Harrahs Entertainment, Inc.

Company Profile
Reference Code: 754 Publication Date: Jan 2007

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TABLE OF CONTENTS

TABLE OF CONTENTS Company Overview ....................................................... 4 Key Facts........................................................................ 4 Business Description .................................................... 5 History ............................................................................ 6 Key Employees .............................................................. 9 Major Products And Services..................................... 16 Products And Services Analysis................................ 18 SWOT Analysis ............................................................ 19 Top Competitors .......................................................... 23 Company View ............................................................. 24 Locations and Subsidiaries ........................................ 28

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HARRAHS ENTERTAINMENT, INC.

Company Overview

COMPANY OVERVIEW
Harrahs Entertainment (Harrahs) is a casino-entertainment provider, which conducts its business through a wholly owned subsidiary, Harrahs Operating Company. The company owns or manages 39 casinos in the US, a combination greyhound-racing facility and casino, and a combination of thoroughbred racetrack and casino. Its facilities also include hotel and convention space, restaurants and non-gaming entertainment facilities. The company is headquartered in Las Vegas, Nevada and employs about 85,000 people. The company recorded revenues of $7,111 million during the fiscal year ended December 2005, an increase of 56.3% over 2004. The operating profit of the company was $979.7 million during fiscal year 2005, an increase of 23.8% over 2004. The net profit was $236.4 million in fiscal year 2005, a decrease of 35.7% over 2004.

KEY FACTS

Head Office

Harrahs Entertainment, Inc. 1 Harrahs Court Las Vegas NV 89119 United States

Phone Fax Web Address Revenues/turnover (US$ Mn) Financial Year End Employees SIC Codes NAICS Codes New York Ticker

+1 702 407 6000 +1 702 407 6037 http://www.harrahs.com 7111

December 85000 SIC 7011 Hotels and Motels 72111, 72112, 721191, 721199 HET

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HARRAHS ENTERTAINMENT, INC.

Business Description

BUSINESS DESCRIPTION
Harrahs Entertainment (Harrahs) is one of Americas leading casino firms. It conducts its business through its wholly owned subsidiary, Harrahs Operating Company and its subsidiaries. The company operates under the Harrahs, Caesars, Harveys, Rio, and Showboat brand names. Its operations are divided geographically as Western US, Eastern US, North Central US, South Central US and other. The companys operations in Western US include Harrahs Reno, Harrahs/Harveys Lake Tahoe, Bills, Harrahs Las Vegas, Rio, Harrahs Laughlin, Caesars Palace, Paris, Ballys Las Vegas, Flamingo Las Vegas, Reno Hilton, Flamingo Laughlin and Imperial Palace. In Eastern US, the company operates Harrahs Atlantic City, Showboat Atlantic City, Caesars Atlantic City and Ballys Atlantic City. In North Central US, the company operates the Harrahs Joliet, Harrahs North Kansas City, Harrahs Council Bluffs, Bluffs Run, Harrahs St. Louis, Harrahs Metropolis, Horseshoe Hammond and Caesars Indiana properties. In South Central US, the company operates the Harrahs Lake Charles, Harrahs New Orleans, Harrahs Louisiana Downs, Horseshoe Bossier City, Horseshoe Tunica, Grand Tunica, Sheraton Tunica, Grand Biloxi and Grand Gulfport properties. Some of these casinos were forced to close down temporarily due to the damage inflicted by Hurricanes Katrina and Rita in September 2005. The other properties that Harrahs operate include Harrahs Ak-Chin, Harrahs Cherokee, Harrahs Prairie Brand, Harrahs Rincon, Punta del Este in Uruguay and Windsor. The company also operates casinos on board the cruise ships S.S. Crystal Symphony and S.S. Crystal Serenity. The company derives its revenues primarily from company owned casinos, other casinos that are managed by the company, and racetracks including Turfway Park, Bluegrass Downs, a racetrack located in Paducah, Kentucky, and Louisiana Downs, a thoroughbred racetrack in Bossier City, Louisiana. Altogether, Harrahs Entertainment operates its business in a total of over 3.3 million square feet of casino space, 2,971 table games, 74,050 slot machines and over 42,060 hotel rooms.

