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

FORM 10-K

FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-14573

CAESARS ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)

PARK PLACE ENTERTAINMENT CORPORATION
(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

        Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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

        Based upon the June 30, 2003 New York Stock Exchange closing price of $9.09 per share, the aggregate market value of the Registrant's outstanding Common Stock held by non-affiliates of the Registrant was approximately $2.5 billion.

        As of March 1, 2004, there were 305,740,692 shares of Common Stock outstanding.

Documents Incorporated by Reference

        Portions of the Registrant's definitive Proxy Statement in connection with the May 26, 2004 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

PART I

Item 1. BUSINESS

General

        Effective January 5, 2004, the Company changed its name to Caesars Entertainment, Inc. from Park Place Entertainment Corporation. As used in this document, the terms "Caesars Entertainment," "Company," "we," "our," and "us," refer to Caesars Entertainment, Inc. and its subsidiaries as a combined entity except where it is clear that the terms mean only Caesars Entertainment, Inc. Notwithstanding the foregoing, the Company's affiliates and subsidiaries carry out their respective businesses and operations as separate legal entities.

        We are one of the largest casino/hotel operators in the United States and we have a significant presence in Nevada, New Jersey and Mississippi, the three largest state gaming markets in the United States. We operate 29 properties with approximately 29,000 guest rooms and more than two million square feet of casino space.

        Our properties are operated under the following brands: Caesars, Bally's, Flamingo, Grand Casinos, Hilton, and Paris. We employ approximately 55,000 people worldwide and our corporate headquarters is located in Las Vegas, Nevada. We reported net revenue of $4.5 billion in 2003.

        In December 1998, we became a separate and independent public company when Hilton Hotels Corporation ("Hilton") divested its gaming operations through a tax-free distribution of the Company's common shares to Hilton's stockholders. At the same time, we acquired the Mississippi gaming operations of Grand Casinos, Inc. ("Grand") through a merger. In December 1999, we acquired all of the outstanding stock of Caesars World, Inc. and interests in several other gaming entities (collectively, "Caesars") from Starwood Hotels & Resorts Worldwide, Inc.

        The following table presents selected statistics about our properties (as of December 31, 2003). Except where noted we own, through our subsidiaries, a 100 percent interest in each of these properties.

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(1)

Includes square footage attributable to race and sports books.

(2)

On December 24, 2003, we entered into a definitive agreement to sell the Las Vegas Hilton. The transaction is expected to close by the end of the second quarter of 2004.

(3)

We lease the building that houses the hotel and casino and lease the underlying land pursuant to a long-term ground and structure lease.

(4)

We provide management services to the casino at the Dover Downs racetrack in Delaware. Our management agreement with Dover Downs expires in December 2004.

(5)

We manage Caesars Indiana and own an 82 percent interest in a joint venture that owns this property.

(6)

We provide management services to these properties.

(7)

We have a 46.4 percent ownership interest in and manage this property.

(8)

We have a 95 percent interest in Metropolitan Entertainment Group, which operates the two properties on behalf of the Nova Scotia Gaming Corporation pursuant to an operating contract.

(9)

We have a 50 percent interest in Windsor Casino Limited, which operates Casino Windsor. The province of Ontario owns the complex.

(10)

We have a 25 percent interest in a joint venture that owns Caesars Gauteng and a 50 percent interest in a joint venture that manages Caesars Gauteng.

(11)

We operate the Caesars Palace at Sea casinos on three cruise ships owned by Crystal Cruises, Inc.

        Additional information about Caesars Entertainment may be accessed through our website at www.caesars.com. Our filings with the U.S. Securities and Exchange Commission (the "SEC") including our reports on Forms 10-K, 10-Q, and 8-K and all amendments to such reports are made available though www.caesars.com or www.sec.gov, free of charge, as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.

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        Additionally, the following documents are available in the "About Us" section under the "Corporate Governance" heading of the Company's website at www.caesars.com/corporate/aboutus/corporategovernance: the Company's Ethics Statement, Code of Conduct, Code of Ethics for Chief Executive and Senior Financial Officers, the written charters for the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, and the Company's Corporate Governance Guidelines. A copy of each of these documents may also be obtained, without cost, by written request submitted to Bernard E. DeLury, Jr., Secretary, Caesars Entertainment, Inc., 3930 Howard Hughes Parkway, Las Vegas, Nevada 89109.

        The Company intends to satisfy any disclosure requirements regarding amendments to, or waivers from, any provision of the Code of Ethics for Chief Executive and Senior Financial Officers by posting such information in the "About Us" section under the "Corporate Governance" heading of the Company's website at the internet address of www.caesars.com/corporate/aboutus/corporategovernance. The Company also intends to satisfy any disclosure requirements regarding waivers for executive officers and directors from the Code of Conduct, Ethics Statement and/or Code of Ethics for Chief Executive and Senior Financial Officers by posting such information on the Company's website at www.caesars.com/corporate/aboutus/corporategovernance.

        For managerial purposes, we have divided our properties into four geographic regions: the Western, Eastern, Mid-South and International Regions.

Western Region

        Through subsidiaries, we currently own and operate eight casino hotels in the state of Nevada; Caesars Palace, Paris Las Vegas, Bally's Las Vegas, Flamingo Las Vegas, and the Las Vegas Hilton in Las Vegas; Caesars Tahoe and the Reno Hilton in northern Nevada; and the Flamingo Laughlin in far southern Nevada.

        Each Nevada casino hotel is open 24 hours a day, seven days a week, and offers a variety of casino games, slot machines, race and sports books, hotel suites/rooms, restaurants, convention space, and various entertainment and shopping venues.

        In Las Vegas, four of our five properties are clustered at three of the famous "Four Corners" intersection of Las Vegas Boulevard and Flamingo Road. We believe that our concentration at this location affords us a significant benefit, as we are well positioned to capture foot traffic at this heavily-traveled intersection as well as cross-property visits from guests staying at the nearly 15,000 hotel rooms at this intersection.

Caesars Palace

        Caesars Palace is located on approximately 80 acres at the northwest corner of Flamingo Road and Las Vegas Boulevard on the Las Vegas Strip. Caesars Palace features 2,408 guest rooms and suites, approximately 166,000 square feet of gaming space and ten restaurants. In addition, the property also offers a 4.5 acre swimming pool complex, a 23,000 square foot spa/fitness facility, a wedding chapel, 110,000 square feet of meeting and convention space, and a 49,000 square foot event/exhibit pavilion. The 4,100-seat Colosseum at Caesars Palace opened in March 2003 with the first performance of "A New Day...." starring Celine Dion. Celine is scheduled to perform approximately 200 shows per year through March 2005. Sir Elton John's new show, "The Red Piano," made its debut at The Colosseum on February 13, 2004. The Colosseum will host "The Red Piano" for a minimum of 75 performances over three years. Through a lease to Simon Property Group, Inc., Caesars Palace is also home to the Forum Shops, a highly themed shopping mall which features upscale boutiques, well known stores and dining. Amenities such as the Forum Shops and The Colosseum benefit Caesars Palace by increasing visitation to the property.

