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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File No. 1-10410

HARRAH'S ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)

One Harrah's Court
Las Vegas, Nevada 89119
(Current address of principal executive offices)

(702) 407-6000
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        At July 31, 2004, there were 111,933,868 shares of the Company's Common Stock outstanding.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

        The accompanying unaudited Consolidated Condensed Financial Statements of Harrah's Entertainment, Inc., a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles in the United States. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of operating results. Results of operations for interim periods are not necessarily indicative of a full year of operations. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our 2003 Annual Report to Stockholders.

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HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)

See accompanying Notes to Consolidated Condensed Financial Statements.

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HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying Notes to Consolidated Condensed Financial Statements.

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HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying Notes to Consolidated Condensed Financial Statements.

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HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

See accompanying Notes to Consolidated Condensed Financial Statements.

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HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)

Note 1—Basis of Presentation and Organization

        Harrah's Entertainment, Inc. ("Harrah's Entertainment", the "Company", "we", "our" or "us", and including our subsidiaries where the context requires) is a Delaware corporation. As of July 1, 2004, we operate 28 casinos in 12 states under the Harrah's, Horseshoe, Rio, Showboat, and Harveys brand names, including 12 land-based casinos, 12 riverboat or dockside casinos and four casinos on Indian reservations. We view each property as an operating segment and aggregate all operating segments into one reporting segment.

        During 2003, we sold properties in Central City, Colorado, and Vicksburg, Mississippi. The operating results of those properties, including the losses recorded on the sales, are presented in our Consolidated Condensed Financial Statements for 2003 as discontinued operations.

        In conjunction with our plans to acquire Horseshoe Gaming Holding Corp. ("Horseshoe Gaming") (see Note 4), in May 2004, we sold Harrah's Shreveport to avoid overexposure in that market. Prior to the sale, we classified this property in Assets/Liabilities held for sale on our Consolidated Condensed Balance Sheets and we ceased depreciating the property's assets in September 2003. Since we continue to operate casinos in the Shreveport-Bossier City market, Harrah's Shreveport's operating results were not classified as discontinued operations.

Note 2—Stock-Based Employee Compensation

        As allowed under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," we apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations to account for our employee stock-based compensation plans and, accordingly, do not recognize compensation expense. Furthermore, no stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

        In March 2004, the Financial Accounting Standards Board ("FASB") issued Exposure Draft, "Share-Based Payment—an amendment of FASB Statements No. 123 and 95." This proposed standard, which would be effective for fiscal years beginning after December 15, 2004, would require that we recognize an expense for our equity-based compensation programs, including stock options. We are currently evaluating the provisions of this proposed standard to determine its impact on our future financial statements.

        SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123," requires that companies provide disclosure regarding the pro forma impact of the provisions of SFAS No. 123 in interim financial statements. The following table illustrates

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the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123 to stock-based employee compensation.

Note 3—Goodwill and Other Intangible Assets

        The following table sets forth information concerning our goodwill as of June 30, 2004.

        The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets.

        The aggregate amortization expense for the quarter and six months ended June 30, 2004, for those assets that continue to be amortized under the provisions of SFAS No. 142 was $1.2 million and $2.4 million, respectively. Estimated annual amortization expense for those assets for the years ending

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December 31, 2004, 2005, 2006, 2007 and 2008 is $4.9 million, $4.8 million, $4.5 million, $3.8 million and $3.5 million, respectively.

Note 4—Acquisitions

Las Vegas Horseshoe Hotel and Casino

        In March 2004, we acquired certain intellectual property assets, including the rights to the Horseshoe brand in Nevada and to the World Series of Poker brand and tournament, from Horseshoe Club Operating Company ("Horseshoe Club"). MTR Gaming Group, Inc. ("MTR Gaming") acquired the assets of the Binion's Horseshoe Hotel and Casino ("Las Vegas Horseshoe") in Las Vegas, Nevada, including the right to use the name "Binion's" at the property, from Horseshoe Club. We will operate Las Vegas Horseshoe jointly with a subsidiary of MTR Gaming for one year, with options to extend the agreement for two additional years. The property, which had been closed since January 2004, reopened April 1, 2004. Operating results for Las Vegas Horseshoe will be consolidated with our results as long as the operating agreement is in effect.

        We paid approximately $40.8 million for the intellectual property assets, including assumption and subsequent payment of certain liabilities of Las Vegas Horseshoe (which included certain amounts payable to a principal of Horseshoe Gaming) and approximately $3.5 million of acquisition costs. The purchase price allocation is in process and will be completed by the end of 2004. It is anticipated that the intangible assets acquired in this transaction will be deemed to have indefinite lives and will, therefore, not be amortized. We financed the acquisition with funds from various sources, including cash flows from operations and borrowings from established debt programs. The intellectual property assets acquired in this transaction are included in Intangible assets on our Consolidated Condensed Balance Sheet at June 30, 2004.

