UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

PARK PLACE ENTERTAINMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

(702) 699-5000

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  ý      No  o

 

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

 

 

 

PARK PLACE ENTERTAINMENT CORPORATION

INDEX

 

PART I.	FINANCIAL INFORMATION	Page
Item 1.	Unaudited Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets June 30, 2003 and December 31, 2002	3
	Condensed Consolidated Statements of Operations Three and six months ended June 30, 2003 and 2002	4
	Condensed Consolidated Statements of Cash Flows Six months ended June 30, 2003 and 2002	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II.	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 6.	Exhibits and Reports on Form 8-K	22
Signatures		23

 

2

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions, except par value)

(unaudited)

 

		June 30, 2003			December 31, 2002
Assets
Cash and equivalents		$	286		$	351
Accounts receivable, net		173			185
Inventory, prepaids, and other		136			138
Income taxes receivable		—			3
Deferred income taxes		99			100
Total current assets		694			777
Investments		163			143
Property and equipment, net		7,588			7,649
Goodwill		834			834
Other assets		283			271
Total assets		$	9,562		$	9,674
Liabilities and stockholders’ equity
Accounts payable and accrued expenses		$	605		$	690
Current maturities of long-term debt		1			325
Total current liabilities		606			1,015
Long-term debt, net of current maturities		4,739			4,585
Deferred income taxes, net		1,042			1,023
Other liabilities		113			94
Total liabilities		6,500			6,717
Commitments and contingencies
Stockholders’ equity
Common stock, $0.01 par value, 400.0 million shares authorized, 324.4 million and 323.7 million shares issued at June 30, 2003 and December 31, 2002, respectively		3			3
Additional paid-in capital		3,807			3,801
Accumulated deficit		(487		)	(569		)
Accumulated other comprehensive income (loss)		1			(16		)
Common stock in treasury at cost, 23.1 million shares at June 30, 2003 and December 31, 2002		(262		)	(262		)
Total stockholders’ equity		3,062			2,957
Total liabilities and stockholders’ equity		$	9,562		$	9,674

 

See notes to condensed consolidated financial statements

 

3

 

PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(unaudited)

 

		Three months ended June 30,						Six months ended June 30,
		2003			2002			2003			2002
Revenues
Casino		$	838		$	850		$	1,643		$	1,669
Rooms		149			148			297			284
Food and beverage		126			120			245			234
Other revenue		74			74			145			148
		1,187			1,192			2,330			2,335
Expenses
Casino		436			430			862			873
Rooms		49			46			96			89
Food and beverage		115			105			223			203
Other expense		296			290			578			568
Depreciation and amortization		118			119			233			236
Pre-opening expense		—			—			1			—
Corporate expense		17			17			34			34
		1,031			1,007			2,027			2,003
Equity in earnings of unconsolidated affiliates		2			5			11			17
Operating income		158			190			314			349
Interest income		—			1			2			2
Interest expense, net of interest capitalized		(87		)	(88		)	(170		)	(176		)
Interest expense, net from unconsolidated affiliates		(1		)	(3		)	(3		)	(5		)
Investment gain		—			44			—			44
Income before income taxes, minority interest and cumulative effect of accounting change		70			144			143			214
Provision for income taxes		29			47			60			75
Minority interest, net		—			1			1			3
Income before cumulative effect of accounting change		41			96			82			136
Cumulative effect of accounting change		—			—			—			(979		)
Net income (loss)		$	41		$	96		$	82		$	(843	)
Basic earnings (loss) per share
Income before cumulative effect of accounting change		$	0.14		$	0.32		$	0.27		$	0.45
Cumulative effect of accounting change		—			—			—			(3.24		)
Net income (loss)		$	0.14		$	0.32		$	0.27		$	(2.79	)
Diluted earnings (loss) per share
Income before cumulative effect of accounting change		$	0.14		$	0.31		$	0.27		$	0.45
Cumulative effect of accounting change		—			—			—			(3.21		)
Net income (loss)		$	0.14		$	0.31		$	0.27		$	(2.76	)

 

See notes to condensed consolidated financial statements

 

4

 

PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

 

		Six months ended June 30,
		2003			2002
Operating activities
Net income (loss)		$	82		$	(843	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		233			236
Investment gain		—			(44		)
Cumulative effect of accounting change		—			979
Change in working capital components:
Accounts receivable, net		12			30
Inventory, prepaids, and other		5			(23		)
Accounts payable and accrued expenses		(86		)	(21		)
Income taxes payable/receivable		3			50
Change in deferred income taxes		20			13
Other		6			(9		)
Net cash provided by operating activities		275			368
Investing activities
Capital expenditures		(159		)	(162		)
Proceeds from sale of investment		—			120
Change in investments		(25		)	—
Other		10			(5		)
Net cash used in investing activities		(174		)	(47		)
Financing activities
Change in Credit Facilities		(470		)	(424		)
Payments on notes		—			(300		)
Proceeds from issuance of notes		300			368
Purchases of treasury stock		—			(3		)
Proceeds from exercise of stock options		6			8
Other		(2		)	—
Net cash used in financing activities		(166		)	(351		)
Decrease in cash and equivalents		(65		)	(30		)
Cash and equivalents at beginning of period		351			328
Cash and equivalents at end of period		$	286		$	298
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest, net of amounts capitalized		$	163		$	171
Income taxes, net of refunds		$	33		$	13

 

See notes to condensed consolidated financial statements

 

5

 

PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1.  The Company

 

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

 

Note 2.  Basis of Presentation

 

The condensed consolidated financial statements include the accounts of the Company, its subsidiaries, and investments in unconsolidated affiliates, which are 50 percent or less owned, that are accounted for under the equity method.  The Company exercises significant influence over those investments accounted for under the equity method due to ownership percentages, board representation, and management agreements. All material intercompany accounts and transactions are eliminated.