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History

HISTORY
The Harrahs brand was established in Reno, Nevada in the late 1930s, and has since grown to become the largest casino entertainment company in North America. In 1937, Bill Harrah opened his first parlor in Reno, Nevada. Due to the success of the first establishment, he then opened Harrahs club at its present location in downtown Reno in 1946. In the 1950s the company purchased several clubs at Lake Tahoe in Stateline, Nevada. The company began public trading in 1970 with an issue of 450,000 over-the-counter shares and one year later Harrahs got listed on the American Stock Exchange. By 1973 Harrahs was the first casino to be listed on the New York Stock Exchange. In 1978, the Board of Holiday Inns approved a proposal to build and operate a hotel/ casino in the marina area of Atlantic City, and in 1980, Holiday Inns acquired Harrahs hotel casino company. At that time, Holiday Inn had 1,600 hotels and interests in two casinos. In 1985, Holiday Inns shareholders approved a new corporate name, Holiday Corporation. The new Umbrella organization reflected the growing diversity of the companys products: Harrahs casinos, Holiday Inn Hotels, Embassy Suite Hotels and Hampton Inn Hotels. In 1989 Holidays Corporation approved the transfer of the Holiday Inn hotel business to Bass, spinning-off Holiday Corporations remaining brands and assets into the Promus Companies. The Promus Companies spun-off its hotel brands into a new corporation in the middle of 1995. The remaining company, which comprised Harrahs brand, all of Harrahs assets and a majority of the Promus headquarters and people, was then renamed Harrahs Entertainment, returning Harrahs to the NYSE for the first time in 15 years. During 1999, the company grew further with the acquisition of Rio Hotel & Casino. This complemented its Strip Casino. The company also opened Harrahs New Orleans in that year, the only land based casino in the city. On the international front, the company sold its interests in the Star City Casino in Sydney, in 2000, to Tabcorp Holdings. In the US, it also sold Showboat Hotel & Casino to VSS Enterprises.

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History

The company continued to acquire new casinos in 2001 with the purchase of Harveys Casino Resorts. This added the Harveys Resort & Casino in Lake Tahoe, Nevada, the Harveys Casino Hotel and the Bluffs Run Casino to its portfolio. Harrahs Entertainment acquired Wagon Wheel in 2001 as part of its acquisition of Harveys Casino Resorts. Located 40 miles west of Denver, the property has 118 hotel rooms, 1,055 slot machines and 22 table games. In 2003, the company signed an agreement to acquire Horseshoe Gaming Holding, a leading operator of casinos in Hammond, Indiana, Tunica, Mississippi, and Shreveport-Bossier City, Louisiana, for $1.45 billion. In 2004 the company signed a definitive agreement to purchase Binions Horseshoe Hotel & Casino in downtown Las Vegas. Later in February 2004 the company announced plans to jointly operate the property with MTR Gaming Group. In March 2004, Harrahs announced that Speakeasy Gaming of Fremont, a wholly owned subsidiary of MTR Gaming Group, had completed the purchase of Binions Horseshoe Hotel & Casino in downtown Las Vegas. In conjunction with the MTR transaction, Harrahs acquired rights to the Horseshoe brand in Nevada and to the World Series of Poker. Harrahs announced in June 2004 that it had recently paid about $73 million to an Iowa West Racing Association affiliate as an additional purchase price consideration for the Bluffs Run Casino. The company acquired Bluffs Run Casino, a greyhound racing facility in Council Bluffs, Iowa, as part of the 2001 Harveys Casino Resorts acquisition. Harrahs announced in July 2004 that it had completed its acquisition of Horseshoe Gaming Holding. With the acquisition, Harrahs added to its portfolio Horseshoe properties in Hammond, Indiana, Bossier City, Louisiana and Tunica, Mississippi. Also, the company confirmed its intention to acquire Caesars Entertainment in a cash and stock transaction that would be the largest in gaming-industry history. The total transaction value, including assumption of Caesars debt, would be approximately $9.44 billion. The transaction was completed in June 2005. In September 2004 the company announced it was to sell four casinos: Harrahs East Chicago, Harrahs Tunica, Atlantic City Hilton and Ballys Tunica to an affiliate of Colony Capital. During 2005, the company acquired the Imperial Palace, and parcels of land near the companys properties on the Las Vegas Strip. In April 2005, the company completed the sale of Harrahs East Chicago and Harrahs Tunica for a sales price of

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History

approximately $627 million, and Caesars sold its Atlantic City Hilton and Ballys Tunica properties for a sales price of approximately $612 million. Caesars entered into an agreement to sell the Reno Hilton for $150 million in May 2005. In November 2005, the company agreed to sell the Flamingo Laughlin hotel and an undeveloped land parcel in Atlantic City for $170 million. The company signed a definitive agreement with El Reino de Don Quijote de La Mancha in November 2005 to develop a Caesars casino resort in Ciudad Real, Spain. In November 2005, the company signed a letter of intent to form a joint venture with Baha Mar Resorts and Starwood Hotels and Resorts Worldwide to create a mixed-use property in Nassau, Bahamas. The proposal includes a Caesars Resort Hotel and Casino. In the same month, the company signed a memorandum of understanding with the Hit Group to form a joint venture to develop a casino resort and hotel in Nova Gorica, Slovenia on the border of Italy. The company completed the acquisition of the Imperial Palace Hotel & Casino in Las Vegas for approximately $370 million in December 2005. Also, the company entered into a memorandum of understanding to form a joint venture with Keppel Land Investment for an integrated resort in the Republic of Singapore.