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        In September 2003, we announced plans for a new 949-room, 26-story luxury hotel tower as the latest project in the ongoing program to renovate Caesars Palace. The hotel tower addition also includes adding a fourth swimming pool, the upgrading and expansion of existing hotel registration areas, a VIP lounge, wedding chapels, new retail space, and new restaurant facilities. The hotel tower will be the centerpiece of a $376 million expansion that includes additional convention and meeting facilities and related enhancements. Completion of the hotel tower is scheduled for the second half of 2005.

Paris Las Vegas

        Paris Las Vegas opened in September 1999. Located on approximately 24 acres, Paris Las Vegas features 2,916 spacious guest rooms and suites, an 85,000 square foot casino, eight French-inspired restaurants, six lounges, 120,000 square feet of meeting and convention space, 31,000 square feet of retail space, a two-acre pool and a European health spa. This Parisian-themed resort also features authentic replicas of famous French landmarks including a 50-story half-scale Eiffel Tower. Paris Las Vegas is connected to Bally's Las Vegas by a retail mall.

Bally's Las Vegas

        Bally's Las Vegas is located on approximately 44 acres at the southeast corner of Las Vegas Boulevard and Flamingo Road. This property, which is connected to Paris Las Vegas, features 2,814 guest rooms and suites, an 83,000 square foot casino, nine restaurants, five lounges, 115,000 square feet of meeting and convention areas, 48,000 square feet of retail space, an Olympic-sized pool, tennis courts and a spa. Bally's Las Vegas also has a 1,040-seat showroom which is home to one of the last remaining traditional Las Vegas shows, "Jubilee."

Flamingo Las Vegas

        The Flamingo Las Vegas is located on approximately 25 acres at the northeast corner of Las Vegas Boulevard and Flamingo Road. This property features 3,455 guest rooms and suites, approximately 77,000 square feet of casino space, nine restaurants, approximately 93,000 square feet of meeting and convention area, 800 showroom seats, multiple pools and lagoons, tennis courts, a spa and health club, and a wedding chapel. At the Flamingo Las Vegas, we teamed up with Jimmy Buffett to open the Margaritaville Café and entertainment complex. The multi-level restaurant, bar and live music stage opened in December 2003.

Las Vegas Hilton

        The Las Vegas Hilton is located on approximately 59 acres adjacent to the Las Vegas Convention Center. With this prominent convention location, the Las Vegas Hilton focuses its marketing toward convention groups. This property features 2,968 guest rooms and suites, approximately 74,000 square feet of casino space, 12 restaurants and 225,000 square feet of meeting and convention area. The property also includes a 1,600-seat showroom featuring top entertainers, a night club, and a spa and health club. On December 24, 2003, we entered into a definitive agreement to sell the Las Vegas Hilton. The transaction is expected to close by the end of the second quarter of 2004. Until the sale is completed, the Las Vegas Hilton will be accounted for as an asset held for sale.

Caesars Tahoe

        Caesars Tahoe is located on the south shore of Lake Tahoe in Stateline, Nevada. The property occupies approximately 21 acres which are leased pursuant to a long-term ground and structure lease. This lease expires in 2028 and we have the option to renew for an additional 25-year period. This property features 440 guest rooms and suites, a 42,000 square foot casino, five restaurants, a nightclub,

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a 1,500-seat showroom, a health spa, and approximately 16,000 square feet of meeting space. Caesars Tahoe benefits from the scenic beauty of the Lake Tahoe region and the many recreational facilities and activities in the area. Caesars Tahoe draws a significant portion of its customers from the northern California area.

Reno Hilton

        The Reno Hilton, which is located on 144 acres, features 1,995 guest rooms and suites, a 107,000 square foot casino, ten restaurants, a lounge and approximately 200,000 square feet of meeting and convention space. This property is also complemented by recreational facilities including an outdoor golf driving range on a man-made lake, and a 24-hour bowling center.

Flamingo Laughlin

        The Flamingo Laughlin is located on 18 acres on the west bank of the Colorado River, 90 minutes south of Las Vegas. This property offers 1,907 guest rooms and suites, approximately 57,000 square feet of gaming space, seven restaurants, a 300-seat showroom, 35,000 square feet of flexible meeting and convention space, including the 20,000 square foot Flamingo Ballroom, a swimming pool and lighted tennis courts.

Cascata

        We also own and operate Cascata, a premier high-desert championship golf course in southern Nevada. This 18-hole Rees Jones designed course complements the amenities offered by our Las Vegas properties and is available to our resort guests.

Las Vegas Monorail

        The Las Vegas Monorail Company ("Las Vegas Monorail"), a Nevada nonprofit corporation, has developed a monorail system in Las Vegas. The monorail will be approximately four miles long and will have seven stations directly connecting eight hotel-casinos on the east side of the Las Vegas Strip to the Las Vegas Convention Center. Three of the seven planned station stops will be at the following of our properties: Bally's Las Vegas, Flamingo Las Vegas and the Las Vegas Hilton. The monorail is scheduled to begin operating in March 2004.

Eastern Region

        In Atlantic City, New Jersey, the Company, through its subsidiaries, owns and operates three casino resorts along the famous Atlantic City Boardwalk.

        Our Atlantic City casinos are open 24 hours a day, seven days a week, and feature table games, slot machines, hotel suites/rooms, restaurants, convention space and entertainment. Atlantic City casinos are not permitted to operate sports books; however, Bally's Atlantic City and Caesars Atlantic City feature simulcast horse racing.

        The majority of our Atlantic City properties are clustered together at a high traffic density location. Our Caesars Atlantic City and Bally's Atlantic City properties (including the Claridge Casino and the Wild Wild West Casino) are located at the center of the famous Atlantic City Boardwalk. A network of skybridges connects all of our facilities at the center Boardwalk location, offering our guests the opportunity to circulate in an enclosed environment among a variety of casino, restaurant, entertainment and room amenities that we offer across a five city block area. Due to the varying weather conditions in this market, we believe this is a significant advantage.

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Bally's Atlantic City

        Bally's Atlantic City is located on a 19-acre site with ocean frontage at the intersection of Park Place and the Boardwalk. Including the Wild Wild West Casino and the Claridge Casino (separate casinos that are part of the Bally's Atlantic City complex), this property offers 1,745 guest rooms and suites, 225,000 square feet of casino and simulcast space, 87,000 square feet of meeting and convention space, 18 restaurants and a 46,000 square foot health spa. With its strategic center location on the Boardwalk, over 4,000 parking spaces and a bus terminal, Bally's Atlantic City is positioned to attract significant walk-in and drive-in business.

Caesars Atlantic City

        Caesars Atlantic City is located on approximately ten acres at the center of the Boardwalk and features 1,140 guest rooms and suites, approximately 125,000 square feet of casino and simulcast space, seven restaurants, a 1,100-seat showroom and a health spa. Caesars Atlantic City also offers approximately 48,000 square feet of convention, meeting and banquet facilities, a multi-function grand ballroom and a four-story atrium to attract convention business as well as walk-in patrons from the Boardwalk.