 

The condensed consolidated financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of results for the interim periods have been made. The results for the three and six month periods ended June 30, 2003 are not necessarily indicative of results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

 

Reclassifications

 

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

 

6

 

Recently Issued Accounting Pronouncement

 

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”  SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  The Company has determined that SFAS No. 150 will not have a material impact on its financial position and results of operations.

 

Stock-Based Compensation

 

The Company has Stock Incentive Plans and applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans using the intrinsic value method. Accordingly, no compensation expense is reflected in net income for stock options, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.  The compensation expense associated with the Supplemental Retention Plan, which is described in the Company’s Annual Report of Form 10-K, was $1 million for the three months and six months ended June 30, 2003 and 2002, respectively. Had compensation cost for the Company’s Stock Incentive Plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123 “Accounting for Stock-Based Compensation,” the Company’s net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts as follows (in millions, except per share amounts):

 

		Three months ended June 30,						Six months ended June 30,
		2003			2002			2003			2002
Net income (loss), as reported		$	41		$	96		$	82		$	(843	)
Add: Total stock-based employee compensation expense included in reported net income, net of related taxes		1			1			1			1
Deduct: Total stock-based employee compensation expense determined under the fair value method, net of related taxes		(4		)	(5		)	(7		)	(8		)
Pro forma net income (loss)		$	38		$	92		$	76		$	(850	)
Earnings (loss) per share:
Basic, as reported		$	0.14		$	0.32		$	0.27		$	(2.79	)
Basic, pro forma		$	0.13		$	0.30		$	0.25		$	(2.81	)
Diluted, as reported		$	0.14		$	0.31		$	0.27		$	(2.76	)
Diluted, pro forma		$	0.13		$	0.30		$	0.25		$	(2.79	)

 

Note 3.  Goodwill and Other Intangible Assets

 

Under SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment.  Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives.

 

7

 

In accordance with the initial adoption of SFAS No. 142, each property with assigned goodwill was valued as an operating entity.  The Company engaged an independent company to assist in the valuation of properties with a significant amount of assigned goodwill.  The fair value of the operating entities was determined using a combination of a discounted cash flow model, a guideline company method using valuation multiples and similar transactions method.  Based on this analysis and the tests noted above, the Company completed its implementation analysis of goodwill arising from prior acquisitions and recorded an impairment charge of $979 million as a cumulative effect of accounting change in the first quarter of 2002.

 

Note 4.  Earnings (Loss) Per Share

 

Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding for the period.  The basic weighted-average number of common shares outstanding for the three months ended June 30, 2003 and 2002 was 301 million and 302 million, respectively, and 301 million and 302 million for the six months ended June 30, 2003 and 2002, respectively.  Diluted EPS reflects the effect of assumed stock option exercises.  The dilutive effect of the assumed exercise of stock options increased the weighted-average number of common shares by 1 million and 4 million for the three months ended June 30, 2003 and 2002, respectively, and 1 million and 3 million for the six months ended June 30, 2003 and 2002, respectively. For the three months and six months ended June 30, 2003, 20 million shares and 23 million shares would have been included in the calculation of diluted EPS, however the exercise price of those options exceeded the average market price.  For the three months and six months ended June 30, 2002, 10 million shares and 12 million shares were excluded from the calculation of diluted EPS.

 

Note 5.  Comprehensive Income (Loss)

 

Comprehensive income (loss) is the total of net income (loss) and all other non-stockholder changes in equity.  Comprehensive income (loss) for the three months and six months ended June 30, 2003 and 2002 is as follows (in millions):

 

		Three months ended June 30,						Six months ended June 30,
		2003			2002			2003			2002
Net income (loss)		$	41		$	96		$	82		$	(843	)
Currency translation adjustment		9			22			17			22
Comprehensive income (loss)		$	50		$	118		$	99		$	(821	)

 

8

 

Note 6.  Long-Term Debt

 

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

 

		June 30, 2003			December 31, 2002
Senior and senior subordinated notes, net of unamortized discount of $4 million and $5 million for 2003 and 2002, respectively		$	3,771		$	3,470
Credit facilities		965			1,435
Other		4			5
		4,740			4,910
Less current maturities		(1		)	(325		)
Net long-term debt		$	4,739		$	4,585

 

As of June 30, 2003, the Company had two principal credit facilities, collectively known as the “Credit Facilities.”  The first was a 364-day revolving facility expiring in August 2003 with total availability of $700 million.  The second facility was a $2.0 billion five-year revolving facility, maturing in December 2003, with a $1.4 billion two-year extension upon expiration or voluntary termination of the existing five-year revolving facility.  As of June 30, 2003, $965 million was outstanding under the five-year revolving facility and no amounts were outstanding under the 364-day revolving facility.