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Key Employees

KEY EMPLOYEES

Name
Gary W. Loveman Barbara T. Alexander Charles L. Atwood Frank J. Biondi Stephen F. Bollenbach Ralph Horn R. Brad Martin Gary G. Michael Robert G. Miller Boake A. Sells Christopher J. Williams Tim Wilmott Tim Stanley Anthony Sanfilippo Carlos Tolosa Tom Jenkin

Job Title
Chairman, Chief Executive Officer and President Director Director Director Director Director Director Director Director Director Director Chief Operating Officer Senior Vice President and Chief Information Officer President, Central Division President, Eastern Division President, Western Division

Board
Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Non Executive Board Senior Management Senior Management Senior Management Senior Management Senior Management

Compensation

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Key Employee Biographies

KEY EMPLOYEE BIOGRAPHIES

Gary W. Loveman
Board: Executive Board Job Title: Chairman, Chief Executive Officer and President Since: 2003 Mr. Loveman has been a Director since 2000; Chief Executive Officer since January 2003, President since April 2001 and Chief Operating Officer from 1998 to 2003. he has also been member of the Office of the President from May 1999 to April 2001, Executive Vice President from May 1998 to May 1999, Associate Professor of Business Administration, Harvard University Graduate School of Business Administration from 1994 to 1998 and Director of Coach, a designer and marketer of handbags and accessories.

Barbara T. Alexander
Board: Non Executive Board Job Title: Director Since: 2002 Ms. Alexander, an independent consultant, was Senior Advisor for UBS Warburg, an investment banking firm, from October 1999 to January 2004. She was a Managing Director of Dillon Read & Co, an investment banking firm, and successor companies from January 1992 until October 1999. She is also a Director of Centex Corporation, a building and related services company, and of Burlington Resources, an independent oil and gas company. Ms. Alexander has been a Director of the company since February 2002. She is a member of the Audit Committee.

Charles L. Atwood
Board: Non Executive Board Job Title: Director Since: 2005 Mr. Atwood has served as Senior Vice President and Chief Financial Officer since 2001, Treasurer from October 1996 to November 2003 and Vice President from October 1996 to April 2001. He has also served as Director of Equity Residential, an owner and operator of multi-family properties since July 2003.

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Key Employee Biographies

Frank J. Biondi
Board: Non Executive Board Job Title: Director Since: 2002 Mr. Biondi is Senior Managing Director of WaterView Advisors, a private equity fund specializing in media. He has held this position since June 1999. He was Chairman and Chief Executive Officer of Universal Studios from April 1996 through November 1998 and President and Chief Executive Officer of Viacom from 1987 through 1996. He is also a Director of The Bank of New York Company (a financial holding company and provider of banking and financial services), Amgen (a biotechnology company), Hasbro (a developer of childrens and family leisure time entertainment products) and Vail Resorts, a mountain resort operator. He has been a Director of the company since 2002.

Stephen F. Bollenbach
Board: Non Executive Board Job Title: Director Mr. Bollenbach has been Co-Chairman of the Board and Chief Executive Officer of Hilton Hotels Corporation, a hotel and hospitality company, since May 2004, and was its Chief Executive Officer and President from February 1996 to May 2004. He was also a Director and Chairman of Caesars Entertainment from 1998 until the effective date of its merger with the company. He is also a Director of Time Warner, a media and entertainment company. He is a member of the Audit Committee.

Ralph Horn
Board: Non Executive Board Job Title: Director Since: 1995 Mr. Horn, a private investor, was Chairman of First Tennessee National Corporation, a banking corporation, from 1996 until 2003. He was a Director of that company from 1991 to 2003 and was its Chief Executive Officer from 1994 to 2002, its President from 1991 to 2002, and its Chief Operating Officer from 1991 to 1994. He is also a Director of Gaylord Entertainment Company, a hospitality and entertainment company, and Mid-America Apartment Communities, an umbrella partnership real estate investment trust. He has been a Director of the company since July 1995. He is a

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Key Employee Biographies

member

of the Human Resources

and Nominating/Corporate Governance

Committees.

R. Brad Martin
Board: Non Executive Board Job Title: Director Since: 1996 Mr. Martin has been Chairman and Chief Executive Officer of Saks Incorporated (formerly Proffitts), a retail department store company, since 1989. He is also a Director of First Tennessee National Corporation, a banking corporation. Mr. Martin has been a Director of the company since 1996. He is a member of the Executive Committee, and from 1996 to 2004, he was a member of the Human Resources Committee.

Gary G. Michael
Board: Non Executive Board Job Title: Director Since: 2001 Mr. Michael, a private investor, has been serving as interim President of the University of Idaho since 2003. He was Chairman and Chief Executive Officer of Albertsons, a grocery supermarket company, from 1991 to 2001. He is also a Director of Questar (an energy development company), Boise Cascade Corporation (a forest products company), IDACORP (an energy company) and The Clorox Company (a household products manufacturing company). Mr. Michael has been a Director of the company since November 2001. He is a member of the Audit Committee.

