indenture governing such notes. The notes are unsecured obligations, rank equal with our other senior subordinated indebtedness and are junior to all of our senior indebtedness. Proceeds from this
offering were used to reduce borrowings under the credit facilities.

20

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In
June 2002, our $300 million 7.375% Senior Subordinated Notes matured and were retired using borrowings under our credit facilities.

FORWARD-LOOKING STATEMENTS

Factors that May Affect Future Results(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

Certain
information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to be made by the Company or its representatives) contains or may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not
relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. The forward-looking statements include statements that
reflect management's beliefs, plans, objectives, goals, expectations, anticipations, intentions with respect to the financial condition, results of operations, future performance and business of the
Company including:



Further,
statements that include the words "may," "could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan," or other words or expressions of similar
meaning may identify forward-looking statements. These statements reflect our judgment on the date they are made and we undertake no duty to update such statements in the future. Such statements
include information relating to plans for future expansion and other business development activities as well as capital spending, financing sources and the effects of regulation (including gaming and
tax regulation) and competition. From time to time, oral or written forward-looking statements are included in the Company's periodic reports on Forms 10-K, 10-Q and
8-K, press releases and other materials released to the public.

Although
we believe that the expectations in these forward-looking statements are reasonable, any or all of the forward-looking statements in this report and in any other public
statements that are made may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Consequently, actual results
may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking
statement in this report or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such
forward-looking statements.

We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further
disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K should be consulted.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates, and commodity prices. We
are exposed to market risk in the form of changes in interest rates and the potential impact such change may have on our variable-rate debt. We attempt to limit the impact of changes in
interest rates by balancing the mix of our borrowings pursuant to our credit facilities and our long-term fixed-rate debt. We have not invested in derivative-based financial
instruments.

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ITEM 4.    CONTROLS AND PROCEDURES

(a)  Evaluation
of Disclosure Controls and Procedures. The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to
be included in the Company's reports filed or submitted under the Exchange Act.

(b)  Changes
in Internal Controls. Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could
significantly affect such controls.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Park Place and its subsidiaries are party to various legal proceedings incidental to their business. The Company believes that all of the actions brought against
it are without merit and will continue to vigorously defend against them. While any proceeding or litigation has an element of uncertainty, the Company believes that the final outcome of any one of
these matters is not likely to have a material adverse effect upon the Company's results of operations or financial position. For a discussion of certain material litigation to which the Company and
its subsidiaries are a party, see the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2002 and June 30, 2002.

In
the matter captionedCatskill Development, L.L.C., et al. v. Park Place Entertainment Corporation, et al.,which was previously
detailed in the Company's Form 10-K for the year ended December 31, 2001, and Form 10-Q for the quarter ended June 30, 2002, on August 22,
2002, the United States District Court for the Southern District of New York granted the Company's motion for summary judgment dismissing plaintiffs' remaining two claims for tortuous interference
with contractual relations and tortuous interference with prospective business relations. On May 14, 2001, the Court had dismissed plaintiffs' other two claims. On August 26, 2002, the
Court dismissed plaintiffs' complaint in its entirety. Plaintiffs have appealed the dismissal of the compliant and various other rulings of the Court.

In
the matter captionedScutti Enterprises, L.L.C. v. Park Place Entertainment Corporation, which was previously detailed in the Company's
Form 10-K for the year ended December 31, 2001, and Form 10-Q for the quarter ended June 30, 2002, plaintiff's complaint was dismissed with
prejudice on March 13, 2002 by the United States District Court for the District of New York. Plaintiffs have appealed the Court's dismissal of the action and have also moved to vacate the
Court's dismissal of its claim for tortuous interference with contractual relations.

In
the matter captionedPark Place Entertainment Corporation, et al. v. Arquette, et al., which was previously detailed in the Company's
Form 10-K for the year ended December 31, 2001, and Form 10-Q
for the quarter ended June 30, 2002, on September 9, 2002, the Supreme Court of the State of New York, County of Franklin, denied both the Company's motion to dismiss defendants'
counterclaim and defendants' cross-motion to dismiss the complaint.

In
the matter captionedStratosphere Litigation, L.L.C. v. Grand Casinos, Inc., a Minnesota Corporation, which was previously
detailed in the Company's Form 10-K for the year ended December 31, 2001, on April 4, 2001, the United States District Court entered a judgment in favor of Grand on
all counts. On August 13, 2002, that judgment was affirmed by the Ninth Circuit Court of Appeals.

In
the identical matters captionedDalton, et al. v. Pataki et al.andKarr v. Pataki, et
al.,which were previously detailed in the Company's Form 10-K for the year ended December 31, 2001, and the Form 10-Q for the
quarter ended June 30, 2002, the Supreme Court of the State of New York, County of Albany, on October 30, 2002, denied the Company's motion to dismiss the first three causes of action
and consolidated the matters.

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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

|(a) |  | Exhibits                                                                                                                                                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 4.1                                                                                                                                                                          
|    |  | 4.2                                                                                                                                                                          
|    |  | 99.1                                                                                                                                                                         
|    |  | 99.2                                                                                                                                                                         
|(b) |  | Reports on Form 8-K                                                                                                                                                          
|    |  | On August 1, 2002, the Company filed a Form 8-K, dated July 29, 2002. This Form 8-K contains our earnings release for the three and six months ended June 30, 2002.          
|    |  | On August 14, 2002, the Company filed a Form 8-K providing the CEO and CFO Certifications pursuant to the Sarbanes-Oxley Act of 2002.                                        
|    |  | On August 14, 2002, the Company filed a Form 8-K providing the CEO and CFO statements in writing, under oath pursuant to the order of the Securities and Exchange Commission.

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SIGNATURES

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

|PARK PLACE ENTERTAINMENT CORPORATION(Registrant)                                                      
|------------------------------------------------------------------------------------------------------
|Date: November 14, 2002                                                                               
|/s/HARRY C. HAGERTY, III                                                                              
|Harry C. Hagerty, III
Executive Vice President,
Chief Financial Officer
(Principal Accounting Officer)

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CERTIFICATIONS

I,
Thomas E. Gallagher, certify that:



|Date: November 14, 2002                                                         |  | 
|------------------------------------------------------------------------------- |  | 
|/s/THOMAS E. GALLAGHERThomas E. Gallagher President and Chief Executive Officer |  | 

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I,
Harry C. Hagerty, III, certify that:



|Date: November 14, 2002                                                                                                        |  | 
|------------------------------------------------------------------------------------------------------------------------------ |  | 
|/s/HARRY C. HAGERTY, IIIHarry C. Hagerty, III Executive Vice President, Chief Financial Officer
(Principal Accounting Officer) |  | 

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