Harrah's Shreveport and Louisiana Downs—Buyout of Minority Partners

        In first quarter 2004, we paid approximately $37.5 million to the minority owners of the company that owned Louisiana Downs and Harrah's Shreveport to purchase their ownership interest in that company. The excess of the cost to purchase the minority ownership above the capital balances was assigned to goodwill. As a result of this transaction, Harrah's Shreveport was, prior to the sale of that property, and Louisiana Downs is wholly owned by the Company.

Horseshoe Gaming

        On July 1, 2004, we acquired 100 percent of the equity interests of Horseshoe Gaming for approximately $1.55 billion, including assumption of debt valued at approximately $558 million and acquisition costs. A $75 million escrow payment that was made in 2003 was applied to the purchase price. We issued a redemption notice on July 1, 2004, for all $558 million of Horseshoe's outstanding 8⁵/8% Senior Subordinated Notes due July 2009 and retired that debt on August 2, 2004. We financed the acquisition and the debt retirement through working capital and existing credit facilities. We purchased Horseshoe Gaming to acquire three properties and with the intention of growing and developing the Horseshoe brand. The purchase included casinos in Hammond, Indiana; Tunica, Mississippi; and Bossier City, Louisiana.

        In anticipation of our acquisition of Horseshoe Gaming, we sold our Harrah's brand casino in Shreveport, Louisiana, to avoid overexposure in that market. After consideration of the sale of Harrah's Shreveport, the Horseshoe Gaming acquisition added a net 107,100 square feet of casino space and approximately 4,360 slot machines and 140 table games to our existing portfolio. Taken together with our acquisition of intellectual property rights from Horseshoe Club, this acquisition gave us rights to the Horseshoe brand in all of the United States. The purchase price allocation will begin in

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third quarter 2004 and will be completed within one year of the acquisition. The results of the Horseshoe properties will be included with our operating results subsequent to the date of acquisition.

Chester Downs & Marina

        In July, after receiving Pennsylvania regulatory and certain local approvals, we acquired a 50-percent interest in Chester Downs & Marina, LLC ("CD&M"), an entity licensed to develop a harness-racing facility in southeastern Pennsylvania. Harrah's Entertainment and CD&M have agreed to develop Chester Downs, which will be a ⁵/8-mile harness racetrack facility, on a site approximately six miles south of Philadelphia International Airport. Subsequent to the end of second quarter, the Pennsylvania legislature passed and the governor signed a bill allowing up to 3,000 slot machines at each of eight racetracks, including Chester Downs, and four stand-alone slot parlors, with the potential for adding 2,000 more slots at each of those locations. We have commenced site work and demolition at the property.

Caesars Entertainment

        On July 14, 2004, we signed a definitive agreement to acquire Caesars Entertainment, Inc. ("Caesars") in a cash and stock transaction. Under the terms of the agreement, Caesars' shareholders will receive either $17.75 in cash or 0.3247 shares of Harrah's Entertainment's common stock for each outstanding share of Caesars' common stock, subject to limitations on the aggregate amount of cash to be paid and shares of stock to be issued. Caesars' shareholders will be able to elect to receive solely shares of Harrah's Entertainment's common stock or cash, to the extent available pursuant to the terms of the agreement. The aggregate estimated purchase price, calculated as of July 14, 2004, was approximately $9.4 billion. The purchase price will fluctuate due to changes in the number of outstanding shares of Caesars' stock and the balance of Caesars' outstanding debt until closing. Caesars operates 28 casinos with about two million square feet of gaming space and approximately 26,000 hotel rooms and has significant presence in Las Vegas, Atlantic City and Mississippi. The transaction is subject to regulatory and shareholders' approvals and is expected to close within one year.

Note 5—Stockholders' Equity

        In addition to its common stock, Harrah's Entertainment has the following classes of stock authorized but unissued:

Preferred stock, $100 par value, 150,000 shares authorized
Special stock, $1.125 par value, 5,000,000 shares authorized—
    Series A Special Stock, 2,000,000 shares designated

        In November 2002, our Board of Directors authorized the purchase of up to three million shares of the Company's stock in the open market. These repurchases are funded through available cash and borrowings from our Credit Agreement (see Note 6). In second quarter 2004, one million shares were repurchased at an average price of $53.37. A total of 1.5 million shares have been purchased under this authorization at an average price of $47.54, leaving 1.5 million shares available for purchase pursuant to this authorization, which expires December 31, 2004.

