Harrah's posts quarterly loss - Business

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Feb. 28, 2008
Copyright © Las Vegas Review-Journal

Harrah's posts quarterly loss

Pretax write-offs lead to result; exec seeing softness in Las Vegas market

By ARNOLD M. KNIGHTLY
REVIEW-JOURNAL

Construction continues Tuesday on the $1 billion expansion at Caesars Palace. The chairman and chief executive of Harrah's Entertainment, which operates the hotel-casino, said the project is on schedule to finish in 2009. Harrah's on Tuesday reported a fourth-quarter loss.
Photo by Gary Thompson.

Harrah's Entertainment on Wednesday reported a fourth-quarter loss because of some pretax write-offs and told analysts the company has seen some growing softness in nongaming spending in Las Vegas in the first few weeks of this year.

In his first conference call since the company was taken private in January, company Chairman and Chief Executive Officer Gary Loveman said that although gaming business has held up well, the gaming company is noticing a drop in spending on conventions, food and beverage purchases, and room rates are down at its local properties.

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"There is definitely some softness in the (Las Vegas) market at this time," he said. "It's a little too early to tell how that looks perspectively."

Loveman said local Harrah's properties are seeing "more (convention) cancellations and a smaller number of participants for any given group of people that would normally attend a large show."

"Other markets, the results have been more modest. In Las Vegas, the gaming business has held up well, but room rates are off a little bit," Loveman said.

He added that occupancy numbers remain strong but room rates are down "a few dollars on average."

The company owns and operates Caesars Palace, Rio, Paris Las Vegas, Bally's, Bill's, Flamingo, Imperial Palace and Harrah's on the Strip.

Wachovia Capital Markets bond analyst Dennis Farrell Jr. said the company has increased promotional activity to lure customers to the Strip properties to soften the effect of the slowing economy.

"It will likely continue for the near term, which could impact profitability margins in the first quarter in the Vegas market and throughout their domestic operations," Farrell said.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said in a note to investors that Loveman's comments echo recent statements made by other large Strip operators.

Harrah's reported a fourth-quarter loss despite strong revenue increases due to pretax write-offs tied, in part, to the company's London Clubs International unit.

The $169.6 million pretax write-off led to a fourth-quarter loss of $47.8 million, or 26 cents per share, in the three months ended Dec. 31, according to a federal filing.

The company reported net income of $47.6 million, or 25 cents per share, in the fourth quarter of 2006.

Harrah's, which was acquired by private equity firms Apollo Management and TPG Capital in a $17.7 billion buyout, is no longer publicly traded but still must file quarterly earnings reports with the federal Securities and Exchange Commission to guide bondholders.

Loveman said the company is also committed to holding regularly scheduled conference calls to discuss financial results and will "continue to operate with transparency as a private company."

The write-down came a year after Harrah's paid $590 million for London Clubs International, which had six casinos in England, two in Egypt and one in South Africa in December 2006.

Casinos in Britain are struggling with a July law that banned smoking in casinos and a change in regulations that limit jackpot payouts.

Despite the write-down, net income for 2007 increased 15 percent to $619.4 million, or $3.25 per share, from $535.8 million last year.

Revenues for the quarter increased 8.3 percent, to $2.6 billion from $2.4 billion last year. Revenues for 2007 increased 12.5 percent, to $10.8 billion from $9.6 billion in 2006.

Company cash flow, defined as earnings before interest, taxes, depreciation and amortization, increased 10.7 percent, to $622.8 million from $562.8 million for the quarter.

Cash flow for the year increased 7.7 percent to $2.8 billion from $2.6 billion last year.

Harrah's eight Las Vegas properties continue to account for approximately a third of the company's revenues and approximately 45 percent of the company's cash flow.

Loveman said the company's "multistop strategy ... encouraging our guests to see us in multiple locations helps us out perform competitors in this market by a wide margin."

The area's cash flow increased 15.5 percent to $284.6 million on revenues of $905.2 million for the quarter and 11.7 percent to $1.2 billion on revenues of $3.6 billion for 2007.

Loveman said construction continues on the $1 billion Caesars Palace expansion, which is scheduled for completion in 2009.

The company's Atlantic City region posted a double-digit increase in revenues for the quarter even though cash flow remained flat because of increased promotional costs and casino smoking restrictions.

The five area properties' cash flow, which includes a racino in Chester, Pa., decreased by $600,000 to $123.3 million on a 12.4 percent revenue increase to $561.8 million in the quarter.

Cash flow for the year decreased 3 percent, to $602.1 million from $620.9 million. Revenue increased 14.3 percent, to $2.4 billion from $2.1 billion in 2006.

Revenues should improve in the upcoming quarters with the opening in mid-2008 of a 960-room hotel tower at Harrah's Atlantic City.

Harrah's five other Nevada properties, four in Northern Nevada and one in Laughlin, posted flat earnings in revenues and cash flow for the quarter with slight decreases for the year.

Harrah's Entertainment owns and operates 50 casinos in the United States and overseas.