        Caesars Atlantic City also owns The Pier at Caesars which extends 900 feet over the Atlantic Ocean and is located directly in front of the Boardwalk entrance to Caesars Atlantic City. The Pier at Caesars is currently being redesigned to include high-end retail, dining and entertainment. The Pier at Caesars is being leased to the Gordon Group, one of our original partners in the Forum Shops in Las Vegas, who is financing and developing the project. The Pier is currently under construction, with the opening scheduled for 2005.

        In September 2003, we announced plans to construct a parking garage adjacent to Caesars Atlantic City. The new $75 million parking garage, designed to meet the demand for additional parking, will be located near the center of the historic Boardwalk. Construction on the parking garage began in early 2004, with completion targeted for the second quarter of 2005.

Atlantic City Hilton

        The Atlantic City Hilton is located on approximately 12 acres at the intersection of Boston and Pacific Avenues at the southern end of the Boardwalk in proximity to an exit off of the major highway leading into Atlantic City. This location gives the Atlantic City Hilton an advantage in attracting destination-oriented customers arriving by automobile or bus. This property features 804 guest rooms and suites, approximately 60,000 square feet of casino space, seven restaurants, a 1,200-seat theater and a spa.

Atlantic City Country Club

        Through a subsidiary, we also own and operate the historic Atlantic City Country Club in Northfield, New Jersey, located on 234 acres approximately a 10-minute drive from our Atlantic City properties. This premier 18-hole golf course is one of the oldest courses in the nation, having been founded in 1897, and it was extensively renovated in 1999. This amenity is used exclusively for our casino guests and other invited guests.

Delaware Operations

        We provide management services to the casino at the Dover Downs racetrack in Delaware, which has approximately 2,000 video lottery terminals (slot machines). The casino is part of the Dover Downs complex, which features live automobile racing, live harness racing November through April, fine dining, and entertainment. The Dover Downs Hotel and Conference Center, features 232 guest rooms

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and suites, a multi-purpose ballroom/concert hall, a fine dining restaurant, swimming pool and health spa. Our management agreement with Dover Downs expires in December 2004. Dover Downs has not given the Company any notice of an intention to renew or otherwise extend the agreement and as such the Company does not anticipate an extension of the management agreement.

Mid-South Region

        Through our subsidiaries, we own and operate five dockside casino hotels in Mississippi. On the Gulf Coast, we own and operate Grand Casino Biloxi and Grand Casino Gulfport. In Tunica County in northern Mississippi, we own and operate Grand Casino Tunica, Sheraton Casino & Hotel, and Bally's Casino Tunica. In southern Indiana, we manage and own 82 percent of Caesars Indiana, a riverboat casino on the Ohio River. In New Orleans, Louisiana, we own and operate Bally's Casino New Orleans, a riverboat casino on Lake Pontchartrain.

        Our Mid-South Region casinos are open 24 hours a day, seven days a week, and feature table games, slot machines, hotel suites/rooms, restaurants, convention space and entertainment. Our Mid-South Region casinos are not permitted to operate race and sports books.

Grand Casino Biloxi

        Grand Casino Biloxi is the largest dockside casino on the Mississippi Gulf Coast and is one of a few properties on the Mississippi Gulf Coast that is oriented east to west, thereby maximizing the property's visibility from the highway. The property is located on 29 acres of which 4 acres are owned and 25 acres are leased pursuant to long-term lease agreements. This location attracts customers arriving for day trips or overnight stays via automobile and bus. It also draws the convention market with its 41,000 square feet of convention space. Grand Casino Biloxi features approximately 134,000 square feet of gaming space, twelve restaurants, 975 hotel rooms, 4,200 parking spaces, a spa, a childcare entertainment center and a 1,800-seat theater.

Grand Casino Gulfport

        Grand Casino Gulfport is a dockside casino on the Mississippi Gulf Coast located on 34 acres, of which 20 acres are owned and 14 acres are leased pursuant to long-term lease agreements. This beachside resort property includes approximately 102,000 square feet of gaming area as well as seven restaurants, a childcare entertainment center, a tropical pool with a lazy river, an arcade, a 2,800-seat pavilion, a spa and 1,001 hotel rooms.

Grand Bear Golf Course

        Through a subsidiary, we own and operate the Grand Bear Golf Course on the Mississippi Gulf Coast which is strategically situated between the Grand Biloxi and Grand Gulfport properties. This 18-hole course designed by Jack Nicklaus is considered the premier golf course in the region. The course is available to our hotel and gaming guests as well as local residents.

Grand Casino Tunica

        Grand Casino Tunica is located on approximately 2,200 acres of owned land in Tunica County, Mississippi, approximately 15 miles south of the Memphis, Tennessee metropolitan area. Grand Casino Tunica is the largest dockside casino in Mississippi. Grand Casino Tunica is a 400,000 square foot, three-story, casino complex containing approximately 136,000 square feet of gaming space. Three hotels provide an aggregate of 1,356 rooms. Grand Casino Tunica is complemented by eight restaurants, an 18-hole Hale Irwin designed championship golf course and driving range, a spa, a recreational vehicle park and a sporting clays course. This property also has a 2,200-seat event center featuring headline entertainers and sporting events and approximately 28,000 square feet of convention space.

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Other Mississippi Casinos

        The Sheraton Casino & Hotel, also in Tunica County, Mississippi, is located on 23 acres and consists of 33,000 square feet of gaming space, an attached hotel with 134 rooms, and four restaurants and bars. Bally's Casino Tunica, primarily a "locals" casino, features a 40,000 square foot casino, a 238-room hotel, and an adjacent land-based facility with entertainment facilities and three restaurants. Bally's Casino Tunica is located on 75 acres of which 26 acres are leased.

Caesars Indiana

        Caesars Indiana is located on 259 acres of owned land in southern Indiana, across the Ohio River from Louisville, Kentucky. We have an 82 percent equity interest in Caesars Indiana and operate the property. The resort's "Glory of Rome" riverboat casino is 450 feet long, 100 feet wide and four stories high. The riverboat is comprised of four decks offering 87,000 square feet of gaming space over seven separately themed casino areas. A 170,000 square foot pavilion houses retail space, ten restaurants, and 24,000 square feet of convention space, including a 1,250-seat sports and entertainment arena. Caesars Indiana also offers a 503-room hotel and an 18-hole championship golf course, Chariot Run. Prior to August 1, 2002, Caesars Indiana was required to cruise the Ohio River. On August 1, 2002, new legislation allowed Caesars Indiana to begin dockside gaming in consideration of paying higher graduated gaming tax. The previous gaming tax was a flat rate of 20 percent. The new tax rates are tiered based on revenues, with a maximum of 35 percent.

Bally's Casino New Orleans

        In Louisiana we own Bally's Casino New Orleans, a 30,000 square foot riverboat casino facility that operates out of South Shore Harbor on Lake Pontchartrain in Orleans Parish, which is approximately eight miles from the French Quarter of New Orleans. Bally's Casino New Orleans also offers three food outlets.

International Region

        We operate seven international casino resorts on four continents: Australia, North America, South America and Africa, as well as three casinos on international cruise ships.