Robert G. Miller
Board: Non Executive Board Job Title: Director Since: 1999 Mr. Miller is Chairman of Rite-Aid, a retail pharmacy chain, a position he has held since 1999. He was Chief Executive Officer of that company from 1999 to 2003. He was Vice Chairman and Chief Operating Officer of The Kroger Company, a grocery supermarket company, from May 1999 until December 1999, Vice Chairman and Chief Executive Officer of Fred Meyer, a grocery supermarket company, from 1998 to 1999, and Chairman and Chief Executive Officer of Fred Meyer from 1991 to 1998.

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Key Employee Biographies

He has been a Director of the company since 1999 and is a member of the Human Resources and Nominating/Corporate Governance Committees.

Boake A. Sells
Board: Non Executive Board Job Title: Director Since: 1990 Mr. Sells, a private investor, was Chairman and Chief Executive Officer of Revco DS, a retail pharmacy chain, from 1987 to 1992 and was President of that company from 1988 to 1992. He has been a Director of the company since 1990. He is a member of the Executive, Human Resources and Nominating/Corporate Governance Committees.

Christopher J. Williams
Board: Non Executive Board Job Title: Director Since: 2003 Mr. Williams has been Chairman and Chief Executive Officer of Williams Capital Group, an investment bank, since 1994, and Chairman and Chief Executive Officer of Williams Capital Management, an investment management firm, since 2002. He is also a Director of The Partnership for New York City, the National Association of Securities Professionals, and the Securities Industry Association. He has been a Director of the Company since 2003 and in 2004, he became a member of the Audit Committee.

Tim Wilmott
Board: Senior Management Job Title: Chief Operating Officer Since: 2003 Mr. Wilmott is Chief Operating Officer of Harrahs Entertainment. In 1992, Mr. Wilmott was named Vice President and General Manager of Harrahs Joliet, the companys first riverboat casino operation. Three years later, he was appointed President and General Manager of Harrahs Atlantic City. His performance ultimately resulted in his

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Key Employee Biographies

being promoted to President of Harrahs Eastern Division, a role he assumed in 1997. He was subsequently appointed Chief Operating Officer in 2003.

Tim Stanley
Board: Senior Management Job Title: Senior Vice President and Chief Information Officer Mr. Stanley is Senior Vice President and Chief Information Officer of Harrahs Entertainment. He has been Vice President of Information Technology and Chief Information Officer from 2003 to 2004, Vice President of Information Technology from 2001 to 2003 and Managing Partner of Las Vegas, for USWeb Corporation, an eBusiness consulting firm since acquired by marchFIRST from 1999 to 2001. He has also served as Vice President of Information Technology, National Airlines, from August 1998 to January 2000.

Anthony Sanfilippo
Board: Senior Management Job Title: President, Central Division Since: 1997 Mr. Sanfilippo is the President of the Central Division of Harrahs Entertainment. Mr. Sanfilippo joined the company in 1983 as an accountant. He moved into operations in 1984, and in 1994 he was promoted to serve as General Manager for the opening of Harrahs former property in Shreveport. Mr. Sanfilippo has been a division President since 1997.

Carlos Tolosa
Board: Senior Management Job Title: President, Eastern Division Mr. Tolosa is President of the Eastern Division of Harrahs Entertainment. Mr. Tolosa began his career with the company in 1971 and held various management positions with Holiday Inns, a former parent company of Harrahs Entertainment. In 1993, Mr. Tolosa rose to the position of Chief Operating Officer and Senior Vice President of Operations for Embassy Suites Hotels, a division of Promus Hotels, also a former parent company of Harrahs Entertainment. A year later, he assumed the role of Division President for Harrahs Indian Gaming, overseeing properties in several US states.

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Key Employee Biographies

Tom Jenkin
Board: Senior Management Job Title: President, Western Division Since: 2004 Mr. Jenkin is President of Harrahs Entertainments Western Division. Mr. Jenkin joined the company in 1975 as a fry cook at Harrahs Las Vegas. In 1993, he was promoted to Senior Vice President and General Manager of Harrahs Laughlin, and five years later, he was named Senior Vice President and General Manager of Harrahs Las Vegas. Mr. Jenkin assumed oversight of the Rio and Harrahs Laughlin in 2001 and 2002, respectively, before being named to his current position in January 2004.

