Exhibit 13

FINANCIAL AND STATISTICAL HIGHLIGHTS
(in millions, except common stock data and financial percentages and ratios)
(See Notes 1 and 2 to the Consolidated Financial Statements)

Compound
Growth
1999(a) 1998(b) 1997(c) 1996(d) 1995(e) Rate
--------- --------- --------- --------- --------- ---------

OPERATING DATA
Revenues $ 3,024.4 $ 2,004.0 $ 1,619.2 $ 1,586.0 $ 1,578.8 17.7%
Income from operations 481.0 287.8 213.5 236.9 209.4 23.1%
Income before income taxes and minority interest 359.6 203.3 183.6 172.1 151.6 24.1%
Income from continuing operations 219.5 121.7 107.5 98.9 78.8 29.2%
Net income(f) 208.5 102.0 99.4 98.9 78.8 27.5%

COMMON STOCK DATA
Earnings per share-diluted
Continuing operations 1.71 1.19 1.06 0.95 0.76 22.4%
Net income(f) 1.62 1.00 0.98 0.95 0.76 20.7%

FINANCIAL POSITION
Total assets 4,766.8 3,286.3 2,005.5 1,974.1 1,636.7 30.6%
Long-term debt 2,540.3 1,999.4 924.4 889.5 753.7 35.5%
Stockholders' equity 1,486.3 851.4 735.5 719.7 585.5 26.2%

(a) 1999 includes $2.2 million in pretax charges for write-downs, reserves and
recoveries (see Note 7) and $59.8 million of gains from sales of our
equity interests in nonconsolidated affiliates. 1999 also includes the
financial results of Rio Hotel & Casino, Inc., from its January 1, 1999,
date of acquisition.

(b) 1998 includes $7.5 million in pretax charges for write-downs and reserves
(see Note 7) and a $13.2 million gain on the sale of our equity interest
in a nonconsolidated restaurant subsidiary. 1998 also includes the
financial results of Showboat, Inc., from its June 1, 1998, date of
acquisition.

(c) 1997 includes $13.8 million in pretax charges for write-downs and reserves
(see Note 7) and a $37.4 million gain on the sale of our equity interest
in a New Zealand subsidiary.

(d) 1996 includes $52.2 million in pretax charges for write-downs and
reserves, primarily related to write-downs of impaired long-lived assets
and reserves for contingent liability exposure.

(e) 1995 includes $93.3 million in pretax charges for write-downs, primarily
related to our New Orleans casino development project.

(f) Amounts for the period prior to the June 30, 1995, dividend of Promus
Hotel Corporation common stock to our stockholders reflect the impact of
the financial position and results of operations for the discontinued
hotel business in that period.

CASH FLOWS
Provided by operating activities 514.4 300.4 255.1 285.7 213.7 24.6%
EBITDA(g) 756.2 468.0 374.7 335.3 305.1 25.5%
Adjusted EBITDA(g) 718.3 467.5 377.6 408.0 387.1 16.7%
Capital expenditures 430.1 245.2 290.5 390.0 231.8 16.7%

FINANCIAL PERCENTAGES AND RATIOS
Return on revenues-continuing 7.3% 6.1% 6.6% 6.2% 5.0%

Return on average invested capital(h) 8.1% 8.0% 8.6% 8.8% 9.8%
Return on average equity(h) 15.5% 15.3% 14.9% 14.5% 12.7%
Ratio of earnings to fixed charges 2.7 2.4 2.8 2.8 1.3

(g) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs,
reserves and recoveries, project opening costs, venture restructuring
costs, gains on sales of subsidiary equity interests and nonoperating
assets and costs related to a successful ballot initiative in Missouri.
See Exhibit 12 to our 1999 Form 10-K for the computations of EBITDA and
Adjusted EBITDA. EBITDA and Adjusted EBITDA are supplemental financial
measures used by management, as well as industry analysts, to evaluate our
operations. However, EBITDA and Adjusted EBITDA should not be construed as
an alternative to Income from operations (as an indicator of our operating
performance) or to Cash Flows from operating activities (as a measure of
liquidity) as determined in accordance with generally accepted accounting
principles and presented in the accompanying Consolidated Financial
Statements. All companies do not calculate EBITDA in the same manner. As a
result, EBITDA may not be comparable to similarly titled measures
presented by other companies.

(h) Ratio computed based on Income from continuing operations. See Exhibit 12
to our 1999 Form 10-K computations of these ratios.

Management's Discussion and Analysis of
Financial Condition and Results of Operations

- --------------------------------------------------------------------------------

Harrah's Entertainment, Inc. is the leading consumer marketing company in the
gaming industry. Operating casinos in more markets than any other casino
company, we seek to differentiate ourselves through a unique strategy aimed at
building loyalty to our brands from our guests. To accomplish this objective, we
have focused on continued investment and emphasis on marketing, technology and
database management, industry-leading customer reward and incentive programs, a
commitment to service and a broadened national appeal. We are building our
Harrah's, Rio and Showboat brands with a focus on those customers who are avid,
experienced players, especially those who play in more than one market, and, as
we will review with you in this discussion, our 1999 results reflect the success
of our strategy.

In this discussion, the words "Harrah's Entertainment," "Company," "we," "our,"
and "us" refer to Harrah's Entertainment, Inc., together with its subsidiaries
where appropriate.

OPERATING RESULTS AND DEVELOPMENT PLANS

Overall
- -------

Percentage
Increase/(Decrease)
(In millions, except ---------------------
earnings per share) 1999 1998 1997 99 vs 98 98 vs 97
- -------------------------------------- -------- -------- -------- -------- --------

Revenues ............................. $3,024.4 $2,004.0 $1,619.2 50.9% 23.8%
Operating profit ..................... 594.8 354.2 260.5 67.9% 36.0%
Income from operations ............... 481.0 287.8 213.5 67.1% 34.8%
Income before extraordinary items .... 219.5 121.7 107.5 80.4% 13.2%
Net income ........................... 208.5 102.0 99.4 104.4% 2.6%
Earnings per share-diluted
Before extraordinary items ......... 1.71 1.19 1.06 43.7% 12.3%
Net income ......................... 1.62 1.00 0.98 62.0% 2.0%
Operating margin ..................... 15.9% 14.4% 13.2% 1.5pts 1.2pts

As reflected in the table above, we experienced significant growth in our
financial results in 1999 as compared to 1998, setting new records for almost
every measurement of financial performance, including revenues, income from
operations and diluted earnings per share. This continues the trends we reported
for 1998 as compared to 1997. Significant contributors to our growth over the
three years presented above were the strategic acquisitions of Rio Hotel &
Casino, Inc. ("Rio") and Showboat, Inc. ("Showboat"). However, even without the
impact of these acquisitions, we would have achieved record results in 1999. The
following table reflects the combined operating results for the 11 company-owned
casinos open throughout the three-year period and Harrah's St. Louis, which
opened in March 1997.

Percentage
Increase/(Decrease)
----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- -------------------------------------- -------- -------- -------- -------- ---------

Casino revenues ...................... $1,626.5 $1,458.9 $1,328.0 11.5% 9.9%
Total revenues ....................... 1,896.4 1,720.5 1,571.3 10.2% 9.5%
Operating profit ..................... 384.1 306.7 287.2 25.2% 6.8%
Operating margin ..................... 20.3% 17.8% 18.3% 2.5pts (0.5)pts

Strategic Acquisitions
- ----------------------

An important facet of our growth has been the pursuit of strategic
acquisitions to further enhance our distribution, strengthen our access to
target customers and leverage our technological and centralized services
infrastructure. The following provides a brief review of our acquisition
activities.

SHOWBOAT, INC. We acquired Showboat on June 1, 1998, for approximately $520.0
million in cash and assumption of $635.0 million of Showboat's outstanding
debt. Our acquisition of Showboat gives us a stronger presence in the two key
growth and feeder markets of Atlantic City and Chicago. In Atlantic City,
Showboat provides us with a very strong additional brand in a strategic
Boardwalk location that complements our Harrah's location in the Marina
district. In the Chicago market, the combination of Showboat's riverboat
casino complex southeast of Chicago in neighboring Indiana, which has been
re-branded as a "Harrah's" property, and Harrah's in Joliet, Illinois,
southwest of Chicago, makes it possible for us to seek the loyalty of a
broader share of visitors from the Chicago area. Our acquisition of Showboat
was accounted for as a purchase.

RIO HOTEL & CASINO, INC. We completed our merger with Rio on January 1, 1999,
issuing approximately 25 million shares of our common stock to acquire all of
Rio's outstanding shares in a one-for-one transaction and assuming Rio's
outstanding debt. The addition of the Rio to the family of Harrah's
Entertainment properties provides our customers who frequent Las Vegas a choice
between two distinct, high-quality experiences, a high quality Las Vegas strip
destination and a high quality resort experience. In addition to the Rio
property, our acquisition also

Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued

- --------------------------------------------------------------------------------

included Rio Secco, an 18-hole, championship golf course, and approximately 35
acres adjacent to the Rio, which is available for further development. We
accounted for our merger with Rio as a purchase.

PLAYERS INTERNATIONAL, INC. In August 1999, we announced the signing of a
definitive agreement to acquire Players International, Inc. ("Players"). Players
operates a dockside riverboat casino on the Ohio River in Metropolis, Illinois;
two cruising riverboat casinos in Lake Charles, Louisiana; two dockside
riverboat casinos in Maryland Heights, Missouri; and a horse racetrack in
Paducah, Kentucky. Players and Harrah's jointly operate a landside hotel and
entertainment facility at the Maryland Heights property, a suburb of St. Louis.
Players' shareholders will receive $8.50 in cash for each share outstanding and
we will assume approximately $150 million of Players' debt. The acquisition will
be funded through our Bank Facility (see Debt and Liquidity section) and will be
accounted for as a purchase. The purchase price will be allocated to the
underlying assets and liabilities based upon their estimated fair values at the
date of the acquisition. Completion of the transaction is subject to various
conditions, including regulatory approvals.

Prior to entering into the agreement with us, Players terminated a
previously announced merger agreement with another gaming company. As a result
of the termination of that agreement, Players paid a $13.5 million break-up fee
pursuant to that agreement's terms. We provided the funds necessary to make this
payment. The funds advanced are a component of the total purchase price we will
pay for Players and, at December 31, 1999, were included in Deferred costs,
trademarks and other assets in the Consolidated Balance Sheets. During fourth
quarter 1999, we acquired approximately 1.0 million shares of Players common
stock in a negotiated transaction at a cost of $8.37 per share.

Western Region
- --------------

Percentage
Increase/(Decrease)
----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ------------------------------------- --------- ------ ------ -------- ---------

Casino revenues ..................... $ 730.1 $457.6 $408.3 59.5% 12.1%
Total revenues ...................... 1,147.9 642.6 576.0 78.6% 11.6%
Operating profit .................... 182.4 94.3 88.3 93.4% 6.8%
Operating margin .................... 15.9% 14.7% 15.3% 1.2pts (0.6)pts

SOUTHERN NEVADA. The acquisition of Rio in 1999 contributed $463.7 million in
revenues in the Western region. However, even without the addition of Rio,
Southern Nevada posted record revenues for 1999, an increase of 6.8% over 1998
revenues. Harrah's Las Vegas set record revenues for the second consecutive
year, and Harrah's Laughlin exceeded their previous revenue record by 4.5%.
Operating profit for Southern Nevada, excluding the impact of Rio, increased
30.5% over 1998.

Revenue and operating profit increases in Southern Nevada for 1998 versus
1997 were due to improved results reported by Harrah's Las Vegas. That
property's 1997 results were impacted by construction disruptions associated
with a $200 million expansion and renovation project completed in fourth quarter
1997.

Rio is expected to complete construction of a showroom complex during
second quarter 2000. The showroom will include a 1,500 seat, state-of-the-art
theater with balcony; a three-level lobby with hospitality center; and a theater
promenade with approximately 10,000 square feet of retail space. The showroom
complex is located adjacent to the Pavilion, Rio's new 110,000 square foot
entertainment/convention complex which opened in March 1999. The showroom
complex is expected to cost approximately $35 million, of which $24.6 million
had been spent through December 31, 1999.

At the time of the Showboat acquisition, the Showboat Las Vegas property
was determined to be a nonstrategic asset for us and is reported as an
asset-held-for-sale in our financial statements. The sale of this property is
expected to be completed in March 2000, and no gain or loss is expected to
result from the sale.

NORTHERN NEVADA. For 1999, Northern Nevada revenues increased 6.1% over 1998,
and operating profit was 14.6% higher than the prior year. This comparison
continues the trend reflected in the 1998 versus 1997 comparison in which
revenues increased 3.0% and operating profit increased 4.5%.