Australia

        In Australia, we operate two casino resorts under management agreements with Jupiters Limited, an Australian public company. Jupiters Limited owns two casino resorts in Queensland, Australia: Conrad Jupiters Gold Coast and Conrad Treasury Brisbane. On November 13, 2003, TABCORP Holding Limited completed a merger with Jupiters Limited. Our management agreements, which expire in April 2010, were not impacted by the Jupiters/TABCORP merger.

        Conrad Jupiters is located in Broadbeach, Queensland. This property, which is open 24 hours a day, features 594 hotel rooms, approximately 68,000 square feet of gaming space, a convention center, a 1,100-seat showroom and is surrounded by lush tropical gardens. There is also a health center with a pool, spa, tennis courts and a gym. Conrad Treasury is located in the central business district of Brisbane, Queensland's capital city. The casino is approximately 71,000 square feet, located on three levels of the Victoria-era Treasury building. The Conrad Treasury has the exclusive right to conduct casino gaming in Brisbane until 2005. Both Conrad Jupiters and Conrad Treasury attract a significant portion of their customers from the local as well as the interstate markets, while the individual premium players travel from various parts of Asia.

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Uruguay

        In South America we operate, under a management agreement, the Conrad Punta del Este Resort and Casino, a five-star resort located on the beach in Punta del Este, Uruguay. We also have a 46.4 percent ownership interest in Baluma Holdings S.A. that owns the resort. The Conrad Punta del Este features 302 rooms and suites, a 45,000 square foot casino offering slot machines and table games, convention and meeting space, restaurants and shops, tennis courts, pools and a spa. The casino is open year round and 24 hours a day. A significant percentage of Conrad Punta del Este's customers travel from Brazil and Argentina and fluctuations in these countries' economies can affect this property's business.

Canada

        Metropolitan Entertainment Group, a partnership of which we, through subsidiaries, own 95 percent, operates Casino Nova Scotia Halifax in Halifax, Nova Scotia and Casino Nova Scotia Sydney in Sydney, Cape Breton, Nova Scotia. We operate these properties pursuant to an operating contract with the Nova Scotia Gaming Corporation (a Provincial Crown Corporation). The operating contract is for a term of 20 years, expiring on December 31, 2015, and includes an option for the Nova Scotia Gaming Corporation to purchase the casino complexes in 2005, 2010, and 2015, as defined in the operating contract.

        Casino Nova Scotia Halifax, which is open 24 hours a day, is located on the downtown waterfront and contains 32,000 square feet of casino space, 9,000 square feet of convention space, three restaurants and a lounge. We also own and operate the Casino Nova Scotia Hotel featuring 352 guest rooms, 18,000 square feet of additional convention facilities, a restaurant, a full service spa and a pub. This hotel, which is also located on the waterfront, is linked via an elevated pedestrian walkway to the Casino Nova Scotia Halifax. Marketing efforts at the hotel are focused toward convention and casino guests.

        Casino Nova Scotia Sydney is attached to a local sports arena and features approximately 16,000 square feet of gaming space, a restaurant and a lounge. The customer base at this casino is comprised mostly of locals. We do not own or operate a hotel at Casino Nova Scotia Sydney.

        Through subsidiaries, we own 50 percent of Windsor Casino Limited, which operates Casino Windsor, a hotel/casino complex, under a management contract with its owner, the Ontario Lottery and Gaming Corporation of the Province of Ontario, Canada. This property features 100,000 square feet of gaming space on two floors, five restaurants, 389 guest rooms, a 230-seat entertainment lounge and more than 15,000 square feet of meeting space. Casino Windsor is located on the Detroit River in Windsor, Ontario, directly across from Detroit, Michigan. This property competes with three casinos in Detroit. The majority of Casino Windsor's customer base comes from the United States, primarily from the Michigan and Ohio areas.

South Africa

        Through subsidiaries, we own a 50 percent interest in a joint venture which manages Caesars Gauteng casino resort in Johannesburg, South Africa. In addition, we have a 25 percent ownership interest in the joint venture that owns Caesars Gauteng. This property features a 105,000 square foot casino, two hotels with a total of 276 guest rooms, ten restaurants, a retail concourse and 123,000 square feet of convention facilities.

Caesars Palace at Sea

        We operate the Caesars Palace at Sea casinos on three cruise ships, the Crystal Symphony, the Crystal Harmony, and the Crystal Serenity, which are owned by Crystal Cruises, Inc. The casinos

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operate only when the ships are in international waters. The initial term of our operating agreement with Crystal Cruises, Inc. expires on December 31, 2005.

Other Developments

Pauma-Yuima Band of Luiseño Mission Indians

        In September 2003, we announced that the Pauma-Yuima Band of Luiseño Mission Indians selected us to exclusively negotiate agreements to develop and manage a Caesars-branded casino on tribal lands in Pauma Valley in Southern California just south of Temecula, California. This exclusive right expires in March 2004. The location will be easily accessible for millions of people living in the greater Los Angeles and San Diego areas. Those agreements must be executed before construction can begin, and the management contract, which we estimate will be for a term of seven years, is subject to approval by the National Indian Gaming Commission (the "NIGC") and other regulators. Preliminary plans call for a hotel and casino complex, with more than 100,000 square feet of gaming space. The casino could open as early as 2005.

Big Sandy Band of Western Mono Indians

        In January 2004, we reached a preliminary agreement with the Big Sandy Band of Western Mono Indians to develop and manage a casino resort on tribal lands near Fresno, California. Preliminary plans for the project call for development of a casino resort on more than 215 acres 10 miles northeast of Fresno in the San Joaquin Valley in Central California. Included in the acreage is a 40-acre parcel of tribal land where the gaming portion of the facility will be located. The casino resort would become the second to directly serve the Fresno metropolitan area which has a population of approximately 1.2 million. The casino property would initially include 250 to 300 hotel rooms, more than 75,000 square feet of gaming space, at least 2,000 slot machines, approximately 20 gaming tables, restaurants, retail shops, and meeting and entertainment facilities. The Big Sandy Tribe currently operates the Mono Wind Casino in Auberry, California, about 15 miles northeast from the site of the proposed casino project.

        A management agreement for the casino resort, which we estimate will be for a term not greater than seven years, requires the approval of the NIGC. In addition, the Big Sandy Tribe would have to amend its existing compact with the State of California, or negotiate a new compact for the new casino project. The project is also dependent on other regulatory approvals and contingencies.

Saint Regis Mohawk Tribe

        We entered into an agreement in April 2000 with the Saint Regis Mohawk Tribe (the "Tribe") in Hogansburg, New York in which we paid $3 million for the exclusive rights to develop a Class II or Class III casino project with the Tribe in the State of New York. In November 2001, the parties entered into a definitive management agreement for the Company to manage a casino to be located at Kutsher's Country Club in Thompson, New York, which agreement was subject to the approval of the NIGC. The NIGC gave comments to the Tribe and the Company regarding the management agreement's conformity with federal laws, regulations and policies pertaining to such agreements. As a result of these comments and in order to further the approval process of the NIGC, the Company and the Tribe entered into on November 10, 2003, a First Amended and Restated Management Agreement and a First Amended and Restated Development Agreement (the "Amended Agreements"). The Amended Agreements provide, among other things, that the Company will manage the casino for seven years for a management fee equal to 30 percent of Net Total Revenue, as defined, and that the exclusive right for casino development in the State of New York has been modified to provide for mutual non-compete protections within a 125 mile zone from the Sullivan County location. The term of the Amended Agreements is seven years from the commencement of casino operations. Additionally,

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the Company will receive a development fee of $15 million for its services in developing and constructing the casino facility and the Tribe will assume the funding of the parking garage construction, which is estimated to cost approximately $40 million. The Amended Agreements are subject to final approval by the NIGC.