 

The Credit Facilities contained financial covenants including a maximum leverage ratio (total debt to ebitda, as defined in the Credit Facilities) of 4.75 to 1.00 and a minimum interest coverage ratio (ebitda, as defined in the Credit Facilities, to interest expense) of 2.75 to 1.00 as of June 30, 2003. The Company is required to compute its actual leverage and interest coverage ratios on a rolling twelve-month basis as of the end of each calendar quarter. If the Company is not in compliance with the required covenant ratios, an event of default would occur, which if not cured could cause the entire outstanding borrowings under the Credit Facilities to become immediately due and payable as well as trigger the cross default provisions of other debt issues. As of June 30, 2003, the Company was in compliance with the applicable covenants.

 

In August 2003, the Company amended the Credit Facilities.  After amending the Credit Facilities and refinancing the expiring 364-day revolving facility, the Company has the following credit facilities in place: (1) a $493 million 364-day revolving credit facility and (2) a $2.318 billion five-year revolving facility expiring in December 2003 with a $1.741 billion two-year extension upon expiration or termination of the existing five-year revolving facility.  Approximately $700 million of the $1.741 billion two-year revolving facility was converted from revolving capacity to term loan capacity.  If prepaid, the availability of the term loan is permanently reduced.    The Company also amended the maximum leverage ratio to 5.25 to 1.00 for the quarterly testing periods ended September 30, 2003 through June 30, 2004, 5.00 to 1.00 for the quarterly testing periods ending September 30, 2004 through March 31, 2005, 4.75 to 1.00 for the quarterly testing period ending June 30, 2005, and 4.50 to 1.00 thereafter.  The interest coverage ratio covenant was not amended.

 

In April 2003, the Company pre-funded its retirement of the $300 million 7.95 percent senior notes which were redeemed in August 2003 (the “7.95 percent Notes”) with proceeds from the issuance of $300 million 7.0 percent senior notes due April 2013.  Because the Company had both the intent and the ability to refinance the 7.95 percent Notes, it has classified the 7.95 percent Notes as long-term as of June 30, 2003 in the accompanying condensed consolidated balance sheets.

 

9

 

The Company issued the $300 million of 7.0 percent senior notes due 2013 through a private placement offering to institutional investors in April 2003.  These notes were subsequently exchanged for notes registered under the Securities Act of 1933, as amended.  The notes are redeemable at any time prior to their maturity at the redemption prices described in the indenture governing such notes.  The notes are unsecured obligations, rank equal with the Company’s other senior indebtedness and are senior to all the Company’s junior indebtedness.  Proceeds from this offering were initially used to reduce borrowings under the Credit Facilities.

 

Note 7.  Commitments and Contingencies

 

Litigation

 

The Company and its subsidiaries are involved in various legal proceedings relating to its businesses. The Company believes that all the actions brought against it or its subsidiaries are without merit and will continue to vigorously defend against them. While any proceeding or litigation has an element of uncertainty, the Company believes that the final outcome of these matters is not likely to have a material adverse effect upon its results of operations or financial position.

 

In the matters captioned Dalton, et al. v. Pataki and Karr v. Pataki, et al, which was previously detailed in the Company’s Form 10-K for the year ended December 31, 2002, on July 17, 2003, the State of New York Supreme Court upheld the constitutionality of the legislation that, among other matters, authorized the Governor of the State of New York to execute tribal-state gaming compacts.

 

For certain of the Company’s legal proceedings arising out of the ordinary course of its business, verdicts have been returned against the Company. The Company believes that it has a valid basis to appeal the verdicts and does not believe that the ultimate financial impact of these matters is currently both probable and estimable, and accordingly, no accruals for these matters have been recorded in the financial statements as of June 30, 2003.  The Company may at any time consider it advantageous to negotiate a settlement of any of these matters, and will record any financial impact of such settlements when the amount is probable and estimable.

 

Baluma Holdings, S.A.

 

Over the past several years, the Company has provided capital (in the form of loans) to Baluma Holdings, S.A. (“Holdings”), the ultimate parent of Baluma, S.A. (“Baluma,” the entity that owns the Conrad Punta del Este (the “Resort”), in Punta del Este, Uruguay). Two promissory notes (the “Baluma Loans”), aggregating $80 million in principal, matured on July 31, 2002. The principal, together with certain accrued and unpaid interest, was not repaid. The Baluma Loans are secured by a first priority lien on all the assets comprising the Resort and on the stock of Baluma.  Baluma is heavily indebted, and a restructuring of its debts is needed.  The Company has not recorded any impairment losses against its investments in Baluma and Holdings. Only after a restructuring is completed will the Company be able to compare the value of its reorganized investments to their historical cost. Although the Company enjoys a very senior position as creditor, it is nevertheless possible that the Company will have to recognize an impairment loss upon reorganization. The Company intends to continue to operate the Resort pursuant to the management agreement.