        In April 2004, the Company declared a cash dividend of 30 cents per share, payable on May 26, 2004, to shareholders of record as of the close of business on May 12, 2004. Quarterly cash dividends of 30 cents per share were also declared and paid in the first quarter of 2004 and in the third and fourth quarters of 2003. Subsequent to the end of second quarter, we declared a quarterly cash dividend of 33 cents per share, a 10% increase over previous dividends, which is payable on August 25, 2004, to shareholders of record as of the close of business on August 11, 2004.

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Note 6—Debt

Credit Agreement

        At December 31, 2003, we had credit facilities (the "Credit Agreement") that provided for up to $1.9625 billion in borrowings, consisting of a five-year revolving credit facility for up to $1.0625 billion and a five-year term reducing facility for up to $900 million and maturing on April 23, 2008. In June 2004, the Credit Agreement was amended to convert the $1.0625 billion revolving credit facility and $900 million term reducing facility to a $2.5 billion revolving credit facility, to reduce the interest rate and to extend the maturity to April 2009. The amendment also contains a provision that would allow an increase in the borrowing capacity to $3.0 billion, if mutually acceptable to the Company and the lenders. Interest on the Credit Agreement is based on our debt ratings and leverage ratio and is subject to change. As of June 30, 2004, the Credit Agreement bore interest based upon 90 basis points over LIBOR and bore a facility fee for borrowed and unborrowed amounts of 20 basis points. At our option, we may borrow at the prime rate under the Credit Agreement. As of June 30, 2004, $121.0 million in borrowings was outstanding under the Credit Agreement with an additional $59.0 million committed to back letters of credit. After consideration of these borrowings but before consideration of amounts borrowed under the commercial paper program, $2.32 billion of additional borrowing capacity was available to the Company as of June 30, 2004.

Interest Rate Swap Agreements

        The Company uses interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. We account for these interest rate swaps in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and all amendments thereto. SFAS No. 133 requires that all derivative instruments be recognized in the financial statements at fair value. Any changes in fair value are recorded in the income statement or in other comprehensive income, depending on whether the derivative is designated and qualifies for hedge accounting, the type of hedge transaction and the effectiveness of the hedge. The differences to be paid or received under the terms of interest rate swap agreements are accrued as interest rates change and recognized as an adjustment to interest expense for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of interest rate swap agreements will have a corresponding effect on future cash flows.

        Interest rate swap agreements contain a credit risk that the counterparties may be unable to meet the terms of the agreements. We minimize that risk by evaluating the creditworthiness of our counterparties, which are limited to major banks and financial institutions, and we do not anticipate nonperformance by the counterparties.

        As of June 30, 2004, we were a party to four interest rate swaps for a total notional amount of $500 million. These interest rate swaps serve to manage the mix of our debt between fixed and variable rate instruments by effectively converting fixed rates associated with long-term debt obligations to floating rates. The major terms of the interest rate swaps are as follows.

        The Company's interest rate swaps qualify for the "shortcut" method allowed under SFAS No. 133, which allows for an assumption of no ineffectiveness. As such, there is no income statement impact from changes in the fair value of the hedging instruments. The net effect of the above swaps reduced

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our 2004 interest expense for the second quarter and first six months by $1.5 million and $2.7 million, respectively.

Offering of 5.5% Senior Notes

        In June 2004, we issued $750 million of 5.5% Senior Notes due in 2010 in a Rule 144A private placement. We agreed to offer to exchange the 5.5% Senior Notes issued in the private placement offering with fully registered 5.5% Senior Notes within 210 days of issuance. Should we fail to complete the registration and related exchange offer for the 5.5% Senior Notes, the interest rate will increase by up to 0.5% per annum. However, we expect to complete the exchange offer within the required time period.

Registration of 5.375% Senior Notes

        During December 2003, we issued $500 million of 5.375% Senior Notes due in 2013 in a Rule 144A private placement. We exchanged the 5.375% Senior Notes with fully registered 5.375% Senior Notes in May 2004.

Commercial Paper

        To provide the Company with cost-effective borrowing flexibility, we have a $200 million commercial paper program that is used to borrow funds for general corporate purposes. At June 30, 2004, $25 million was outstanding under this program.

Debt Repurchase Program

        In July 2003, our Board of Directors authorized the Company to retire, from time to time through cash purchases, portions of our outstanding debt in open market purchases, privately negotiated transactions or otherwise. These repurchases will be funded through available cash from operations and borrowings from our existing credit facilities. Such repurchases will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. As of December 31, 2003, $159.5 million of our 7.875% Senior Subordinated Notes had been retired under this authorization. No additional debt was retired in the first six months of 2004.