        We have entered into a definitive agreement, as amended, to acquire approximately 66 acres of the Kutsher's Resort Hotel and Country Club in Sullivan County, New York, for approximately $10 million, with an option to purchase the remaining 1,400 acres for $40 million. Upon approval of the Bureau of Indian Affairs (the "BIA"), the 66 acre parcel will be transferred to be held in trust for the Saint Regis Mohawk Tribe.

        All of the agreements and plans relating to the development and management of this project are contingent upon various regulatory and governmental approvals, including execution of a compact between the Saint Regis Mohawk Tribe and the State of New York, and receipt of approvals from the BIA, NIGC and local planning and zoning boards. There is no guarantee that the requisite regulatory approvals will be received.

        The Company is party to numerous lawsuits regarding its involvement in the Saint Regis Mohawk project, which lawsuits seek various monetary and other damages against the Company. Additionally, there are two lawsuits challenging the constitutionality of the legislation that, among other things, authorized the Governor of the State of New York to execute tribal state gaming compacts and approved the use of slot machines as "games of chance." (For a discussion of such litigation, see Mohawk Litigation in Item 3. Legal Proceedings.)

Strategy

        We have assembled a portfolio of assets that generated $4.5 billion in net revenues in 2003. Our strategy is to expand our core business and create value by:

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Promoting growth through the development of new projects in new markets and new attractions at our existing properties, with particular focus on leveraging the strength of the Caesars brand name;



•

Increasing operational effectiveness through cost control and productivity enhancements;



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Driving profitable revenue growth through new product offerings and technological innovation.

        As part of this strategy, effective January 5, 2004, we changed our name to Caesars Entertainment in order to capitalize on the Caesars brand name—one of the best known brands in gaming—and as a means to leverage our growth in new markets. We believe that there are a number of new development opportunities, both domestically and internationally, for us to bring this brand and our expertise together to expand our Company. Examples of these new opportunities include the Native American projects we have announced in California as well as the traditional casino hotel operations we are pursuing both domestically and internationally. These opportunities are subject to significant uncertainties, but we are looking at ways to grow our business and the Caesars brand makes us a very strong competitor.

        We also look to grow our business by reinvesting in our existing properties. We have been making significant enhancements to our flagship property, Caesars Palace, including new restaurants, entertainment venues, casino space, retail and a 949-room hotel tower on which we commenced construction in late 2003. We also opened Jimmy Buffett's Margaritaville Café in December 2003 at the Flamingo Las Vegas which adds dining and retail space to that property. In Atlantic City, The Pier at Caesars will add 325,000 square feet of high-end retail and restaurants and will be connected directly to Caesars Atlantic City. This project is being financed by a third party development company and should open in 2005. To fully capitalize on that development and to handle the tremendous weekend visitor

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volume in Atlantic City, we are adding a 3,200 space parking garage at the Caesars Atlantic City property that should also open in 2005.

        Another component of our strategy is to improve our financial results by controlling costs and working more efficiently. Our Work Smart program identified cost savings initiatives in specifically identified areas such as promotional spending and labor. We achieved cost savings in these identified categories of $89 million through this program. We continue to promote our Work Smart program and look to identify new areas such as energy costs and labor utilization to further make improvements in our operations. Another major cost saving initiative has been the use of ticket-in/ticket-out slot technology, also known as cashless slots. We have been a leader in this area with approximately 60% of our domestic slot floor converted to cashless and we expect to be 80% cashless by the end of 2004. This initiative reduces labor costs in slot operations and security personnel, and reduces hand pay jackpots and hopper fills.

        Other initiatives, some of which we are just introducing, include the expansion of our guest loyalty program known as the Connection Card, our data warehouse and related customer marketing capabilities, and our use of the internet. The Connection Card program is designed to increase our revenues by building customer loyalty. The Connection Card program is designed to provide an incentive to our customers to play within markets and across jurisdictions. Our loyalty program is unique in that we are the first casino company to offer loyalty points for non-casino purchases incentivizing guests to spend the largest possible share of their trip at one of our properties. Our data warehouse allows us to market to our guests more efficiently and the internet allows us to more efficiently manage our room inventory and book rooms.

Marketing

        Domestically, we have divided the market into three distinct regions: the Western, Eastern and Mid-South Regions. With each region having its own specific challenges and opportunities, we have regionalized the overall marketing approach to each general location. We have centralized the normal marketing functions of advertising and direct marketing in each region to take advantage of our size and distribution, and where appropriate, share best demonstrated practices with all regions.

        Our individual casinos target specific customer segments in their overall marketing promotions. These customer segments can be grouped into the following general categories: locals (guests who reside in close proximity to our properties), convention groups (guests who come to attend trade shows, business conferences or group gatherings), tour and travel groups (guests purchasing travel packages in which airfare, hotel and other amenities are typically offered for one up-front price), and free and independent travelers (guests unaffiliated with any group whose travel is self-directed). Guests in these groups are further classified according to geographic origin, product preferences, spending patterns and other characteristics.

        We market our properties with advertising, extensive direct mail and loyalty programs. We also maintain marketing offices both domestically and internationally. All of our properties have loyalty programs through which casino patrons can receive complimentary meals, lodging, and/or entertainment in consideration of various amounts of casino play. Most of these programs also have a "cash back" feature that rewards customers with points based on play that can be redeemed for cash. These programs provide a base of customer information that enables us to target specific customers for promotions that might induce them to visit our casinos. We have designed a loyalty program called the Connection Card, which unifies all of our casino player loyalty programs under a single, umbrella program. This program is designed to develop new revenue streams and protect existing ones, by encouraging Caesars Entertainment guests at each of our properties to visit our other casino resorts. The Connection Card program is also the first loyalty based casino program that rewards hotel guests for their non-gaming cash purchases.

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Western Region

        All of our Nevada properties are designed to enhance the entertainment experience of guests from each general category. Caesars Palace and Caesars Tahoe marketing efforts are directed at the mid- to high-end casino guests. Paris Las Vegas and Bally's Las Vegas direct their marketing efforts to the mid-market, including convention groups and tour and travel groups. The Reno Hilton focuses on the locals market and the Las Vegas Hilton focuses on convention groups. Our Flamingo Las Vegas and Flamingo Laughlin properties target the value-conscious and mid-market customers.

        We are directing our higher-end players to Caesars Palace. As part of the marketing efforts to these players, we invite selected customers and may pay for or reimburse the cost of their air transportation and provide them with complimentary rooms, food and beverage. Generally, these persons either have established casino credit limits or cash on deposit in the casino and have previously evidenced a willingness to wager substantial amounts at the casino.