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Major Products And Services

MAJOR PRODUCTS AND SERVICES

Harrahs Entertainment (Harrahs) is one of Americas leading casino firms. It conducts its business through its wholly owned subsidiary, Harrahs Operating Company and its subsidiaries. The companys services include: Western US Harrahs Reno Harrahs/Harveys Lake Tahoe Bills, Harrahs Las Vegas Rio, Harrahs Laughlin Caesars Palace Paris, Ballys Las Vegas Flamingo Las Vegas Reno Hilton Flamingo Laughlin Imperial Palace Eastern US Harrahs Atlantic City Showboat Atlantic City Caesars Atlantic City Ballys Atlantic City North Central US Harrahs Joliet Harrahs North Kansas City Harrahs Council Bluffs Bluffs Run Harrahs St. Louis Harrahs Metropolis Horseshoe Hammond Caesars Indiana South Central US Harrahs Lake Charles Harrahs New Orleans

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Major Products And Services

Harrahs Louisiana Downs Horseshoe Bossier City Horseshoe Tunica Grand Tunica Sheraton Tunica Grand Biloxi Grand Gulfport Managed Casinos Ak-Chin Cherokee Topeka Bluffs Run Rincon Racetracks: Turfway Park Bluegrass Downs Louisiana Downs Other businesses: Casino hotels Dockside casinos Riverboat casinos Indian gaming establishments

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Products And Services Analysis

PRODUCTS AND SERVICES ANALYSIS

The company recorded revenues of $7,111 million during the fiscal year ended December 2005, an increase of 56.3% over 2004. The company generates most of its revenues from the US. Harrahs Entertainment generates revenues through five revenue streams: casino (71.7% of the total revenues during fiscal year 2005), food and beverage (13%), rooms (9.4%), other (5) and management fees (0.9%). Revenues by Division During the fiscal year 2005, the casino division recorded revenues of $6,071.5 million, an increase of 48.9% over 2004. The food and beverage division recorded revenues of $1,097.5 million in fiscal year 2005, an increase of 64.9% over 2004. The rooms division recorded revenues of $791.8 million in fiscal year 2005, an increase of 103% over 2004. The other division recorded revenues of $425.9 million in fiscal year 2005, an increase of 96.1% over 2004. The management fees division recorded revenues of $75.6 million in fiscal year 2005, an increase of 24.8% over 2004.

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SWOT Analysis

SWOT ANALYSIS
Harrahs Entertainment (Harrahs) is a casino-entertainment provider, which through a wholly owned subsidiary, Harrahs Operating Company. The company is one of the biggest gaming companies in the world. Harrahs strong brand name have helped it become one of the largest and most diversified casino networks in the US. Intense competition, however, threatens to reduce the companys market share and profitability.

Strengths
Strong revenue growth Strong brand name Successful distribution strategy

Weaknesses
Reduction in margins Presence restricted to North America Overdependence on casino business

Opportunities
High entry barriers Entry in to racino market Expansion plans

Threats
Intense competition Legal and regulatory environment Online gaming

Strengths
Strong revenue growth The companys revenues have been increasing consistently in the last few years. Its total revenues increased from $3,948.9 million in fiscal 2003 to $7,111 million in fiscal 2005. Revenues from the companys casino, food and beverage, rooms, management fees and other revenue streams increased by 48.9%, 64.9%, 103%, 24.8% and 96.1% respectively from fiscal 2004 to fiscal 2005. A steady increase in revenues across all of the companys business streams indicates that it has been able to strengthen its market position. Strong brand name Harrahs strong brand name has enabled it to become one of the largest and most diversified casino networks in the US. Harrahs Entertainment is one of the most recognized names in the casino entertainment industry and it is the worlds third largest gaming company. The companys success is largely due to its focus on

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SWOT Analysis

enhancing financial strength, customer relationship management, and adaptability to changing regulations. The companys strong brand increases its bargaining leverage and gives it a competitive advantage. Successful distribution strategy Harrahs Entertainment derives strength from its well-distributed business operations across markets. The company has 26 properties across 13 states in the US, which has been shielding the company against any volatility in any single market. This has also helped the company to create and profitably use its nationwide customer database.

Weaknesses
Reduction in margins Despite a strong revenue growth, the companys operating margins have reduced from 18.9% in fiscal 2002 to 13.8% in fiscal 2005. The companys operating margin for the period 2001-2005 was 16.1%, significantly lower than the industry average of 19.4% for the same period. Reducing operating margins indicate increasing costs and can adversely affect the long term financial position of the company. Presence restricted to North America Harrahs Entertainment has its presence highly centered on the US market. Apart from the Conrad Resort and Casino located in Punta Del Este, Uruguay, most of the companys operations are within the US. Any volatility in the US market could have an adverse impact on its business. Overdependence on casino business Though the company is into casino entertainment and an accompanying hotel business, the contribution of the casino business has consistently generated more than 70% of its total revenues. In 2005, 2004 and 2003, the casino business generated 71.7%, 75.4% and 74.3% of the companys total revenues respectively. Dependence on the casino business, which in itself is highly regulated and competitive, can prove to be a significant competitive disadvantage of the company.