 

10

 

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

 

RESULTS OF OPERATIONS

 

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

 

Western Region		Eastern Region		Mid-South Region		International Region
Caesars Palace		Bally’s Atlantic City		Grand Casino Biloxi		Casino Nova Scotia Halifax
Paris Las Vegas		Caesars Atlantic City		Grand Casino Gulfport		Casino Nova Scotia Sydney
Bally’s Las Vegas		Atlantic City Hilton		Grand Casino Tunica		Conrad Punta del Este (2)
Flamingo Las Vegas		Dover Downs (1)		Sheraton Casino Hotel		Casino Windsor (3)
Las Vegas Hilton				Bally’s Casino Tunica		Caesars Gauteng (2)
Caesars Tahoe				Caesars Indiana		Conrad Jupiters (1)
Reno Hilton				Bally’s New Orleans		Conrad Treasury (1)
Flamingo Laughlin						Caesars Palace at Sea

 

(1)                      These are properties from which our sole source of income is management fees.

 

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

 

(3)                      This is a property in which we own 50 percent of a company that manages the casino hotel complex and our investment in that management company is accounted for under the equity method.

 

Comparison of Three and Six Months Ended June 30, 2003 and 2002

 

A summary of our consolidated net revenues and earnings for the three and six months ended June 30, 2003 and 2002 is as follows (in millions, except per share amounts):

 

		Three months ended June 30,						Six months ended June 30,
		2003			2002			2003			2002
Net revenues		$	1,187		$	1,192		$	2,330		$	2,335
Operating income		158			190			314			349
Income before cumulative effect of accounting change		41			96			82			136
Cumulative effect of accounting change – goodwill		—			—			—			(979		)
Net income (loss)		41			96			82			(843		)
Earnings per share before cumulative effect of accounting change
Basic		0.14			0.32			0.27			0.45
Diluted		0.14			0.31			0.27			0.45
Earnings (loss) per share
Basic		0.14			0.32			0.27			(2.79		)
Diluted		0.14			0.31			0.27			(2.76		)

 

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

 

11

 

Casino revenues are derived primarily from patrons wagering on slot machines, table games and other gaming activities.  Table games generally include Blackjack (or Twenty One), Craps, Baccarat and Roulette.  Other gaming activities include Keno, Poker and Race and Sports.  Casino revenue is defined as the win from gaming activities, computed as the difference between gaming wins and losses, not the total amounts wagered. “Table game volume,” “table game drop” (terms which are used interchangeably), and “slot handle” are casino industry specific terms that are used to identify the amount wagered by patrons on a casino table game or slot machine.  “Table game hold” and “slot hold” represent the percentage of the total amount wagered by patrons that the casino has won.  Hold is derived by dividing the amount won by the casino by the amount wagered by patrons.  Casino revenues are recognized at the end of each gaming day.

 

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

 

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

 

We recorded net income of $41 million and diluted earnings per share of $0.14 for the three months ended June 30, 2003, compared with net income of $96 million and diluted earnings per share of $0.31 for the three months ended June 30, 2002.  The prior period results were positively impacted by an investment gain of $44 million ($39 million, net of tax) on the sale of our equity interest in Jupiters Limited which is the parent company of Conrad Jupiters Gold Coast and Conrad International Treasury Casino Brisbane.

 

We recorded net income of $82 million and diluted earnings per share of $0.27 for the six months ended June 30, 2003 compared to income before a cumulative effect of accounting change of $136 million and diluted earnings per share of $0.45 for the six months ended June 30, 2002.  In connection with the implementation of SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets,” on January 1, 2002, we no longer amortize goodwill and we recognized an impairment charge of $979 million as a cumulative effect of an accounting change in the first quarter of 2002.  Including this cumulative effect of accounting change, we reported a net loss of $843 million or a diluted loss per share of $2.76 for the six months ended June 30, 2002.

 

Casino

 

Consolidated casino revenues decreased $12 million to $838 million for the three months ended June 30, 2003, compared to $850 million recorded for the three months ended June 30, 2002. Casino revenues in the Eastern Region increased $9 million offset by a decrease in the Western Region of $23 million for the quarter. The improvement in the Eastern Region was a result of increased table hold and slot volumes. The decrease in the Western Region was largely due to lower table hold. In the Mid-South Region, casino revenues increased $2 million compared to the prior year’s quarter.  The improvement in the Mid-South is primarily due to increased slot volumes at Caesars Indiana.

 

Our consolidated casino operating margin was 48 percent for the three months ended June 30, 2003 compared to 49 percent for the three months ended June 30, 2002.  Casino revenues for the quarter

 

12

 

decreased 1.4 percent while expenses generally remained flat, with the exception of Caesars Indiana where gaming taxes increased $7 million due to the change in tax rates that became effective in August 2002.

 

Consolidated casino revenues for the six months ended June 30, 2003 were $1.643 billion compared to $1.669 billion for the six months ended June 30, 2002.  The decrease consisted of a $20 million decline in the Western Region and $6 million decline in the Mid-South Region.  The Eastern Region was flat as compared to the same period last year. The decline in the Western Region was primarily due to decreased table game hold for the six months ended June 30, 2003 compared to same period in the prior year. In the Mid-South Region, casino revenues decreased due to lower table game volumes which were slightly offset by an increase in slot volumes at Caesars Indiana.

 

Our consolidated casino operating margin was 48 percent for the each of the six months ended June 30, 2003 and 2002.  Casino revenues were down 1.6 percent while there was a reduction in expenses due to cost containment programs, which was partially offset by increased Indiana taxes.

 

Rooms

 

 

Consolidated room revenues increased slightly to $149 million for the three months ended June 30, 2003 compared to $148 million recorded for the three months ended June 30, 2002.  The most significant improvements came from increased average daily rates at the Flamingo Las Vegas as well as increased occupancy and average daily rates at Caesars Palace.