Note 7—Supplemental Cash Flow Disclosures

Cash Paid for Interest and Taxes

        The following table reconciles our interest expense, net of interest capitalized, per the Consolidated Condensed Statements of Income, to cash paid for interest:

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Note 8—Commitments and Contingent Liabilities

Contractual Commitments

        We continue to pursue additional casino development opportunities that may require, individually and in the aggregate, significant commitments of capital, up-front payments to third parties, guarantees by the Company of third-party debt and development completion guarantees.

        The agreements under which we manage casinos on Indian lands contain provisions required by law that provide that a minimum monthly payment be made to the tribe. That obligation has priority over scheduled payments of borrowings for development costs and over the management fee earned and paid to the manager. In the event that insufficient cash flow is generated by the operations of the Indian-owned properties to fund this payment, we must pay the shortfall to the tribe. Subject to certain limitations as to time, such advances, if any, would be repaid to us in future periods in which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the management contract. As of June 30, 2004, our aggregate monthly commitment for the minimum guaranteed payment pursuant to these contracts for the four managed Indian-owned facilities now open, which extend for periods of up to 89 months from June 30, 2004, is $1.2 million. The maximum exposure for the minimum guaranteed payments to the tribes is unlikely to exceed $99.1 million, including our exposure related to the extension of an agreement that was approved in April 2004.

        We may guarantee all or part of the debt incurred by Indian tribes, with which we have entered into management contracts, to fund development of casinos on the Indian lands. For all existing guarantees of Indian debt, we have obtained a first lien on certain personal property (tangible and intangible) of the casino enterprise. There can be no assurance, however, that the value of such property would satisfy our obligations in the event these guarantees were enforced. Additionally, we have received limited waivers from the Indian tribes of their sovereign immunity to allow us to pursue our rights under the contracts between the parties and to enforce collection efforts as to any assets in which a security interest is taken. The aggregate outstanding balance as of June 30, 2004, of Indian debt that we have guaranteed was $178.6 million. The outstanding balance of all of our debt guarantees, including Indian debt guarantees, at June 30, 2004, was $184.8 million. Our maximum obligation under all of our debt guarantees is $288.7 million. Our obligations under these debt guarantees extend through April 2009.

        Some of our guarantees of the debt for casinos on Indian lands were modified during 2003, resulting in the requirement under FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," to recognize a liability for the estimated fair value of those guarantees. Liabilities, representing the fair value of our guarantees, and corresponding assets, representing the portion of our management fee receivable attributable to our agreements to provide the related guarantees, were recorded and are being amortized over the lives of the related agreements. We estimate the fair value of the obligations by considering what premium would have been required by us or by an unrelated party. The amounts recognized represent the present value of the premium in interest rates and fees that would have been charged to the tribes if we had not provided the guarantees. The unamortized balance of the liability for the guarantees and of the related assets at June 30, 2004, was $6.2 million.

        In March 2004, we entered into an agreement with the State of Louisiana whereby we extended our guarantee of an annual payment obligation of JCC, our wholly-owned subsidiary, of $60 million owed to the State of Louisiana. The guarantee was extended for one year to end March 31, 2007.

        Excluding the guarantees discussed above, as of June 30, 2004, we had commitments and contingencies of $348.6 million, including construction-related commitments.

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        In accordance with previous agreements and as additional purchase price consideration, a payment of approximately $73 million, based on a multiple of the calculated annual savings, was made to Iowa West Racing Association ("Iowa West"), the entity holding the pari-mutuel and gaming license for the Bluffs Run Casino in Council Bluffs, Iowa, and with whom we have a management agreement to operate that property. The additional payment to Iowa West increased goodwill attributed to the Bluffs Run property. The calculation of the payment made to Iowa West assumed we will operate table games at Bluffs Run and pay a 24 percent tax rate; however, Iowa West has taken the position that the purchase price adjustment should be based on a tax rate of 22 percent, which would result in an additional $12 million payment to Iowa West. We anticipate that the issue will be resolved by arbitration. (See discussion in Management's Discussion And Analysis of Financial Condition and Results of Operations, OPERATING RESULTS AND DEVELOPMENT PLANS, North Central Results, Iowa.)