Central Region
- --------------

Percentage
Increase/(Decrease)
---------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ------------------------------------- -------- ------ ------ -------- --------

Casino revenues ..................... $ 970.9 $661.9 $614.8 46.7% 7.7 %
Total revenues ...................... 1,020.1 702.7 656.2 45.2% 7.1 %
Operating profit .................... 201.8 121.0 124.2 66.8% (2.6)%
Operating margin .................... 19.8% 17.2% 18.9% 2.6pts (1.7)pts

The revenue and operating profit increases reported by the Central Region for
1999 versus 1998 are primarily due to the consolidation in 1999 of the East
Chicago property, the conversion of Harrah's Joliet from a cruising to a
dockside operation and continued improvements at our St. Louis property.
Excluding the impact of the consolidation of the East Chicago property, Central
Region revenues increased 14.7% over 1998 and operating profit increased 36.7%
for the same period. These

improvements follow a decline in overall operating profits and margins from 1997
to 1998 due to new and increased competition in all riverboat markets, higher
gaming taxes paid by Harrah's Joliet, and costs related to a successful ballot
initiative in Missouri.

CHICAGOLAND. In the Chicagoland market, our operating results benefited from
both the consolidation and re-branding in first quarter 1999 of the East Chicago
property and rule changes governing the operations of Harrah's Joliet. After our
acquisition of Showboat, we owned a 55% noncontrolling interest in the
partnership that owned the East Chicago Showboat property. During 1998, our
share of income from the East Chicago casino was included in Equity in losses of
nonconsolidated affiliates in the Consolidated Statements of Income. In first
quarter 1999, we consummated an agreement with our partners owning the other 45%
interest in the East Chicago Showboat property to increase our ownership
interest to 99.55%, and partnership agreements were amended to give us greater
flexibility in operating this property. Consequently, we began consolidating
this partnership with the financial results of our other businesses in first
quarter 1999.

Revenues increased 32.9% at Harrah's Joliet in Illinois in 1999 compared
to the prior year, and operating profit increased 61.0%. In late June 1999,
cruise scheduling and ticketing were eliminated at Harrah's Joliet, and business
levels have increased significantly since going "dockside". Operating profit at
the Joliet property declined in 1998 from 1997 levels due primarily to the
impact of higher Illinois gaming taxes. During fourth quarter 1999, we completed
construction of a 204-suite hotel at Harrah's Joliet. This follows the
completion in first quarter 1998 of a climate-controlled walkway, joining
Harrah's Joliet's self-parking garage to its pavilion, and a new VIP lounge. We
are now considering further modifications to the property to take advantage of
the dockside operating environment.

LOUISIANA. Harrah's Shreveport's 1999 revenues declined 3.8% and operating
profit declined 11.0% compared to 1998 due to substantial new additional hotel
and entertainment amenities added by our competitors in 1998. This performance
follows a 3.0% decline in revenues in 1998 compared to 1997 and a 10.6% decline
in operating profit for the same period.

Construction began in second quarter 1999 at Harrah's Shreveport on a
514-room hotel with almost 18,000 sq. ft. of convention center space. The new
hotel and amenity expansion is expected to cost $146.6 million, of which $28.7
million has been spent through December 31, 1999. The expansion is scheduled to
open in fourth quarter 2000.

MISSISSIPPI. Combined revenues from our Mississippi operations increased 6.1% in
1999 from 1998 levels. 1998 revenues were down 6.6% from 1997 levels, due to the
closing of our original Tunica property in second quarter 1997. Our Mississippi
properties' combined operating profit in 1999 was $5.2 million, compared to a
combined loss for 1998 due to disrupted operations at Harrah's Tunica for much
of the year in connection with our testing of service initiatives at that
property.

In March 1999, we consummated the sale of our original Tunica property to
another casino company. Our gain from this disposition is reported in
Writedowns, reserves and recoveries in the Consolidated Statements of Income.

MISSOURI. Revenues at Harrah's North Kansas City increased 8.8% in 1999 over the
prior year and operating profit increased 9.3% for the same period. 1998
revenues were up 3.1% from 1997 and operating profit was up 10.7% for the same
period.

Harrah's St. Louis Riverport reported record revenues and operating income
for 1999, up 31.5% and 86.6%, respectively, over 1998 levels. 1998 operating
income was $15.8 million compared to a loss of approximately $1.4 million for
1997. Revenues were $44.1 million higher in 1998 than they were for the
approximate ten-month period in which the property was open in 1997. Our pro
rata share of the operating losses of the shoreside facilities was $10.4 million
for 1999, $10.8 million for 1998 and $11.5 million for 1997. These operating
losses are included in Equity in losses of nonconsolidated subsidiaries in the
Consolidated Statements of Income (see Other Factors Affecting Net Income). The
shoreside facilities are a joint venture with Players. Upon completion of our
acquisition of Players, we will own 100% of the joint venture operations.

During 1998, we incurred $5.0 million of nonrecurring costs in connection
with a successful campaign for a referendum in Missouri seeking approval of
games of chance on riverboats in artificial basins. In November 1998, the people
of Missouri voted to amend that State's Constitution to deem all floating casino
facilities in compliance with state law.

In third quarter 1998, we acquired the assets of a riverboat casino in
Kansas City formerly operated by a third party, including a 28,000 square foot
casino riverboat, shoreside facilities, parking garage, certain land, all gaming
equipment and computerized customer databases. Our plans for the acquired
riverboat, land and shoreside facilities have not been finalized.

Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued

- --------------------------------------------------------------------------------

Eastern Region
- --------------

Percentage
Increase/(Decrease)
---------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ---------------------------------------- ------ ------ ------ -------- --------

Casino revenues ........................ $723.3 $540.8 $314.9 33.7% 71.7%
Total revenues ......................... 775.6 590.8 349.5 31.3% 69.0%
Operating profit ....................... 173.8 129.2 73.3 34.5% 76.3%
Operating margin ....................... 22.4% 21.9% 21.0% 0.5pts 0.9pts

Our Eastern Region is comprised of the operating results of Harrah's Atlantic
City and the Atlantic City Showboat property. Harrah's Atlantic City achieved
record revenues for the third consecutive year in 1999, and operating profit
increased 18.9% in 1999 compared to 1998. The Eastern Region's 1999 results
include a full year of operations from the Atlantic City Showboat, while 1998
results include only seven months.

We continue to monitor the progress of the development of new casino
projects in Atlantic City by other casino companies as we consider possible
expansions of our properties to maintain our competitive position. No decisions
concerning any such expansions have been made.

Managed Casinos and Other
- -------------------------

Percentage
Increase/(Decrease)
----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ---------------------------------------- ----- ----- ----- --------- --------

Revenues ............................... $77.9 $65.6 $33.2 18.8% 97.6%
Operating profit ....................... 43.3 25.3 2.9 71.1% N/M

N/M = Not meaningful

Our Managed Casinos and Other results for 1999 were led by increased management
fees from the tribal-owned casinos we manage. The increase in our operating
results for 1998 versus 1997 was primarily due to the addition of management
fees from the casinos managed for the Eastern Band of Cherokee, which opened in
November 1997, and the Prairie Band of Potawatomi, which opened in January 1998.

Although not a significant contributor to our 1999 Managed Casinos and
Other results, we also manage for a fee the Harrah's New Orleans casino, which
opened during fourth quarter 1999. (See Other Factors Affecting Net Income.)

Upon completion of the Showboat acquisition on June 1, 1998, we assumed
management of the Star City casino in Sydney, Australia. We ceased management of
that facility in January 2000 upon the completion of the buy-out of our
management contract by another company. Their acquisition of the management
contract followed their buy-out of our equity ownership in the casino in fourth
quarter 1999. (See Other Factors Affecting Net Income.)

In January 2000, we announced the signing of a letter of intent with
the Rincon San Luiseno Band of Mission Indians ("Rincon") to develop and
operate a $110 million casino and hotel project on Rincon tribal land in
Southern California. The Rincon tribal land is located near Valley Center, a
30 minute drive north of San Diego, California, and has convenient access to
metropolitan San Diego, La Jolla, Del Mar, Escondido and Orange County,
California. The project is subject to various approvals, including the
National Indian Gaming Commission ("NIGC").

In fourth quarter 1999, we announced an agreement with the Eastern Band of
Cherokee Indians for a two-year extension of the management contract for
Harrah's Cherokee Smoky Mountains Casino. Our agreement will now expire in
November 2004.

In third quarter 1999, we signed a contract with the Ak-Chin Indian
Community to continue management of its casino for another five years. The
five-year agreement contemplates an extension of the Tribe's compact with the
State of Arizona, which currently expires in 2003, and is subject to final
approval by the NIGC, which, in the interim, has approved a temporary extension
(on new financial terms) of the original agreement. In addition, the Tribe
announced a planned expansion of the casino to include a new 150-room hotel, an
additional restaurant, meeting and banquet room facilities, a resort pool and a
landscaped courtyard.

See Debt and Liquidity section for further discussion of our guarantees of
debt related to Indian projects.

In fourth quarter 1998, Interactive Entertainment Limited ("IEL")
announced plans to discontinue all operations of its Sky Games business and to
write off assets related to that business. In conjunction with that
announcement, we wrote off our remaining investment in IEL of $0.8 million.
During 1997, we recognized $2.3 million of non-cash nonrecurring income from IEL
in consid-

eration for the termination of our management contract with that entity. The
termination of the management contract occurred in conjunction with IEL's
reorganization and transformation into a publicly-traded company.

In November 1998, we ceased management of the casino owned by the Upper
Skagit Tribe, located on Indian lands near Seattle, Washington. We had
guaranteed the Skagit Tribe's development financing, and during second quarter
1999 we performed under our guarantee and purchased the Tribe's outstanding
development debt from the lender for $11.4 million. Under the terms of our
agreement with the Tribe, they have agreed to fund the retirement of this debt.
The Tribe is attempting to secure new financing. However, there is no assurance
that their efforts will be successful and that the receivable will be collected.

On June 30, 1998, we ceased management of the Sky City casino complex in
Auckland, New Zealand. Our management contract was bought out by the owner, Sky
City Limited, and a $10.3 million termination fee was received. During third
quarter 1997, we sold our remaining 12.5% equity interest in Sky City Limited
(see Other Factors Affecting Net Income).

Also included in Managed Casinos and Other are our brand marketing costs.
In 1998, we launched the first national brand advertising campaign by a casino
company. A portion of the 1998 cost of the brand advertising campaign was funded
by the displacement of advertising and marketing dollars spent in the past by
the individual properties. The cost for the campaign in excess of the amounts
contributed to this effort by the properties totaled approximately $9.3 million
in 1998. In 1999, the cost of the brand advertising campaign was fully funded by
contributions from the properties.

Other Factors Affecting Net Income
- ----------------------------------

Percentage
Increase/(Decrease)
(Income)/Expense ----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- -------------------------------------- ------ ------ ------ -------- ----------

Development costs .................... $ 6.5 $ 9.0 $ 10.5 (27.8)% (14.3)%
Write-downs, reserves
and recoveries .................... 2.2 7.5 13.8 (70.7)% (45.7)%
Project opening costs ................ 2.3 8.1 17.6 (71.6)% (54.0)%
Corporate expense .................... 42.7 37.9 27.2 12.7 % 39.3 %
Headquarters relocation
and reorganization costs .......... 10.3 -- -- N/M N/M
Equity in losses of
nonconsolidated affiliates ........ 43.5 15.0 11.1 N/M 35.1 %
Venture restructuring costs .......... (0.3) 6.0 6.9 N/M (13.0)%
Amortization of goodwill
and trademarks .................... 17.6 7.5 1.8 N/M N/M
Interest expense, net ................ 193.4 117.3 79.1 64.9 % 48.3 %
Gains on sales of equity interests
in nonconsolidated affiliates ..... (59.8) (13.2) (37.4) N/M N/M
Other income ......................... (12.1) (19.6) (11.8) (38.3)% 66.1 %
Effective tax rate ................... 35.9% 36.7% 37.4% (0.8)pts (0.7)pts
Minority interests ................... $11.2 $ 7.0 $ 7.4 60.0 % (5.4)%
Extraordinary losses,
net of income taxes ............... 11.0 19.7 8.1 N/M N/M

N/M = Not meaningful

Development costs have decreased over the years presented due to the decrease in
new casino development opportunities. Write-downs, reserves and recoveries for
1999 included a further write-down to estimated realizable value of an idle
riverboat, write-offs of obsolete assets, Year 2000 costs and recoveries of
costs previously written-off. In 1998, Write-downs and reserves included
write-offs of obsolete assets, the write-down to estimated realizable value of
an idle riverboat, a reserve for termination of a development agreement with an
Indian tribe and certain Year 2000 costs. Write-downs and reserves for 1997 were
primarily related to a $13 million reserve against debtor-in-possession
financing provided to the original New Orleans casino project.

Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued

- --------------------------------------------------------------------------------

Project opening costs for 1999 included a fee paid in connection with the
renewal of a management contract and costs related to expansions at various
properties. In 1998, Project opening costs were incurred in connection with an
initiative to develop and implement strategies and employee training programs
designed to better focus our employees on serving our targeted customers.
Project opening costs for 1997 included costs incurred in connection with the
first quarter 1997 opening of Harrah's St. Louis Riverport casino property,
costs related to expansions at Harrah's Las Vegas and Harrah's Tunica and costs
incurred in connection with the customer service initiative.

Corporate expense increased 12.7% in 1999 over 1998 but represented only
1.4% of revenues in 1999, down from 1.9% in 1998 and 1.7% in 1997.

During 1999, we relocated our corporate headquarters and moved our senior
corporate executives and their support staffs to Las Vegas, Nevada. The
Company's national services headquarters remains in Memphis, Tennessee. $10.3
million of costs related to the relocation of the Company's headquarters were
expensed in 1999. The final phase of the relocation will be completed in 2000,
and the expense of that activity will be reported as relocation costs as
incurred.

