Station takes big writeoff, plans Texas Station expansion

David Strow

Tuesday, Jan. 25, 2000 | 11:14 a.m.

Station Casinos Inc. today announced plans to launch a $55 million expansion of Texas Station -- but saw a record fourth-quarter masked by nearly $140 million in write-offs.

The Las Vegas locals casino operator said the Texas Station expansion, which will include a 60-lane bowling alley, 40,000 square feet of meeting space and 350 new slot machines, will start by March. Completion is expected in early 2001.

"Over the first 11 months (of 1999), the North Las Vegas market grew 17 percent," said Glenn Christenson, chief financial officer of Station. "It's a rapidly growing market, and one we're pleased to continue investing in."

Harry Curtis, an analyst with Robertson Stephens, said demand at three of the company's properties -- Texas, Sunset Station and Boulder Station -- was strong enough to warrant expansion at any of them.

"Their returns on invested capital have been over 20 percent historically at Texas," Curtis said. "They've chosen to expand Texas first, which indicates to us that unsatisfied demand there is greatest."

A huge amount of write-offs, including a $125.2 million write-off related to problems at the company's casino near St. Louis, caused Station to record a loss of $75.4 million, or $1.80 per share, for the quarter ending Dec. 31.

But the company's continuing business recorded yet another strong performance. Before the one-time charges, Station recorded net income of $15.5 million, or 35 cents per share. That beat analyst expectations of 33 cents per share.

Cash flow -- measured as earnings before interest, taxes, depreciation and amortization -- rose 19 percent, to $63.9 million, while net revenues rose 8 percent, to $239.6 million.

"Wall Street tends to look at recurring income ... the basic business," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "If you have some non-recurring gains or losses, Wall Street just (crosses) those out of its thinking.

"Their operating numbers are awfully good. You have to give these people a lot of credit. They are excellent operators."

Still, Station stock fell 75 cents by midday today, to $19.

The huge write-off in Missouri, Christenson said, was caused by the delays in the expansion of Station Casino St. Charles. Since the project had been delayed three years, and it was uncertain when expansion would continue, Station adjusted the value of the asset to better reflect its financial performance.

More asset write-offs were caused by a surprise announcement by Station. Just months after acquiring a 40-acre parcel in Henderson from Santa Fe Gaming Corp., the company plans to sell it to a third-party developer. Station paid $37.3 million for the property, but isn't disclosing who is buying the land, or how much will be paid.

Christenson said the sale should be complete with 120 days.

"Our primary focus there was to eliminate a competitor," Christenson said. "When we got an offer so quickly, we had to take advantage of it."

The costs of holding the property made a sale desirable, particularly since Sunset already has 100 acres of land for future expansion, Christenson said. The write-off related to that property was connected to its reclassification from gaming to non-gaming property.

"This will be developed as retail, commercial, non-gaming (property)," Christenson said. "That will attract more customers to that area. We would rather take the money we would have put into that property and use it to enhance Sunset Station."