 

The consolidated room operating margin for the quarter ended June 30, 2003 was 67 percent, compared to 69 percent for the quarter ended June 30, 2002.

 

For the six months ended June 30, 2003, we recorded $297 million in consolidated room revenues, a $13 million increase from the $284 million recorded for the six months ended June 30, 2002.  The year-over-year increase is primarily attributable to a $14 million increase in the Western Region due to improved average daily room rates and occupancy percentages.  The Western Region average daily rates increased to $96 for the first six months of 2003 and the occupancy percentage was 91 percent compared to 90 percent in the prior year.  The Eastern Region decreased $2 million due to decreased room rates in the current period.

 

The consolidated room operating margin for the first six months of 2003 was 68 percent, compared to 69 percent for the same period in 2002.

 

Food and Beverage

 

Consolidated food and beverage revenues increased $6 million to $126 million for the three months ended June 30, 2003. The increase is primarily attributable to the Western Region where Caesars

 

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Palace has opened new restaurant outlets and experienced higher customer visitation.

 

The consolidated food and beverage operating margin for the quarter ended June 30, 2003 was 9 percent compared to 13 percent for the quarter ended June 30, 2002.  The decrease is largely attributable to increased salaries and benefits and new union benefits effective in 2003 at our Las Vegas properties.

 

For the six months ended June 30, 2003, consolidated food and beverage revenues increased $11 million to $245 million when compared to the prior period. This improvement is mainly attributable to our Las Vegas properties where banquet revenues increased over the prior year and new restaurants opened at Caesars Palace and Paris/Bally’s.

 

The consolidated food and beverage operating margin for the first half of 2003 was 9 percent compared to 13 percent for 2002.  The year-over-year decrease is due to the same reasons as noted above.

 

Other

 

Consolidated other revenues include retail sales, entertainment sales, telephone, management fee income and other miscellaneous income at our casino hotels.  Consolidated other revenues remained flat at $74 million for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002.  For the six month period, consolidated other revenues decreased $3 million due to a decrease in entertainment revenues.

 

Consolidated other expenses include selling, general, administrative, property operations, retail, entertainment, telephone and other miscellaneous costs at our casino hotels.  Consolidated other expenses increased $6 million for the three months ended June 30, 2003 compared to the three months ended June 30, 2002.  For the first six months of the year, consolidated other expenses increased $10 million when compared to the prior year. The increases are partially attributed to advertising and marketing at our Las Vegas properties.

 

Pre-opening Expense

 

There was no pre-opening expense in the quarters ended June 30, 2003 or 2002.  Pre-opening expense of $1 million for the six months ended June 30, 2003 was related to the opening of “A New Day…,” a show featuring Celine Dion which opened in The Colosseum at Caesars Palace in March 2003.

 

Corporate Expense

 

Corporate expense remained consistent at $17 million and $34 million for the three months and six months ended June 30, 2003 as compared to the three months and six months ended June 30, 2002.

 

Depreciation and Amortization

 

Consolidated depreciation and amortization expense decreased to $118 million for the three months ended June 30, 2003 compared to $119 million for comparable period of 2002.  Consolidated depreciation and amortization expense decreased to $233 million for the six months ended June 30, 2003 compared to $236 million for comparable period of 2002.

 

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Net Interest Expense

 

Consolidated net interest expense decreased $2 million to $88 million for the three months ended June 30, 2003 compared to the three months ended June 30, 2002. For the six months ended June 30, 2003, consolidated net interest expense decreased $8 million when compared to the prior year.  The decrease in net interest expense was attributable to lower debt balances and lower average interest rates on our borrowings. Capitalized interest was $1 million and $2 million for the three months ended June 30, 2003 and 2002, respectively.  For the six months ended June 30, 2003 and 2002, capitalized interest was $3 million and $4 million, respectively.

 

Equity in Earnings of Unconsolidated Affiliates

 

Equity in earnings of unconsolidated affiliates was $2 million and $5 million for the second quarter of 2003 and 2002, respectively.  For the first six months of 2003 and 2002, equity in earnings of unconsolidated affiliates was $11 million and $17 million, respectively.  The decrease in equity in earnings of unconsolidated affiliates for the quarter and six months ended June 30, 2003, primarily relates to the sale of our equity interest in Jupiters Limited in April 2002.  Prior to the sale of our equity interest in Jupiters Limited, we recognized equity in earnings of Jupiters Limited.

 

Income Taxes

 

The effective income tax rates for the three months ended June 30, 2003 and 2002 were 41.4 percent and 32.6 percent, respectively.  For the six months ended June 30, 2003 and 2002, the effective income tax rates were 42.0 percent and 35.0 percent, respectively.  The increase in our effective income tax rate is primarily due to the tax impact of the gain on the sale of our equity interest in Jupiters Limited and increases in permanent book-tax differences and state income taxes.  Excluding the sale of our equity interest in Jupiters Limited our effective income tax rates for the three and six months ended June 30, 2002 were 42.0 percent and 41.2 percent, respectively.  Our effective income tax rate is determined by the level and composition of pretax income subject to varying foreign, state, and local taxes.