Equity in losses of nonconsolidated affiliates for 1999 increased over the
previous two years primarily as a result of losses from our investments in two
companies which commenced operations in 1999, Jazz Casino Company, L.L.C.
("JCC") and National Airlines, Inc. ("NAI"). We have an approximate 43%
ownership interest in the parent of JCC, the company that owns and operates the
exclusive land-based casino in New Orleans, Louisiana (the "Casino"), which
opened in fourth quarter 1999. Our share of 1999 losses from JCC was $23.2
million, including $14.9 million of project opening costs. Our share of NAI's
1999 losses was $8.8 million, including $2.7 million of their project opening
costs. With the acquisition of Rio, our ownership interest in NAI, an airline
company in Las Vegas which opened for business in May 1999, increased from 23.9%
to 47.8%. During 1999, we accounted for Rio's investment in the airline as an
asset-held-for-sale. Although the Rio ownership interest is still for sale, our
equity pick-up percentage will increase in 2000 to reflect our full ownership
interest. Losses from the joint venture portion of the St. Louis development
were 4.2% less than our share of 1998 losses and 9.5% less than our share of
1997 losses, which included our $1.9 million share of the joint venture's
preopening costs (see Central Region - Missouri).

Venture restructuring costs represent our costs, including legal fees,
associated with the successful development of a reorganization plan for the New
Orleans casino.

Amortization of goodwill and trademarks increased in 1998 with the
acquisition of Showboat and again in 1999 with the acquisition of Rio.

Interest expense increased in 1999 over 1998 due to debt assumed and
incurred in connection with the Rio merger and Showboat acquisition. The
increase in Interest expense in 1998 over 1997 was also due to debt assumed and
incurred in connection with the acquisition of Showboat (see Debt and Liquidity
section).

In 1999, we sold our shares of Star City casino and recorded a pretax gain
of $43.5 million. We also sold our interest in Sodak Gaming, Inc. to a gaming
equipment manufacturing company and recorded a pretax gain of $16.3 million. In
1998, we sold our interest in a restaurant affiliate and recorded a pretax gain
of $13.2 million. During 1997, we sold our remaining equity interest in Sky City
Limited, and recorded a pretax gain of $37.4 million. We sold our ownership
interest in Station Square, an entertainment, business and retail center in
Pittsburgh, Pennsylvania, to our partner for cash during fourth quarter 1997.
Under the terms of the sale agreement, we retain the right to pursue development
of a casino entertainment facility at the Station Square site if casino gaming
is legalized in this jurisdiction. No gain or loss was recognized as a result of
this transaction.

The increase in Other income in 1998 as compared to the other two years
was primarily due to the sale of land in the Atlantic City area.

The effective tax rate for each year is higher than the federal statutory
rate primarily due to state income taxes and that portion of our goodwill
amortization which is not deductible for tax purposes. Minority interests
reflect joint venture partners' shares of income at joint venture riverboat
casinos.

Extraordinary losses reported in all three years are due primarily to
early extinguishments of debt and include the premium paid to holders of the
debt retired and the write-off of related unamortized deferred finance charges.
(See Debt and Liquidity - Early Extinguishments of Debt.)

- --------------------------------------------------------------------------------

CAPITAL SPENDING AND DEVELOPMENT

Year 2000
- ---------

Throughout 1999, we continued our efforts to address the potential impact of the
Year 2000 ("Y2K") on the technology systems and equipment that are essential to
our operations. All of our business systems and equipment were tested and
evaluated and then replaced or renovated as required to become Y2K compliant.
The total cost of system replacements and upgrades to address potential Y2K
problems, as well as enhancing business and operational functionality in some
areas, was approximately $10.5 million, including approximately $9 million of
costs which were capitalized. Approximately 80% of the total cost was related to
the cost to repair, replace and improve software and related hardware and
equipment and approximately 20% related to the cost to repair, replace and
improve embedded technology. Our systems and equipment were deemed Y2K compliant
by the end of 1999, and we have experienced no significant problems related to
the turn of the century.

Total Capital Spending and Development
- --------------------------------------

In addition to the specific development and expansion projects discussed in the
Operating Results and Development Plans section, we perform on-going
refurbishment and maintenance at our casino entertainment facilities in order to
maintain our quality standards. We also continue to pursue development and
acquisition opportunities for additional casino entertainment facilities that
meet our strategic and return on investment criteria. Prior to the receipt of
necessary regulatory approvals, the costs of pursuing development projects are
expensed as incurred. Construction-related costs incurred after the receipt of
necessary approvals are capitalized and depreciated over the estimated useful
life of the resulting asset. Project opening costs are expensed as incurred.

Our planned development projects, if they go forward, will require,
individually and in the aggregate, significant capital commitments and, if
completed, may result in significant additional revenues. The commitment of
capital, the timing of completion and the commencement of operations of casino
entertainment development projects are contingent upon, among other things,
negotiation of final agreements and receipt of approvals from the appropriate
political and regulatory bodies. Cash needed to finance projects currently under
development as well as additional projects being pursued is expected to be made
available from operating cash flows, the Bank Facility (see Debt and Liquidity
section), joint venture partners, specific project financing, guarantees of
third party debt and, if necessary, additional debt and/or equity offerings. Our
capital spending for 1999 totaled approximately $430.1 million, excluding the
costs of our merger with Rio and our acquisition of the additional ownership
interest in the East Chicago partnership. Estimated total capital expenditures
for 2000 are expected to be between $370 million and $470 million, excluding the
acquisition of Players and the possible further expansion of our Atlantic City
properties.

DEBT AND LIQUIDITY

Bank Facility
- -------------

On April 30, 1999, we consummated new revolving credit and letter of credit
facilities (the "Bank Facility") in the amount of $1.6 billion. This Bank
Facility consists of a five-year $1.3 billion revolving credit and letter of
credit facility maturing in 2004 and a separate $300 million revolving credit
facility, which is renewable annually at the borrower's and lenders' options.
Currently, the Bank Facility bears interest based upon 80 basis points over
LIBOR for current borrowings under the five-year facility and 85 basis points
over LIBOR for the 364-day facility. In addition, there is a facility fee for
borrowed and unborrowed amounts which is currently 20 basis points on the
five-year facility and 15 basis points on the 364-day facility. The interest
rate and facility fee are based on our current debt ratings and leverage ratio
and may change as our debt ratings and leverage ratio change.

Borrowings under the Bank Facility were used to retire our previous
revolving credit facility, scheduled to mature in 2000, (the "Previous
Facility") and Rio's revolving credit facility scheduled to mature in 2003,
10 5/8% Senior Subordinated Notes due 2005 and 9 1/2% Senior Subordinated Notes
due 2007. As of December 31, 1999, $1.1 billion in borrowings were outstanding
under the Bank Facility, with an additional $37.5 million committed to back
letters of credit. After consideration of these borrowings, $452.5 million of
additional borrowing capacity was available to the Company as of December 31,
1999.

Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued

- --------------------------------------------------------------------------------

Issuance of Senior Notes
- ------------------------

In connection with obtaining consent from our bank lenders for the Rio merger,
we agreed to refinance a significant portion of our short-term, floating-rate
debt with long-term, fixed-rate debt. In December 1998, we issued $750 million
of 7 7/8% Senior Subordinated Notes due 2005 and used the net proceeds to reduce
the amount outstanding under our Previous Facility. In January 1999, we issued
$500 million of 7 1/2% Senior Notes due 2009 and used the net proceeds to
further reduce amounts outstanding under our Previous Facility.

Extinguishments of Debt
- -----------------------

During first quarter 1999, we redeemed all $140 million face amount of Showboat
Marina Casino Partnership's ("SMCP") 13 1/2% First Mortgage Notes due 2003 (the
"SMCP Notes"). We retired the SMCP Notes using proceeds from our Previous
Facility. We recorded liabilities assumed in the Showboat acquisition, including
the SMCP Notes, at their fair value as of the consummation date of the
transaction. The difference between the consideration of $159.8 million paid the
holders of the SMCP notes pursuant to this tender offer and the carrying value
of the SMCP Notes on the consummation date was recorded as an extraordinary loss
of $2.0 million, net of tax.

During second quarter 1999, we redeemed all $100 million face amount of
Rio's 10 5/8% Senior Subordinated Notes due 2005 and all $125 million of Rio's
9 1/2% Senior Subordinated Notes due 2007. We recorded liabilities assumed in
the Rio merger, including these notes, at their fair value as of the date of
consummation of the merger. The difference between the consideration of $251.8
million paid to the holders of the Rio notes pursuant to the tender offer and
the carrying value of the notes on the date of the redemption was recorded as an
extraordinary loss of $4.5 million, net of tax.

During third quarter 1999, we retired SMCP's capital lease obligations.
Approximately $9.2 million of debt was retired, and an extraordinary loss of
$0.4 million, net of tax, was recorded.

In 1998, we redeemed all $200 million of our 8 3/4% Senior Subordinated
Notes due 2002. We also redeemed approximately $218.6 million face amount of
Showboat's 9 1/4% First Mortgage Bonds due 2008 and approximately $117.9 million
face amount of Showboat's 13% Senior Notes due 2009 (collectively, the "Showboat
Notes"). Extraordinary losses, net of tax, in the amounts of $3.3 million and
$13.3 million, respectively, were recorded in conjunction with these early debt
extinguishments. The remaining balance of the Showboat Notes were defeased in
1998 by purchasing treasury securities which were deposited with trustees to pay
the scheduled interest payments to the first call date and the premium and
principal on the securities outstanding on such date. These treasury securities
are included in Deferred costs, trademarks and other assets and the remaining
balance of the Showboat Notes is reported in Long-term debt in the Consolidated
Balance Sheets.

In 1997, we redeemed our $200 million 10 7/8% Senior Subordinated Notes
due 2002 and recorded an extraordinary loss, net of tax, of $8.1 million.

Interest Rate Agreements
- ------------------------

To manage the relative mix of our debt between fixed and variable rate
instruments, we entered into interest rate swap agreements to modify the
interest characteristics of our outstanding debt without an exchange of the
underlying principal amount. The differences to be paid or received under the
terms of our 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 our interest rate swap agreements will have a corresponding effect on
our future cash flows.

These 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 do not anticipate nonperformance by the
counterparties.

As of December 31, 1999, we were a party to six interest rate swaps for a
total notional amount of $300 million. All of these swaps will expire in 2000,
and we do not expect to enter into new swap agreements. For more information
regarding our interest rate swap agreements as of December 31, 1999, see Note 5
to the accompanying Consolidated Financial Statements.

Guarantees of Third Party Debt and Other Commitments
- ----------------------------------------------------

In addition to our ownership interest in JCC's parent, we manage the Harrah's
New Orleans property pursuant to a management agreement between JCC and a
subsidiary of our Company. We have (i) guaranteed JCC's initial $100.0 million
annual payment under the Casino operating contract to the State of Louisiana
gaming board (the "State Guarantee"), (ii) guaranteed $166.5 million of a $236.5
million JCC bank credit

facility, and (iii) made a $22.5 million subordinated loan to JCC to finance
construction of the casino.

With respect to the State Guarantee, we are obligated to guarantee JCC's
first $100 million annual payment obligation commencing from the October 28,
1999, opening of the Casino, and, if certain cash flow tests (for the renewal
periods beginning April 1, 2001) and other conditions are satisfied each year,
to renew the guarantee beginning April 1, 2000, for each 12 month period ending
March 31, 2004. Our obligations under the guarantee for the first year of
operations or any succeeding 12 month period is limited to a guarantee of the
$100 million payment obligation of JCC for the 12 month period in which the
guarantee is in effect and is secured by a first priority lien on JCC's assets.
JCC's payment (and therefore the amount we have guaranteed) is $100 million at
commencement of each 12 month period under the Casino operating contract and
declines on a daily basis by 1/365 of $100 million to the extent payments are
made each day by JCC to Louisiana's gaming board.

JCC's bank credit facility permits funding of up to $5 million under
the State Guarantee without a default under the bank loan documents. JCC has
obtained a waiver to permit funding of up to $40 million under the State
Guarantee on certain conditions, including (i) our renewal of the State
Guarantee for the one-year period ending March 31, 2001, and (ii) our
forbearance until at the earliest March 31, 2001, of the collection of the
principal or interest on the demand obligation which arises when we fund
under the State Guarantee. Separately, we have also agreed to forbear
collection until August 1, 2000, of certain fees and reimbursable costs
arising from our existing agreements with JCC. We have also agreed, subject
to certain conditions, to renew the State Guarantee for the period April 1,
2000, until March 31, 2001.

The agreements under which we manage casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled repayments of
borrowings for development costs. In the event that insufficient cash flow is
generated by the operations to fund this payment, we must pay the shortfall to
the tribe. 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. Our aggregate monthly
commitment pursuant to the contracts for the three Indian-owned facilities now
open, which extend for periods of up to 60 months from December 31, 1999, is
$1.1 million.

We may guarantee all or part of the debt incurred by Indian tribes with
which we have entered a management contract 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, 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 of such debt as of
December 31, 1999, was $80.4 million.