Opportunities
High entry barriers

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SWOT Analysis

Legal gambling is permitted only in certain states of the US. Furthermore, only a limited number of licenses are issued. This makes it difficult for any new player to meet the requirements to get a license. Also, any entry into this market would require high capital investment. This opens up significant possibilities for major players like Harrahs Entertainment who are well positioned to take advantage of any further legalization of casino gaming. Entry in to racino market Harrahs entry into the racino market (combination of horse racing tracks and traditional casinos) is likely to offer high growth prospects for the company. In this regard, it has purchased Louisiana Downs, a racetrack located outside Shreveport, and is set to acquire more such properties. The combination will enable Harrahs to earn additional revenues and expand its brand recognition. Expansion plans Harrahs has made plans for geographical expansion. Its expansion plans involve joint ventures with different companies to open a Caesars casino resort in Ciudad Real, Spain; a mixed-use property in Nassau, Bahamas which would include a Caesars Resort Hotel and Casino and a casino resort and hotel in Nova Gorica, Slovenia on the border of Italy. The company has also planned to open an integrated resort in the Republic of Singapore. These expansion plans, if successful, would provide Harrahs with considerable opportunities to expand outside the US, where it currently has limited presence.

Threats
Intense competition Given the restricted number of markets, major players in the casino industry are constantly reinvesting in their existing markets in order to strengthen their market position. Consequently, supply has surpassed demand leading to increased competition. Competition in the industry is also driven by the growth of other entertainment options (substitutes) such as racing and non-gaming resorts. Legal and regulatory environment Harrah Entertainments primary threat is the legal and regulatory environment. Any change in regulations, laws, and procedure with regard to casino operations can have adverse effects on the companys business. The casino industry represents a significant source of tax income for the various jurisdictions in which casinos operate.

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SWOT Analysis

Any changes in tax laws or tax rates can significantly affect the companys financial position. Online gaming The market for online gaming is growing rapidly. With the increasing popularity and penetration of the internet, this market, which accounted for $15 billion in fiscal 2001, nearly doubled to reach more than $30 billion in fiscal 2005. The US is the biggest market for online gaming. In the US, online gaming has grown at a CAGR of 21% from 2001 to 2005. The popularity and growth in demand for online gaming can be a significant threat to the company going forward.

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Top Competitors

TOP COMPETITORS
The following companies are the major competitors of Harrahs Entertainment, Inc.: American Skiing Company Bally Technologies, Inc MGM MIRAGE Trump Entertainment Resorts, Inc. Aztar Corporation Pinnacle Entertainment, Inc. Six Flags Inc. Churchill Downs Incorporated Isle of Capri Casinos, Inc. Berjaya Sports Toto Berhad Ameristar Casinos, Inc. MTR Gaming Group Lakes Entertainment, Inc Penn National Gaming, Inc. TABCORP HOLDINGS LTD President Casinos, Inc. Magnum Corporation Bhd

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Company View

COMPANY VIEW
An excerpt of a statement by Gary W. Loveman, Chairman, Chief Executive Officer and President of Harrahs Entertainment is given below. The statement has been taken from the companys 2005 annual report. Harrahs Entertainments $9.3 billion acquisition of Caesars Entertainment, Inc. on June 13, 2005, capped our transformation into the worlds largest gamingentertainment company. It was a significant milestone, to be sure, but as you might expect from an organization in constant forward motion, Harrahs was focused far less on the transactions historic aspect than on its implications for the future. For us, the Caesars acquisition marked the outset of a new era, one in which we will harness the power of several unique assets to redefine the nature and scope of what a gaming-entertainment company can be. Those assets include peerless brand and property portfolios, financial strength built through consistently high-performing operations, a growing network of international relationships, and the estimable talents of more than 85,000 employees, who deserve credit for all of the foregoing. The new era began auspiciously. Between June and December, our company made substantial progress toward fusing two corporate cultures and extending Harrahs internationally recognized business-intelligence systems to former Caesars locations. At the same time, we were able to sustain healthy revenue and earnings growth, initiate master-planning efforts for our concentration of properties in both Las Vegas and Atlantic City, and begin establishing Harrahs as a truly global entertainment concern through a series of major international-development announcements. The years operating results offered solid proof of our ability to manage these many undertakings for investors benefit. For fiscal 2005, revenues climbed to $7.1 billion, a 56.3 percent increase over the previous years total, while adjusted income from continuing operations grew 50.6 percent, to $516.6 million, from $343.1 million a year earlier. For the full year, property earnings before interest, taxes, depreciation and amortization, or EBITDA a common performance gauge in our industry, though not a Generally Accepted Accounting Principles measurement increased to $1.9 billion, up 59.7 percent from $1.2 billion in 2004. It should be noted that our results for 2005 included contributions from the Caesars business only after the June 13, 2005, acquisition date.

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HARRAHS ENTERTAINMENT, INC.