Severance Agreements

        As of June 30, 2004, we have severance agreements with 28 of our senior executives, which provide for payments to the executives in the event of their termination after a change in control, as defined. These agreements provide, among other things, for a compensation payment of 1.5 to 3.0 times the executive's average annual compensation, as defined, as well as for accelerated payment or accelerated vesting of any compensation or awards payable to the executive under any of our incentive plans. The estimated amount, computed as of June 30, 2004, that would be payable under the agreements to these executives based on the compensation payments and stock awards aggregated approximately $115.0 million. The estimated amount that would be payable to these executives does not include an estimate for the tax gross-up payment, provided for in the agreements, that would be payable to the executive if the executive becomes entitled to severance payments which are subject to federal excise tax imposed on the executive.

Self-Insurance

        We are self-insured for various levels of general liability, workers' compensation and employee medical coverage. We also have stop-loss coverage to protect against unexpected claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims.

Note 9—Litigation

        We are involved in various inquiries, administrative proceedings and litigation relating to contracts, sales of property and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, we believe that the final outcome of these matters will not have a material adverse effect upon our consolidated financial position or our results of operations.

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Item 2.    Management's Discussion And Analysis Of Financial Condition And Results Of Operations

        The following discussion and analysis of the financial position and operating results of Harrah's Entertainment, Inc. (referred to in this discussion, together with its consolidated subsidiaries where appropriate, as "Harrah's Entertainment", the "Company", "we", "our" and "us") for the second quarter and the first six months of 2004 and 2003, updates, and should be read in conjunction with, Management's Discussion and Analysis of Financial Condition and Results of Operations presented in our 2003 Annual Report.

ACQUISITIONS

Las Vegas Horseshoe Hotel and Casino

        In March 2004, we acquired certain intellectual property assets, including the rights to the Horseshoe brand in Nevada and to the World Series of Poker brand and tournament, from Horseshoe Club Operating Company ("Horseshoe Club"). MTR Gaming Group, Inc. ("MTR Gaming") acquired the assets of the Binion's Horseshoe Hotel and Casino ("Las Vegas Horseshoe") in Las Vegas, Nevada, including the right to use the name "Binion's" at the property, from Horseshoe Club. We will operate Las Vegas Horseshoe jointly with a subsidiary of MTR Gaming for one year, with options to extend the agreement for two additional years. The property, which had been closed since January 2004, reopened April 1, 2004. Operating results for Las Vegas Horseshoe will be consolidated with our results as long as the operating agreement is in effect.

        We paid approximately $40.8 million for the intellectual property assets, including assumption and subsequent payment of certain liabilities of Las Vegas Horseshoe (which included certain amounts payable to a principal of Horseshoe Gaming) and approximately $3.5 million of acquisition costs. The purchase price allocation is in process and will be completed by the end of 2004. It is anticipated that the intangible assets acquired in this transaction will be deemed to have indefinite lives and will, therefore, not be amortized. We financed the acquisition with funds from various sources, including cash flows from operations and borrowings from established debt programs.

Harrah's Shreveport and Louisiana Downs—Buyout of Minority Partners

        In first quarter 2004, we paid approximately $37.5 million to the minority owners of the company that owned Louisiana Downs and Harrah's Shreveport to purchase their ownership interest in that company. The excess of the cost to purchase the minority ownership above the capital balances was assigned to goodwill. As a result of this transaction, Harrah's Shreveport was, prior to the sale of that property, and Louisiana Downs is wholly owned by the Company.

Horseshoe Gaming

        On July 1, 2004, we acquired 100 percent of the equity interests of Horseshoe Gaming Holding Corp. ("Horseshoe Gaming") for approximately $1.55 billion, including assumption of debt valued at approximately $558 million and acquisition costs. A $75 million escrow payment that was made in 2003 was applied to the purchase price. We issued a redemption notice on July 1, 2004, for all $558 million of Horseshoe Gaming's outstanding 8⁵/8% Senior Subordinated Notes due July 2009 and retired that debt on August 2, 2004. We financed the acquisition and the debt retirement through working capital and existing credit facilities. We purchased Horseshoe Gaming to acquire three properties and with the intention of growing and developing the Horseshoe brand. The purchase included casinos in Hammond, Indiana; Tunica, Mississippi; and Bossier City, Louisiana.

        In anticipation of our acquisition of Horseshoe Gaming, we sold our Harrah's brand casino in Shreveport, Louisiana, to avoid overexposure in that market. After consideration of the sale of Harrah's Shreveport, the Horseshoe Gaming acquisition added a net 107,100 square feet of casino

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space and approximately 4,360 slot machines and 140 table games to our existing portfolio. Taken together with our acquisition of intellectual property rights from Horseshoe Club, this acquisition gave us rights to the Horseshoe brand in all of the United States. The purchase price allocation will begin in third quarter 2004 and will be completed within one year of the date of acquisition. The results of the Horseshoe properties will be included with our operating results subsequent to the date of acquisition.