During second quarter 1999, we performed under our guarantee of the Upper
Skagit Tribe's development financing and purchased the outstanding development
debt from the lender for $11.4 million. Under the terms of our agreement with
the Tribe, they have agreed to fund the retirement of this debt. The Tribe is
attempting to secure new financing; however, there is no assurance that their
efforts will be successful and that the receivable will be collected.

EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS

Competitive Pressures
- ---------------------

Due to the limited number of new markets opening for development, the focus of
many casino operators has shifted to investing in existing markets in an effort
to attract new customers, thereby increasing competition in those markets. Our
properties in the long-established gaming markets of Nevada and New Jersey have
generally been less affected by the changing competitive conditions. With the
exception of the additional supply being added in Las Vegas, the amount of
supply change within these markets has represented a smaller percentage change
than that experienced in some riverboat markets. In riverboat markets, the
additions to

Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued

- --------------------------------------------------------------------------------

supply had a more noticeable impact, due to the fact that competition was
limited in the early stages of many of these markets. As companies have
completed expansion projects, supply has typically grown at a faster pace than
demand in some markets and competition has increased significantly. Furthermore,
several operators, including Harrah's Entertainment, have announced plans for
additional developments or expansions in some markets. In the Las Vegas market
four new "mega" facilities have opened since October 1998, and others are
planned and under development. The impact that the additional supply will have
on our operations cannot be determined at this time.

Although the short-term effect of these competitive developments on our
Company has been negative, we are not able to determine the long-term impact,
whether favorable or unfavorable, that these trends and events will have on
current or future markets. We believe that the geographic diversity of our
operations; our focus on multi-market customer relationships; our service
training, measurements and rewards programs; and our continuing efforts to
establish our brands as premier brands upon which we have built strong customer
loyalty have well-positioned us to face the challenges present within our
industry. We have introduced WINet, a sophisticated nationwide customer
database, and our Total Gold Card, a nationwide reward and recognition card,
both of which we believe provide competitive advantages, particularly with
players who visit more than one market. During 1999, we embarked on the next
stage of our strategy with the launch of the tiered customer loyalty card
program - Total Diamond, Total Platinum and Total Gold - to reward customers for
choosing Harrah's Entertainment casinos.

Industry Consolidation
- ----------------------

As evidenced by the number of recent public announcements by casino
entertainment companies of plans to acquire or be acquired by other companies,
including our acquisition of Showboat, merger with Rio and planned acquisition
of Players, consolidation in the gaming industry is now underway. We believe we
are well-positioned to, and may from time to time, pursue additional strategic
acquisitions.

Political Uncertainties
- -----------------------

The casino entertainment industry is subject to political and regulatory
uncertainty. In 1996, the U.S. government formed a federal commission to
study gambling in the United States, including the casino gaming industry.
The commission issued its report in June 1999. In September 1999, the State
of California and approximately 60 Indian tribes executed Class III Gaming
Compacts, which other California tribes can join. The Compacts allow each
tribe to operate, on tribal trust lands, two casinos with up to 2,000 slot
machines per tribe and unlimited house-banked card games. At this time, the
ultimate impacts that the National Gaming Impact Study Commission report and
the California Compacts may have on the industry or on our Company are
uncertain. From time to time, individual jurisdictions have also considered
legislation or referendums which could adversely impact our operations, and
the likelihood or outcome of similar legislation and referendums in the
future is difficult to predict.

The casino entertainment industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate. From time to
time, various state and federal legislators and officials have proposed changes
in tax laws, or in the administration of such laws, which would affect the
industry. It is not possible to determine with certainty the scope or likelihood
of possible future changes in tax laws or in the administration of such laws. If
adopted, such changes could have a material adverse effect on our financial
results.

EFFECTS OF INFLATION

Inflation has had little effect on our historical operations. Generally, we have
not experienced any significant negative impact on gaming volume or on wagering
propensity of our customers as a result of inflationary pressures. Further, we
have been successful in increasing the amount of wagers and playing time of our
casino customers through effective marketing programs. We have also, from time
to time, adjusted our required minimum bets at table games and changed the
relative mix of slot machines in favor of machines with higher denominations.
These strategies, supplemented by effective cost management programs, have
offset the impact of inflation on our operations. Inflation tends to increase
the value of our casino entertainment properties.

- --------------------------------------------------------------------------------

INTERCOMPANY DIVIDEND RESTRICTION

Certain of our debt guarantees require us to abide by covenants which, among
other things, limit the ability of our principal operating subsidiary, Harrah's
Operating Company, Inc. ("HOC"), to pay dividends and make other restricted
payments, as defined, to Harrah's Entertainment. The amount of HOC's restricted
net assets, as defined, computed in accordance with the most restrictive of
these covenants regarding restricted payments was approximately $1.5 billion at
December 31, 1999. Harrah's Entertainment's principal asset is the stock of HOC,
a wholly-owned subsidiary which holds, directly and through subsidiaries, the
principal assets of our businesses. Given this ownership structure, these
restrictions should not impair our ability to conduct our business through our
subsidiaries or to pursue our development plans.

RECENTLY ISSUED ACCOUNTING STANDARDS

We implemented the provisions of Statement of Position ("SOP") 98-5, "Reporting
on the Costs of Start-up Activities," effective January 1, 1999. SOP 98-5,
issued by the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants, requires that the costs of all start-up
activities, as defined in the SOP, be expensed as incurred. The adoption of the
provisions of this SOP did not materially impact our results of operations or
financial position.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivative financial instruments. The provisions of SFAS No. 133 require
that a company recognizes all derivatives as either assets or liabilities on its
balance sheet and that the instruments be valued at their fair value. The
Statement also defines the criteria and conditions which govern the recognition
of subsequent changes in the fair value of the instrument as being either
balance sheet or income statement events. During 1999, the effective date for
implementation of the provisions of SFAS No. 133 was delayed until years
beginning after June 15, 2000. We do not expect the adoption of SFAS No. 133 to
materially impact our results of operations or financial position.

PRIVATE SECURITIES LITIGATION REFORM ACT

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in our Annual
Report on Form 10-K and other materials filed or to be filed by the Company with
the Securities and Exchange Commission ("SEC") (as well as information included
in oral statements or other written statements made or to be made by the
Company) contains statements that are forward looking. These include statements
relating to the following activities, among others: (A) operations and
expansions of existing properties, including future performance, anticipated
scope and opening dates of expansions; (B) planned development of casinos and
hotels that would be owned or managed by the Company and the pursuit of
strategic acquisitions; (C) planned capital expenditures for 2000 and beyond;
(D) the impact of the WINet and Total Gold Card Programs; and (E) any future
impact of the Showboat acquisition, the Rio merger or the planned acquisition of
Players. These activities involve important factors that could cause actual
results to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company. These include, but are not
limited to, the following factors as well as other factors described from time
to time in the Company's reports filed with the SEC: construction factors,
including zoning issues, environmental restrictions, soil conditions, weather
and other hazards, site access matters and building permit issues; access to
available and feasible financing; regulatory, licensing and other government
approvals, third party consents and approvals, and relations with partners,
owners and other third parties; conditions of credit markets and other business
and economic conditions, including international and national economic problems;
litigation, judicial actions and political uncertainties, including gaming
legislative action, referenda, and taxation; and the effects of competition
including locations of competitors and operating and marketing competition. Any
forward-looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.

HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

December 31,
---------------------------------
1999 1998
----------- ------------

ASSETS

Current assets
Cash and cash equivalents ............................................................. $ 233,581 $ 158,995
Receivables, less allowance for doubtful accounts of $44,086 and $14,356 .............. 121,186 55,043
Deferred income taxes (Note 9) ........................................................ 33,208 22,478
Prepayments and other ................................................................. 68,028 27,521
Inventories ........................................................................... 30,666 15,306
----------- -----------
Total current assets ............................................................. 486,669 279,343
----------- -----------

Land, buildings, riverboats and equipment
Land and land improvements ............................................................ 653,101 323,692
Buildings, riverboats and improvements ................................................ 2,510,070 1,624,346
Furniture, fixtures and equipment ..................................................... 820,583 711,966
----------- -----------
3,983,754 2,660,004
Less: accumulated depreciation ........................................................ (922,524) (789,847)
------------ -----------
3,061,230 1,870,157
Goodwill, net of amortization of $54,346 and $40,051 (Note 2) ............................ 505,217 383,450
Investments in and advances to nonconsolidated affiliates (Note 15) ...................... 168,511 273,508
Deferred costs, trademarks and other (Note 4) ............................................ 545,220 479,874
----------- -----------
$ 4,766,847 $ 3,286,332
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ...................................................................... $ 81,200 $ 58,493
Accrued expenses (Note 4) ............................................................. 287,494 172,021
Current portion of long-term debt (Note 5) ............................................ 2,877 2,332
----------- -----------
Total current liabilities ........................................................ 371,571 232,846
Long-term debt (Note 5) .................................................................. 2,540,268 1,999,354
Deferred credits and other ............................................................... 120,827 112,362
Deferred income taxes (Note 9) ........................................................... 228,955 75,457
----------- -----------
3,261,621 2,420,019
----------- -----------
Minority interests ....................................................................... 18,949 14,906
----------- -----------
Commitments and contingencies (Notes 6, 12 through 15 and 17)

Stockholders' equity (Notes 3, 14 and 15)
Common stock, $0.10 par value, authorized - 360,000,000
shares, outstanding - 124,379,760 and 102,188,018 shares
(net of 9,286,772 and 3,036,562 shares held in treasury) ............................ 12,438 10,219
Capital surplus ....................................................................... 987,322 407,691
Retained earnings ..................................................................... 512,539 451,410
Accumulated other comprehensive income ................................................ (493) 6,567
Deferred compensation related to restricted stock ..................................... (25,529) (24,480)
------------ -----------

1,486,277 851,407
----------- -----------
$ 4,766,847 $ 3,286,332
=========== ===========

The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated balance sheets.

HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Year Ended December 31,
----------------------------------------------
1999 1998 1997
---------- ---------- -------------

Revenues
Casino ....................................................................... $2,424,237 $1,660,313 $1,338,003
Food and beverage ............................................................ 425,808 231,568 196,765
Rooms ........................................................................ 253,629 153,538 128,354
Management fees .............................................................. 75,890 64,753 24,566
Other ........................................................................ 131,403 78,320 78,954
Less: casino promotional allowances .......................................... (286,539) (184,477) (147,432)
---------- ----------- -----------
Total revenues ........................................................... 3,024,428 2,004,015 1,619,210
---------- ----------- -----------
Operating expenses
Direct
Casino ..................................................................... 1,254,557 868,622 685,942
Food and beverage .......................................................... 218,580 116,641 103,604
Rooms ...................................................................... 66,818 41,871 39,719
Depreciation of buildings, riverboats and equipment .......................... 188,199 130,128 103,670
Development costs ............................................................ 6,538 8,989 10,524
Write-downs, reserves and recoveries (Note 7) ................................ 2,235 7,474 13,806
Project opening costs ........................................................ 2,276 8,103 17,631
Other ........................................................................ 690,404 467,999 383,791
---------- ----------- ----------
Total operating expenses ................................................. 2,429,607 1,649,827 1,358,687
---------- ----------- ----------
Operating profit ........................................................ 594,821 354,188 260,523
Corporate expense ............................................................ (42,748) (37,890) (27,155)
Headquarters relocation and reorganization costs (Note 8) .................... (10,274) -- --
Equity in losses of nonconsolidated affiliates (Note 15) ..................... (43,467) (14,989) (11,053)
Venture restructuring costs .................................................. 322 (6,013) (6,944)
Amortization of goodwill and trademarks ...................................... (17,617) (7,450) (1,839)
---------- ----------- ----------
Income from operations .......................................................... 481,037 287,846 213,532
Interest expense, net of interest capitalized (Note 1) .......................... (193,407) (117,270) (79,071)
Gains on sales of equity interests in nonconsolidated affiliates (Note 15) ...... 59,824 13,155 37,388
Other income, including interest income ......................................... 12,129 19,575 11,799
---------- ----------- ------
Income before income taxes and minority interests ............................... 359,583 203,306 183,648
Provision for income taxes (Note 9) ............................................. (128,914) (74,600) (68,746)
Minority interests .............................................................. (11,166) (6,989) (7,380)
---------- ----------- ----------
Income before extraordinary losses .............................................. 219,503 121,717 107,522
Extraordinary losses, net of tax benefit of $5,990,
$10,522 and $4,477 (Note 10) ................................................. (11,033) (19,693) (8,134)
---------- ----------- ----------
Net income ...................................................................... $ 208,470 $ 102,024 $ 99,388
========== =========== ==========
Earnings (loss) per share - basic
Before extraordinary losses .................................................. $ 1.74 $ 1.21 1.07
Extraordinary losses, net .................................................... (0.09) 0.19) (0.08)
---------------------------------------------
Net income ................................................................. $ 1.65 $ 1.02 $ 0.99
=============================================
Earnings (loss) per share - diluted
Before extraordinary losses .................................................. $ 1.71 $ 1.19 $ 1.06
Extraordinary losses, net .................................................... (0.09) (0.19) (0.08)
---------------------------------------------
Net income ................................................................. $ 1.62 $ 1.00 $ 0.98
=============================================

Weighted average common shares outstanding ...................................... 126,072 100,231 100,618
Diluted effect of stock compensation programs ................................... 2,676 1,289 636
---------------------------------------------
Weighted average common and common equivalent shares outstanding ................ 128,748 101,520 101,254
=============================================

The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.

HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(NOTES 3, 14 AND 15)
(IN THOUSANDS)

Deferred
Common Stock Compensation
--------------------- Other Related to Compre-
Shares Capital Retained Comprehensive Restricted hensive
Outstanding Amount Surplus Earnings Income Stock Total Income
----------- ------ -------- -------- ------------- ----------- --------- --------

Balance - December 31, 1996 ........... 102,970 $10,297 $385,941 $290,797 $51,394 $(18,683) $719,746
Net income ......................... 99,388 99,388 $ 99,388
Realization of gain due to sale of
equity interest in New Zealand
subsidiary, net of deferred taxes
of $14,653 ....................... (22,735) (22,735) (22,735)
Decline in market value of other
available-for-sale securities,
less deferred tax benefit
of $16,362 ....................... (25,775) (25,775) (25,775)
Treasury stock purchases ........... (2,234) (223) (40,799) (41,022)
Net shares issued under incentive
compensation plans, including
income tax benefit of $702 ....... 300 30 2,984 2,887 5,901
--------
1997 Comprehensive Income ..... $ 50,878
------- ------ -------- -------- ------- -------- ------- ========
Balance - December 31, 1997 ........... 101,036 10,104 388,925 349,386 2,884 (15,796) 735,503

Net income ......................... 102,024 102,024 $102,024
Unrealized gain on available-
for-sale securities, less deferred
tax provision of $2,110 .......... 3,567 3,567 3,567
Foreign currency adjustment ........ 116 116 116
Net shares issued under incentive
compensation plans, including
income tax benefit of $787 ....... 1,152 115 18,766 (8,684) 10,197
--------
1998 Comprehensive Income ..... $105,707
------- ------ -------- -------- ------- ------- ------- ========
Balance - December 31, 1998 ........... 102,188 10,219 407,691 451,410 6,567 (24,480) 851,407
Net income ......................... 208,470 208,470 208,470
Unrealized gain on available-
for-sale securities, less deferred
tax provision of $2,118 .......... 3,606 3,606 3,606
Realization of gain due
to sale of equity interest
in nonconsolidated affiliate,
net of tax provision of $6,031 ... (10,269) (10,269) (10,269)
Foreign currency adjustment ........ (397) (397) (397)
Treasury stock purchases ........... (6,108) (611) (147,341) (147,952)
Net shares issued in
acquisition of Rio and
minority interest in subsidiary .. 25,392 2,539 529,492 532,031
Net shares issued under incentive
compensation plans, including
income tax benefit of $2,625 ..... 2,908 291 50,139 (1,049) 49,381
-------
1999 Comprehensive Income ..... 201,410
------- ------- -------- -------- ------- -------- ---------- =======
Balance - December 31, 1999 ........... 124,380 $12,438 $987,322 $512,539 $ (493) $(25,529) $1,486,277
======= ======= ======== ======== ======= ======== ==========

The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.

HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 11)
(IN THOUSANDS)

Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------- -------- ----------

Cash flows from operating activities
Net income ................................................................ $208,470 $102,024 $ 99,388
Adjustments to reconcile net income to cash flows from
operating activities
Extraordinary losses, before income taxes ............................ 17,023 29,491 12,611
Depreciation and amortization ........................................ 218,299 159,183 122,396
Write-downs, reserves and recoveries ................................. 1,570 6,535 13,806
Other noncash items .................................................. 86,976 28,835 27,712
Minority interests' share of net income .............................. 11,166 6,989 7,380
Equity in losses of nonconsolidated affiliates ....................... 43,467 14,989 11,053
Realized gains from sales of equity interests in
nonconsolidated affiliates ......................................... (59,824) (13,155) (37,388)
Net losses (gains) from asset sales .................................. 878 (6,536) (4,117)
Net change in long-term accounts ..................................... 56,542 17,260 (1,452)
Net change in working capital accounts ............................... (70,161) (45,244) 3,713
---------- -------- ---------
Cash flows provided by operating activities ........................ 514,406 300,371 255,102
---------- -------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions ....................... (340,468) (140,386) (229,529)
Increase (decrease) in construction payables .............................. 1,871 (6,557) (10,789)
Investments in and advances to nonconsolidated affiliates ................. (70,181) (76,052) (54,477)
Purchase of minority interest in subsidiary ............................... (26,000) -- --
Proceeds from sales of equity interests in subsidiaries ................... 172,576 17,000 53,755
Proceeds from other asset sales ........................................... 26,359 12,728 26,570
Cash acquired in acquisitions ............................................. 50,226 -- --
Payment for purchase of Showboat, Inc., net of cash acquired .............. -- (475,334) --
Purchase of marketable equity securities for defeasance of debt ........... -- (65,898) --
Other ..................................................................... 1,253 (28,739) (6,483)
---------- -------- ---------
Cash flows used in investing activities ............................ (184,364) (763,238) (220,953)
---------- -------- ---------
Cash flows from financing activities
Net borrowings under Bank Facility, net of financing costs of $4,556 ...... 1,105,444 -- --
Net (repayments) borrowings under Retired Facility,
net of financing costs of $9,332 in 1998 ................................ (1,086,000) 362,262 239,500
Proceeds from issuance of senior notes,
net of discount and issue costs of $5,980 ............................... 494,020 -- --
Proceeds from issuance of senior subordinated notes,
net of issue costs of $12,552 ........................................... -- 737,448 --
Other debt proceeds ....................................................... 21,000 -- --
Debt retirements .......................................................... (625,568) (563,522) (202,115)
Purchases of treasury stock ............................................... (147,952) -- (41,022)
Minority interests' distributions, net of contributions ................... (7,122) (6,200) (9,952)
Premiums paid on early extinguishments of debt ............................ (9,278) (24,569) (9,666)
Other ..................................................................... -- -- (45)
---------- -------- ---------
Cash flows (used in) provided by financing activities .............. (255,456) 505,419 (23,300)
---------- -------- ---------
Net increase in cash and cash equivalents .................................... 74,586 42,552 10,849
Cash and cash equivalents, beginning of year ................................. 158,995 116,443 105,594
---------- -------- ---------
Cash and cash equivalents, end of year ....................................... $233,581 $158,995 $ 116,443
========== ========= =========

The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.

Notes to Consolidated Financial Statements
(Dollars in thousands, unless otherwise stated)

- --------------------------------------------------------------------------------

In these footnotes, the words "Company," "Harrah's Entertainment," "we," "our"
and "us" refer to Harrah's Entertainment, Inc., a Delaware corporation, and its
wholly-owned subsidiaries, unless otherwise stated or the context requires
otherwise.

1. Summary of Significant Accounting Policies

BASIS OF PRESENTATION AND ORGANIZATION. We are one of the leading casino
entertainment companies in the United States, operating in more markets than any
other casino company. As of December 31, 1999, our U.S. operations included ten
land-based casinos, seven riverboat or dockside casinos, and three casinos on
Indian reservations.

PRINCIPLES OF CONSOLIDATION. Our Consolidated Financial Statements include the
accounts of Harrah's Entertainment and its subsidiaries after elimination of all
significant intercompany accounts and transactions. We follow the equity method
of accounting for our investments in 20% to 50% owned companies and joint
ventures (see Note 15).

CASH AND CASH EQUIVALENTS. Cash includes the minimum cash balances required to
be maintained by a state gaming commission, which totaled approximately $16.6
million and $14.0 million at December 31, 1999 and 1998, respectively. Cash
equivalents are highly liquid investments with a maturity of less than three
months and are stated at the lower of cost or market value.

INVENTORIES. Inventories, which consist primarily of food, beverage and
operating supplies, are stated at average cost.

LAND, BUILDINGS, RIVERBOATS AND EQUIPMENT. Land, buildings, riverboats and
equipment are stated at cost. Land includes land held for future development or
disposition which totaled $116.0 million and $21.7 million at December 31, 1999
and 1998, respectively. We capitalize the costs of improvements and
extraordinary repairs that extend the life of the asset. We expense maintenance
and repairs costs as incurred. Interest expense is capitalized on internally
constructed assets at our overall weighted average borrowing rate of interest.
Capitalized interest amounted to $13.1 million, $2.5 million and $6.9 million in
1999, 1998 and 1997, respectively.

We depreciate our buildings, riverboats and equipment using the
straight-line method over the shorter of the estimated useful life of the asset
or the related lease term, as follows:

Buildings and improvements ...................................... 10 to 40 years
Riverboats ...................................................... 30 years
Furniture, fixtures and equipment ............................... 2 to 15 years

TREASURY STOCK. The shares of Harrah's Entertainment common stock we hold in
treasury are reflected in our Consolidated Balance Sheets and our Consolidated
Statements of Stockholders' Equity and Comprehensive Income as if those shares
were retired.

REVENUE RECOGNITION. Casino revenues consist of net gaming wins. Food and
beverage and rooms revenues include the aggregate amounts generated by those
departments at all consolidated casinos and casino hotels.

Casino promotional allowances consist principally of the retail value of
complimentary food and beverages, accommodations, admissions and entertainment
provided to casino patrons. The estimated costs of providing such complimentary
services, which we classify as casino expenses through interdepartmental
allocations, were as follows:

1999 1998 1997
-------- --------- --------
Food and beverage $144,841 $ 97,934 $ 83,491
Rooms 43,773 28,473 19,290
Other 14,450 6,138 3,768
-------- --------- --------
$203,064 $132,545 $106,549
======== ========= ========

AMORTIZATION. We amortize goodwill and other intangibles, including trademarks,
on a straight-line basis over periods up to 40 years. We use the interest method
to amortize deferred financing charges over the term of the related debt
agreement.

EARNINGS PER SHARE. In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," we compute our
basic earnings per share by dividing Net income by the number of weighted
average common shares outstanding during the year. Our Diluted earnings per
share is computed by dividing Net income by the number of weighted average
common shares and common stock equivalents outstanding during the year. For each
of the three years ended December 31, 1999, common stock equivalents consisted
solely of net restricted shares and stock options outstanding under our employee
stock benefit plans. (See Note 14.)

RECLASSIFICATIONS. We have reclassified certain amounts for prior years to
conform with our presentation for 1999.

USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires that we make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses during the reporting period.
Our actual results could differ from those estimates.

2. Completed Acquisitions

We are accounting for each of the transactions described below as a purchase.
Accordingly, the purchase price is allocated to the underlying assets acquired
and liabilities assumed based upon their estimated fair values at the date of
acquisition. We determine the estimated fair values based on independent
appraisals, discounted cash flows, quoted market prices and estimates made by
management. For each transaction, the allocation of the purchase price was
completed within one year from the date of the acquisition. To the extent that
the purchase price exceeds the fair value of the net identifiable tangible and
intangible assets acquired, such excess is allocated to goodwill and amortized
for periods of up to 40 years. For periods prior to the completion of the
purchase price allocation, our financial statements included estimated goodwill
amortization expense.

SHOWBOAT, INC. On June 1, 1998, we completed our acquisition of Showboat, Inc.
("Showboat") for $30.75 per share in an all-cash transaction, and assumed
approximately $635 million of Showboat debt. The operating results for Showboat
are included in the Consolidated Financial Statements from the date of
acquisition.

As a result of this transaction, we now own and operate the Showboat
casinos in Atlantic City, New Jersey, and Las Vegas, Nevada. The Las Vegas
Showboat property is a non-strategic asset and is reported by the Company as an
asset-held-for-sale. As such, this property has been valued at its estimated net
realizable value, net of estimated selling expenses, carrying, and interest
costs through the expected date of sale. Also acquired in this transaction was a
55% noncontrolling interest in Showboat Marina Casino Partnership ("SMCP"),
which owned and operated the Showboat East Chicago casino. In first quarter 1999
we increased our ownership interest of SMCP to 99.55% and began consolidating
this partnership with the financial results of our other businesses. The East
Chicago property was re-branded as a "Harrah's" property during first quarter
1999. Also included in the Showboat acquisition was a 24.6% equity ownership
interest in the Star City Casino in Sydney, Australia, and an agreement to
manage that casino. In fourth quarter 1999 we sold our ownership interest in the
Star City Casino and in first quarter 2000 we completed the sale of our
management interests in that property. (See Note 15.)

Subsequent to the closing of the Showboat acquisition, all debt assumed in
the acquisition, including the debt of the partnership owning the East Chicago
property, was retired using proceeds from the Previous Facility. (See Note 5.)

RIO HOTEL & CASINO, INC. We completed our merger with Rio Hotel & Casino, Inc.
("Rio"), on January 1, 1999, issuing approximately 25 million shares of common
stock to acquire all of Rio's outstanding shares in a one-for-one transaction
and assuming Rio's outstanding debt of approximately $432 million. In addition
to the Rio property, our acquisition also included Rio Secco, an 18-hole
championship golf course, and approximately 35 acres adjacent to the Rio, which
is available for further development.