Company View

The strong stockholder returns Harrahs has delivered since 1998 are largely attributable to our customer loyalty strategy, whose success is apparent in our performance on two key measures: same-store sales growth and cross-market play, which rose 8.8 percent and 18.0 percent in 2005, respectively. RISING TO THE OCCASION Though their impact on our overall financial picture was manageable, the losses Harrahs has sustained as a result of Hurricanes Katrina and Rita were not merely monetary. And while the results reported above are the ones investors rightly focus on when assessing our value, the measure of Harrahs worth as a company was more fully illustrated by the massive relief and recovery effort spearheaded by our employees after the storms left thousands of their coworkers homeless. Even before the hurricanes made landfall, our organization had vaulted headlong into recovery mode. We quickly established makeshift emergency shelters at several of our properties and launched regional aid centers delivering everything from primary health-care services to housing and transportation assistance. Employees were immediately informed that their pay and benefits would continue for 90 days, and that Harrahs would offer priority processing status and relocation assistance to those who wished to transfer to other company properties. More than 700 of our nearly 9,000 displaced employees took advantage of the opportunity to remain within the Harrahs system. The Harrahs Employee Recovery Fund, meanwhile, seeded with a $1 million grant from the Harrahs Foundation in September, had amassed more than $4 million in donations within four months thanks to the overwhelming generosity of our employees, vendors, business partners, customers and an additional $500,000 gift from the Foundation. And on Feb. 20, 2006, three legendary performers we are proud to call members of our extended Harrahs family Celine Dion, Elton John and Jerry Seinfeld magnanimously staged a benefit concert at the Colosseum at Caesars Palace that added $2.1 million to the pool of aid available to employees hardest-hit by the storms. FORGING AHEAD IN THE GULF COAST In the weeks and months following the hurricanes, our company was repeatedly asked whether Harrahs would maintain its presence in New Orleans and Mississippi. But our commitment was never in doubt. We believe the Gulf Coasts viability as a tourist destination is beyond dispute, and we are determined to be part of its economic revival. To that end, following several months of rehabilitation, Harrahs New Orleans reopened with 1,500 employees on Feb. 17, 2006, and both

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HARRAHS ENTERTAINMENT, INC.

Company View

the local show of support and initial customer traffic gave us every reason to anticipate that the city will ultimately regain its status as one of the nations most unique and dynamic tourism centers. The massive destruction at our Gulfport and Biloxi properties, however, left Harrahs with a more difficult choice to make. In the end, we elected to sell our remaining assets in Gulfport and concentrate our efforts in Biloxi, where the Mississippi state legislatures decision to permit shore-based gaming has given us the opportunity to build an entertainment showplace whose amenities will surpass anything currently offered on the Gulf Coast. We intend to share details about our plans for the Biloxi development by mid-2006. MORE PLACES TO PLAY; MORE (AND BETTER) REASONS TO PLAY THERE Choosing to rebuild selectively along the Gulf Coast is consistent with one of Harrahs defining business strategies: maintaining and expanding our industrys most geographically diverse distribution network, which today comprises nearly 40 casino properties in three countries. The wisdom of that strategy was never more evident than in the aftermath of the hurricanes, when we were able to continue posting strong operating results companywide, even with an entire regions properties out of commission. While offering customers more places to play lends Harrahs a decisive advantage over our competition, giving those customers more and better reasons to consolidate their play with us is what set the stage for the remarkable growth we have undergone since the late 1990s. By establishing our core Harrahs, Caesars and Horseshoe casino brands among the industrys best-recognized and mostrespected, and by supporting that branding effort with peerless customer service, we have created powerful incentives for customers to patronize our casinos rather than others, and to spend a greater percentage of their allotted gaming-entertainment budget at Harrahs when they visit. The fourth quarter of 2005, incidentally, was the 20th straight in which Harrahs posted year-over-year improvements in customer satisfaction survey scores, a measurement that correlates positively with customer revenue growth. The foundation of our loyalty-building efforts is Total Rewards, the pioneering tieredcard program Harrahs developed in the 1990s, which today boasts nearly 40 million members, and nearly 8 million active members. The relationship-marketing and other business-intelligence capabilities fueled by Total Rewards are constantly bringing us closer to our customers so we better understand their preferences, and from that understanding we are able to improve the entertainment experiences we offer accordingly. At about the time this report reaches your mailbox, Harrahs will be rolling out the next generation of Total Rewards, which will extend the program to all former Caesars Entertainment properties. We expect this initiative to play a pivotal role in

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HARRAHS ENTERTAINMENT, INC.