Eastern Region

        Our Atlantic City properties are positioned to attract significant walk-in traffic from the Boardwalk as well as drive-in customers. Promotional dollars are spent on encouraging patrons arriving by car or bus to visit our properties. These promotions often include coupons that can be redeemed for cash upon entering the casino.

        Bally's Atlantic City and Caesars Atlantic City are linked by the Wild Wild West Casino and offer amenities to our guests that are designed to attract the mid-market and high-end casino customers. The Atlantic City Hilton focuses on personalized service for high-end and mid-market casino customers.

Mid-South Region

        Our Indiana, Louisiana and Mississippi gaming operations are provided on dockside barge or riverboat casinos. Bally's Casino Tunica is primarily a locals casino, while the Sheraton Casino & Hotel and Grand Tunica market to mid-market travelers. Grand Biloxi markets to the mid-market and value-conscious traveler while Grand Gulfport targets the locals market. Bally's Casino New Orleans, which is approximately eight miles from the French Quarter of New Orleans, attracts locals and mid-market casino patrons. Caesars Indiana targets the Louisville, Kentucky market with amenities that appeal to value-conscious travelers through upper-market patrons.

Credit Policy

        We extend credit on a discretionary basis to qualified patrons, especially at our Las Vegas and Atlantic City properties, and to a much lesser extent at our other properties. We maintain strong controls over the extension of credit and evaluate each individual patron's creditworthiness before extending credit. Collection of our customers' debts is pursued by appropriate means, including legal proceedings when necessary, although the ultimate collectibility of customer receivables is impacted by many factors including changes in economic conditions in the patrons' home countries, changes in currency exchange rates, and judicial action.

Gaming Supervision and Controls

        Our casino activities are conducted by experienced personnel who are well trained and supervised. As is the case of any business that extensively involves the handling of cash, gaming operations at our properties are subject to risk of loss as a result of dishonesty. However, we believe that we have reduced the risk to the extent practicable without impeding play and within reasonable cost limitations through supervision of employees and other internal controls. Our audit and cash controls include: locked cash boxes on the casino floor; daily cash and coin counts performed by employees independent

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of casino operations; 24-hour observation and supervision of the gaming area; observation and recording of gaming and other areas by closed-circuit television; and computer monitoring of our gaming devices.

Events of September 11, 2001/Acts of Terrorism and War/Insurance Coverage

        The terrorist attacks of September 11, 2001 had a significant impact on the travel and tourism industries in which we operate. The significant reduction in both business and leisure air travel following the attacks reduced visitation to our Las Vegas properties, causing our operating results to decline significantly. Our properties in markets outside of Las Vegas, which are not as dependent on air travel, did not experience as much business disruption. These events, the potential for future terrorist attacks, the national and international responses to terrorist attacks and other acts of war or hostility have created many economic and political uncertainties which could adversely affect our business and results of operations. Future acts of terror in the United States or an outbreak of hostilities involving the United States may again reduce our guests' willingness to travel with the result that our operations will suffer.

        Partly as a consequence of the events of September 11, 2001, and the threat of similar events in the future, premiums for a variety of insurance products have increased sharply, and some types of insurance coverage are simply no longer available. Although we endeavor to obtain and maintain insurance covering extraordinary events that would affect our properties, conditions in the marketplace have made it prohibitive for us to maintain insurance against losses and interruptions caused by terrorist acts and acts of war. If any such event were to affect part or all of one or more of our properties, we would likely suffer a substantial loss.

Competition

        There is intense competition in the gaming industry. Our properties compete on a variety of basis including: the quality of amenities such as guest rooms, dining, entertainment and retail operations; marketing and promotional matters; and the location of our properties. Each property targets differing customer segments and competes accordingly. For more information on targeted customer segments, please see the"Marketing" section above. The construction of new properties or the enhancement or expansion of existing properties in any market in which we operate could have a negative impact on our business in that market.

        In Atlantic City we compete with nine other hotel casinos on or near the Atlantic City Boardwalk. The Borgata, a new 2,000-room hotel casino opened in July 2003 in Atlantic City, New Jersey, significantly increased the capacity in that market. Other competitors in Atlantic City have recently completed expansions of their hotels and others have announced expansion projects. The State of New Jersey has from time to time considered approving video lottery terminals ("VLTs") at the racetracks in the state and increasing certain taxes that may impact the gaming industry, including a proposed increase in the gross gaming tax from 8% to 10%. Current circumstances indicate a change in policy away from such considerations, however, if VLTs are approved, it could adversely affect our operations, and an increase in the gross gaming tax without a significant simultaneous increase in revenue would adversely affect our results of operations.

        In Las Vegas, we compete with numerous other casino properties on or near the Las Vegas Strip. Several of our competitors in Las Vegas, Nevada have expanded or are currently expanding their operations with additional hotel towers, adding a significant number of new hotel rooms to the Las Vegas market. In addition, Wynn Resorts is constructing a new 2,700-room hotel casino expected to be completed in 2005.

        In Mississippi, we compete with ten other casino properties on or near the Mississippi Gulf Coast. In Biloxi, Mississippi, a new competitor has broken ground on a 306-room hotel casino which will

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include 48,500 square feet of gaming space. The hotel casino is expected to be completed in late summer of 2005. This will be the first new casino to open on the Mississippi Gulf Coast since 1999. In northern Mississippi, we compete with 5 casino properties located in Tunica County, Mississippi.

        Our businesses may be adversely impacted (i) by the additional gaming and room capacity generated by this increased competition in Atlantic City, Las Vegas, and the Gulf Coast and/or (ii) by other projects not yet announced in any of the other markets. In addition, our operations in Laughlin, Nevada and Northern Nevada have been adversely impacted and will continue to be adversely impacted by the expansion of Native American gaming in California and Arizona.

        The business at our casino hotels will also be adversely affected if gaming were to be newly legalized or expanded under the laws of any state or locale located near our existing properties. Particularly, the legalization of gaming operations in locations near Las Vegas, Atlantic City or Mississippi will negatively affect our properties located there. We understand that several states surrounding our existing operations, including Pennsylvania, Maryland, Delaware and Kentucky, are considering the legalization of some form of casino and/or slot gaming or the expansion of existing gaming activities. The legalization of any form of casino gaming in these or other states could adversely affect our operating results.

        We also compete with legalized gaming from casinos located on Native American tribal lands. In October 2001, the New York State Legislature enacted a bill, which the governor signed, authorizing a total of six Native American casinos in the State of New York-three in Western New York and three in the Catskill Region-and approved the use of VLTs at racetracks and authorized the participation of New York State in a multi-state lottery. The first operations of VLTs at racetracks opened in January 2004 with seven other operations scheduled to open in New York during the remainder of the year. This could adversely affect visitation of our Atlantic City properties from New York. In California, there has been a proliferation of casino-style gaming on tribal lands, and there is consideration by the governor of California of an initiative to increase the scope of such operations in exchange for tax revenue. The presence of Native American casinos in California has had a negative impact on the results of our Nevada casinos, and an increase in the capacity of those casinos in California can be expected to further impact our Nevada operations.