In second quarter 1999 we retired Rio's revolving credit facility
scheduled to mature in 2003 and Rio's 10 5/8% Senior Subordinated Notes due 2005
and 9 1/2% Senior Subordinated Notes due 2007 using proceeds from our Bank
Facility. (See Note 5.)

The following unaudited pro forma consolidated financial information for
the Company has been prepared assuming that the Showboat acquisition, the Rio
merger and the debt extinguishments discussed above had occurred on the first
day of the period:

Year Ended
(In millions, except December 31,
per share amounts) 1998
------------
Revenues..................................................... $2,764.7
========
Income from operations....................................... $ 380.5
========
Income before extraordinary losses........................... $ 126.1
========
Net income................................................... $ 106.4
========
Earnings per share-diluted
Income before extraordinary losses........................ $ 1.00
========
Net income................................................ $ 0.84
========

These unaudited pro forma results are presented for comparative purposes only.
The pro forma results are not necessarily indicative of what our actual results
would have been had the Showboat acquisition, Rio merger and the debt
extinguishments been completed as of the beginning of the period, or of future
results.

Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)

- --------------------------------------------------------------------------------

3. 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

Harrah's Entertainment's Board of Directors has authorized that one
special stock purchase right (a "Right") be attached to each outstanding share
of common stock. These Rights are exercisable only if a person or group acquires
15% or more of Harrah's Entertainment common stock or announces a tender offer
for 15% or more of the common stock. Each Right entitles stockholders to buy one
two-hundredth of a share of Series A Special Stock of the Company at an initial
price of $130 per Right. If a person acquires 15% or more of the Company's
outstanding common stock, each Right entitles its holder to purchase common
stock of the Company having a market value at that time of twice the Right's
exercise price. Under certain conditions, each Right entitles its holder to
purchase stock of an acquiring company at a discount. Rights held by the 15%
holder will become void. The Rights will expire on October 5, 2006, unless
earlier redeemed by the Board at one cent per Right.

In October 1996, our Board of Directors approved a plan, which expired on
December 31, 1997, under which we repurchased 2,993,700 shares of Harrah's
Entertainment common stock at an average price of $18.05 per share. The
repurchased shares are held in treasury.

In July 1999, our Board of Directors authorized the repurchase in open
market and other transactions of up to 10 million shares of the Company's common
stock. We expect to acquire our shares from time to time at prevailing market
prices through the December 31, 2000, expiration of the approved plan. At
December 31, 1999, we had repurchased 5.6 million shares under the provisions of
this plan. These repurchases are in addition to 0.5 million shares repurchased
earlier in 1999 in connection with the increase of our ownership interest in the
East Chicago property.

Under the terms of our employee stock benefit programs, we have reserved
shares of Harrah's Entertainment common stock for issuance under the Restricted
Stock and Stock Option Plans. (See Note 14 for a description of the plans.) The
following table summarizes the total number of shares authorized for issuance
under each of these plans and the remaining unissued shares as of December 31,
1999:

Restricted Stock
Stock Plan Option Plan
---------- -----------

Total shares authorized for issuance
under the plans ........................... 8,400,000 19,792,955
Shares issued and options granted,
net of cancellations ...................... (6,522,087) (18,111,670)
--------- -----------
Shares held in reserve for
issuance or grant under the plans
as of December 31, 1999 ................... 1,877,913 1,681,285
========= ==========

4. Detail of Certain Balance Sheet Accounts

Deferred costs, trademarks and other consisted of the following:

1999 1998
--------- ----------

Star City management contract, net of
amortization of $5,364 and $1,976 ............. $130,136 $133,524
Trademarks, net of amortization of
$4,061 and $981 ............................... 119,139 66,319
Cash surrender value of life
insurance (Note 14) ........................... 63,303 52,904
Treasury securities .............................. 62,555 64,510
Deferred finance charges, net of
amortization of $3,379 and $16,453 ............ 21,507 21,913
Other ............................................ 148,580 140,704
--------- ----------
$545,220 $479,874
========= ==========

Accrued expenses consisted of the following:

1999 1998
-------- --------

Insurance claims and reserves ................ $ 50,985 $ 45,770
Payroll and other compensation ............... 83,975 48,521
Accrued interest payable ..................... 24,147 18,465
Other accruals ............................... 128,387 59,265
-------- --------
$287,494 $172,021
======== ========

- --------------------------------------------------------------------------------

5. Long-Term Debt

Long-term debt consisted of the following:

1999 1998
---------- ----------

Revolving Credit Facilities
7.0%-7.9% at December 31, 1999,
maturities to 2004 ....................... $1,110,000 $1,086,000
Secured Debt
7.1%, maturity 2028 ...................... 98,278 99,232
9 1/4%, maturity 2008 .................... 58,137 58,269
13%, maturity 2009 ....................... 2,377 2,393
Unsecured Senior Notes
7 1/2%, maturity 2009 .................... 498,072 --
Unsecured Senior Subordinated Notes
7 7/8%, maturity 2005 .................... 750,000 750,000
Other Unsecured Borrowings
5.5%-15.2%, maturities to 2001 ........... 23,409 3,605
Capitalized lease obligations
4.9%-8.9%, maturities to 2002 ............ 2,872 2,187
---------- ----------
2,543,145 2,001,686

Current portion of long-term debt .......... (2,877) (2,332)
---------- ----------
$2,540,268 $1,999,354
========== ==========

As of December 31, 1999, aggregate annual principal maturities for the four
years subsequent to 2000 were: 2001, $2.7 million; 2002, $1.4 million; 2003,
$1.3 million; and 2004, $1.1 billion.

REVOLVING CREDIT FACILITIES. On April 30, 1999, we consummated new revolving
credit and letter of credit facilities (the "Bank Facility") in the amount of
$1.6 billion. This Bank Facility consists of a five-year $1.3 billion revolving
credit and letter of credit facility maturing in 2004 and a separate $300
million revolving credit facility, which is renewable annually at the borrower's
and lenders' options. Currently, the Bank Facility bears interest based upon 80
basis points over LIBOR for current borrowings under the five-year facility and
85 basis points over LIBOR for the 364-day facility. In addition, there is a
facility fee for borrowed and unborrowed amounts which is currently 20 basis
points on the five-year facility and 15 basis points on the 364-day facility.
The interest rate and facility fee are based on our current debt ratings and
leverage ratio and may change as our debt ratings and leverage ratio change.
Proceeds from the Bank Facility were used to retire our previous revolving
credit facility scheduled to mature in 2000 (the "Previous Facility"), Rio's
revolving credit facility scheduled to mature in 2003 and Rio's 10 5/8% Senior
Subordinated Notes due 2005 and 9 1/2% Senior Subordinated Notes due 2007. As of
December 31, 1999, $1.1 billion in borrowings were outstanding under the Bank
Facility, with an additional $37.5 million committed to back letters of credit.
After consideration of these borrowings, $452.5 million of additional borrowing
capacity was available to the Company as of December 31, 1999.

ISSUANCE OF NOTES. During December 1998, Harrah's Operating Company, Inc.,
("HOC"), a wholly-owned subsidiary of the Company, completed a public offering
of $750.0 million principal amount of 7 7/8% Senior Subordinated Notes due 2005
(the "7 7/8% Notes"). The 7 7/8% Notes are unsecured and contain certain
financial covenants.

In January 1999, HOC completed a public offering of $500.0 million
principal amount 7 1/2% Senior Notes due 2009 (the "7 1/2% Notes"). The 7 1/2%
Notes, which are unsecured, were issued with essentially the same financial
covenants as our 7 7/8% Notes.

The net proceeds from both debt offerings were used to reduce our
outstanding borrowings under the Previous Facility. Harrah's Entertainment has
unconditionally guaranteed HOC's obligations under both the 7 7/8% Notes and the
7 1/2% Notes.

EARLY EXTINGUISHMENTS OF DEBT. In addition to entering into the new Bank
Facility, we have refinanced certain of our outstanding debts, in particular
those debt obligations assumed in our acquisition transactions, to reduce our
effective interest rate and /or lengthen maturities. We financed these
activities using the proceeds from our bank facilities. The following table
summarizes the debt obligations that we have refinanced over the last three
years:

- -------------------------------------------------------------------------------
Date Face Value
Issuer Retired Debt Extinguished Retired
- -------------------------------------------------------------------------------

SMCP March 1999 13 1/2% First Mortgage Notes
due 2003 ...................... $140,000
Rio May 1999 10 5/8% Senior Subordinated Notes
due 2005 ...................... 100,000
Rio May 1999 9 1/2% Senior Subordinated Notes
due 2007 ...................... 125,000
SMCP July 1999 Capital lease obligations ............. 9,210
Showboat June 1998 9 1/4% First Mortgage Bonds
due 2008 ...................... 218,555
Showboat June 1998 13% Senior Subordinated Notes
due 2009 ...................... 117,900
HOC May 1998 8 3/4% Senior Subordinated Notes
due 2000 ...................... 200,000
HOC May 1997 10 7/8% Senior Subordinated Notes
due 2002 ...................... 200,000

The premiums paid to the holders of the debts retired and the write-off of the
related unamortized deferred finance charges are reported on the Consolidated
Statements of Income as

Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)

- --------------------------------------------------------------------------------

Extraordinary losses (see Note 10). We recorded the liabilities assumed in
acquisition transactions at their fair value at the date of consummation of the
acquisition. The premium charged to Extraordinary losses as a result of the
retirement of these assumed debts equaled the difference between the
consideration paid to the holders of the notes and the carrying value we
assigned to the notes at the time of purchase.

In addition to these debt extinguishments, in August 1998 we defeased the
remaining balance of Showboat's 9 1/4% First Mortgage Bonds due 2008 and 13%
Senior Subordinated Notes due 2009. Treasury securities were purchased and
deposited with trustees to fund both the payment of the scheduled interest
payments until the first call date and the payment of the premium and principal
of the securities outstanding on the call date. The treasury securities are
reported as Deferred costs, trademarks and other assets and the remaining
balance of the defeased debt is reported in Long-term debt in the Consolidated
Balance Sheets.

INTEREST RATE AGREEMENTS. To manage the relative mix of our debt between fixed
and variable rate instruments, we entered into interest rate swap agreements to
modify the interest characteristics of our outstanding debt without an exchange
of the underlying principal amount. At December 31, 1999, we were a party to six
interest rate swap agreements to effectively convert a total of $300 million in
variable rate debt to a fixed rate. Pursuant to the terms of these swaps, we
receive variable payments tied to LIBOR in exchange for our payments at a fixed
interest rate. The fixed rates we pay and the variable rates we receive are
summarized in the following table:

Rate
Swap Rate Received
Paid (Variable) at
Notional Amount (Fixed) Dec. 31, 1999 Swap Maturity
- --------------- ---------- -------------- -------------

$50 million 6.985% 6.140% March 2000
$50 million 6.951% 6.163% March 2000
$50 million 6.945% 6.163% March 2000
$50 million 6.651% 6.066% May 2000
$50 million 5.788% 6.121% June 2000
$50 million 5.785% 6.121% June 2000

The differences to be paid or received under the terms of the 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 by us pursuant to the terms of our interest rate
agreements will have a corresponding effect on our future cash flows. These
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 do not anticipate nonperformance by the
counterparties.

FAIR MARKET VALUE. Based on the borrowing rates currently available for debt
with similar terms and maturities and market quotes of our publicly traded debt,
the fair value of our long-term debt, including the interest rate swap
agreements, at December 31, 1999 and 1998, was as follows:

December 31,
------------
1999 1998
---------- ---------- ------------ ----------
Carrying Market Carrying Market
(In millions) Value Value Value Value
- --------------------------- ---------- ---------- ----------- ----------

Outstanding debt ........... $(2,543.1) $(2,484.6) $(2,001.7) $(2,019.0)
Interest rate swap
agreements (used
for hedging purposes) ... (0.1) (0.5) (0.2) (6.2)

The amounts reflected as the "Carrying Value" of the interest rate swap
agreements represent the accrual balance as of the date reported. The "Market
Value" of the interest rate swap agreements represents the estimated amount,
considering the prevailing interest rates, that we would pay to terminate the
agreements as of the date reported.

6. Leases

We lease both real estate and equipment used in our operations and classify
those leases as either operating or capital leases following the provisions of
SFAS No. 13, "Accounting for Leases." At December 31, 1999, the remaining lives
of our real estate operating leases ranged from one to 17 years, with various
automatic extensions totaling up to 45 years. The average remaining term for
other operating leases, which generally contain renewal options, extends
approximately five years.

Rental expense associated with operating leases is charged to expense in
the year incurred and was included in the Consolidated Statements of Income as
follows:

1999 1998 1997
---- ---- ----

Noncancelable
Minimum ..................... $16,385 $15,409 $16,455
Contingent .................. 4,666 4,029 2,929
Sublease .................... (385) (258) (294)
Other .......................... 6,859 4,168 3,584
------- ------- -------
$27,525 $23,348 $22,674
======= ======= =======

- --------------------------------------------------------------------------------

Our future minimum rental commitments as of December 31, 1999, were as
follows:

Noncancelable
Operating
Leases
-------------
2000 ............................................................. $ 14,799
2001 ............................................................. 15,819
2002 ............................................................. 14,463
2003 ............................................................. 13,988
2004 ............................................................. 13,940
Thereafter ....................................................... 178,604
--------
Total minimum lease payments .................................. $251,613
========

In addition to these minimum rental commitments, certain of these operating
leases provide for contingent rentals based on a percentage of revenues in
excess of specified amounts.