 

Other Developments

 

We believe that our operating results reflect the impact of weakened consumer spending and, to a lesser extent, the military operations in Iraq which began in the first quarter of 2003.  The Western Region was impacted by decreased travel in April and by low table hold throughout the second quarter; however, the Eastern and Mid-South Regions continued to show the strength of their markets.  We continue to closely examine our cost structure though our “Work Smart” cost reduction program, which in the first half of 2003 achieved $30 million in operational savings, which were offset by increased expenses in other areas such as gaming taxes and insurance costs.  We are hoping for economic improvement, but we are not expecting a recovery in consumer sentiment or discretionary spending this year.  Substantial economic issues still remain related to the economy, consumer confidence, and continued competition from the expansion of Indian gaming in California and the July 2003 opening of the first new resort in Atlantic City since 1990.

 

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New Jersey Taxes

 

The State of New Jersey recently enacted new tax legislation, effective July 2003, that includes new taxes on casino net income, complimentaries, parking and rooms.  We estimate that the full-year impact of the newly enacted taxes is approximately $23 million (before any federal tax benefit).

 

Nevada Taxes

 

The State of Nevada recently enacted legislation, effective August 2003, that will increase taxes on the gaming industry. We estimate that the full-year impact of the new tax package is approximately $12 million (before any federal tax benefit).

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

 

As of June 30, 2003, we had cash and cash equivalents of $286 million, which is primarily cash in our casinos used to fund our daily operations.  In addition, at June 30, 2003, approximately $1.7 billion was undrawn under our credit facilities.  We expect to finance our operations and capital expenditures through cash flows from current operations, existing cash balances, borrowings under our credit facilities, and capital market transactions.

 

Investing Activities

 

For the six months ended June 30, 2003, net cash used in investing activities was $174 million, consisting principally of $159 million of capital expenditures and $25 million of additional investments which include the Las Vegas Monorail project and the Margaritaville Café joint venture. Our capital expenditures include maintenance capital expenditures which are those long-lived assets required to maintain our properties in good operating condition.  Such capital items include new gaming equipment, room and restaurant refurbishments, computer hardware, furniture and office equipment, and other similar items.  Additionally, our capital expenditures include expansion projects funded during the period, which include a new restaurant and nightclub at Paris/Bally’s, and additional attractions and amenities at Caesars Palace as we continue to enhance the gaming and entertainment experience for our guests.

 

We discuss our capital expenditure program in terms of a capital expenditure “backlog,” which is defined as all capital expenditures approved by our Board of Directors less amounts that have actually been spent on those projects.  At December 31, 2002, the capital expenditure backlog was $623 million.  Of this amount, approximately $60 million associated with the Saint Regis Mohawk Casino project in Sullivan County, New York will not be spent until there is a favorable resolution to the litigation which challenges the constitutionality of New York State’s casino legislation.  As of June 30, 2003, our remaining backlog of capital expenditures was $465 million.  We currently anticipate total capital expenditures for 2003 to be $477 million, largely on maintenance projects throughout the Company and projects underway at Caesars Palace.

 

Financing Activities

 

During the six months ended June 30, 2003, we reduced our aggregate debt by $170 million.

 

At June 30, 2003, we had two principal credit facilities, collectively known as the “Credit Facilities.” The first was a 364-day revolving facility expiring in August 2003 with total availability of

 

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$700 million.  The second facility was a $2.0 billion five-year revolving facility, maturing in December 2003, with a $1.4 billion two-year extension upon expiration or voluntary termination of the existing five-year revolving facility. As of June 30, 2003, we had $965 million drawn under the five-year revolving facility and no amounts outstanding under the 364-day revolving facility.

 

The Credit Facilities contained financial covenants including a maximum leverage ratio (total debt to ebitda, as defined in the Credit Facilities) of 4.75 to 1.00 and a minimum interest coverage ratio (ebitda, as defined in the Credit Facilities, to interest expense) of 2.75 to 1.00 as of June 30, 2003. We are required to compute our actual leverage and interest coverage ratios on a rolling twelve-month basis as of the end of each calendar quarter. If we are not in compliance with the required covenant ratios, an event of default would occur, which if not cured could cause the entire outstanding borrowings under the Credit Facilities to become immediately due and payable as well as trigger the cross default provisions of other debt issues.  As of June 30, 2003, we were in compliance with the applicable covenants.

 

In August 2003, we amended our Credit Facilities.  After amending the Credit Facilities and refinancing the expiring 364-day revolving facility, we have the following credit facilities in place: (1) a $493 million 364-day revolving credit facility and (2) a $2.318 billion five-year revolving facility expiring in December 2003 with a $1.741 billion two-year extension upon expiration or termination of the existing five-year revolving facility.  Approximately $700 million of the $1.741 billion two-year revolving facility was converted from revolving capacity to term loan capacity.  If prepaid, the availability of the term loan is permanently reduced.  We also amended the maximum leverage ratio to 5.25 to 1.00 for the quarterly testing periods ending September 30, 2003 through June 30, 2004, 5.00 to 1.00 for the quarterly testing periods ending September 30, 2004 through March 31, 2005, 4.75 to 1.00 for the quarterly testing period ending June 30, 2005, and 4.50 to 1.00 thereafter.  The interest coverage ratio covenant was not amended.