        Several states are considering or have announced plans to allow VLTs or slot machines at racetracks in consideration of tax revenue from those operations. To the extent that these operations are conducted in states in which we have properties, or in neighboring states, we could be adversely affected.

        The Company's operations are seasonal. Specifically, the Las Vegas market, and our properties in Las Vegas experience the highest business levels during the first and second calendar quarters while our Atlantic City operations are adversely impacted by inclement weather, mostly in the first and fourth calendar quarters. Additionally, special events such as a sporting event or a concert, or visits by our premium players, and the timing of holidays can impact our results for the respective period. Overall, the Company experiences the highest business levels in the third calendar quarter and the lowest business levels in the fourth calendar quarter.

Environmental Matters

        Caesars Entertainment, like others in our industry, is subject to various federal, state, local and, in some cases, foreign laws, ordinances and regulations that (i) govern activities or operations that may have adverse environmental effects, or (ii) may impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous or toxic substances or wastes (collectively, "Environmental Laws"). We endeavor to maintain compliance with Environmental Laws, but, from time to time, current or historical operations at our properties may have resulted or may result in noncompliance or liability for cleanup pursuant to Environmental Laws.

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In that regard, we may incur costs for cleaning up contamination relating to historical uses of certain of our properties.

Regulation and Licensing

        The gaming industry is highly regulated and we must maintain our licenses and pay gaming taxes in order to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where located or docked. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Some jurisdictions, however, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to and periodic reports concerning the gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.

Nevada Gaming Laws

        The ownership and operation of casino gaming facilities in the State of Nevada are subject to the Nevada Gaming Control Act (the "Nevada Act") and the regulations promulgated thereunder and various local regulations. Our Nevada gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board and, depending on the facility's location, the Clark County Liquor and Gaming Licensing Board, Douglas County or the City of Reno, which we refer to collectively as the "Nevada Gaming Authorities."

        The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things:

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the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;



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the establishment and maintenance of responsible accounting practices and procedures;



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the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;



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the prevention of cheating and fraudulent practices; and



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providing a source of state and local revenues through taxation and licensing fees.

        Changes in such laws, regulations and procedures could have an adverse effect on our gaming operations.

        Each of our subsidiaries that currently operates a casino in Nevada is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferable. We are required to be registered by the Nevada Gaming Commission as a publicly traded corporation and as such, are required periodically to submit detailed financial and operating reports to the Nevada Gaming Commission and furnish any other information that the Nevada Gaming Commission may require. No person may become a stockholder of, or receive any percentage of profits from, a licensed casino without first obtaining licenses and approvals from the Nevada Gaming Authorities. We and our licensed subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, findings of suitability, approvals, permits, and licenses required to engage in gaming activities in Nevada.

        The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, us or any of our licensed subsidiaries in order to determine whether the

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individual is suitable or should be licensed as a business associate of a gaming licensee. The officers, directors and key employees of the Company and our licensed subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or an applicant for a finding of suitability must pay for all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove a change in a corporate position.

        If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us or any licensed subsidiary, we and the licensed subsidiary would have to sever all relationships with that person. In addition, the Nevada Gaming Commission may require us or a licensed subsidiary to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada.

        We and all licensed subsidiaries are required to submit detailed financial and operating reports to the Nevada Gaming Commission. Substantially all material loans, leases, sales of securities and similar financing transactions must be reported to, or approved by, the Nevada Gaming Commission.

        If the Nevada Gaming Commission determined that we or a licensed subsidiary violated the Nevada Act, it could limit, condition, suspend or revoke our gaming licenses. In addition, we, the licensed subsidiary, and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Gaming Commission. Further, a supervisor could be appointed by the Nevada Gaming Commission to operate a licensed subsidiary's gaming establishment and, under specified circumstances, earnings generated during the supervisor's appointment, except for the reasonable rental value of the premises, could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license of a licensed subsidiary and the appointment of a supervisor could, or revocation of any gaming license would, have a material adverse effect on our gaming operations.

        Any beneficial holder of our common stock, or any of our other voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have that person's suitability as a beneficial holder of our voting securities determined if the Nevada Gaming Commission has reason to believe that the ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting any such investigation.

        The Nevada Act requires any person who acquires a beneficial ownership of more than 5 percent of our voting securities to report such acquisition to the Nevada Gaming Commission. The Nevada Act requires that beneficial owners of more than 10 percent of our voting securities apply to the Nevada Gaming Commission for a finding of suitability within thirty days after the Chairman of the Nevada Gaming Control Board mails the written notice requiring such filing. An "institutional investor," as defined in the Nevada Act, which acquires beneficial ownership of more than 10 percent, but not more than 15 percent, of our voting securities may apply to the Nevada Gaming Commission for a waiver of a finding of suitability if the institutional investor holds our voting securities for investment purposes only. Under certain circumstances, an institutional investor which has obtained a waiver can hold up to 19 percent of our voting securities for a limited period of time and maintain the waiver. An institutional investor will be deemed to hold our voting securities for investment purposes if it acquired

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and holds our voting securities in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly:

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the election of a majority of the members of the our board of directors;



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any change in our corporate charter, bylaws, management, policies or operations, or any of its gaming affiliates; or



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any other action which the Nevada Gaming Commission finds to be inconsistent with holding our voting securities for investment purposes only.

        Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

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voting on all matters voted on by stockholders;



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making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and



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other activities as that the Nevada Gaming Commission may determine to be consistent with investment intent.

        If the beneficial holder of our voting securities who must be found suitable is a corporation, partnership, limited partnership, limited liability company or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation.

        Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or by the Chairman of the Nevada Gaming Control Board may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of our voting securities beyond such period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal offense. We will be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or a licensed subsidiary, we:

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pay that person any dividend or interest upon any of our voting securities;



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allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;



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pay remuneration in any form to that person for services rendered or otherwise; or



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fail to pursue all lawful efforts to require such unsuitable person to relinquish the voting securities including, if necessary, the immediate purchase of such voting securities for cash at fair market value.

        Additionally, the Clark County Liquor and Gaming Licensing Board has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee.

        The Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a registered publicly traded corporation, to file applications, be investigated and be found suitable to own the debt security of the registered corporation. If the Nevada Gaming Commission determines that a person is unsuitable to own the security, then pursuant to the Nevada Act, the registered publicly traded corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Gaming Commission, it:

•

pays to the unsuitable person any dividend, interest or any distribution whatsoever;

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•

recognizes any voting right by such unsuitable person in connection with such securities;



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pays the unsuitable person remuneration in any form; or



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makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.

        We are required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make the disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner of any of our voting securities. The Nevada Gaming Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. To date, the Nevada Gaming Commission has not imposed that requirement on us.

