Park Place profit slips

Gary Thompson

Tuesday, July 20, 1999 | 11:13 a.m.

Park Place Entertainment Corp. of Las Vegas today reported second-quarter net income of $40 million, or 13 cents a share, down slightly from $46 million, or 15 cents a share, in the year-ago period.

Revenue edged up slightly to $739 million from $718 million, the company said.

Park Place executives also said they believe the planned 1.3 million-square-foot expansion of the Las Vegas Convention Center would be "good for the marketplace," hinted they'd sell some smaller properties after closing on the Caesars World acquisition later this year and ducked questions about whether the company has acquired more Aladdin bonds.

The latest quarter's results include a 2 cent-per-share charge due to pre-opening expenses related to Paris-Las Vegas, the $790 million, 2,900-room resort opening here in September.

In total, the company expects to spend $35 million to $40 million in pre-opening expenses to promote the property and hire and train staff, executives said today.

Earnings before interest, taxes, depreciation and amortization, pre-opening expenses and non-cash items (EBITDA) slipped to $179 million from pro forma cash flow of $184 million in the 1998 quarter.

Park Place said its Atlantic City Hilton and Bally's Park Place in the Eastern region posted higher financial results and cash flow rose sharply at the Grand Casino Tunica in the Mid-South region, but results in Las Vegas were impacted by increased competition and lower baccarat play.

"The second-quarter results provide further evidence of the power of our unique diversification," Arthur Goldberg, president, said. "Our goal is to generate a more stable and predictable earnings stream and one of the best ways to do that is to diversify our sources of revenues and cash flow."

Eastern region cash flow rose 16 percent in the latest quarter because of marketing programs that boosted table game play at the two Atlantic City casino resorts.

The Atlantic City Hilton recorded a 23 percent increase in table game drop and a 16 percent increase in slot handle, as well as a 12 percent rise in revenue per available room.

Goldberg said in a conference call today that work on Paris-Las Vegas "is going well. It will open on Sept. 1 and from the reports we're getting, we think it will be a very good product."

"The Caesars transaction is on target to close about Nov. 1," he said. "We've already identified $40 million of savings from that transaction."

Park Place Chief Financial Officer Scott LaPorta said demand in the Western region, which includes Las Vegas, "continued to grow, and our properties are competing effectively."

He said the Las Vegas Hilton's cash flow fell in the latest quarter from a year ago, when high casino drop made for a difficult comparison. In addition, many of the hotel's high-end baccarat players "squeezed their visits into the first quarter this year," because of a number of special events in Las Vegas, LaPorta said.

Also hurting the Las Vegas Hilton was a 16 percent capacity addition to the high-end baccarat market with the opening of Bellagio and the MGM Grand Mansion since last year's quarter and 15 percent decline in baccarat drop in Las Vegas in the latest quarter.

Cash flow at the Flamingo Hilton in Las Vegas and Bally's Las Vegas was flat, but the Las Vegas Hilton's cash flow fell to $7 million from $22 million in the year-ago quarter.

The company reported an improved performance at Grand Tunica helped fuel a 21 percent rise in second-quarter cash flow in the Mid-South region "despite a major increase in competitive supply" -- primarily from the opening of Beau Rivage in Biloxi.

LaPorta said the company has commitments from commercial banks for $3 billion to close the Caesars transaction. He said the company plans to split the acquisition debt equally among bank loans and long-term bonds.

Goldberg said the company might sell off a few smaller properties after it completes the Caesars acquisition. He said the company has had "a number of offers" for the Flamingo Hilton in Reno, adding, "That's an example of what we might think of doing."

He also hinted that widespread layoffs feared by many Caesars employees may not materialize. The most likely departments facing layoffs include legal, management information systems and purchasing, because of consolidation of such operations, he indicated.

"We've had numerous meetings with (Caesars World President) Peter Boynton, and we're finding some pretty good people there," Goldberg said. "We're all very pleasantly surprised with what we're finding there.

"There will be a number of Caesars people who understand the way we operate who will crop up in a high place" in the merged company, he said. Goldberg also said the company expects to build an arena near Caesars soon to stage boxing cards and other events.

Gaming play was up at the company's Mississippi Gulf Coast properties in the second quarter, but a lower hold percentage and competitive market conditions resulted in a 10 percent decline in cash flow, Park Place said.

During the last week of June, a 600-room hotel opened at Grand Gulfport with strong average daily rates and high occupancy, which is driving increased play into the casino, the company said.

LaPorta said the planned expansion of the Las Vegas Convention Center, which Venetian owner Sheldon Adelson is trying to block, would be good for the overall marketplace.

Adelson has sued to halt the expansion, in part because it would take "60 to 80 percent of the trade-show business" from the Sands Expo Center, according to one of his top aides.

Goldberg said the Las Vegas Convention & Visitors Authority would "prevail" in its battle with the Venetian, which he said was simply trying to delay the expansion.

Goldberg declined to comment on a question about whether Park Place had bought additional Aladdin bonds. The company bought a third of the Aladdin's $221.5 million of senior discount notes last spring in what many analysts consider a "win-win" strategy.

If the Aladdin succeeds, Park Place benefits from the high-yield bonds. If it doesn't, Park Place is in a position to take over control of the property next to Paris-Las Vegas through foreclosure.

In response to a question from a securities analyst, Goldberg said he wasn't interested in pursing the same strategy with the Venetian.

"The Venetian has all kinds of problems I wouldn't want to tackle," he said.