Chester Downs & Marina

        In July, after receiving Pennsylvania regulatory and certain local approvals, we acquired a 50-percent interest in Chester Downs & Marina, LLC ("CD&M"), an entity licensed to develop a harness-racing facility in southeastern Pennsylvania. Harrah's Entertainment and CD&M have agreed to develop Chester Downs, which will be a ⁵/8-mile harness racetrack facility, on a site approximately six miles south of Philadelphia International Airport. Subsequent to the end of second quarter, the Pennsylvania legislature passed and the governor signed a bill allowing up to 3,000 slot machines at each of eight racetracks, including Chester Downs, and four stand-alone slot parlors, with the potential for adding 2,000 more slots at each of those locations. We have commenced site work and demolition at the property.

Caesars Entertainment

        On July 14, 2004, we signed a definitive agreement to acquire Caesars Entertainment, Inc. ("Caesars") in a cash and stock transaction. Under the terms of the agreement, Caesars' shareholders will receive either $17.75 in cash or 0.3247 shares of Harrah's Entertainment's common stock for each outstanding share of Caesars' common stock, subject to limitations on the aggregate amount of cash to be paid and shares of stock to be issued. Caesars' shareholders will be able to elect to receive solely shares of Harrah's Entertainment's common stock or cash, to the extent available pursuant to the terms of the agreement. The aggregate estimated purchase price, calculated as of July 14, 2004, was approximately $9.4 billion. The purchase price will fluctuate due to changes in the number of outstanding shares of Caesars' stock and the balance of Caesars' outstanding debt until closing. Caesars operates 28 casinos with about two million square feet of gaming space and approximately 26,000 hotel rooms and has significant presence in Las Vegas, Atlantic City and Mississippi. The transaction is subject to regulatory and shareholders' approvals and is expected to close within one year.

DISPOSITION

Harrah's Shreveport

        The sale of Harrah's Shreveport was completed in second quarter 2004. Prior to the sale, this property was classified in Assets/Liabilities held for sale on our Consolidated Condensed Balance Sheets, and we ceased depreciating the property's assets in September 2003. Since we continue to operate casinos in the Shreveport-Bossier City market, Harrah's Shreveport's operating results were not classified as discontinued operations. The gain from our sale of Harrah's Shreveport was not material.

OPERATING RESULTS AND DEVELOPMENT PLANS

Overall

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        Second quarter 2004 revenues increased 4.5% over second quarter 2003, driven by record second quarter revenues at our Southern Nevada properties and our South Central properties, including Louisiana Downs, where slot machines were introduced in the second quarter of 2003 and the new permanent facility opened in second quarter 2004. Income from continuing operations was 15.8% above second quarter last year due to strong performances by our Southern Nevada properties and a favorable adjustment to our gaming tax accrual for our Bluffs Run property in Iowa, partially offset by lower results in some of our markets, which were affected by competitive pressures.

        For the six months ended June 30, 2004, revenues were up 4.6% and income from continuing operations was 8.7% higher than in the first six months of 2003. The year-over-year increases were due to strong performances by our Southern Nevada properties and a favorable adjustment to our gaming tax accrual for our Bluffs Run property in Iowa, partially offset by higher gaming taxes and marketing costs in some markets.

        The executive officers of our Company review operating results, assess performance and make decisions related to the allocation of resources on a property-by-property basis. We, therefore, believe that each property is an operating segment and that it is appropriate to aggregate and present the operations of our Company as one reportable segment. In order to provide more detail in a more understandable manner than would be possible on a consolidated basis, our properties have been grouped as follows to facilitate discussion of our operating results:

West Results

        Our West properties posted record second quarter revenues and income from operations in 2004, driven by results from our Southern Nevada properties where strong cross-market play at our two Las Vegas properties, room pricing trends in Las Vegas and revenues from Las Vegas Horseshoe, which opened on April 1, 2004, helped Southern Nevada revenues increase by 23.2% over 2003 levels. Income from operations for our Southern Nevada properties was 54.6% higher than in second quarter 2003 as a result of the higher revenues and improved operating margins. Revenues in Northern Nevada were 5.2% higher than in the second quarter last year, and income from operations was 18.3% higher than second quarter 2003.

        For the first six months of 2004, revenues and income from operations from our Southern Nevada properties increased 18.2% and 50.0%, respectively, driven by the same factors that drove our second quarter results. Revenues from our Northern Nevada properties were 3.2% higher than in the first six

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months of 2003; however, income from operations was 3.7% lower than in the six-month period last year due to increased marketing costs associated with selective programs designed to increase visitation from targeted segments in the Northern Nevada market.

