Executive’s $2 million severance cuts into Rio profit

Thursday, Oct. 22, 1998 | 11:47 a.m.

SUN STAFF REPORT

Severance pay for a former executive and merger expenses led to a drop in Rio Hotel & Casino Inc.'s third-quarter net, while Aztar Corp. reported a big jump in earnings despite a dip in table-game win at the Tropicana in Las Vegas.

Aztar shares rose 12.5 cents to $4.875 in very heavy late-morning trading today, while Rio was quoted at $15.25, unchanged, in very light trading.

Rio said third-quarter net income fell to $6 million, or 24 cents a share, from $7.8 million, or 35 cents a share, in the 1997 quarter, when there were 3.1 million fewer shares outstanding. Revenue rose to $107.1 million from $103.6 million.

Rio attributed the earnings decline to the $2 million-plus severance package awarded former Chief Operating Officer Dave Hanlon and to $1.1 million in costs associated with the pending merger with Harrah's Entertainment Inc.

Without those expenses, Rio said, 1998 third-quarter net would have been $8 million, or 32 cents a share.

Cash flow before the severance and merger costs and expenses related to an ongoing expansion was essentially flat at $25.9 million, the company said.

Rio Chairman Anthony Marnell II said the resort posted a 93 percent occupancy rate at an average daily room rate of $95 during the latest quarter.

Table game volume was up 17 percent from the 1997 quarter, but casino revenue was down because of a higher win percentage a year ago, he said.

In addition, the company spent $2 million in the latest quarter on a promotional campaign to expand its market share.

Benefitting from record performances in Atlantic City and Evansville, Ind., Aztar reported a 74 percent increase in third-quarter earnings, to $5.6 million, or 12 cents per diluted share, from $3.2 million, or 7 cents a share, in the 1997 period.

Revenue rose to a record $210.1 million from $201.9 million, and cash flow hit a record $43.6 million, up from $40 million, the company said.

Aztar said the Atlantic City Tropicana, the city's largest hotel, posted record revenue of $113.5 million, up 5 percent, and cash flow of $29.3 million, up 12 percent, due to the strength of the East Coast gambling market.

Aztar's Indiana riverboat casino also notched record revenue of $32.5 million and cash flow of $11.6 million. The 35.8 percent cash-flow margin was one of the highest in the riverboat casino industry, Aztar said.

The company also reported a big improvement at its Ramada Express hotel-casino in Laughlin, a market that has enjoyed a turnaround so far this year after four years of declining business. Cash flow rose 23 percent to $3.5 million.

But at the Tropicana in Las Vegas, cash flow fell to $1.3 million from $1.9 million in the year-ago quarter due to a drop in table-game win, Aztar said. Nevertheless, the hotel's occupancy rate rose to 94.5 percent in the latest quarter from 90.9 percent in the 1997 period, while revenue per available room climbed 5.6 percent.

Aztar Chairman Paul Rubeli said the company is "aware of the competitive limitations of (the Las Vegas Tropicana), but we believe limiting capital expenditures in the current Las Vegas market has been the right decision for our shareholders.

"In the long term, the site ... is an excellent location for development when the time is right."

Also today, Riviera Holdings Corp. reported a net loss of $1.4 million for the quarter, compared with a $1 million loss in the year-ago period. Revenue rose to $39.5 million from $36.4 million.

Riviera Chairman William Westerman said cash flow edged up $300,000, to $5.6 million in the 1998 third period, from the year-earlier quarter, due largely to "substantial walk-in business for slot machines and food-and-beverage service" at the Strip hotel-casino's new Nickel Town slot area.

Westerman also said Riviera is pursuing efforts to recover $6 million escrowed by investor Allen Paulson as a down payment on his subsequently abandoned bid to buy Riviera stock. Holders of 1.8 million contingent value rights shares would receive $3.29 per right if the company succeeds.

Riviera stock was up 25 cents to $5.75 in late-morning trading, while the separately traded rights were quoted at 87.5 cents, unchanged. Westerman said the company plans to buy back up to $3 million of its common shares in the future.