 

Borrowings under the Credit Facilities bear interest at a floating rate and may be obtained, at our option, as LIBOR advances for varying periods, or as base rate advances, each adjusted for an applicable margin (as further described in the Credit Facilities).  We have historically borrowed using LIBOR advances and expect to continue doing so for the foreseeable future.  We pay a margin over LIBOR which is a function of both our leverage ratio and our credit rating; this margin is adjusted quarterly.  At June 30, 2003, our effective all-in borrowing cost of LIBOR advances under the five-year revolving facility was LIBOR plus 127.5 basis points.  In August 2003, Standard & Poor’s announced that it was reviewing Park Place’s credit rating.  Should our Standard & Poor’s credit rating be lowered, our all-in borrowing cost under the Credit Facilities would increase to LIBOR plus 152.5 basis points; however, there would be no impact on the borrowing costs of our other indebtedness.

 

In April 2003, we pre-funded the retirement of our $300 million 7.95 percent senior notes which were redeemed in August 2003 (the “7.95 percent Notes”) with proceeds from the issuance of $300 million 7.0 percent senior notes due April 2013.  Because we had both the intent and the ability to refinance the 7.95 percent Notes, the 7.95 percent Notes were classified as long-term as of June 30, 2003 in the accompanying condensed consolidated balance sheets.

 

We issued the $300 million of 7.0 percent senior notes due 2013 through a private placement offering to institutional investors in April 2003.  These notes were subsequently exchanged for notes registered under the Securities Act of 1933, as amended.  The notes are redeemable at any time prior to their maturity at the redemption prices described in the indenture governing such notes.  The notes are unsecured obligations, rank equal with our other senior indebtedness and are senior to all our junior indebtedness.  Proceeds from this offering were initially used to reduce borrowings under the Credit Facilities.

 

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SAINT REGIS MOHAWK TRIBE

 

We entered into an agreement in April 2000 with the Saint Regis Mohawk Tribe in Hogansburg, New York.  We paid $3 million for the exclusive rights to develop a Class II or Class III casino project with the Tribe in the State of New York.  In November 2001, the parties entered into a seven-year definitive management agreement for Park Place to manage a casino to be located at Kutsher’s Country Club in Thompson, New York in return for a management fee equal to 30 percent of ebitda, as defined in the agreement.  The management agreement is subject to the approval of the National Indian Gaming Commission (the “NIGC”).

 

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

 

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

 

On May 12, 2003, the Saint Regis Mohawk Tribe and the Governor of the State of New York signed a memorandum of understanding which outlined the terms under which the Tribe is authorized to proceed with the casino development.

 

The Company is party to numerous lawsuits regarding its involvement in the Saint Regis Mohawk project, which lawsuits seek various monetary and other damages against the Company.  Additionally, there are two lawsuits challenging the constitutionality of the legislation that, among other things, authorized the Governor of the State of New York to execute tribal state gaming compacts and approved the use of slot machines as “games of chance.”  While the Company believes that it will prevail on these various litigations, there can be no assurance that it will and, if it does not prevail, there can be no assurance that the damages assessed against the Company would be immaterial to the Company.

 

In the matters captioned Dalton, et al. v. Pataki and Karr v. Pataki, et al, which was previously detailed in the Company’s Form 10-K for the year ended December 31, 2002, on July 17, 2003, the State of New York Supreme Court upheld the constitutionality of the legislation that, among other matters, authorized the Governor of the State of New York to execute tribal-state gaming compacts.

 

These lawsuits are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and such summaries will be updated as warranted.

 

BALUMA HOLDINGS, S.A.

 

Over the past several years, we have provided capital (in the form of loans) to Baluma Holdings, S.A. (“Holdings”), the ultimate parent of Baluma, S.A. (“Baluma,” the entity that owns the Conrad Punta del Este Resort & Casino (the “Resort”), in Punta del Este, Uruguay).  Two promissory notes (the “Baluma Loans”), aggregating $80 million in principal, matured on July 31, 2002.  The principal, together with certain accrued and unpaid interest, was not repaid. The Baluma Loans are secured by a first priority lien on all of the assets comprising the Resort and on the stock of Baluma.  Baluma is heavily indebted, and a restructuring of its debts is needed.  We have not recorded any impairment losses against our investments in Baluma and Holdings.  Only after a restructuring is completed will we be able to compare the value of our reorganized investments to their historical cost.  Although we enjoy a very senior position as creditor, it is nevertheless possible that we will have to recognize an impairment loss upon reorganization. We intend to continue to operate the Resort pursuant to a management agreement.

 

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SIGNIFICANT ACCOUNTING POLICIES

 

A description of the Company’s significant accounting policies and estimates can be found in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. There have been no material changes to these policies or estimates as of June 30, 2003.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

 

In May 2003, the Financial Accounting Standards Board issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.  SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity.  The Company has determined that SFAS No. 150 will not have a material impact on its financial position and results of operations.

 

FORWARD-LOOKING STATEMENTS

 

Factors that May Affect Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

 

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

 

•                  statements relating to our business strategy; and

 

•                  our current and future development plans.

 

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

 

Although we believe that the expectations in these forward-looking statements are reasonable, any or all of the forward-looking statements in this report and in any other public statements that are made may prove to be incorrect.  This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors will be important in determining the Company’s future

 

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performance.  Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements.  In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this report or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  However, any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K should be consulted. The following discussion of risks, uncertainties and possible inaccurate assumptions relevant to the Company’s business includes factors that management believes could cause Park Place’s actual results to differ materially from expected and historical results. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

 

•                  The Company’s operations are affected by changes in local and national general economic and market conditions in the locations where those operations are conducted and where customers live.