        Construction began in second quarter 2004 on a 60,000-square-foot expansion of the Rio Pavilion and Convention Center in Las Vegas. The approximate $39 million expansion will increase the overall size of the Rio's convention center to 160,000 square feet and is scheduled for completion in mid-2005.

East Results

        Second quarter revenues at our East properties were 5.9% below second quarter 2003 revenues and income from operations was down 17.3% below second quarter last year as Atlantic City continues to assimilate the new supply in that market.

        For the six months ended June 30, 2004, revenues were down at our East properties by 2.3% and income from operations was down 9.3% from the first six months last year. Showboat's revenues and income from operations were 0.9% and 9.2%, respectively, higher than in the first six months of 2003. Results at Showboat were aided by a new hotel tower that opened in second quarter 2003 and 450 slot machines that were added in third quarter 2003. Harrah's Atlantic City's revenues and income from operations were 4.7% and 20.0%, respectively, below the first six months of 2003. Harrah's Atlantic City has been more directly affected than Showboat by the first new competitor in the Atlantic City market in more than a decade, but marketing programs to address the aggressive customer acquisition campaign of the new competitor are having some success.

North Central Results

        Chicagoland/Illinois—Combined second quarter 2004 revenues at Harrah's Joliet, Harrah's East Chicago and Harrah's Metropolis fell 2.1% from last year's second quarter revenues. Combined income from operations was 9.3% higher than in second quarter last year when gaming tax accrual adjustments due to passage of legislation in these states impacted results.

        Combined revenues for the first six months of 2004 were 2.2% below combined revenues for the first six months of 2003 and combined income from operations was 16.4% below the first six months of last year as a result of increases in state gaming taxes, admission taxes, increased marketing costs, and a retroactive real estate tax assessment for our East Chicago property.

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        A $27 million renovation project designed to enhance the amenities and update the facilities at Harrah's East Chicago will be completed in third quarter 2004. As of June 30, 2004, $18.4 million had been spent on this project.

        Construction of a 258-room hotel and multi-purpose event center is planned for our casino in Metropolis, Illinois. Construction is expected to begin in fourth quarter 2004 and to be completed in the first quarter 2006 at a cost of approximately $60 million.

        Missouri—Second quarter revenues at our Missouri properties were 0.9% higher than in second quarter last year, as increases at our St. Louis property were offset by declines at our North Kansas City property. Second quarter income from operations was 21.1% below second quarter 2003, driven by declines at North Kansas City.

        For the six months ended June 30, 2004, revenues at our Missouri properties were level with, and income from operations was 17.8% below last year's first six months. Gains at our St. Louis property, driven by our Total Rewards program and improvements made to the slot floor and food and beverage facilities, were more than offset by declines at our North Kansas City property where recent capital improvements by two competitors impacted results.

        Construction is underway on an $80 million expansion of Harrah's St. Louis, which will include a second hotel tower, redesign of the hotel lobby, new valet parking areas, the addition of parking garage express ramps and the expansion of two restaurants and other amenities. A new restaurant and nightclub opened in April 2004, and the hotel tower and remaining amenities are due to open in third quarter 2004. As of June 30, 2004, $66.6 million had been spent on this project.

        A $107 million expansion and property enhancement project at Harrah's North Kansas City broke ground in second quarter 2004. This project, which will add a 206-room hotel addition, new restaurants and other amenities, is scheduled for completion by the end of 2005. As of June 30, 2004, $7.5 million had been spent on this project.

        Iowa—Revenues for second quarter 2004 from our Iowa properties were 6.8% higher than second quarter 2003 revenues, and income from operations more than tripled second quarter 2003 due, primarily, to adjustments to gaming tax accruals in response to Iowa legislation passed in April 2004.

        For the six months ended June 30, 2004, revenues were 5.1% higher than in the first six months last year. In response to the April 2004 Iowa legislation, an adjustment of the 2004 gaming tax accrual following the resolution of the gaming tax issues discussed below caused income from operations for the six months ended June 30, 2004, to be more than double the first six months of 2003.

        Casinos at racetracks in Iowa historically had been taxed at a higher rate (36% in 2004) than the casinos on riverboats operating in Iowa (20%). The Iowa Supreme Court issued an opinion in June 2002 that this disparity was unconstitutional. The State appealed the Iowa Supreme Court's decision to the United States Supreme Court and in June 2003, the United States Supreme Court overturned the ruling and remanded the case back to the Iowa Supreme Court for further consideration. In February 2004, the Iowa Supreme Court ruled that the disparity violates the Iowa Constitution, a ruling the State appealed to the United States Supreme Court in April 2004. The United States Supreme Court has declined to hear this case.