Company View

enabling Harrahs to reach the first-year synergy target we had projected prior to the acquisitions close. But that figure pales next to the long-term revenue-building implications of making Total Rewards a mainstay at all our properties. With this move, we will be able to provide our customers with an unprecedented degree of freedom to visit Harrahs-owned casinos anywhere in the country, to collect and use their Reward Credits wherever and whenever they choose, and to enjoy the same personal, highquality service they customarily receive at their hometown casino. For gaming enthusiasts, this amounts to an embarrassment of riches. For Harrahs, the possibilities are no less promising. Speaking of great promise, the World Series of Poker, another of the jewels in our brand portfolio, continued to gather steam in 2005. The WSOP is the worlds richest and most prestigious poker event, and media coverage, number of entrants and prize money all have doubled since Harrahs acquired the brand in 2004. Moreover, the 2005-2006 circuit schedule now comprises 12 events, up from five in 2004-05. At the same time, the World Series of Poker has spawned numerous merchandising tie-ins, from an exclusive alliance with AOL to Activisions WSOP-branded video game, which racked up sales of nearly 500,000 units during this past holiday season. Retailers have already placed orders for 1.5 million units of the second-generation edition, which is due to arrive later in 2006. Given the brands high visibility and rampant popularity, we believe the WSOP holds the potential to make significant contributions to the companys bottom-line in the not-too distant future. A FINAL WORD OF THANKS If the range and volume of activity I have described here sounds like a heavy load for any company to shoulder, then you have some sense of exactly how hard Harrahs employees were charging throughout 2005. My 85,000 colleagues greeted both the best and worst of times with the same unflagging determination to triumph, and I am profoundly grateful for their efforts. Their performance this past year gives me great confidence in our ability to chart bold new territory in the gaming entertainment business. Ultimately, I believe that 2005s successes, resounding though they were, offer just a taste of what our company will accomplish during this new phase in our evolution. Because for all the changes Harrahs has undergone over the course of the past year, we have never lost sight of what truly matters: bringing innovative, high quality gaming entertainment to millions of guests around the world while maintaining our companys longstanding reputation for responsibility and integrity. I believe that the combination of focus, talent and great assets will prove to be powerful and sustainable for many years to come.

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HARRAHS ENTERTAINMENT, INC.

Locations and Subsidiaries

LOCATIONS AND SUBSIDIARIES

Head Office
Harrahs Entertainment, Inc. 1 Harrahs Court Las Vegas NV 89119 United States P: 1 702 407 6000 F: 1 702 407 6037 www.harrahs.com

Other Locations and Subsidiaries

Rio Hotel & Casino, Inc. 3700 W. Flamingo Road Las Vegas NV 89103 United States P: 1 702-252-7777 F: 1 702-252-7633 www.playrio.com Harrahs Joliet 151 N. Joliet Street Joliet IL 60432 United States P: 1 815 740 7800 Harrahs Laughlin 2900 South Casino Drive Laughlin NV 89029 United States P: 1 702 298 4600 Showboat The Mardi Gras Casino 801 Boardwalk Atlantic City NJ 08401 United States P: 1 609 343 4000

Harrahs Tunica 1100 Casino Strip Blvd Robersonville MS 38664 United States P: 1 662 363 7777

Harrahs Prairie Band 12305 150th Road Mayetta KS 66509 United States P: 1 785 966 7777 Bills Lake Tahoe P.O. Box 8 Stateline NV 89449 United States P: 1 775 588 2455 Harrahs Metropolis 203 Ferry Street Metropolis IL 62960 United States P: 1 618 524 2628

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HARRAHS ENTERTAINMENT, INC.

Locations and Subsidiaries

Harrahs Louisiana Downs 8000 East Texas Street Bossier City LA 71111 United States P: 1 318 742 5555 Harrahs Vicksburg 1310 Mulbery Street Vicksburg MS 39180 United States P: 1 601 636 3423 Harrahs Las Vegas 3475 Las Vegas Blvd South Las Vegas NV 89109 United States P: 1 702 369 5000 Harrahs Ak Chin 15406 Maricopa Road Maricopa AZ 85239 United States P: 1 480 802 5000 Harrahs Atlantic City 777 Harrahs Blvd Atlantic City NJ 08401 United States P: 1 609 441 5000 Harrahs Lake Charles 505 N. Lakeshore Drive Lake Charles LA 70601 United States P: 1 337 437 1500 Harrahs East Chicago 777 Harrahs Blvd East Chicago IN 46312 United States P: 1 219 378 3000

Rio All Suite Casino Hotel 3700 W. Flamingo Road Las Vegas NV 89103 United States P: 1 702 252 7777 Harveys Lake Tahoe P.O. Box 128 Stateline NV 89449 United States P: 1 775 588 2411 Harrahs Reno 219 North Center Street Reno NV 89501 United States P: 1 775 786 3232 Harrahs Shreveport 401 Market Street Shreveport LA 71101 United States P: 1 318 424 7777 Bluffs Run Casino 2701 23rd Avenue Council Bluffs Iowa 51501 United States P: 1 712 323 2500 Harrahs Rincon Casino & Resort 777 Harrahs Rincon Way Valley Center CA 92082 United States Harrahs Council Bluffs One Harveys Blvd Council Bluffs IA 51501 United States P: 1 712 329 6000

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HARRAHS ENTERTAINMENT, INC.

Locations and Subsidiaries

Harrahs Lake Tahoe P.O. Box 8 Highway 50 Stateline NV 89449 United States P: 1 775 588 6611

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