 

•                  Our ability to meet our debt service obligations will depend on our future performance, which will be subject to many factors that are beyond our control.

 

•                  Our Nevada properties are adversely affected by disruptions in air travel.

 

•                  The Company operates in very competitive environments, particularly Las Vegas, Atlantic City and Mississippi. To the extent that hotels and/or casinos are expanded by others in markets in which the Company operates, competition will increase and the increased competition could adversely impact our future operations. Additionally, the establishment of new large-scale gaming operations on Native American lands in the states of New York and California could adversely affect the operations of the Company’s properties in Atlantic City and Nevada.

 

•                  The Company’s gaming operations are highly regulated by governmental authorities. We will also become subject to regulation in any other jurisdiction where the Company conducts gaming in the future.

 

•                  Our properties face a variety of risks which may result in loss.  Specifically, several of our properties are located in areas that are subject to adverse weather.  In addition, all of our properties could be considered at risk for terrorist or other hostile acts.

 

•                  Changes in applicable laws or regulations could have a significant effect on our operations. Our ability to comply with gaming regulatory requirements, as well as possible changes in governmental and public acceptance of gaming could materially adversely affect our business.

 

•                  The gaming industry represents a significant source of tax revenues to the state, county and local jurisdictions in which gaming is conducted. From time to time, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of the laws affecting the gaming industry. If enacted, such taxes will impact our cash flows and could impact our ability to meet debt service requirements and, depending on the level of taxation, would materially adversely affect our business.

 

•                  Claims have been brought against us in various legal proceedings, and additional legal and/or

 

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regulatory claims may arise from time to time. While we believe that the ultimate disposition of current matters will not have a material impact on our financial condition or results of operations, it is possible that our cash flows and results of operations could be affected from time to time by the resolution of one or more of these contingencies.

 

•                  While Park Place from time to time communicates with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential business information. It should not be assumed that we agree with any statement or report issued by any analysts, irrespective of the content of the statement or report.

 

ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from changes in market rates and prices, such as interest rates, foreign currency exchange rates, and commodity prices.  We are exposed to market risk in the form of changes in interest rates and the potential impact such change may have on our variable-rate debt.  We attempt to limit the impact of changes in interest rates by balancing the mix of our borrowings pursuant to our credit facilities and our long-term fixed-rate debt.  We have not invested in derivative-based financial instruments. Based on our $1.0 billion of outstanding debt under the credit facilities at June 30, 2003, a hypothetical 100 basis point (1%) change in interest rates would result in an annual interest expense change of approximately $10 million.

 

ITEM 4.                             CONTROLS AND PROCEDURES

 

(a)  Disclosure Controls and Procedures.  The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

 

(b)  Internal Control Over Financial Reporting.  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II.                OTHER INFORMATION

 

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

The Company’s Annual Meeting of Stockholders was held on May 21, 2003.  Approximately 253,384,000 of the eligible 300,808,110 shares of the Company’s common stock were represented at the meeting.  The matter voted upon and the results of the voting follow:

 

Election of Directors. The three directors nominated were elected to three-year terms.

 

		FOR		WITHHELD
Barbara Coleman		247,706,537		5,677,477
Clive S. Cummis		245,402,308		7,981,706
Eric M. Hilton		243,898,201		9,485,813

 

In addition to Ms. Coleman, Mr. Cummis and Mr. Eric Hilton, the directors continuing to serve on the board of directors after the Annual Meeting of Stockholders are Wallace R. Barr, Stephen F. Bollenbach, A. Steven Crown, Peter G. Ernaut, William Barron Hilton, and Gilbert Shelton.  Effective as of May 21, 2003, the date of the Annual Meeting of Stockholders, the Board of Directors was reduced from ten members to nine with the resignation of P.X. Kelley.  On July 22, 2003, the Board of Directors approved increasing the number of directors to ten members and elected Ralph C. Ferrara, subject to regulatory requirements, to fill the vacancy.

 

ITEM 6.          EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                                  Exhibits

 

10.1                           Amendment of Employment Agreement between Harry C. Hagerty, III and Park Place Entertainment, dated June 16, 2003.

 

10.2                           Amendment of Employment Agreement between Bernard E. DeLury, Jr. and Park Place Entertainment, dated June 5, 2003.

 

31.1                           Certification of the Chief Executive Officer of Park Place Entertainment Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2                           Certification of the Chief Financial Officer of Park Place Entertainment Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1                           Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer of Park Place Entertainment Corporation.

 

32.2                           Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer of Park Place Entertainment Corporation.

 

(b)                                  Reports on Form 8-K

 

On May 1, 2003, the Company filed a Form 8-K, dated May 1, 2003.  This Form 8-K contains our earnings release for the three months ended March 31, 2003.

 

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SIGNATURES

 

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

 

PARK PLACE ENTERTAINMENT CORPORATION

(Registrant)

 

Date: August 14, 2003

 

 

/s/ HARRY C. HAGERTY, III
Harry C. Hagerty, III
Executive Vice President, Chief Financial Officer (Principal Accounting Officer)

 

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