7. Write-downs, Reserves and Recoveries

Our operating results include various pretax charges to record asset
impairments, contingent liability reserves, project write-offs and recoveries at
time of sale of previously recorded reserves for asset impairment. The
components of our write-downs, reserves and recoveries were as follows:

1999 1998 1997
---- ---- ----

Impairment of long-lived
assets .............................. $ 3,367 $2,740 $ 806
Write-off of abandoned
assets and other costs .............. 569 4,734 --
Reserve for debtor-in-
possession loans to Harrah's
Jazz Company ........................ -- -- 13,000
Recoveries from sale of
impaired assets ..................... (1,701) -- --
-------- ------ -------
$ 2,235 $7,474 $13,806
======= ====== =======

8. Headquarters Relocation and Reorganization Costs

During August 1999, we began the move of our corporate headquarters to Las
Vegas, Nevada, from Memphis, Tennessee. The move, to be completed in 2000, is
being accomplished in phases and the costs of the relocation are being expensed
as incurred. Certain headquarters employees elected not to accept an offer to
move, and the positions of other employees were eliminated as part of a staff
reorganization conducted in advance of the move. The expenses for the severance
payable to these employees were accrued when the employee became eligible for
the severance payments.

9. Income Taxes

Our federal and state income tax provision (benefit) allocable to identified
income statement and balance sheet line items was as follows:

1999 1998 1997
-------- -------- --------

Income before income taxes and
minority interests .................... $128,914 $ 74,600 $ 68,746
Extraordinary loss ....................... (5,990) (10,522) (4,477)
Stockholders' equity
Unrealized gain (loss)
on marketable
equity securities ................... 2,118 2,110 (16,362)
Compensation expense for
tax purposes in excess of
amounts recognized
for financial reporting
purposes ............................ (2,625) (787) (702)
-------- -------- --------
$122,417 $ 65,401 $ 47,205
======== ======== ========

Income tax expense attributable to Income before income taxes and minority
interests consisted of the following:

1999 1998 1997
--------- ------- --------

United States
Current
Federal ....................... $ 69,567 $45,084 $ 78,306
State ......................... 7,429 6,531 5,407
Deferred ........................ 34,052 22,985 (14,967)
Other countries
Current ......................... 17,866 -- --
-------- ------- --------
$128,914 $74,600 $ 68,746
======== ======= ========

Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)

- --------------------------------------------------------------------------------

The differences between the statutory federal income tax rate and the effective
tax rate expressed as a percentage of Income before income taxes and minority
interests were as follows:

1999 1998 1997
---- ---- ----

Statutory tax rate ............................. 35.0% 35.0% 35.0%
Increases (decreases) in tax
resulting from:
State taxes, net of federal
tax benefit ............................ 1.4 2.2 2.2
Goodwill amortization ..................... 1.3 1.1 --
Minority interests in
partnership earnings ................... (1.1) (1.2) (1.4)
Other ..................................... (0.7) (0.4) 1.6
---- ---- ----
Effective tax rate ............................. 35.9% 36.7% 37.4%
==== ==== ====

The components of our net deferred tax balance included in the Consolidated
Balance Sheets were as follows:

1999 1998
----- -----

Deferred tax assets
Compensation programs ........................ $ 41,670 $ 25,447
Bad debt reserve ............................. 12,951 4,735
Self-insurance reserves ...................... 7,910 5,302
Deferred income .............................. 1,278 1,137
Project opening expenses ..................... 1,274 2,573
Debt costs ................................... 768 1,592
Investments in
nonconsolidated affiliates ................. -- 31,773
Other ........................................ 3,308 4,423
--------- ---------
69,159 76,982
--------- ---------
Deferred tax liabilities
Property ..................................... (173,963) (60,016)
Management contract .......................... (45,547) (46,733)
Trademarks ................................... (41,697) (23,212)
Investment in
nonconsolidated affiliates ................. (3,699) --
--------- ---------
(264,906) (129,961)
--------- ---------
Net deferred tax liability ................... $(195,747) $ (52,979)
========= =========

10. Extraordinary Items

The components of our net extraordinary losses were as follows:

1999 1998 1997
------ ------ ------

Losses on early
extinguishments of debt ................. $(17,023) $(27,824) $(12,611)
Harrah's Entertainment's share
of nonconsolidated affiliate's
extraordinary loss ...................... -- (2,391) --
-------- -------- --------
(17,023) (30,215) (12,611)
Income tax benefit ......................... 5,990 10,522 4,477
-------- -------- --------
Extraordinary losses,
net of income taxes ..................... $(11,033) $(19,693) $ (8,134)
======== ======== ========

The extraordinary losses on early extinguishments of debt are due to the
premiums paid to the holders of the debt retired and the write-off of related
unamortized deferred finance charges. See Note 5 for information regarding the
specific debt issues retired in each period. Our 1998 results also include our
share of an extraordinary loss incurred by a nonconsolidated affiliate as a
result of that entity's reorganization and refinancing of its debt.

11. Supplemental Cash Flow Information

The increase (decrease) in cash and cash equivalents due to the changes in
long-term and working capital accounts was as follows:

1999 1998 1997
------ ------ ------

Long-term accounts
Deferred costs and
other assets .................... $ 51,717 $ (6,457) $ (1,746)
Deferred credits and
other long-term liabilities ..... 4,825 23,717 294
-------- -------- --------
Net change in
long-term accounts ......... $ 56,542 $ 17,260 $ (1,452)
======== ======== ========
Working capital accounts
Receivables ....................... $(53,620) $(21,734) $(12,062)
Inventories ....................... (307) (1,269) (565)
Prepayments and other ............. 75,986 (2,134) (3,454)
Other current assets .............. -- -- 27
Accounts payable .................. (1,849) 13,561 5,606
Accrued expenses .................. (90,371) (33,668) 14,161
-------- -------- --------
Net change in working
capital accounts ........... $(70,161) $(45,244) $ 3,713
======== ======== ========

- --------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR INTEREST AND TAXES. The following table
reconciles our Interest expense, net of interest capitalized, per the
Consolidated Statements of Income, to cash paid for interest:

1999 1998 1997
----- ------ -----

Interest expense, net of
amount capitalized ................ $193,407 $117,270 $79,071
Adjustments to reconcile
to cash paid for interest
Net change in accruals .......... (2,011) (16,917) (5,961)
Amortization of deferred
finance charges .............. (4,459) (4,982) (3,021)
Net amortization of
discounts and premiums ....... 543 74 (12)
-------- --------- ----------
Cash paid for interest,
net of amount capitalized ......... $187,480 $ 95,445 $70,077
======== ========= =========
Cash payments for income taxes,
net of refunds (Note 9) ........... $ 77,534 $ 51,785 $36,479
======== ========= ==========

12. Commitments and Contingencies

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
Harrah's Entertainment of third party debt and development completion
guarantees. Excluding guarantees and commitments for New Orleans (see Notes 15
and 18), as of December 31, 1999, we had guaranteed third party loans and leases
of $100.5 million, which are secured by certain assets, and had commitments of
$238.8 million, primarily construction-related.

During second quarter 1999, we performed under our guarantee of the Upper
Skagit Tribe's development financing and purchased their receivable from the
lender for $11.4 million. Under the terms of our agreement with the Tribe, they
have agreed to fund the retirement of this debt. The Tribe is attempting to
secure new financing; however, there is no assurance that their efforts will be
successful and that the receivable will be collected.

The agreements under which we manage casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund this payment, we must pay the shortfall to the tribe.
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 December 31, 1999, the
aggregate monthly commitment pursuant to these contracts, which extend for
periods of up to 60 months from December 31, 1999, was $1.1 million.

SEVERANCE AGREEMENTS. As of December 31, 1999, the Company has severance
agreements with 47 of its 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 Harrah's
Entertainment's incentive plans. The estimated amount, computed as of December
31, 1999, that would be payable under the agreements to these executives based
on earnings and stock options aggregated approximately $88 million.

TAX SHARING AGREEMENTS. In connection with the 1995 spin-off of certain hotel
operations (the "PHC Spin-off") to Promus Hotel Corporation ("PHC"), Harrah's
Entertainment entered into a Tax Sharing Agreement with PHC wherein each company
is obligated for those taxes associated with their respective businesses.
Additionally, Harrah's Entertainment is obligated for all taxes for periods
prior to the PHC Spin-off date which are not specifically related to PHC
operations and/or PHC hotel locations. Our obligations under this agreement are
not expected to have a material adverse effect on our consolidated
financial position or results of operations.

SELF-INSURANCE. We are self-insured for various levels of general liability,
workers' compensation and employee medical coverage. 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.

Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)

- --------------------------------------------------------------------------------

13. 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, management believes that the final outcome of these matters will
not have a material adverse effect upon our consolidated financial position or
our results of operations.

14. Employee Benefit Plans

We have established a number of employee benefit programs for purposes of
attracting, retaining and motivating our employees. The following is a
description of the basic components of these programs.

STOCK OPTION PLAN. Our employees may be granted options to purchase shares of
common stock under the Harrah's Entertainment Stock Option Plan ("SOP"). An SOP
grant typically vests in equal installments over a four-year period and allows
the option holder to purchase stock over specified periods of time, generally
ten years from the date of grant, at a fixed price equal to the market value at
the date of grant. No options may be granted under the SOP after February 2008.
All outstanding stock options under Rio's stock option plans at the date of our
merger were fully vested and converted, at the same terms and conditions as
originally granted, into options for Harrah's Entertainment common stock. No
options for additional shares may be granted under the Rio plans, and any
options cancelled under the Rio plans may not be re-issued.

A summary of SOP activity for 1997, 1998 and 1999 is as follows:

Number of
Common Shares
Weighted Avg. --------------------------------
Exercise Price Options Available
(Per Share) Outstanding For Grant
-------------- ----------- ---------

Balance - December 31, 1996 ............................................... $16.95 5,972,518 2,868,672
Granted ................................................................ 18.93 2,495,903 (2,495,903)
Exercised .............................................................. 7.70 (196,905) --
Canceled ............................................................... 19.29 (946,944) 946,944
---------- ---------
Balance - December 31, 1997 ............................................... 17.57 7,324,572 1,319,713
Additional shares authorized ........................................... N/A -- 3,500,000
Granted ................................................................ 15.94 3,891,119 (3,891,119)
Exercised .............................................................. 10.29 (241,409) --
Canceled ............................................................... 19.71 (661,128) 661,128
---------- ---------
Balance - December 31, 1998 ............................................... 16.99 10,313,154 1,589,722
Additional shares authorized ........................................... N/A -- 2,500,000
Rio acquisition ........................................................ 14.74 3,442,955 --
Granted ................................................................ 23.20 3,133,783 (3,133,783)
Exercised .............................................................. 14.95 (2,444,747) --
Canceled ............................................................... 18.17 (725,346) 725,346
Rio plans cancellations ................................................ 18.24 (14,500) --
---------- ---------
Balance - December 31, 1999 ............................................... 18.14 13,705,299 1,681,285
========== =========

1999 1998 1997
------ ------ ------

Options exercisable at
December 31 ................. 4,727,341 2,257,662 1,536,964
Weighted average fair
value per share of options
granted during year ......... $11.74 $7.39 $9.98

The following table summarizes additional information regarding the
options outstanding at December 31, 1999:

Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contract Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------- ----------- --------- -------- ----------- --------

$ 3.00-$15.50 5,362,334 7.1 years $13.57 2,370,735 $12.60
15.63- 21.47 5,685,993 7.7 years 18.55 1,864,345 18.90
22.55- 35.59 2,656,972 9.0 years 26.51 492,261 24.44
---------- ---------
13,705,299 4,727,341
========== =========

As allowed under the provisions of 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 the SOP and, accordingly, do not recognize compensation expense.
Had compensation expense for the SOP been

- --------------------------------------------------------------------------------

determined in accordance with SFAS No. 123, our Net income and Earnings per
share would have been reduced to the pro forma amounts indicated in the
following table:

1999 1998 1997
---------------------- ---------------------- ---------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----

Net income ............ $208,470 $193,631 $102,024 $93,628 $99,388 $89,570
Earnings per share
Basic ............ 1.65 1.54 1.02 0.93 0.99 0.89
Diluted .......... 1.62 1.50 1.00 0.92 0.98 0.88

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

1999 1998 1997
------ ------ -----

Expected dividend yield ....................... 0.0% 0.0% 0.0%
Expected stock price volatility ............... 40.0% 47.0% 41.0%
Risk-free interest rate ....................... 5.9% 4.3% 5.8%
Expected average life of options (years) ...... 6 5 7

RESTRICTED STOCK PLAN. Employees may be granted shares of common stock under the
Harrah's Entertainment Restricted Stock Plan ("RSP"). Shares granted under the
RSP are restricted as to transfer and subject to forfeiture during a specified
period or periods prior to vesting. The shares generally vest in equal
installments over a period of four years. No awards of RSP shares may be made
under the current plan after February 2008. The compensation arising from an RSP
grant is based upon the market price at the grant date. Such expense is deferred
and amortized to expense over the vesting period.