Contact reporter Arnold M. Knightly at knightly@reviewjournal.com or (702) 477-3893. The Associated Press and Bloomberg News contributed to this report.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Rose Marie & James Palladinetti wrote on October 18, 2008 07:04 AM: We are under contract with Palms Place for two units.We can't close on either.We are both senior citizens and we put up all of our retirement money to purchase these units.It is so unfair to try to keep our $235,000 deposit.We have tried 5 lenders since Feb. and we can not qualify.We have done everything that the Palms have required us to do.Please help Rotten wrote on February 29, 2008 09:09 PM: It's time to rip the mask off this disgruntled , fired, Clark County Building Inspector who calls himself "Fred is a Thief." He is from the same cloth as Gary Loveman. He has the same incredible ability to ignore the obvious and put all visitors to Las Vegas at incredible risk. Fred intoduced us to this disgraced Public Servant about a year ago. Since then, Fred has been attacked from every angle. Fred lost his job because of this dirt bag. He now crawls out from under his rock and slanders Mr. Frazzetta. What an honorable thing to do. I've dealt with both of these individuals. Mr. Frazzetta is no thief. Richard Maddox took more from this town than this town can afford. He stole our Public Trust. He lied to all of us and destroyed the premise that we care about our guests. Thousands of guests at the Rio and Harrahs were put at incredible risk while Maddox and Loveman were assuring us that they would never do anything of the sort. "Room rates are off a little bit?" Loveman has destroyed the myth that we care about our guests. Maddox was the enforcer. He covered it up by signing off for the County. Our ex-mayor, Jan Jones? Do you think Harrahs hired her for her lack of influence over the County and the Building Department? What an absolute disaster for our Tourism image. Fred isn't done yet. We should all thank Fred for having the courage for looking out for our cities future. Richard Madddox has no future. He will be dogged wherever he goes. Shedding light on Maddox and the way he cheated all of us out of the expectation of safety, is an absolute betrayal. I think we should dig deeper into Madddox and his Supervisors. Fred Frazzetta wrote on February 29, 2008 01:00 AM: Fred is a Thief: You are definitely showing your lack of intelligence, but it is to be expected of an obedient little sheep such as yourself. You are obviously someone that can't think for yourself...exactly the type of person that Harrah's depended on to keep their dirty little secrets in-house! Were you a participant in Harrah's illegal remodel projects?...or just an observer? I guess you feel it is okay that Harrah's broke the law by not pulling permits and having inspections? Let us not forget that they also left behind public fire safety hazards in every room that they touched! At least I have the balls to put my name on everything that I write...something which can't be said for you. How could you possibly defend Harrah's at this point in time or for that matter any of the people that I have publicly named? Harrah's and the management personnel that ran the projects are guilty of betraying the Public's trust. Harrah's knowingly and willfully left the rooms unsafe for the sake of their bottom line...yes it was a willful act folks - they knew what they were doing. Harrah's also exposed their valued "employees" to asbestos on several occasions and I have the documents to prove it. Harrah's broke both State & Federal laws, and they did it because they have been allowed to do whatever they want whenever they want because no one is willing to stand up to their arrogance. Gary Loveman your company is not above the law, and I will do whatever it takes to make you accountable for your illegal actions...I promise. All I am asking for is for justice to be served to Harrah's...I want accountability and I plan to get it even if it means going all the way to Washington D.C.! Fred is a Thief wrote on February 28, 2008 09:56 PM: Fred, when are you going to answer and be held accountable for stealing from your employer? Funny how you keep failing to answer this and your own illegal activities. Sorry, forgot you were just borrowing those light bulbs and your're a hero. Juan wrote on February 28, 2008 07:33 PM: Gary Loveman: Why not give up the guys and the companies that did the unpermitted work and save your self the embarresment when you get pulled down with them. No safe place to hide from the truth. (Bad Boys Bad Boys what going to do) Fred Frazzetta wrote on February 28, 2008 05:43 PM: Gary Loveman: I wonder if any of Harrah's long time valued guests have turned away because of the illegal remodel work that was done during your tenure as CEO? You are sitting on a double edged sword Mr. Loveman because it really doesn't matter whether or not you had knowledge of what your underlings did...the point is as the leader you should have! If anything comes down as a result of their actions (Kirk England, Mike Nasby, Tom Adams, Mike Whitehead, Leon Vermillion, George Kirkwood and Tom Jenkins) you should be the first one to be held accountable. Your company not only broke the law by circumventing the permit/inspection process, but also compounded the situation by leaving behind public fire safety hazards in every room that was illegally remodeled...for many years. Gary, for your information Leon Vermillion is still pulling permits for Harrah's...his company is Olympic Development in case you are interested. This is the guy that was the on-site supervisor at the Rio, and then was promoted to Chief Engineer at Harrah's...has been a licensed contractor forever and somehow forgot to remind Harrah's management team that they needed to pull permits...go figure. Now I hear you are getting ready to promote Bob Bruna (current Head Engineer at Harrah's Hotel) and give him a Corporate job...he has participated in illegal remodel projects since 1992 and watched personnel being exposed to asbestos and has remained silent...you should make him VP for taking the rap thus far for the construction fiasco. By the way, OSHA requires certain classes every year...Bob failed to provide the required training to his people in 2007 - thought you would want to know. I am a little perplexed though with the apparent choice for Bob's successor being Shane Jacobs...you might want to look at his credentials...lack of! K. Hardgrove wrote on February 28, 2008 04:12 PM: Harrah's has long been a place that is overpriced, and truthfully when gambling there I just feel I am being ripped off with no chance to win. Frank Fertita wrote on February 28, 2008 01:15 PM: How bout loosening up on those comps, Gary? Maybe then people will start dropping some major coin at your hotels. When you screw people over at checkout from what they expect, guess what? They don't return!!! Ha Ha!!! Thanks for the $90 a share Xmas present :) David wrote on February 28, 2008 09:01 AM: I guess Harrahs won't be matching MGM/Mirages wages for dealers @$7.25 per hour.