        We may not make a public offering of our securities without the prior approval of the Nevada Gaming Commission if we intend to use the securities or the proceeds there from to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes. On December 19, 2002, the Nevada Gaming Commission granted us prior approval to make public offerings for a period of two years, subject to specified conditions, which we refer to as the "shelf approval." The shelf approval also applies to any company we wholly own that is a publicly traded corporation or would become a publicly traded corporation pursuant to a public offering. The shelf approval also includes approval for the licensed subsidiaries to guarantee any security issued by, and to hypothecate their assets to secure the payment or performance of any obligations issued by, us or an affiliate in a public offering under the shelf approval. The shelf approval also includes approval to place restrictions upon the transfer of and enter into agreements not to encumber the equity securities of the licensed subsidiaries, which we refer to as "stock restrictions." The shelf approval, however, may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Gaming Control Board. The shelf approval does not constitute a finding, recommendation or approval of the Nevada Gaming Authorities as to the accuracy or adequacy of the offering memorandum or the investment merits of the securities offered by the offering memorandum. Any representation to the contrary is unlawful.

        Prior approval of the Nevada Gaming Commission must be obtained with respect to a change in control of us through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby the person obtains control of us. Entities seeking to acquire control of a registered publicly traded corporation must satisfy the Nevada Gaming Control Board and Nevada Gaming Commission in a variety of stringent standards before assuming control of the registered corporation. The Nevada Gaming Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.

        The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licenses, and registered publicly traded corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Gaming Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to:

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assure the financial stability of corporate gaming operators and their affiliates;



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preserve the beneficial aspects of conducting business in the corporate form; and

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•

promote a neutral environment for the orderly governance of corporate affairs.

        Approvals may be required from the Nevada Gaming Commission before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by our board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control of us.

        License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the licensed subsidiaries respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either:

•

a percentage of the gross gaming revenues received;



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the number of gaming devices operated; or



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the number of table games operated.

        A live entertainment tax of 10 percent (or in some cases, five percent) is also paid by casino operations where entertainment is furnished in connection with an admission charge, the selling or serving of food or refreshments or the selling of merchandise. Nevada corporate licensees that hold a license as an operator of a slot machine route, or a manufacturer's or distributor's license, also pay fees and taxes to the State of Nevada. The licensed subsidiaries currently pay monthly fees to the Nevada Gaming Commission equal to a maximum of 6.75 percent of gross gaming revenues.

        Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with those persons (collectively, "licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Gaming Control Board of the licensee's participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Gaming Commission. Thereafter, licensees are required to comply with the reporting requirements imposed by the Nevada Act. A licensee is also subject to disciplinary action by the Nevada Gaming Commission if it:

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knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation;



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fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations;



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engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or



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employs, contracts with or associates with a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of unsuitability.

        The sale of alcoholic beverages at establishments operated by a licensed subsidiary is subject to licensing, control and regulation by applicable local regulatory agencies. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could, and revocation would, have a material adverse effect upon the operations of the licensed subsidiary.

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New Jersey Gaming Laws

        The ownership and operation of casino gaming facilities in Atlantic City are subject to the New Jersey Casino Control Act (the "New Jersey Act"), regulations of the New Jersey Casino Control Commission (the "New Jersey Commission") and other applicable laws. No casino may operate unless it obtains the required permits or licenses and approvals from the New Jersey Commission. The New Jersey Commission is authorized under the New Jersey Act to adopt regulations covering a broad spectrum of gaming and gaming related activities and to prescribe the methods and forms of applications from all classes of licensees. These laws and regulations concern primarily:

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the financial stability, integrity, responsibility, good character, honesty and business ability of casino service suppliers and casino operators, their directors, officers and employees, their security holders and others financially interested in casino operations;



•

the nature of casino hotel facilities; and



•

the operating methods and financial and accounting practices used in connection with the casino operations.

        The State of New Jersey imposes taxes on gaming operations at the rate of 8 percent of gross gaming revenues. In addition, the New Jersey Act provides for an investment alternative tax of 2.5 percent of gross gaming revenues. This investment alternative tax may be offset by investment tax credits equal to 1.25 percent of gross gaming revenues, which are obtained by purchasing bonds issued by, or investing in housing or other development projects approved by, the Casino Reinvestment Development Authority.

        The New Jersey Commission has broad discretion with regard to the issuance, renewal and revocation or suspension of casino licenses. A casino license is not transferable, is issued for a term of up to one year for the first two renewals and thereafter for a term of up to four years, subject to discretionary reopening of the licensing hearing by the New Jersey Commission at any time. A casino license must be renewed by filing an application which must be acted on by the New Jersey Commission before the license in force expires. At any time, upon a finding of disqualification or noncompliance, the New Jersey Commission may revoke or suspend a license or impose fines or other penalties.

        The New Jersey Act imposes certain restrictions on the ownership and transfer of securities issued by a corporation that holds a casino license or is deemed a holding company, intermediary company, subsidiary or entity qualifier of a casino licensee. "Security" is defined by the New Jersey Act to include instruments that evidence either a beneficial ownership in an entity, such as common stock or preferred stock, or a creditor interest in an entity, such as a bond, note or mortgage. The New Jersey Act requires that the corporate charter of a publicly traded affiliate of a casino licensee must require that a holder of the company's securities who is disqualified by the New Jersey Commission dispose of the securities. The corporate charter of a casino licensee or any privately-held affiliate of the licensee must:

•

establish the right of prior approval by the New Jersey Commission with regard to a transfer of any security in the company; and



•

create the absolute right of the company to repurchase at the market price or purchase price, whichever is less, any security in the company if the New Jersey Commission disapproves a transfer of the security under the New Jersey Act.

        The New Jersey Commission has approved our corporate charter. The corporate charters of our subsidiaries that operate Bally's Atlantic City, the Atlantic City Hilton, and Caesars Atlantic City and their privately-held affiliates likewise conform to the New Jersey Act's requirements described above for privately-held companies.

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        If the New Jersey Commission finds that an individual owner or holder of securities of a corporate licensee or an affiliate of the corporate licensee is not qualified under the New Jersey Act, the New Jersey Commission may propose remedial action, including divestiture of the securities held. If disqualified persons fail to divest themselves of the securities, the New Jersey Commission may revoke or suspend the license. However, if an affiliate of a casino licensee is a publicly traded company, and the New Jersey Commission makes a finding of disqualification with respect to any owner or holder of any security thereof, and the New Jersey Commission also finds that:

•

the company has adopted the charter provisions;



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the company has made a good faith effort, including the prosecution of all legal remedies, to comply with any order of the New Jersey Commission requiring the divestiture of the security interest held by the disqualified owner or holder; and



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the disqualified owner or holder does not have the ability to control the corporate licensee or the affiliate, or to elect one or more members of the board of directors of the affiliate, the New Jersey Commission will not take action against the casino licensee or its affiliate with respect to the continued ownership of the security interest by the disqualified owner or holder.

        For purposes of the New Jersey Act, a security holder is presumed to have the ability to control a publicly traded corporation, or to elect one or more members of its board of directors, and thus require qualification, if the holder owns or beneficially holds 5 percent or more of any class of the equity securities of the corporation, unless the security holder rebuts the presumption of control or ability to elect by clear and convincing evidence. An "institutional investor," as that term is defined under the New Jersey Act, is entitled to a waiver of qualification if it holds less than 10 percent of any class of the equity securities of a publicly traded holding or intermediary company of a casino licensee and:

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the holdings were purchased for investment purposes only;