        In April 2004, the Iowa legislature passed legislation to effectively settle the issues regarding the gaming tax rates. The new legislation provides for a tax rate of 22% for both riverboats and racetracks effective July 1, 2004. However, racetracks have the option to conduct table games and video games that simulate table games by paying a $10 million fee to the State and a gaming tax rate of 24%. 20% of the $10 million fee could be used to offset wagering taxes for each of the five fiscal years beginning July 1, 2008. We are currently evaluating the timing of when we will add table games to the Bluffs Run facility. Also, for the period July 1, 2002, to June 30, 2004, racetracks had to make a lump sum

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non-refundable payment to the State to enable the State to receive a total amount of taxes for that period based on a 24% tax rate. Bluffs Run paid approximately $8.9 million for this lump sum payment. During that period we had paid taxes at the 20% rate for Bluffs Run, following the State's instructions. However, given the uncertainty of this situation, we continued to accrue gaming taxes at the higher rate (between 32% and 36%) and accrued approximately $20.3 million, after consideration of the lump sum payment, in state gaming taxes that we did not have to pay. Accruals related to Iowa gaming taxes were adjusted in second quarter 2004, with $3.7 million, representing the adjustment for first quarter 2004, credited to the property's income from operations and $16.6 million, representing the adjustment for prior periods, credited to write-downs, reserves and recoveries.

        In accordance with previous agreements and as additional purchase price consideration, a payment of approximately $73 million, based on a multiple of the calculated annual savings, was made to Iowa West Racing Association ("Iowa West"), the entity holding the pari-mutuel and gaming license for the Bluffs Run Casino and with whom we have a management agreement to operate that property. The additional payment to Iowa West increased goodwill attributed to the Bluffs Run property. The calculation of the payment made to Iowa West assumed we will operate table games at Bluffs Run and pay a 24% tax rate; however, Iowa West has taken the position that the purchase price adjustment should be based on a tax rate of 22%, which would result in an additional $12 million payment to Iowa West. We anticipate that the issue will be resolved by arbitration.

South Central Results

        Combined second quarter 2004 revenues from our South Central properties were 3.8% higher than in second quarter 2003, driven by higher revenues at Harrah's New Orleans and the opening in second quarter 2004 of Louisiana Downs' new permanent facility with approximately 1,400 slot machines. Partially offsetting the higher revenues in second quarter 2004 was the loss of revenues from Harrah's Shreveport subsequent to the sale of that property in May 2004. Income from operations was 2.2% higher than last year's second quarter due to improved results at Harrah's New Orleans and despite the sale of Harrah's Shreveport in May 2004.

        Revenues and income from operations for the first six months of 2004 were higher by 7.9% and 2.3%, respectively, than in the first six months last year due to increased revenues from Louisiana Downs, Harrah's New Orleans and Harrah's Lake Charles and partially offset by the loss of revenues in 2004 due to the sale of Harrah's Shreveport. The permanent facility at Louisiana Downs opened in second quarter 2004 with 1,400 slot machines. 900 slot machines had been in service since second quarter 2003 at Louisiana Downs.

        Construction began in second quarter 2004 on a 26-story, 450-room, $142 million hotel tower at Harrah's New Orleans. The property does not currently operate a hotel, although it does utilize rooms at third-party hotels. The hotel is expected to open in mid-2006.

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Managed Casinos and Other

        Our managed and other results were lower than in second quarter and the first six months of 2003 due to lower fee structures at some of our managed casinos where management agreements have been extended.

        Construction began in January 2004 on a $60 million expansion of Harrah's Cherokee Smoky Mountains Casino in Cherokee, North Carolina, that will add a 15-story hotel tower with approximately 320 rooms, which is scheduled for completion in second quarter 2005. In April 2004, the National Indian Gaming Commission approved an extension of our agreement for the management of the Cherokee property until November 2011.

        A $165 million expansion of the Harrah's Rincon property began in December 2003. The expansion will add a 21-story hotel tower with approximately 490 rooms, a spa, a new hotel lobby, additional meeting space, additional casino space and a 1,200-space parking structure. The expansion is scheduled for completion by the end of 2004.

        Construction is underway on a $55 million expansion project at Harrah's Prairie Band. The expansion will include the addition of approximately 200 hotel rooms, a 12,000-square-foot convention center and a new restaurant. The project is expected to be completed in late 2004.

        Construction costs of Indian casinos and hotels have been funded by the tribes or by the tribes' debt, some of which we guarantee. See DEBT AND LIQUIDITY for further discussion of our guarantees of debt related to Indian projects.

Other Factors Affecting Net Income