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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the transition period from                              to                             

Commission file number 1-14573

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

(702) 699-5000
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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:

PARK PLACE ENTERTAINMENT CORPORATION
INDEX

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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)

See notes to condensed consolidated financial statements

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

See notes to condensed consolidated financial statements

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

See notes to condensed consolidated financial statements

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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, the casino operations of Caesars Palace at Sea, and two partially owned and managed casinos in Nova Scotia, Canada. The Company partially owns and manages three casino investments internationally which are accounted for under the equity method. The Company also provides management services to two casinos internationally and 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. Equity in earnings of unconsolidated affiliates was $6 million and $13 million for the three months ended June 30, 2002 and 2001, respectively, and $21 million and $30 million for the six months ended June 30, 2002 and 2001, respectively. Such amounts are included in other revenue in the condensed consolidated statements of operations. 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 six 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 quarter ended March 31, 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.

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        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 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 $67 million for the three and six months ended June 30, 2001, respectively. The requirements of EITF 00-14 did not have an impact on previously reported operating income or net income.

Recently Issued Accounting Pronouncement

        In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The Company has determined that SFAS No. 146 will not have a material impact on its financial position and results of operations.

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 Statement of Financial Accounting Standards ("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 six months ended June 30, 2002.

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        For the three and six months ended June 30, 2001, the Company recorded goodwill amortization of $13 million and $25 million, respectively. If SFAS No. 142 had been in effect for the three and six months ended June 30, 2001, the Company would have reported the following (in millions):

Note 4.    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 June 30, 2002 and 2001 was 302 million and 297 million, respectively, and 302 million and 297 million for the six months ended June 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 4 million and 5 million for the three months ended June 30, 2002 and 2001, respectively, and 3 million and 5 million for the six months ended June 30, 2002 and 2001, respectively.

Note 5.    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 six months ended June 30, 2002 and 2001 is as follows (in millions):

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Note 6.    Long-Term Debt

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

        In March 2002, the Company issued $375 million of 7.875 percent 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 redemption prices 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.

Note 7.    Commitments and Contingencies

Litigation

        Park Place and its subsidiaries are party to various legal proceedings incidental to its 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.

Mohawk Litigation

        As reported in the Company's Form 10-K, the Company and certain of its former executives are parties to litigation arising out of the Company's relationship with the Saint Regis Mohawk Tribe. In the action captioned Park Place Entertainment Corporation, et al. v. Arquette, et al. commenced on April 26, 2000 and, pending in U.S. District Court for the Northern District of New York, in response to an inquiry from the Court, the United States Department of the Interior (the "Department") issued letters to the Court dated June 26, 2002 and July 12, 2002. In its June 26, 2002 letter, the Department reaffirmed the legal authority and legitimacy of the Three Chief Government as the lawful government of the Tribe (as opposed to the Constitutional Government). The Department concluded that the individual who claimed to act as a Tribal "Court" judge and who purported to award a $1.782 billion default judgment against the Company and one of its former executives was not legally appointed or elected and her rulings are not recognized by the Department as expressions of tribal law. In its July 12, 2002 letter, the Department further determined that the Tribe does not currently have a functioning court of general jurisdiction. In addition, the Department issued a June 5, 2002 letter to the Constitutional Government's counsel denying their request for reconsideration of the Department's prior decision recognizing the Three Chief Government as the governing body of the Tribe. By Order dated July 30, 2002, the Court acknowledged the Department's recognition of the Three Chief system

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of government for the Tribe, that a Tribal Council Resolution invalidated the Tribal Court System and that a referendum vote further determined that the Tribal "Court" was without authority. The Court has requested that the parties submit briefs regarding the effect of these developments upon the litigation. In the related matter captioned Arquette, et al. v. Park Place Entertainment Corporation, et al., commenced on or about June 27, 2001 and pending in U.S. District Court for the Northern District of New York, the Court is addressing these identical issues. The Company has forwarded a copy of the Department's letters to each Court in which these issues are being litigated.

        In the matter captioned Park Place Entertainment Corporation, et al. v. Arquette, et al., pending in the Supreme Court of the State of New York, County of Franklin, defendants asserted a counterclaim alleging the action was commenced in violation of New York's Civil Rights Law. The Company has moved to dismiss the counterclaim for failure to state a cause of action. In February 2002, the defendants cross-moved to dismiss the complaint. On July 2, 2002, defendants sought dismissal of the complaint on the additional ground that, in defendants' view, the Department incorrectly determined that the purported Tribal "Court" judge was not legally appointed or elected.

        In the matter captioned Catskill Development, L.L.C., et al. v. Park Place Entertainment Corporation, et al., pending in the United States District Court for the Southern District of New York, on or about May 15, 2002, the Company filed a motion for summary judgment dismissing the complaint. On or about June 18, 2002, the Company filed a motion for reconsideration of the Court's decision reinstating plaintiffs' tortuous interference with contract claim on the basis of intervening case law from a Federal Appeals Court.

        In the identical actions captioned Dalton, et al. v. Pataki, et al. and Karr v. Pataki, et al., filed in the Supreme Court of the State of New York, County of Albany, the Company has intervened and moved to dismiss the first three causes of action thereof, relating to plaintiffs' claims to invalidate State legislation authorizing Indian gaming compacts.

        The matter captioned Scutti Enterprises, L.L.C. v. Park Place Entertainment Corporation was dismissed with prejudice on March 13, 2002 by the United States District Court for the District of New York. Plaintiff has appealed the dismissal of the action.

Flixcorp Litigation

        As reported in the Company's Form 10-K, a subsidiary of the Company, Bally Data Systems, Inc., is a party to litigation captioned Flixcorp of America,  Ltd v. Bally Data Systems, Inc. On July 17, 2002, the parties agreed, subject to certain conditions, to settle the litigation in its entirety. Pursuant to the parties' agreement, Bally Data Systems, Inc. will make a payment in the amount of $300,000 to the Plaintiff. As this agreement represents a settlement of disputed claims, there was no admission of liability and any such liability was, and is, expressly denied.

Slot Machine Litigation

        As reported in the Company's Form 10-K, the Company is party to litigation captioned William H. Poulos, et al. v. Caesars World, Inc., et al. On June 25, 2002, the United States District Court denied the Plaintiff's motion to certify the case as a class action. Plaintiff has petitioned for permission to appeal the District Court's ruling.

Note 8.    Sale of Investment

        In April 2002, Park Place 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 statements of operations. Although the Company has sold its equity interest in Jupiters Limited, it continues to manage the two Jupiters' Queensland casino hotels.

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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:

*

These are properties in which we have a 50 percent or less ownership interest and are accounted for under the equity method. We exercise significant influence over these properties due to our ownership percentages, board representation and management agreements.

**

These are properties in which we solely earn management fees.

Comparison of Three and Six Months Ended June 30, 2002 and 2001

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