The Company has issued time accelerated restricted stock ("TARSAP") awards
to certain key executives which will fully vest on January 1, 2002, if the
executive continues in active employment until that date. However, the vesting
of some or all of these shares can be accelerated into the years 2000 and 2001
on the basis of our financial performance. The expense arising from the TARSAP
awards is being amortized to expense over the periods in which the restrictions
lapse.

The number and weighted-average grant-date fair value of RSP shares
granted, and the amortization expense recognized, during 1999, 1998 and 1997,
including the TARSAP awards, were as follows:

1999 1998 1997
------ ------ ------

Number of shares granted .............. 560,085 990,893 309,833
Weighted-average grant
price per share .................... $23.62 $17.26 $19.46
Amortization expense
(In millions) ...................... 9.7 6.9 4.5

SAVINGS AND RETIREMENT PLAN. We maintain a defined contribution savings and
retirement plan, which, among other things, allows pretax and after-tax
contributions to be made by employees to the plan. Under the plan, participating
employees may elect to contribute up to 16 percent of their eligible earnings,
the first six percent of which is fully matched. Amounts contributed to the plan
are invested, at the participant's direction, in a Harrah's company stock fund,
a diversified stock fund, an aggressive stock fund, a long-term bond fund, an
income fund and/or a treasury fund. Participants become vested in the matching
contribution over five years of credited service. Our contribution expense for
this plan was $22.2 million, $18.1 million and $14.6 million in 1999, 1998 and
1997, respectively.

DEFERRED COMPENSATION PLANS. Harrah's maintains deferred compensation plans
under which certain employees may defer a portion of their compensation. Amounts
deposited into these plans are unsecured liabilities of the Company and earn
interest at rates approved by the Human Resources Committee of the Board of
Directors. The total liability included in Deferred credits and other
liabilities for these plans at December 31, 1999 and 1998 was $59.3 million and
$49.6 million, respectively. In connection with the administration of one of
these plans, we have purchased company-owned life insurance policies insuring
the lives of certain directors, officers and key employees.

MULTI-EMPLOYER PENSION PLAN. Approximately 4,900 of our employees are covered by
union sponsored, collectively bargained multi-employer pension plans. We
contributed and charged to expense $4.2 million, $4.4 million and $2.4 million
in 1999, 1998 and 1997, respectively, for such plans. The plans' administrators
do not provide sufficient information to enable us to determine our share, if
any, of unfunded vested benefits.

Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)

- --------------------------------------------------------------------------------

15. Nonconsolidated Affiliates

NEW ORLEANS CASINO. We have an approximate 43% ownership interest in the
parent of Jazz Casino Company, L.L.C. ("JCC"), the company which owns and
operates the exclusive land-based casino (the "Casino") in New Orleans,
Louisiana. We manage that Casino pursuant to a management agreement between
JCC and a subsidiary of our Company. We have (i) guaranteed JCC's initial
$100.0 million annual payment under the Casino operating contract to the
State of Louisiana gaming board (the "State Guarantee"), (ii) guaranteed
$166.5 million of a $236.5 million JCC bank credit facility, and (iii) made a
$22.5 million subordinated loan to JCC to finance construction of the Casino.

With respect to the State Guarantee, we are obligated to guarantee JCC's
first $100 million annual payment obligation commencing upon the October 28,
1999, opening of the Casino, and, if certain cash flow tests (for the renewal
periods beginning April 1, 2001) and other conditions are satisfied each year,
to renew the guarantee beginning April 1, 2000, for each 12 month period ending
March 31, 2004. Our obligations under the guarantee for the first year of
operations or any succeeding 12 month period is limited to a guarantee of the
$100 million payment obligation of JCC for the 12 month period in which the
guarantee is in effect and is secured by a first priority lien on JCC's assets.
JCC's payment (and therefore the amount we have guaranteed) is $100 million at
commencement of each 12 month period under the Casino operating contract and
declines on a daily basis by 1/365 of $100 million to the extent payments are
made each day by JCC to Louisiana's gaming board. (See Note 18.)

DISPOSITIONS OF EQUITY INTERESTS. In 1999 we sold our shares of Star City casino
and recorded a pretax gain of $43.5 million. We also sold our interest in Sodak
Gaming, Inc. to a gaming equipment manufacturing company and recorded a pretax
gain of $16.3 million.

During 1998, we sold our remaining equity interest in a restaurant
affiliate and recognized a gain on the sale of $13.1 million.

During 1997, we sold our remaining 12.5% ownership interest in Sky City
Limited ("Sky City"), a New Zealand publicly-traded company which owns a casino
entertainment facility in Auckland, New Zealand, and recorded a pretax gain of
$37.4 million.

COMBINED FINANCIAL INFORMATION. Summarized balance sheet and income statement
information of nonconsolidated affiliates, which we accounted for using the
equity method, as of December 31, 1999 and 1998, and for the three fiscal years
ended December 31, 1999, is included in the following tables.

1999 1998 1997
------ ------ ------

Combined Summarized Balance
Sheet Information
Current assets ............ $ 73,560 $ 111,218
Land, buildings and
equipment, net ......... 570,204 1,094,195
Other assets .............. 130,889 355,505
----------- -----------
Total assets ......... 774,653 1,560,918
----------- -----------
Current liabilities ....... 100,336 96,095
Long-term debt ............ 437,756 808,334
----------- -----------
Total liabilities .... 538,092 904,429
----------- -----------
Net assets ......... $ 236,561 $ 656,489
=========== ===========
Combined Summarized
Statements of Operations
Revenues .................. $ 116,236 $ 299,292 $ 23,464
=========== =========== ===========
Operating loss ............ $ (77,595) $ (2,774) $ (44,115)
=========== =========== ===========
Net loss .................. $ (108,082) $ (33,245) $ (39,290)
=========== =========== ===========

Our Investments in and advances to nonconsolidated affiliates are
reflected in the accompanying Consolidated Balance Sheets as follows:

1999 1998
-------- --------

Investments in and advances
to nonconsolidated affiliates
Accounted for under the equity
method ................................... $167,828 $231,366
Accounted for at historical cost ............ -- 15,087
Available for sale and recorded
at market value .......................... 683 27,055
-------- --------
$168,511 $273,508
======== ========

In accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," we adjust the carrying value of our
available for sale

- --------------------------------------------------------------------------------

equity investments to include unrealized gains or losses. A corresponding
adjustment is recorded in the combination of our stockholders' equity and
deferred income tax accounts.

16. Summarized Financial Information

HOC is a wholly-owned subsidiary and the principal asset of Harrah's
Entertainment and the issuer of certain debt securities which have been
guaranteed by Harrah's Entertainment. Due to the comparability of HOC's
consolidated financial information with that of Harrah's Entertainment, complete
separate financial statements and other disclosures regarding HOC have not been
presented. Management has determined that such information is not material to
holders of HOC's debt securities. Summarized financial information of HOC as of
December 31, 1999 and 1998, and for each of the three years ended December 31,
1999, prepared on the same basis as Harrah's Entertainment was as follows:

1999 1998 1997
------ ------ -----

Current assets ....................... $ 481,437 $ 271,247
Land, buildings, riverboats and
equipment, net .................... 3,061,230 1,870,157
Other assets ......................... 1,218,866 1,136,750
---------- ----------
4,761,533 3,278,154
---------- ----------
Current liabilities .................. 353,534 209,651
Long-term debt ....................... 2,540,268 1,999,354
Other liabilities .................... 349,782 187,247
Minority interests ................... 18,949 14,906
---------- ----------
3,262,533 2,411,158
---------- ----------
Net assets ...................... $1,499,000 $ 866,996
========== ==========
Revenues ............................. $3,024,027 $2,003,861 $1,618,998
========== ========== ==========
Income from operations ............... $ 481,183 $ 286,703 $ 213,942
========== ========== ==========
Income before extraordinary
losses ............................ $ 219,598 $ 120,632 $ 105,343
========== ========== ==========
Net income ........................... $ 208,565 $ 100,939 $ 97,209
========== ========== ==========

Certain of our debt guarantees contain certain covenants which, among
other things, place limitations on HOC's ability to pay dividends and make other
restricted payments, as defined, to Harrah's Entertainment. The amount of HOC's
restricted net assets, as defined, computed in accordance with the most
restrictive of these covenants regarding restricted payments was approximately
$1.5 billion at December 31, 1999.

17. Players International, Inc.

In August 1999, we signed a definitive agreement to acquire Players
International, Inc. ("Players"). Players operates a dockside riverboat casino on
the Ohio River in Metropolis, Illinois; two cruising riverboat casinos in Lake
Charles, Louisiana; two dockside riverboat casinos in Maryland Heights,
Missouri, and a horse racetrack in Paducah, Kentucky. Players and Harrah's
jointly operate a landside hotel and entertainment facility at the Maryland
Heights property, a suburb of St. Louis. Players' shareholders will receive
$8.50 in cash for each share outstanding and we will assume approximately $150
million of Players' debt. The acquisition will be funded through our Bank
Facility and will be accounted for as a purchase. Completion of the transaction
is subject to various conditions, including regulatory approvals.

18. Subsequent Event

On February 28, 2000, we were notified by JCC that it was suspending payment
of the daily payments to the State of Louisiana until JCC is able to generate
sufficient cash flow to pay its operating expenses and make the daily
payments. On February 29, 2000, the State made a demand on the Company under
the State Guarantee, and we began funding the daily payment to the State on
that date. We have also agreed, subject to certain conditions, to renew the
State Guarantee for the period April 1, 2000, until March 31, 2001. See Note
15 for further discussion of the State Guarantee.

Management's Report on Financial Statements

- --------------------------------------------------------------------------------

Harrah's Entertainment is responsible for preparing the financial statements and
related information appearing in this report. Management believes that the
financial statements present fairly its financial position, its results of
operations and its cash flows in conformity with generally accepted accounting
principles. In preparing its financial statements, Harrah's Entertainment is
required to include amounts based on estimates and judgments which it believes
are reasonable under the circumstances.

Harrah's Entertainment maintains accounting and other control systems
designed to provide reasonable assurance that financial records are reliable for
purposes of preparing financial statements and that assets are properly
accounted for and safeguarded. Compliance with these systems and controls is
reviewed through a program of audits by an internal auditing staff. Limitations
exist in any internal control system, recognizing that the system's cost should
not exceed the benefits derived.

The Board of Directors pursues its responsibility for Harrah's
Entertainment's financial statements through its Audit Committee, which is
composed solely of directors who are not Harrah's Entertainment officers or
employees. The Audit Committee meets from time to time with the independent
public accountants, management and the internal auditors. Harrah's
Entertainment's internal auditors report directly to the Audit Committee
pursuant to gaming regulations. The independent public accountants have direct
access to the Audit Committee, with and without the presence of management
representatives.

/s/ Philip G. Satre
Philip G. Satre
Chairman of the Board
and Chief Executive Officer

/s/ Judy T. Wormser
Judy T. Wormser
Vice President, Controller
and Chief Accounting Officer

Report of Independent Public Accountants

- --------------------------------------------------------------------------------

To the Stockholders and Board of Directors
of Harrah's Entertainment, Inc.:

We have audited the accompanying consolidated balance sheets of Harrah's
Entertainment, Inc. (a Delaware corporation) and subsidiaries ("Harrah's
Entertainment") as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and comprehensive income and cash
flows for each of the three years ended December 31, 1999. These financial
statements are the responsibility of Harrah's Entertainment's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Harrah's Entertainment as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.

/s/ Arthur Anderson LLP
Las Vegas, Nevada,
February 8, 2000 (except with
respect to the matter discussed
in Note 18, as to which the
date is February 29, 2000).

HARRAH'S ENTERTAINMENT, INC.
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----

1999(1)
Revenues .............................. $ 711,668 $ 751,137 $ 814,054 $ 747,569 $3,024,428
Income from operations ................ 112,483 123,504 155,921 89,129 481,037
Net income ............................ 34,097 40,548 74,634 59,191 208,470
Earnings per share(3)
Basic ............................... 0.27 0.32 0.59 0.47 1.65
Diluted ............................. 0.27 0.31 0.58 0.45 1.62
1998(2)
Revenues .............................. $ 414,447 $ 478,634 $ 586,242 $ 524,692 $2,004,015
Income from operations ................ 58,066 71,855 109,202 48,723 287,846
Net income ............................ 23,236 20,406 44,202 14,180 102,024
Earnings per share(3)
Basic ............................... 0.23 0.20 0.44 0.14 1.02
Diluted ............................. 0.23 0.20 0.44 0.14 1.00

(1) 1999 includes $16.3 million recognized in third quarter and $43.5 million
recognized in fourth quarter in pretax gains from the sales of our equity
interests in nonconsolidated affiliates. 1999 also includes the financial
results of Rio Hotel & Casino, Inc., from its January 1, 1999, date of
acquisition.
(2) 1998 includes $13.2 million in pretax income from the second quarter sale
of our interest in a restaurant subsidiary. 1998 also includes the
operating results for Showboat, Inc., for periods after its June 1, 1998,
acquisition.
(3) The sum of the quarterly per share amounts may not equal the annual amount
reported, as per share amounts are computed independently for each quarter
and for the full year.